Trump's Wreckage of Social Security and Medicare

The assault on cherished social insurance programs is a gift to Democrats, but only if they are clear about how to defend them.

https://prospect.org/2026/04/09/trumps-wreckage-social-security-medicare/


People gather in front of a Tesla dealership in Owings Mills, Maryland, to protest President Trump’s policies, November 22, 2025. Credit: Robyn Stevens Brody/Sipa USA via AP Images

Donald Trump’s failed Iran war is at last making the question of his sanity into a first-tier political issue that Republicans can no longer duck. But that’s only the beginning of the political reverberations created by the president’s decaying mental acuity. As Trump blurted out the other day, he believes that the direct costs of the war combined with his unprecedented request for a 44 percent increase in military spending mean that the federal government can no longer afford Medicare. This is of course preposterous—most of the cost of Medicare is financed by the dedicated payroll taxes that workers pay. Trump has also floated cutting Social Security’s disability program, another form of social insurance with a dedicated stream of tax revenue.

Trump’s rare candor is a perfect expression of his priorities—and is a political gift to Democrats. What complicates the story is that both Medicare and Social Security do face financing shortfalls in the 2030s. This reality can also serve Democrats and jam Republicans, but only if Democrats get their story straight and pursue the right remedies. Beginning in 2034, Social Security’s trust funds face a projected shortall of 19 percent, according to the latest Trustees’ Report. Under the law, unless Congress acts, benefits must be cut by that amount. Why the shortfall? One reason is aging. As lifespans increase while birth rates decrease, there are fewer workers per retiree.

But a bigger reason is that the very rich have captured an ever larger share of national income since the late 1970s, and thanks to the payroll tax cap, they do not pay a proportionate share of the payroll taxes that finance Social Security. (Any income above $184,500 is not subject to payroll tax, making it effectively regressive.) An authoritative study by the RAND Corporation found that if the income distribution of the first two postwar decades had persisted, the bottom 90 percent (who pay Social Security taxes) would have an additional $2.5 trillion a year. Payroll taxes (12.4 percent) on $2.5 trillion would be $310 billion, or more than the annual Social Security deficit of around $250 billion a year.

Then there is wealth, which is distributed even more unequally than wages. According to Federal Reserve data, the richest 1 percent hold about $54 trillion in capital assets. The income from that capital almost totally escapes taxation. If we taxed income from capital at the same rates as wage and salary income are taxed, that would increase federal revenue by enough to keep Social Security solvent and meet other needs as well. Restoring a decent income distribution will take years of brave policies. But in the meantime, we can start taxing the very rich and dedicate some of the proceeds to making Social Security whole. An obvious start would be to uncap the payroll tax, which would bring in something like $3.2 trillion over a decade.

snip