Please find an excerpt from our September 2026 Newsletter below.
Upcoming Midterm Elections in the United States and Hoping the Next Congress Makes Progress on Social Security
Of course, before our next quarterly letter we will also have had the US midterm elections. I am not going to try to predict the outcome here (though I do think, and hope, Republicans will lose at least one branch of Congress), nor do I think investors should make major investment decisions based on the expected outcome of the election. Long-term readers know that I have generally been quite fond of gridlock in Washington. Markets and businesses usually have an easier time planning when neither political party has enough control to rapidly change tax, spending, and regulatory policy. Washington doing a little less is not necessarily a bad outcome for investors. Regardless of who controls Congress after November, however, there are some problems where doing nothing is becoming increasingly difficult, and social security is near the top of that list.
The latest Social Security Trustees report estimates that the retirement and survivors trust fund will exhaust its reserves in the fourth quarter of 2032. That does not mean social security disappears or goes “bankrupt”; payroll taxes would continue coming in. But without changes, those revenues would only be sufficient to pay about 78% of scheduled retirement and survivor benefits. Six years sounds like there is plenty of time for Congress to deal with this, until we remember how Congress tends to operate. There is at least some encouraging work already underway. Bipartisan groups in both the House and Senate have introduced proposals intended to force a structured process for dealing with Social Security. The House proposal would create a bipartisan commission on long-term social security solvency, while the bipartisan Senate PROMISE Act would use the existing Social Security Advisory Board to develop a solvency proposal and then create a process requiring Congress to actually consider it.
Interestingly, this is not the first time we have been here. In the early 1980s, social security was potentially only months away from being unable to pay full benefits. President Reagan and Congress created what became known as the Greenspan Commission, which produced a bipartisan compromise that ultimately became the Social Security Amendments of 1983. The solution was not one enormous tax increase or one enormous benefit cut; instead, Congress pulled a whole series of smaller levers. Among other things, the legislation gradually increased the full retirement age from 65 to 67, accelerated previously scheduled payroll-tax increases, brought additional workers into social security, delayed a cost-of-living adjustment and began taxing a portion of social security benefits for higher-income retirees. It wasn't particularly pleasant for anyone, which is probably one reason it worked.
I suspect something similar will ultimately happen this time. There are only so many levers available: gradually raising the retirement age again; increasing the payroll-tax rate; raising or changing the amount of wages subject to social security taxes; modifying benefits for higher-income retirees; changing how benefits or inflation adjustments are calculated; or finding additional tax revenue somewhere else. There is already bipartisan interest in at least some of these ideas, including a recent proposal from Senators Elizabeth Warren and Bernie Moreno to substantially expand the wages subject to social security taxes. My hope for the next Congress would therefore be a somewhat unusual combination: plenty of gridlock on most things, but enough bipartisan cooperation to finally address social security. The longer Congress waits, the fewer painless choices it will have.
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