Social Security and Medicare Trust Funds: A Looming Crisis
The Social Security retirement and Medicare Hospital Insurance trust funds are facing insolvency, with depletion expected in just seven years.
Without action, this will result in a 24 percent benefit cut for retirees and a 12 percent cut in Medicare hospital payments by 2032.
Restoring Solvency
Restoring solvency to these trust funds requires slowing benefit growth, lowering healthcare costs, increasing revenue, or a combination of these measures.
Current Financing
The Social Security and Medicare trust funds are primarily financed by a 15.3 percent payroll tax on wages, split evenly between workers and employers.
The 12.4 percent Social Security tax applies only to the first $176,100 of annual wages in 2025.
A New Alternative: Employer Compensation Tax
A proposed solution is to replace the employer side of the payroll tax with a flat Employer Compensation Tax (ECT) on all employer compensation costs.
Proposals to boost revenue often involve increasing the tax rate or the tax cap.
Author's summary: Social Security and Medicare trust funds face insolvency, requiring urgent action to restore solvency.