Major events that played a role in significantly increasing the budget deficit and federal debt include: 1) tax cuts (2003 and 2018), 2) the financial crisis of 2008, and 3) the COVID crisis of 2020. Despite an expanding economy with an unemployment rate hovering around only 3.5%, in 2019 the budget deficit doubled from its 2015 level to over $983 billion. Between 2019 and 2025, the deficit nearly doubled again, ending fiscal year 2025 at $1.775 trillion. Between 1980 and 2010, federal debt rose from approximately $1 trillion to $13 trillion. Since 2010, the debt has approximately tripled to $38.5 trillion in 2025, a record high. Between 2025-2034, the One Big Beautiful Bill is estimated by the Congressional Budget Office to increase the deficit by over $4 trillion. The growing federal debt will add to forthcoming political and budget battles over the mix of fiscal spending, including Social Security. Social Security and Medicare are funded by federal taxes paid by employers and employees. Payroll taxes provide over 90% of Social Security program income. (Additional program income includes taxation of Social Security benefits and interest on trust fund assets.) Employees and their employers each pay 6.2% of earnings for Social Security taxes; an additional 1.45% of earnings are paid for Medicare taxes. In sum, a total of 15.30% of an employee’s earnings are subject to Social Security and Medicare taxes, with employee and employer each paying 7.65% of an employee’s earnings. There is a salary limit for Social Security taxes. The salary limit is $184,500 in 2026, with the salary limit typically adjusted each year by the approximate level of inflation. (There is no salary limit for Medicare taxes.) Earnings exceeding the salary limit are not subject to Social Security taxes. The formula to determine a worker’s Social Security benefit is a function of the payroll taxes paid to Social Security. The primary purpose of Social Security retirement benefits is to provide a base level of economic security, not to provide a high rate of return on the payroll taxes paid in by workers. Current payments into Social Security are being dispersed to those receiving benefits now – excess payments, if any, remain in Social Security trust funds. In 2021, Social Security’s total cost exceeded its total income for the first time since 1982. Disbursements are expected to continue to exceed program income for the foreseeable future, with money drawn from the trust funds to pay the difference. Current payments into Social Security being dispersed to current beneficiaries set the stage for financial difficulties when the demographics of the U.S. shifted to an aging population. According to the Social Security Trustees, the trust fund for Social Security retirement income will be depleted in 2032. The One Big Beautiful Bill accelerated the trust fund depletion by reducing taxes on Social Security benefits, which were used to help fund the program. Under current law, when the trust fund is depleted, payments to beneficiaries will be limited to program income. In 2033, that is expected to result in an approximate 23% cut in Social Security to recipients – unless current laws change. The average monthly Social Security benefit for retired workers was $1,976 in 2025. The Medicare trust fund is also under financial duress, and expected to be insolvent by 2033. The Congressional Budget Office (CBO) is a nonpartisan federal agency that provides independent economic and budget analysis to the United States Congress. The CBO projects that from 2026 to 2036, based on current laws, large and growing deficits will cause federal debt to increase substantially. The deficit is expected to grow from $1.8 trillion in fiscal year 2025 to $3.1 trillion in 2036 with federal debt increasing from $38.5 trillion at the end of 2025 to $56 trillion in 2036. The CBO states that “budget projections continue to indicate that the fiscal trajectory is not sustainable.” The aging of the population increases expected Social Security payments, from $1.7 trillion in 2026 to $2.7 trillion in 2036, with Medicare approximately doubling from $1.0 trillion in 2026 to $2.0 trillion in 2036. The expected depletion of the Social Security retirement trust fund in 2032, which requires program cuts to beneficiaries unless current laws change, is rapidly approaching. The growth in federal debt and pending exhaustion of Social Security and Medicare trust funds is on a collision course. The outcome should be interesting.
Central Wisconsin Report - Spring 2026
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