The trust funds for Social Security and Medicare Part A seem likely to run out of money faster than was projected last year.
The Congressional Budget Office used updated data and estimates to develop the latest projections.
The new forecast for the Social Security retirement benefits trust fund is that the trust will run out of money in 2032, instead of 2033 as projected last year.
One major change in the estimates is that the CBO now assumes inflation will be higher than projected last year. Higher inflation means the annual cost of living increases in benefits will be higher than previous estimates, causing the fund to distribute more money each year.
The CBO also projects that taxes paid into the trust fund will be lower than in previous forecasts because of recent tax law changes that exclude some income from taxes.
In addition, earnings grow at a faster rate for higher earners than for lower earners. That will cause the amount of earnings below the maximum taxable amount to decline as a percentage of GDP, reducing the trust fund’s share of taxable wages.
The CBO does forecast that some of that revenue decline will be offset by an increase in taxes on Social Security benefits. Since the income levels at which Social Security benefits are taxes are not indexed for inflation, the number of taxpayers who pay taxes on their benefits increases each year.
If the trust fund runs out of money and Congress takes no action, the system would continue to receive payroll taxes and self-employment taxes and would use those to pay benefits.
Those taxes would not be enough to fund promised benefits. In the case of such a shortfall, the Social Security Administration is required to reduce benefits equally.
The CBO’s latest estimate is that the shortfall would require an average reduction of 28% in benefits each year, for a total reduction of $2.7 trillion from 2032-2036.
The CBO also estimated that the trust fund that helps pay for Medicare Part A benefits (which are mostly related to hospitalization) will run out of money 12 years earlier than last year’s estimate.
The Part A trust fund now is projected to be depleted by 2040.
The One Big Beautiful Bill Act, enacted in 2025, is a major cause of the acceleration in the demise of the trust funds.
The trust fund receives a portion of its income from taxes on Social Security benefits. These taxes effectively were reduced by the $6,000 senior tax deduction created in the OBBB.
The CBO also anticipates lower payroll tax revenue due to lower taxable earnings by workers.
Another factor accelerating the Medicare Part A trust fund’s insolvency is that Medicare spending is rising faster than in previous estimates.
Medicare is not allowed to make benefit payments that exceed its income from taxes and the trust fund. Without action from Congress, Medicare would have to reduce benefits.
The CBO estimates that Medicare benefits would be reduced by 8% in 2040. By 2056, benefits would be reduced 10%.
The CBO’s estimates are separate from the projections from the trustees for Social Security and Medicare. The annual report from the trustees usually is issued in the spring.
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