Imagine yourself in the following situation: In a few years, your income will drop to where you can afford to pay only 80 percent of your mortgage. After a brainstorm, you go to your banker and ask to borrow an additional sum to invest in the stock market, with an expectation that your profits will prevent a foreclosure.
What do you think the banker would say in that situation?
Two U.S. senators, Bill Cassidy (R-La.) and Tim Kaine (D-Va.), should be asking themselves a similar question. In the long run, their proposal to invest part of Social Security’s trust fund in equities deserves serious consideration. However, in the near term, raising cash to invest in the stock market means pushing up U.S. public debt — already at an historic high — even higher still. A Wall Street downturn could hasten Social Security’s insolvency.
There are currently no hard assets in Social Security’s trust fund that can be invested in stocks, real estate or any other private asset. More cash now flows out of the trust fund to pay for benefits than comes in from payroll and income taxes.
Social Security’s cost has exceeded its non-interest income since 2010. To cover the gap, the program has been drawing down reserves, which in essence are intragovernmental IOUs binding the Treasury to pay back Social Security for surpluses the U.S. government previously borrowed at favorable interest rates from the social insurance program to pay for other public expenses. The $2.7 trillion in “special” government bonds in the trust fund has no value in the marketplace.
As noted to the Senate Budget Committee, although Social Security reserves are “off-budget,” the act of drawing them down affects the government’s finances and the U.S. economy. Because the federal government runs perennial budget deficits, coming up with hard cash to meet monthly obligations to 74 million Social Security beneficiaries already means having to sell more bonds, which increases the national debt.
Last month’s annual Social Security trustees report estimates the program will draw down $181 billion from the combined Old-Age and Disability Insurance trust funds in 2025, with the amount rising to $405 billion by 2033. However, changes in the just-enacted budget legislation will push those numbers higher.
The Committee for a Responsible Federal Budget calculated that President Trump’s “big beautiful bill” will reduce Social Security income tax revenues by $30 billion per year — meaning the trust fund will be exhausted several months earlier than the trustees expected, in 2032 rather than in 2033. Once the trust fund is exhausted, Social Security’s tax revenue will only be able to cover about 80 percent of promised benefits.
There are many ways Congress can help Social Security maintain its long-term solvency, but they all involve major tax increases, benefit cuts or a combination of the two.
Congress would have to raise a total of about $28 trillion more in net present value over the next 75 years — an average of about $375 billion each year — to pay full Social Security benefits as scheduled. That’s roughly the same amount that the budget bill adds to the national debt each year. (For context, U.S. annual GDP is now about $30 trillion. The Congressional Budget Office estimates that, as a result of the budget legislation, debt held by the public at the end of 2034 will increase from its January 2025 baseline projection of 117 percent of GDP to 128 percent.)
Now, add the billions of dollars that Sens. Cassidy and Kaine would need to buy in equities and other market assets for the trust fund. Then factor in the volatility and risk of such an investment. A recession or market correction at the wrong time could hasten depletion. Many financial analysts already question whether rising levels of U.S. debt will undermine economic growth and possibly national security. What if we unexpectedly need to finance a major war or a response to an emergency like the COVID-19 epidemic?
A higher return from Social Security’s trust fund might be worth considering in the long run. But given the deteriorating state of the nation’s finances, it doesn’t make sense to borrow for that purpose now. It would be surprising if Congress had the stomach for it, especially as lawmakers tread water dealing with the politics of the program’s approaching insolvency.
Karl Polzer is founder of the Center on Capital & Social Equity. He pays Social Security taxes and receives Social Security benefits.
