Editor’s Note: Passage of the One Big Beautiful Bill marks an important inflection point for conservatives, who can no longer contend that they have a plausible pathway to balancing the budget through spending cuts. The remaining options are unsustainable deficits that slowly squeeze the economy and at some point force painful change through inevitable crisis, or a change in how they approach fiscal policy. In the coming months, Commonplace will publish a range of proposals for how conservatives might chart a better course.

By Michael Lind, Tablet columnist, fellow at New America, and author of Hell to Pay: How the Suppression of Wages Is Destroying America.

Social Security is facing insolvency. Eight years from now, its “Trust Fund” will be exhausted and, absent congressional action, its payments to beneficiaries will decline to match what incoming payroll taxes cover.

If we are to believe the bipartisan conventional wisdom, only two options exist for avoiding the impending Social Security shortfall: cut benefits or increase payroll tax revenue. A third option for making Social Security solvent is almost never mentioned. Congress can fix the problem by refilling the depleted Trust Fund with money from the general revenues of the U.S. Treasury—the fund created by federal taxes other than dedicated taxes like payroll taxes from which Congress can appropriate money as it sees fit.

Why not avoid both major benefit cuts and major payroll tax increases by simply removing the arbitrary requirement that Social Security benefits paid out cannot exceed payroll taxes paid in? This obvious question is never answered because it is politically incorrect to ask in elite political, academic, and journalistic circles. Merely to mention the option of using federal revenues to bail out Social Security is to demonstrate that you are a heretic who was invited to the Unfunded Liabilities Conference by mistake.

Of course, the United States faces very serious fiscal problems that will require action one way or another. But that applies as much to our defense spending as our entitlements. By what logic should we subject the elderly to an “unavoidable” cut while borrowing freely to meet the Pentagon’s needs?

The choice to plant a time-bomb at the heart of one of the nation’s most important public programs was a purely political one. In its report delivered to President Franklin Delano Roosevelt in January 1935, the Committee on Economic Security organized in June 1934 to design a new program of old-age insurance recommended that Social Security should be financed in the long run by a mix of payroll taxes and general revenues: “Benefit payments will be light in the early years, but will increase steadily until by 1965 they will exceed the annual receipts. It is at this stage, that the Federal Government would begin to make contributions.”

When he read the report, FDR ordered the removal of the recommendation that general revenues play a role in the future. In February he passed the amended report on to Congress, which then debated and eventually enacted the Social Security Act on August 14, 1935. Roosevelt declared: “If I have anything to say about it, it will always be contributed, both on the part of the employer and the employee, on a sound actuarial basis. It means no money out of the Treasury.”

But Social Security’s reliance on payroll taxes was controversial from the beginning. Abraham Epstein, an influential American proponent of social insurance, was enraged that the program taxed only wage-earners and not capitalists. In the liberal Nation magazine he accused the payroll tax of “distributing poverty among the poor.” Some favored funding the program out of general revenues or even a national sales tax, like the sales taxes that many states had used to finance their welfare programs.

In 1941, addressing a critic of the payroll taxes, FDR replied, “I guess you’re right on the economics. They are politics all the way through. We put those pay roll contributions there so as to give the contributors a legal, moral, and political right to collect their pensions and their unemployment benefits. With those taxes in there, no damn politician can ever scrap my social security program. Those taxes aren’t a matter of economics, they’re straight politics.”

In addition to his insistence on exclusive payroll-tax financing, FDR’s initial design called for Social Security to accumulate a reserve fund before it began disbursing benefits. But amendments to the Social Security Act in 1939 shifted the program away from reserve financing to pay-go financing in which today’s wage earners pay for today’s retirees, in return for the promise that future workers will pay when they themselves retire.

Free-market ideologues opposed the New Deal’s establishment of social insurance from the start and have used the unsustainability of Social Security’s financing as an excuse to undermine its structure through privatization. One popular model, pursued unsuccessfully by President George W. Bush in his second term, would allow workers to divert a portion of their payroll taxes to private retirement savings accounts. The fear-mongering about Social Security’s solvency was pretextual; the new scheme would have taken generations to come into full effect and its partial diversion of payroll taxes would have accelerated the Trust Fund’s insolvency in the interim.

Even worse, paying already-scheduled benefits while funneling up to 4 percentage points of the 12.4% Social Security payroll tax to private accounts would have created transition costs amounting to more than 4% of the federal budget for 40 years.

