Social Security is one of the most successful social policies in the history of the United States. Without it, the number of elderly Americans in poverty would skyrocket from about 10% to about 37%.
And yet it is under threat. Bipartisan analysts agree that it will run out of money around 2032. Republicans insist that the problem is too many baby boomers living longer, and too few younger workers funding the system. Their answer: enact various cuts to benefits and extend the full retirement age to 69 or 70.
But the GOP approach is over-simplified and deeply misleading. To understand why, we need to go back to 1983, the last time that the Social Security system was reformed. Congress followed the suggestions of the Greenspan Commission, which were predicted to keep the system solvent until 2058.
Importantly, the commission actually took into account the exact demographic changes the Republicans are now blaming for our problem. It knew that the large baby-boom generation would live longer and that fertility rates would go down — and designed modifications that would ensure the solvency of the system despite these changes.
So what went wrong? What the commission failed to anticipate was the dramatic increase in income inequality that began in the 1980s. It is this growing inequality that is driving much of the current crisis.
Between 1940 and 1980, income for the various classes of Americans grew at very similar rates. But then the rich began to take larger and larger shares of our national income, and everyone else began to fall behind. Between 1980 and 2020, the income of the top 1% of Americans grew by an amazing 326%, while the next richest 19% enjoyed a growth of 192%. The income for the middle 60% of Americans grew by only 73%.
This matters because there is a cap on income that can be taxed to fund Social Security — currently $184,500. So now an increasing part of the national income is going to people who earn above that cap, and so it goes untaxed. The total amount of national income subject to Social Security tax has fallen from 90% in 1983 to 82% now. That difference equates to an annual loss of $122 billion in revenue for Social Security.
So it is growing economic inequality, and not simply demographic changes, that is largely responsible for eroding Social Security’s bottom line. As Kathryn Edwards of the Roosevelt Institute explains, “People could live longer, have fewer kids, and have a solvent Social Security if workers earned enough money.”
We can fix Social Security in many ways that do not involve dramatic benefit cuts or extending the retirement age. First, we should eliminate the cap and make all earnings subject to payroll tax. By itself, this would take care of about 70% of the projected 75-year shortfall.
We could also pass policies that help to increase the wages of average workers. Workers earning higher wages put more money into the Social Security system. One option is to significantly raise the minimum wage, which hasn’t changed since 2009. The Congressional Budget Office estimates that raising the federal minimum wage from $7.25 to $15 would raise the wages of 27.3 million workers and increase their total annual earnings by $44 billion.
Another approach to increase the wages of many Americans would be to end the conservative war on unions and to pass policies that make it easier for them to form. Scholars have estimated that 20% to 33% of our growing income inequality is due to the decline of private sector unions, which shrank from 22% in 1980 to 5.9% in 2025. This has reduced workers’ incomes. Unionized businesses pay higher wages, and force their non-unionized competitors to also pay higher wages to attract workers.
Fifty-six million American workers say that they would join a union tomorrow if they could. We could make this much easier by allowing unions to form simply by a majority of workers signing cards, instead of having to use management-controlled elections, and requiring mandatory worker attendance at sessions run by union-busting consultants.
Other fixes include stopping the expulsion of undocumented immigrants who contribute $25 billion to Social Security and receive no benefits. And we could make it easier for more people to enter the workforce and pay Social Security taxes by enacting free daycare and mandatory paid family and medical leave.
But all these reforms require American citizens and policymakers to truly understand the real reasons for our current difficulties and to reject the misleading rhetoric of the Republican Party.
Douglas J. Amy is a professor emeritus of politics at Mount Holyoke College. He lives in Northampton.