Social Security is six years away from bankruptcy. That’s not a prediction in an actuarial footnote, but the finding at the top of a new Penn Wharton Budget Model (PWBM) report released Thursday that suggests the program’s Old Age and Survivors Insurance Trust Fund is on track to be depleted by 2032.
The first solution lawmakers might take—raising taxes—may just be the wrong move.
That’s the stark, counterintuitive conclusion of PWBM researchers Seul Ki “Sophie” Shin and Kent Smetters, who simulated five different reform scenarios from full taxes to full cuts and found that the approach that most traditional analysts consider politically radioactive — deep welfare cuts — produced the strongest long-term economic growth.
Running the numbers through a standard accounting lens, the high-tax plan called Option A looks like a winner. It would delay bankruptcy from 2032 all the way to 2058 by raising the payroll tax rate by one percentage point (to 13.4%), raising the taxable income cap to $250,000 (from $184,500 in 2026), and moving to a slower inflation index to adjust for the cost of living.
Turn to dynamic economic models—models that track how people actually change their saving and working behavior in response to policy—and the picture flips. Option E, the most aggressive benefit cut plan (no new taxes, deeper formula cuts and raising the retirement age to 69), projects GDP growth of 6.1% and private capital growth of 13.5% by 2060. Option A is a heavy tax plan, with GDP growing by only 2.4% and private capital growing by 4.4% during the same period.
The mechanism is simple: Tell Americans their Social Security checks will be smaller, and they’ll save more themselves. Smetters and Sheen call this a “savings incentive.” More private saving means more capital is available for productive investment, pushing up wages. By 2060, wages under Option E are expected to rise 5.7%, while wages under Option A will rise only 1.6%.
smetters told wealth His goal in this exercise is not to make recommendations but to present “a range of options.” He added that if he had to guess, most people would prefer option C, which is in the middle, but he left that to the political process. His job is to “present the full spectrum of the trade-offs of options without bias.”
Still, for critics who say the math in this analysis is cruel, he makes the point that the cruelest approach might be the one mandated by current law, which would see benefits cut immediately in just six years. This means that someone who retires after seven years will see their benefits reduced by $2,500 to $2,700 per year, while Option E of the PWBM (the most severe scenario) will reduce benefits by $2,300 per year (women) and $2,500 per year (men).
