In his State of the Union address, President Donald Trump proudly proclaimed to members of Congress and the public that the United States is “bigger, better, richer, and stronger than ever before,” touting the benefits of his signature tax policy, in particular, the One Big Beautiful Bill Act (OBBBA). He also claimed that his administration is working to make it easier for Americans to save for retirement. “Under this administration,” he said, “we will always protect Social Security and Medicare … We will always protect Social Security, Medicare, Medicaid.”
But both things cannot be true.
Despite Trump’s ongoing pledges to protect the nation’s vital social safety nets, recent economic projections reveal a starkly different reality. Sweeping legislative changes spearheaded by his administration have drastically shortened the financial life spans of both Medicare and Social Security, accelerating their paths toward insolvency.
For decades, surplus payroll tax revenue was socked away in trust funds that were designed to be tapped when revenue was no longer sufficient to cover benefits.
According to a newly updated report from the Congressional Budget Office (CBO), recent policy shifts have erased 12 years of projected solvency from the Hospital Insurance (HI) Trust Fund, which pays for Medicare Part A. The fund is now expected to be entirely exhausted by 2040, rather than 2052, as projected in March 2025. The primary culprit behind this rapid financial deterioration is the OBBBA, lowering tax rates and creating a temporary deduction for taxpayers ages 65 and older. While politically popular, these tax cuts significantly starved the trust fund of the revenue it normally receives from taxing Social Security benefits.
The HI Trust Fund serves as the financial backbone for essential health services, including inpatient hospital care, skilled nursing facility stays, home health care, and hospice care. If that fund is exhausted in 2040, Medicare would be legally restricted to paying out only what it collects in revenue, triggering automatic benefit cuts. The CBO estimates these reductions would begin at an 8% cut in 2040 and steadily climb to a 10% cut by 2056.
Meanwhile, Social Security faces a similarly accelerated timeline toward crisis. The CBO estimates that the Social Security trust fund will run out of money even sooner, by fiscal year 2032, which begins in October 2031. If Congress fails to intervene before this insolvency date, benefits would be strictly limited to incoming revenue. The Committee for a Responsible Federal Budget estimates that a typical couple turning 60 today would face a devastating $18,400 annual cut to their retirement benefits when the fund runs dry.
Trump laid into Democrats for voting against the OBBBA, which he called “these really important and very necessary massive tax cuts. They wanted large-scale tax increases to hurt the people instead. But we held strong, and with the great Big Beautiful Bill we gave you no tax on tips, no tax on overtime, and no tax on Social Security for our great country.”
Reducing tax revenue for these programs, though, is hastening a looming fiscal crisis. Alongside lower projected payroll tax revenue, this policy shift enacted during the Trump administration has starved the safety net of critical future funding.
Cuts to come in the future?
Once the trust funds are exhausted, additional money must be found somewhere or else benefits must be slashed. Another source is discretionary money.
But Bernard Yaros, lead U.S. economist at Oxford Economics, has warned that funding Social Security and Medicare with general revenue could trigger a negative reaction in the bond market, sparking a sustained increase in interest rates, ultimately forcing lawmakers to make painful, drastic cuts to nondiscretionary programs to head off a full-blown fiscal crisis.
Faced with these looming cliffs, lawmakers may be tempted to simply finance the shortfalls with more national debt rather than making tough political choices to hike taxes or reduce benefits. However, economists warn this could spark a severe financial crisis. Veronique de Rugy, a senior research fellow at the Mercatus Center, cautioned in a Creators Syndicate op-ed that financial markets will quickly account for the additional borrowing.
“Inflation may not wait for debt to pile up,” de Rugy warned, noting it could “arrive the moment Congress commits to that debt-ridden path.”
Addressing this looming shortfall will require significant legislative action. To restore the 12 years of lost Medicare solvency alone, lawmakers will be forced to increase taxes, slash health care payments, or implement a politically fraught combination of these approaches—eventually. That flies directly in the face of the politically popular tax cuts that Trump hailed as so significant, in the year of the United States’ 250th birthday.
