Our New Paper on Social Security and the Federal Debt

Romina Boccia and Ivane Nachkebia

Our Wharton School Pension Research Council working paper, “Social Security’s Role in the Federal Debt Explosion: Past, Present, and the Reform Imperative,” is now available on SSRN.

Below is the paper’s conclusion.

Access the full paper

Social Security’s cash-flow deficits are worsening federal budget deficits each year and amount to $32 trillion in unfunded obligations over the next 75 years. This chapter argues that the program’s unsustainable benefit design, not just demographic pressures, drive its spending growth and rising contribution to federal debt. Earnings-related benefits, windfalls to early retiree cohorts, real benefit growth over time, and outdated inflation adjustments interact with population aging to generate chronic cash deficits that add directly to publicly held debt.

The path of least political resistance, maintaining current benefit levels through additional borrowing, would be, economically, the costliest response. Such an approach would accelerate debt accumulation, raise interest costs, and reduce economic growth, undermining the program’s revenue base. Neither faster economic growth nor higher inflation can, by themselves, close Social Security’s funding gap under any realistic scenario. The implication is clear: Restoring Social Security’s long-term solvency will require structural reforms to the program’s benefit design, financing, or both. Delaying those reforms will only increase the economic and fiscal costs of adjustment.

International experience demonstrates that retirement program reforms that are typically constrained by political economy forces become feasible during crises. Other advanced economies facing similar demographic and fiscal pressures have enacted reforms that reduced benefits, raised taxes, adjusted eligibility conditions to reflect gains in life expectancy, and introduced automatic stabilizers to limit reliance on repeated political intervention.

International case studies and Cato modeling suggest that policy options such as converging benefits toward anti-poverty levels, price-indexing initial benefits, and raising retirement ages in line with longevity gains could place Social Security and the broader federal budget on a sounder long-term trajectory by reducing excess benefit growth and adjusting eligibility to account for demographic aging.

“Social Security’s Role in the Federal Debt Explosion: Remarks at the Pension Research Council Conference”