President Donald Trump, during his State of the Union address on Tuesday, asserted that the United States is “bigger, better, richer and stronger than ever before,” and pledged to protect Social Security and Medicare, stating, “We will always protect Social Security, Medicare, Medicaid.” However, recent analyses indicate that legislative changes enacted during his administration are accelerating the depletion of both programs’ trust funds.
The Hospital Insurance (HI) Trust Fund, which finances Medicare Part A, is now projected to be exhausted by 2040, according to a newly updated report from the Congressional Budget Office (CBO). This represents a significant acceleration from the March 2025 projection of 2052. The primary driver of this deterioration is the One Big Beautiful Bill Act (OBBBA), which lowered tax rates and included a temporary tax deduction for those aged 65 and older, reducing revenue flowing into the trust fund.
The exhaustion of the HI Trust Fund would trigger automatic benefit cuts, beginning with an estimated 8% reduction in 2040, escalating to 10% by 2056, as Medicare would be limited to paying out only the revenue it collects. This fund covers essential healthcare services, including inpatient hospital care, skilled nursing facilities, home health care, and hospice.
Social Security faces an even more immediate crisis. The CBO estimates the Social Security trust fund will be depleted by fiscal year 2032. If Congress does not act before then, benefits would be limited to incoming revenue. The Committee for a Responsible Federal Budget estimates that a couple turning 60 today could face an annual retirement benefit cut of $18,400 when the fund runs dry.
Trump defended the OBBBA, criticizing Democrats for opposing what he described as “these really important and very necessary massive tax cuts.” He claimed the bill delivered “no tax on tips, no tax on overtime, and no tax on Social Security.” However, the tax deduction for Social Security benefits is temporary, lasting only through 2029, and excludes certain recipients, including lower-income seniors and those claiming benefits before age 65, as well as those with incomes above specified thresholds.
Economists warn that financing Social Security and Medicare shortfalls with general revenue could negatively impact the bond market, potentially leading to increased interest rates. Bernard Yaros, lead U.S. Economist at Oxford Economics, cautioned that this could force lawmakers to create drastic cuts to other programs. Veronique de Rugy, a senior research fellow at the Mercatus Center, warned that increased national debt could trigger inflation.
Addressing these shortfalls will require legislative action, potentially involving tax increases, healthcare payment reductions, or a combination of both. This presents a challenge given the political popularity of the tax cuts championed by Trump, particularly as the United States approaches its 250th birthday.