As the Congressional Research Service (CRS) noted in 2005:

While we know the individual accounts are likely to make the solvency problem worse, the President has not yet specified how this additional shortfall will be financed. It could be financed through (1) increased government borrowing (to be paid off eventually through general revenues); (2) increased payroll taxes or other tax increases; or (3) additional benefit reductions.

Bush’s partial privatization plan was so unpopular, even with Republican voters, that it was smothered in the cradle by his own allies in a Republican-controlled Congress. In Chile, the murderous dictator General Augusto Pinochet, not having to bother with political opposition or public opinion, and advised by American libertarians like the economist Milton Friedman, had already privatized the national social security system in 1981. The experiment has been a miserable failure, as Council on Foreign Relations senior vice president Shannon K. O’Neil observed in 2022:

Four decades later, Chile’s system hasn’t worked as promised or expected. The creators anticipated that the average worker would save enough to earn 70% of their salary in retirement; the reality has been closer to one-third. They thought the new system would expand the number of workers with retirement funds; instead nearly 40% of Chileans have nothing to fall back on. Rather than improve the lives of Chile’s elderly, most pensioners live on less than the minimum wage, with women hit harder than men…. Officials thought less than 10% of wage earners would rely on public largesse for a minimum pension. Today, more than 40% need the government to step in.

In the aftermath of the privatization debacles under Pinochet and Bush, many libertarians and neoliberals have refocused their attention to tax-favored “add-ons” like Individual Retirement Accounts (IRAs) and 401(k)s. But those are a very expensive way to not solve the problem.

In 2022, the SECURE Act ordered employers who offer 401(k)s to automatically enroll their workers, unless they objected. However, in 2023 only 57% of American workers had access to 401(k)s, and they tended to be more affluent workers in larger firms.

For small-business employees and low-income and part-time workers, some states are experimenting with other Rube Goldberg schemes like auto-IRAs, multiple-employer plans, and “retirement marketplaces,” all seemingly designed by lobbyists to stealthily enrich Wall Street money managers.

No doubt there is a role for private savings to supplement Social Security income for many Americans. But if an increasing Social Security retiree-to-worker dependency ratios, driven by the aging of the population, really does threaten to impoverish millions of older Americans in the foreseeable future, why set up a complicated scheme of universal private accounts, which, because they must be prefunded and built up slowly, will not be of much use for many decades? Why not just expand Social Security benefits for the neediest retirees, if not for all?

As the libertarian Andrew Biggs and the progressive Alicia Munnell pointed out last year in a coauthored paper, “Fixing Social Security: Let’s Use Subsidies for Retirement Plans,” subsidies for all tax-favored retirement plans, including 401(k)s and Roth IRAs cost $185 billion or 0.9% of GDP in 2020. They concluded:

Over the next 75 years, Social Security faces an actuarial deficit of 1.3 percent of GDP, so applying the revenues from eliminating the tax expenditure would solve 70 percent of the problem. And the gains would be higher than this estimate for two reasons: 1) the government would continue to collect income taxes on past tax-preferred contributions; and 2) payroll tax revenues would be higher as well because they are also affected by the tax preferences.

This year the maximum contribution to a 401(k) is $23,500; for those over 50 it is $31,000. Why are taxpayers subsidizing the privileged few who can put this much money in tax-deferred accounts, in a country in which the median individual annual income in 2024 was $61,984?

The downsizing of tax breaks for 401(k)s and IRAs could be phased in gradually. Before the invention and unfair exploitation by the economic elite of taxpayer-subsidized IRAs and 401(k)s in the 1970s, the rich and the merely affluent saved money for their retirement in the form of taxable investment accounts and other assets. They can do so again.

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In 2010, in an essay marking the 75th anniversary of the program, Social Security expert Dalmer D. Hoskins observed that the reliance of Social Security on payroll taxes made the United States an outlier among its peers:

The almost exclusive reliance on payroll-tax financing of Social Security places the United States in a different camp from most of the industrialized countries that have long used general-revenue funding to supplement payroll taxes and other earmarked taxes in their social security programs. In France, Germany, and Japan, general revenues fund 30% to 50% of public pension program expenditures. A simple explanation for this willingness to use general-revenue financing has of course been the reluctance of politicians to raise taxes on workers and employers, fearing (in more recent times) the negative impact on the nation’s ability to compete against other countries in the global marketplace.

This is one kind of American exceptionalism that does not benefit Americans.

