Trump's Iran war has changed the future of Social Security

By Brett Arends

It's a mathematical certainty that the Iran war is going to have an enormous influence on the future of retirement in America

President Trump returning to Washington from Mar-A-Lago in March, days after launching the attack on Iran.

History is full of bizarre and remarkable connections. An Austrian archduke's visit to Sarajevo in 1914 triggered the war that nearly destroyed European civilization. A president's trip to Dallas probably helped accelerate the disastrous Vietnam War. The beauty of Cleopatra, the ancient Egyptian queen, supposedly changed all of history because she attracted a Roman leader.

And so it may be with Donald Trump's calamitous decision to go to war with Iran last February without proper planning or preparation - a move that was cited by voters and the vice president himself as being one of the reasons Republicans were beaten so badly on Election Day.

The Iran war is going to have an enormous influence on the future of Social Security and retirement in America. That's not a guess. That's a mathematical certainty.

Social Security's main trust fund is due to run out of money in 2032. Therefore, the urgent case for reform must be addressed before that. Therefore, the senators elected this week will make up a third of the Senate votes on reform. And that block of newly elected senators includes a half-dozen Democrats that, but for the Iran war and the jump in gasoline prices, probably wouldn't be there.

We're talking about the new senators for Kansas, Iowa, South Carolina, Ohio, Maine and Michigan. (As of this writing, two other Senate races, in Alaska and Mississippi, were too close to call.)

That will be six more votes who are looking more at tax increases to fill the gap in Social Security, and less at benefit cuts.

Americans of all parties need to get serious about Social Security. The program's finances are unsustainable, and it has nothing whatsoever to do with mythical zombies or large numbers of illegal immigrants defrauding the program. We know where the money is coming from, we know where it is going, we know why - and the math doesn't add up.

It's that simple. Something's gotta give. A nation addicted to credit cards needs to understand that even our national credit card has limits.

Fixing this gigantic hole in Social Security's budget can be delayed by two years by effectively merging it with the Disability Insurance trust fund, which is much smaller but is in better shape. But 2034 is the outer limit.

What will Congress do?

The solution will not be found at either extreme of either party. When conservatives talk about cutting benefits, including raising the retirement age, they are hitting a lot of middle-class retirees and workers. But when progressives talk about just ending the tax cap on earnings, they are also promising something that would be damaging.

Right now, people don't pay Social Security payroll taxes on any taxable income above $184,500 a year. That's a darn good income, and way beyond most people. But someone earning that amount before tax, especially in expensive areas of the country (which is where most of them live), has not yet reached the happy level where they have escaped economic gravity. As a result, they are still middle class and still have to pay attention to balancing their family's books.

And the limit is there for a reason. On incomes above that, you don't pay Social Security tax because you don't get any more Social Security credits. If we eliminate the tax, will we give them credits as well?

The bigger concern is that Social Security taxes are effectively 12.4% (although workers only see half, as the other half is paid by their employers). Scrapping the earnings limit on Social Security payments, or even doing so on incomes above $400,000, would add 12.4% in marginal taxes on top incomes. Those are already taxed at a 37% federal rate, plus a 3.8% surtax on investment income, plus state and city taxes that often add up to 10%.

This isn't a special plea for high earners. But if you add Social Security tax on top of that, they would be paying, in many cases, more than 60% marginal income tax. And the lessons of the postwar years are that marginal income taxes at that level start to have bad economic outcomes that affect all of us: Tax evasion goes up, tax avoidance goes up and people leave the jurisdiction. (Visit low- or no-tax countries like Dubai in the Middle East, as I did earlier this year, and you will find every café is already full of young entrepreneurs in things like technology and finance.)

None of those outcomes help any of us. And 60% of nothing is $0.

Meanwhile, if you raise Social Security payroll taxes on everyone else, you are effectively taxing young workers, who have less money, to support older people, some of whom have a lot more money. I can hardly think of something more selfish than the elderly placing undue burdens on their own children and grandchildren.

Payroll taxes are also a tax on jobs, so these taxes would surely slow economic growth.

In the interest of full disclosure, I come at this issue very much as an independent and a centrist. I believe that benefit caps and tax hikes will both need to be part of the solution. I also think - like even many Republicans do - that benefits need to be boosted at the bottom. No senior should be in poverty in a country with $185 trillion in net worth. (Of course, $1 trillion of that belongs to just one guy.)

I am also, as a member of the top 10% of earners, willing to take a hit - so long as members of the 1%, the 0.1% and especially the 0.00001% also chip in as well.

(By the way, did you know that the richest 1,500 families in America, who earned a minimum of $79 million a year, are paying an average tax rate of just 14%? So reports the IRS itself. The figures are from 2023.)

This might be a good moment to cite reports that many corporations aren't even paying income taxes at all. So the company doesn't pay income tax, and the owner doesn't pay income tax on his or her stock so long as they raise cash by borrowing against it, instead of selling some.

You see how this works?

Personally, I would prefer to see low corporate taxes combined with annual taxes on assets, but if the latter is a political nonstarter - as it seems at the moment - then I favor raising corporation taxes.

The fallout from the Iran war has thrown an extra six (or more) Democratic senators into this complex mix, in a chamber with only 100 votes. This is huge.

It surely means that the final outcome will involve more taxes and fewer benefit cuts. But it will still involve both.

Meanwhile, if you think you can solve the Social Security crisis yourself, I encourage you to go to the interactive online website run by the Committee for a Responsible Federal Budget and try.

-Brett Arends

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11-05-26 1432ET