Social Security faces steep cuts. These senators want to bet on stocks and $27 trillion in debt to save it—but ‘the gamble does not always pay off’

Lawmakers have long known that Social Security faces a day of reckoning but have dodged any reforms that would cut benefits, hike taxes, or do both. The dilemma gained more urgency when new projections this month showed that the Social Security trust fund will run out of money sooner than previously thought, meaning benefits would face a 22% cut by 2032 unless adjustments are enacted. For years, revenue from payroll taxes has been insufficient to fund current benefits, and the trust fund covered the gap. But once it runs out, Social Security will only be able to distribute what comes in. A proposal by Senators Bill Cassidy, R-La., and Tim Kaine, D-Va., would maintain current benefits and continue avoiding any pain for recipients or taxpayers by instead relying on the stock market—along with a mountain of fresh debt. Their idea is for the federal government to borrow $1.5 trillion for an investment fund that would be loaded with stocks and other risk assets, which would accumulate gains for 75 years and offer better returns than Treasury bonds would. At the same time, Cassidy-Kaine plan would require another $25.1 trillion in borrowing to cover the gap between Social Security’s revenue and benefits during those 75 years. Returns from the investment fund would then pay down the $26.6 trillion in new total borrowing. Easy peasy, right? In fact, Boston College’s Center for Retirement Research ran some simulations and found that the senators’ plan is unlikely to work. The Cassidy-Kaine proposal assumes nominal stock returns of 8.9% a year, in line with past performance. Accounting for inflation, real returns would be about 6.5%. Applying that number annually over 75 years results in the investment fund growing to $30.6 billion, more than enough to pay back what would be borrowed, according to Boston College. “After incorporating the volatility in equity returns, however, the results show that the gamble does not always pay off,” authors Anqi