In hindsight, FDR was wrong and the Committee on Economic Security was right back in 1935. In the 1960s or later, as an alternative to raising payroll taxes, Congress should have authorized the addition of general revenues. This would have permitted several generations of American wage earners to have enjoyed higher take-home pay in the half century that followed, while averting decades of sterile controversy over “unfunded liabilities” stoked by libertarians on the right and deficit hawks in both parties.

Before the Trust Fund is depleted a decade or so from now, Congress should refill it from general revenues. Going forward, Social Security should have two sources of revenue indefinitely: payroll taxes and general revenues, as needed. There might be other arguments for the politically unpopular options of raising payroll taxes or cutting benefits, but the threat of insolvency will not be one. Flexible general revenues of the kind that partly fund Medicare and Medicaid are preferable to a second dedicated tax for Social Security, which would merely provide a second target after the payroll tax for those seeking to spread alarm about “unfunded liabilities.”

How much money are we talking about? If general revenues were to pay for all of Social Security’s shortfall in 2034 and thereafter, that would cost an extra $533 billion in 2034 and $25 trillion over the next 75 years—1.2% of GDP in 2034 and 1.3% of total GDP over the three-quarters of a century between 2034 and 2109.

To put this into perspective, the debt-to-GDP ratio in the United States has exploded since the 1990s, under Republicans and Democrats alike. Under George W. Bush, the Republican Congress cut taxes while massively increasing defense and homeland security spending after 9/11. With bipartisan support, Congress passed huge stimulus packages following the global financial crisis of 2008 and during the COVID-19 pandemic. Both the Affordable Care Act passed by Democrats in Congress under Obama and the Biden-era Inflation Reduction Act added hundreds of billions of dollars to the federal deficit. The One Big Beautiful Bill (OBBB) Act of 2025 is predicted to increase the deficit between now and 2034 by $4.1 trillion, including interest costs, translating to annual deficits of around 7% of GDP annually—one percentage-point more than a simple extension of the Tax Cuts and Jobs Act (TCJA) of 2017 would have caused.

Overall, the debt-to-GDP ratio has grown from around 54% in 2000 to more than 120% at the beginning of 2025. As Alan J. Auerbach and Danny Yagan show, the historic American pattern of debt expansion followed by deficit reduction from 1984-2003 has been abandoned by both parties. At this point, with interest payments on the debt rivaling defense spending, gradually reducing (not eliminating) the debt as a percentage of GDP, by some combination of economic growth, revenue increases, spending cuts, and perhaps some version of “financial repression” should be a bipartisan priority. But Social Security has contributed nothing to the run-up of the debt since 2000, and an effort to balance the budget on the backs of the elderly going forward makes neither political nor economic sense.

The real reason reformers do not consider the straightforward step of eliminating the artificially constructed constraint of the imaginary Trust Fund is that they remain hopeful the constraint will have substantive purchase and force the politically unpopular choices they think are necessary. This manages to be undemocratic, unprincipled, and unrealistic all at once.

Undemocratic: Doctrinaire libertarians who want to cut or privatize Social Security should honestly make their case to voters, instead of pretending to be neutral, technocratic “fiscal conservatives” and lying to the American people by telling them that, alas, Congress has no options other than slashing Social Security benefits or radically raising payroll taxes.

Unprincipled: Those who claim that general revenue funding of Social Security will bankrupt the country must make the same argument against paying for national security. US national defense has always been flexibly funded out of general revenues. There is no Pentagon Trust Fund based on a dedicated Pentagon Tax. Thus it is impossible for deficit hawks to declare that there is an Unfunded Defense Liabilities Crisis because estimated revenues from the Pentagon Tax in 2050 or 2100 will fall short of whatever military needs this or that expert predicts will exist in those years.

Unrealistic: It’s a fantasy to think that Social Security’s financing can be fixed once and for all with a painful mix of tax cuts and benefit cuts that will fix the problem and put the program on autopilot for decades or generations to come. The alternative to the pattern of brinksmanship and crisis followed by hasty action that kicks the can down the road again is simple. Provide Social Security with two permanent funding streams—payroll taxes and general revenues—which can be modified incrementally as needed instead of waiting for artificial crises caused by gimmicks like the trust fund.

To be sure, statutory constraints to force fiscal discipline can play a legitimate role. Many countries have statutory or constitutional debt limits or expenditure ceilings, though unlike in the US, these usually take the form not of nominal spending limits but of debt-to-GDP ratios. But the effect of a government debt ceiling cannot be mimicked by a confusing patchwork of programs, some of which are paid by dedicated taxes and trust fund gimmicks, while others are paid by general revenues.

