WASHINGTON — President Donald Trump, in his State of the Union address Tuesday night, asserted that the United States is “bigger, better, richer and stronger than ever before,” and pledged to “always protect Social Security and Medicare.” However, a new report from the Congressional Budget Office (CBO) reveals that recent legislative changes enacted during his administration are accelerating the depletion of both programs’ trust funds.
Trump touted his administration’s signature tax policy, the One Large Lovely Bill Act (OBBBA), as a key driver of the nation’s economic success. He specifically highlighted provisions offering “no tax on tips, no tax on overtime, and no tax on Social Security for our great country,” while criticizing Democrats for opposing the legislation. “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,” Trump stated.
The CBO report, released Wednesday, indicates that the Hospital Insurance (HI) Trust Fund, which finances Medicare Part A, is now projected to be exhausted by 2040 – twelve years sooner than the March 2025 estimate of 2052. The primary factor contributing to this accelerated decline is the OBBBA, which lowered tax rates and included a temporary deduction for taxpayers aged 65 and older. These tax cuts have reduced the revenue flowing into the trust fund, which relies heavily on payroll taxes, including those levied on Social Security benefits.
The exhaustion of the HI Trust Fund would trigger automatic benefit cuts, beginning with an 8% reduction in 2040 and escalating to 10% by 2056, according to the CBO. These cuts would impact essential healthcare services, including inpatient hospital care, skilled nursing facility stays, home health care, and hospice care.
Social Security faces an even more immediate crisis. The CBO projects that the Social Security trust fund will be depleted by fiscal year 2032, beginning in October 2031. 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 reduction of $18,400 in their retirement benefits when the fund runs dry.
Economists warn that addressing these shortfalls by funding them through general revenue could have unintended consequences. Bernard Yaros, lead U.S. Economist at Oxford Economics, cautioned that such a move could negatively impact the bond market, leading to increased interest rates and potentially forcing lawmakers to make drastic cuts to other programs. Veronique de Rugy, a senior research fellow at the Mercatus Center, warned in a recent op-ed that financial markets would likely anticipate and factor in increased national debt, potentially triggering inflation before the debt even accumulates.
Lawmakers are now facing the difficult task of finding solutions to restore solvency to these vital programs. Options include increasing taxes, reducing healthcare payments, or a combination of both. These choices stand in direct contrast to the tax cuts championed by President Trump, occurring on the year of the United States’ 250th birthday.
