Just one week after securing his return to the White House in the November election, President-elect Trump announced the creation of a new Department of Government Efficiency (DOGE) and tasked it with identifying opportunities to streamline the federal bureaucracy. Led by Elon Musk and Vivek Ramaswamy, DOGE is expected to focus on cutting the discretionary budget that accounts for around one-quarter of overall federal spending. There are certainly opportunities to reduce government waste, and a productive collaboration between DOGE and Congress could bring these ideas to fruition.
On the other hand, DOGE appears less interested in addressing the key driver of federal spending: entitlements, which account for 60 percent of the federal budget. It also includes thorny issues like the looming insolvency of Social Security in 2033. If DOGE avoids investigating the Social Security program, the issue will be left to Congress, where lawmakers who have long ignored the growing fiscal shortfalls need to start grappling with the tradeoffs and compromise that can restore fiscal balance to Social Security.
The fundamental challenge facing Social Security is that the program now collects less tax revenue each year than it pays out in benefits, and the size of the deficit is accelerating. For example, the cash-flow deficit in fiscal year 2023 was $113 billion, excluding interest earnings. At the end of President-elect Trump’s term in office, the gap is projected to reach $318 billion and grow beyond $500 billion by 2033. For context, Social Security payroll taxes, which are paid equally by employers and employees, totaled just over $1.3 trillion in 2023. A shortfall of $500 billion would represent almost all of what employees contributed to the system in 2023.
For now, the program can maintain full benefit payments by drawing down the $2.6 trillion balance in the Social Security trust fund. However, as rising deficits translate to larger annual withdrawals, the balance is set to reach zero in 2033, which would trigger a benefit reduction of around 20 percent for every American collecting or contributing to Social Security.
From a simple cash flow perspective, avoiding this outcome and restoring long-term sustainability requires policy changes that reduce benefit payments, raise revenue or both. Many different combinations of adjustments can bring Social Security back into fiscal balance, but campaign proposals from Trump and active legislation in Congress do the exact opposite of what’s necessary.
During his campaign, Trump proposed eliminating taxes on tips and overtime and also exempting Social Security benefits from federal income tax. These changes are projected to reduce the revenues flowing into Social Security by nearly $2 trillion over the next 10 years, leading to larger deficits and larger withdrawals that will deplete the trust fund even faster than currently projected.
Related Articles
The government’s new furnace and water heater rules are coming for you
Is Measure ULA living up to its promises?
Reparations return to the California Legislature
50 years of economic policy killed American Dreams
Trump’s Jan. 6 pardons could address some real injustices
Meanwhile, Congress approved legislation that will increase benefit payments by nearly $200 billion over the next decade. The legislation, which received broad bipartisan support in the House of Representatives and the Senate, seeks to address a flaw in the way Social Security benefits are determined for millions of state and local public employees and their families. However, the remedy harms Social Security’s overall fiscal condition and the unfunded benefit increase moves the projected date of trust fund insolvency six months closer.
Fixing Social Security will be a monumental task, and the work should begin in earnest. Whether it’s led by Congress, DOGE or a combination of the two, it’s time for America’s elected leaders to seek common ground on reforming an essential program that supports millions of Americans in retirement. Rejecting policies that make the problem harder to solve is a good place to start.
Chris McIsaac is a fellow with the R Street Institute’s governance program