It’s the economy, stupid.
Political strategist James Carville coined that phrase during Bill Clinton’s 1992 presidential run against George H.W. Bush to remind Democrats to focus on pocketbook issues. Some analysts say the same logic can help keep Social Security afloat.
The trust fund that supplements incoming payroll taxes to pay monthly Social Security benefits is expected to run dry by the end of 2032, according to the program’s trustees. When that happens, the law requires benefits to be reduced by an estimated 22% to ensure the program’s costs do not exceed its revenues.
While Congress has yet to raise taxes, cut benefits or do both to keep affording payouts as population growth slows, some economists say the strongest Social Security reforms may not look like Social Security policy at all. Instead, they say, Congress should shift its focus to managing the economy better to encourage more Americans to work and earn.
“Social Security is a reflection of, and is supported by, the strength of the economy,” said economist and Social Security expert Kathryn Anne Edwards at the Roosevelt Institute. “Who is working, how much they earn, how healthy they are and how much they save matter more than the head count. People could live longer, have fewer kids and have a solvent Social Security if workers earned enough money.”
Why Is Social Security Facing Cuts?
Social Security is financed through a dedicated payroll tax. Employers and employees each pay 6.2% of wages up to $184,500 in 2026, while self-employed workers pay 12.4%.
Now that the large Baby Boomer generation is retiring and collecting Social Security, and population growth has slowed, there aren’t enough workers and payroll taxes to fully fund benefits. The program has been dipping into its trust fund to make up for the shortfall and running down the balance.
Many politicians, including Sen. Elizabeth Warren, D-Massachusetts, Sen. Bernie Sanders, I-Vermont, and Sen. Bernie Moreno, R-Ohio, support raising or eliminating the wage cap for the payroll tax to extend Social Security’s solvency. Others have suggested raising the full retirement age from 67, increasing the payroll tax rate or capping the annual cost-of-living adjustment.
Why Aren’t Those Ideas Good Enough?
People see Social Security as “the inexorable result of demographics,” Edwards said. “This view stems from understanding Social Security as basically a pyramid scheme. Workers pay in, retirees get out, so the ratio between them underpins the program’s stability. People live longer and have fewer kids, ergo, Social Security is running out of money. That’s a one-dimensional view of a multidimensional problem.”
Instead, Social Security depends more on the underlying strength of the economy and how well it is managed, analysts said. Policies that strengthen the economy, encourage more people to work and enable people to earn higher wages are better options to boost Social Security, they said.
What Policies Could Help?
Policies that strengthen the labor economy and increase wages and the number of workers would automatically translate into more money for Social Security, Edwards said. Some examples include:
- Basic changes in labor regulations, such as paid sick days, paid family and medical leave and the right to work part-time, as well as infrastructure investments such as universal free childcare, have been shown to increase labor-force participation, particularly among mothers.
- Raising wages through policies such as a higher minimum wage and stronger collective bargaining would strengthen the program’s finances — not just workers’ paychecks. Wage inequality has contributed to Social Security’s erosion.
- Comprehensive immigration reform directly affects the number of workers paying into the system. Immigration increases the number of workers and payroll taxes, even if the immigrants aren’t authorized.
- Changing Social Security rules such as the spousal benefit and the work penalty.
- Currently, partners married at least a decade are eligible for the higher of two benefits: one based on their highest 35 years of earnings or one that is half of their partner’s benefit, which is based on the partner’s highest 35 years of earnings. Spouses who never worked and those who worked with gaps for caregiving may both end up with half their partner’s benefit despite differences in work history.
- Social Security reduces benefits for retirees who claim before reaching full retirement age and imposes a retirement earnings test that reduces benefits further for those who earn more than $24,480 annually. Benefits are lowered by $1 for every $2 earned above the cap.
Other work-friendly policies could include eliminating “benefits cliffs,” said Stephen Roll, assistant professor in the Brown School at Washington University in St. Louis.
Benefits cliffs are when government programs create difficult trade-offs for low-wage workers. Workers often must choose between earning or saving more and losing eligibility for, or facing reductions in, food, health care, housing and childcare assistance that are worth more than any added income.
“These policy-design choices may place workers in a position where taking a raise, accepting more hours or building emergency savings could make them worse off financially,” Roll said.
The government could consider gradually reducing benefits as earnings rise, rather than allowing a relatively small raise to produce a much larger loss in assistance, he said.
“The simple idea here is that people should always be better off financially when they earn more,” Roll said. “These cliffs make it so an individual could lose thousands of dollars in benefits if they take a 50-cent-an-hour raise. Programs with these cliffs should instead shift to phaseout structures, like the Earned Income Tax Credit, to avoid these major work disincentives.”
Although Roll doesn’t tie his benefits-cliff analysis to Social Security insolvency issues, other economists say any policies to encourage work and higher wages would inevitably help.
What About AI’s Effect on Labor?
So far, studies show artificial intelligence has mostly cut employment (16%) for early-career workers in occupations most exposed to AI, such as software development and customer support, according to a 2025 Stanford report.
Philip Diehl, former U.S. Mint director during the Clinton administration, said he expects AI to take a bigger toll in coming years that will hit Social Security.
“There’s a painful transition coming during which new jobs will be created at a slower pace and require new skill sets that the older generation doesn’t have,” he said. “These older employees who don’t make the transition will retire earlier and take benefits, which has an immediate effect on Social Security. Then there’s the question of to what extent AI will reduce jobs and reduce pay for jobs. There is some evidence of reduced pay for jobs more exposed to AI.”
Lower wages mean less money to tax for Social Security.
“None of these factors are reflected in the latest estimates for Social Security insolvency,” he said. That means insolvency could come even sooner than 2032, he said.
To prepare for that, Diehl said Congress should start working on a plan “to move funding from labor to capital — taxing wealth, assets and income at a higher level.”
Government could also begin preparing the workforce for AI disruption, Edwards said. “AI’s impact is determined by the extent to which policymakers help affected workers reenter the workforce. That has less to do with technology and more with policymakers’ ability and effectiveness,” she said.
“The biggest threat to Social Security is mismanaging the economy,” Edwards said.
Medora Lee is a money, markets and personal finance reporter at USA TODAY.
This article was adapted from reporting by USA TODAY Network via Reuters Connect.