Supplementing trust funds with general revenues has been standard practice across the federal government. According to the Government Accountability Office, every major federal department has at least two trust funds for revenues dedicated to specific program areas, including an Assets Forfeiture Fund at the Justice Department, a Life Insurance Fund at the Veterans Administration, and the Department of Labor’s Unemployment Trust Fund. Unlike Social Security, most trust funds were either designed to have dedicated taxes supplemented by general revenues, or have benefited from intermittent general revenue bail-outs. An example of the former type is the Medicare Supplementary Insurance trust fund, which by design receives 25% of its revenue from Medicare Part B premiums and 75% from general revenues.

An example of a trust fund with a dedicated tax that must be bailed out periodically with general revenues is the Highway Trust Fund, which pays for interstate highways and other transportation projects. Thanks to the understandable reluctance of members of the House and Senate to raise regressive and unpopular gasoline taxes that fall most heavily on working-class Americans, the Highway Trust Fund would have been insolvent in 2008 if Congress had not provided it with general revenues in the same year. By 2025 Congress had made nine transfers from the general fund to the Highway Trust Fund, amounting to a cumulative $275 billion dollars. Highway spending went on without interruption, the Highway Trust Fund now has two sources of revenue instead of one, and its revenue base is more progressive, because the affluent and rich disproportionately pay for the general fund with personal and corporate income taxes.

Of the two ways to add general revenues to a program with a dedicated tax, the Medicare model of permanent federal revenue financing is clearly superior to the Highway Trust Fund model of last-minute bail-outs from general revenues. If Medicare Part A, Part B, and Part D are considered together, Medicare as a whole in 2023 received 43% of its income from general revenues, 36% from payroll taxes, 15% from premiums, and the rest from taxation of Social Security Benefits, state government payments, interest, and other sources.

The example of Medicare suggests that FDR was mistaken to believe that financing Social Security with anything other than payroll taxes would endanger public support for the program by erasing the distinction between Social Security as contributory, earned, universal social insurance and unearned, means-tested, charity-like social assistance or “welfare.” As long as they contribute some payroll taxes, it seems, Americans will have a sense of ownership in an “earned benefit” like Medicare or Social Security, even if their payroll taxes fund only a portion of it.

There are encouraging signs that the taboo against general revenues is weakening in the bipartisan establishment, as the date of Trust Fund depletion approaches. The Concord Coalition, a flock of deficit hawks from both parties who first gathered to shriek in alarm about unfunded liabilities in 1992, faced reality in 2022:

Despite the impending depletion of the Social Security trust funds, public opposition to increasing payroll taxes or reducing benefits has resulted in political gridlock preventing Congress from taking timely and constructive action. As a result, the path of least resistance leads to the use of general revenue transfers to prevent trust fund insolvency.

In December 2024, Louise Sheiner of the Brookings Institution and Alexander Gelber of UC San Diego broke with Beltway fiscal orthodoxy in a paper for the National Bureau of Economic Research (NBER):

However, it seems highly unlikely that we will institute payroll tax changes and/or benefit cuts in the next decade that would be sufficient to resolve the imbalances over the next few decades, let alone achieve 75-year solvency or build up a sufficient trust fund to ensure against future solvency threats. Furthermore, action is unlikely to be taken soon, and so the trust fund seems likely to get fairly close to depletion. As a result, it seems quite likely we will need and, indeed, will enact policies that include an infusion of general revenues into the Social Security system.

At some point in the late 2020s or early 2030s, to prevent any interruption in the flow of Social Security checks to senior citizens, Congress is almost certain to channel general revenues into the Trust Fund, ensuring its solvency for a time, if not permanently. Of course Congress will still be free to debate and enact benefit cuts and payroll tax increases, but the permanent addition of general revenues can make any such tweaks smaller and less politically divisive, and proponents will need to make the case for cuts or tax increases on the merits, weighed against cuts to other programs or increases in other taxes, without invoking an imminent deadline. Best of all, adding general revenues as a second stream of funding can free Congress from being pressured into hasty, last-minute, ill-considered actions by artificial deadlines like the exhaustion of the trust fund.

Nearly a century after its creation, Social Security has freed generations of Americans from panic about their retirement income. Now it is time for Congress to free American politics from periodic panics about the solvency of America’s retirement security program.

Don’t Let the Fake Social Security Crisis…