Cures for What Ails Social Security? PART ONE OF TWO

Are we actually debating how to save Social Security—or are we debating who should pay for keeping the version of Social Security we want?

We should ask if members of Congress read history. It helps to go back to the beginning.

When Social Security became law in 1935, workers and employers would each pay a 1% payroll tax on the first $3,000 of wages. Those rates were scheduled to increase over time, reaching 3% each by 1949. Monthly retirement benefits weren’t scheduled to begin until 1942.

The program would collect taxes for several years before paying monthly benefits and build a substantial reserve to help finance future obligations. The intention didn’t last long.

Congress fundamentally redesigned Social Security in 1939. Benefits were expanded beyond retired workers to spouses, children and survivors. Monthly payments started two years earlier. And the first scheduled payroll-tax increase was postponed.

Then Congress postponed increases again, perhaps because the world was at war.

The employee tax that had been scheduled to reach 3% by 1949 remained at 1% throughout the 1940s. According to Social Security’s own history, Congress enacted eight measures cancelling or delaying scheduled payroll-tax increases during this period. The large reserve contemplated in the original plan never developed. Social Security moved toward the largely pay-as-you-go system we recognize today.

That isn’t necessarily an indictment of the changes. The 1939 amendments also transformed a relatively narrow retirement program into family social insurance, providing protection against a worker’s death as well as old age. But it’s an important part of the story when we discuss how Social Security should be “fixed.”

The program has continued to change ever since: more workers were covered, benefits increased, disability insurance was added, payroll taxes rose, the taxable wage base expanded, benefits became partially subject to income tax, and Congress eventually raised the full retirement age.

This expansion of “entitlements” has grown into criticism of government support in general, and today the arithmetic is again forcing the discussion.

The 2026 Social Security Trustees Report projects that the retirement and survivor trust fund can pay full scheduled benefits until the fourth quarter of 2032. If nothing changes, continuing income would then cover about 78% of scheduled benefits. Looking at the retirement and disability programs together, the commonly cited depletion date is 2034, when about 83% of scheduled benefits could be paid.

Social Security is not disappearing, nor is the problem immaterial. It is a financing mismatch built over generations between what the program has promised, and the current law for funding will provide.

It’s worth noting that for the roughly half of retirees who claim Social Security before full retirement age (many under the premise the program could disappear), they are effectively shielding a remote probability outcome at the same time they hold investments that could decline in value by 22% or their lifetime fixed pension that will lose 22% purchasing power in less than seven years at the current rate of inflation.

In Part Two, we’ll look at the proposed cures—and what both sides of the debate often leave out.