Is Social Security Fair to Gen Z?
Budget expert Romina Boccia explains why Social Security’s intergenerational transfer leaves younger workers with a raw deal.
Editor’s note: This interview has been lightly edited for clarity and readability.
Romina Boccia is the director of budget and entitlement policy at the Cato Institute. She has been featured on CNBC, Fox News, and C-SPAN, and her research and commentary on federal spending, Social Security, and fiscal sustainability have been published in and cited by The Wall Street Journal, The Washington Post, and Bloomberg.
She recently spoke at Davidson College, where she gave a lecture to students in Dr. Katherine Bersch’s comparative politics class. She later sat down for an interview with Lux to discuss the misconceptions surrounding Social Security and why the program now faces mounting fiscal pressures.
Romina, you have described Social Security as a legal Ponzi scheme. Can you explain why?
There are a lot of misconceptions in the American public about what Social Security is and how it works. Cato polling from August 2025 showed that about a quarter of Americans think that Social Security is a private retirement account.
These myths arise from misleading terminology. We hear about a “trust fund” and “earned benefits,” which leads many people to think that they are contributing to their own retirement and later getting their money back with interest. That is not how the system works, although that is partially how it was sold.
Social Security operates more like a legal Ponzi scheme because benefits are paid out using money from new entrants rather than from real investment returns. When the program began, it paid benefits far in excess of what early beneficiaries had contributed. The example I like to give is the very first Social Security recipient, Ida Mae Fuller, who paid very little into the system and got about a 1,000-times return. By the end of her lifetime, she had collected the equivalent of roughly half a million dollars in Social Security benefits, while her total tax contribution in today’s dollars was closer to $23,000.
Why is Social Security less sustainable today than when it was created?
When Social Security was first implemented, there were roughly 50 workers paying taxes into Social Security for every one beneficiary collecting benefits. Today, that ratio is about 2.7 workers per beneficiary.
During that time, the tax rate has gone up significantly, from 2 percentage points of payroll or earned income to now 12.4%. But even at that much higher tax rate, the dollars coming into the system fall short of the benefits that have been promised.
Another major driver of that imbalance is demographic change. When Social Security was first implemented, far fewer Americans reached the eligibility age. Life expectancy in 1935 was about 64, while Social Security eligibility began at 65. Since then, life expectancy has grown by roughly 17 years, and life expectancy at age 65 has grown by about seven years. Today, the eligibility age has only gone up by roughly two years. And so you have more people collecting benefits for longer at a time when U.S. fertility rates have declined. So you have fewer workers now paying in than was the case in the past. Those factors together—the aging of the population, longer life expectancies, and the decline in fertility—have all contributed to the growing imbalance.
You’ve described Social Security as a failure of John Rawls’s veil of ignorance test. Who is advantaged, who is disadvantaged, and why?
Social Security represents an intergenerational transfer program. The way it works is that younger working Americans are taxed on their earned income through the so-called payroll tax, and then that money is redistributed to older Americans who are, in many cases, retired and eligible for Social Security benefits.
Now, usually when you have a redistributive transfer system that a government sets up, and if you have a fairly just government, you would redistribute money from wealthier individuals to poorer individuals. It’s a question of: What is the legitimacy behind the transfer? What justifies the government taking money from one group of people and giving it to another?
In many cases, that transfer is justified because some people need the money more than others. But in the case of Social Security, that moral legitimacy doesn’t really apply, because the money is collected from people who tend to have fewer assets and lower wealth, and then given to people who often have much higher assets and higher wealth. And so you have Social Security operating on the Robin Hood principle in reverse: taking from the poor to give to the rich.
So would it be better to just drop the pretense of a savings account and make it means-tested? Or perhaps something like a flat universal benefit?
I believe that we should stop talking about Social Security as if it were a retirement savings program. We should drop misleading terms like “the trust fund” or “earned benefit.” Even the name of the Social Security payroll tax is misleading. It’s called FICA, the Federal Insurance Contributions Act.
All of those terms mislead people about the true nature of Social Security, which, if you look under the hood of the program, is really just a wealth transfer scheme. There’s no savings. There are no real assets in the so-called trust fund. There are no contributions. There are taxes paid and benefits received.
In that sense, Social Security functions similarly to food stamps or other government welfare programs. The only difference is that people think about it differently because of political rhetoric and a comforting lie they’ve been told their entire lives about what the system is, compared to how it actually works. So, yes, I believe we should be honest with the American people about how the program functions. And in light of that discussion, we should also consider who benefits should be for. What should the purpose of Social Security be?
It shouldn’t be income replacement regardless of need, because we can’t afford that anymore. It should be, if anything, poverty prevention for seniors who wouldn’t otherwise be able to provide for themselves, in order to reduce distortions in American saving behavior. Social Security could adopt a universal benefit that wouldn’t be means-tested. You would basically just give everyone the same benefit, which would also be more fiscally affordable than the current structure. You could means-test a benefit, but the tradeoff is that people will come up with elaborate ways to hide assets so they can qualify for the means-tested benefit in old age. You don’t want to discourage people from saving and investing, which are good things to do. Unfortunately, those are some of the side effects of having a means-tested versus a more universal old-age benefit.
What if Social Security were structured as a true savings account?
You could look to Australia, which for many Americans has been a model for what a government-mandated, defined-contribution savings account could look like. Australia is interesting because they also have roughly a 12% contribution to retirement savings. But unlike in the United States, where Social Security’s 12% payroll tax is just a pure transfer, the way it works in Australia is that workers’ contributions are actually invested in the stock market for the worker.
It’s like an American-style 401(k), except 401(k)s or IRAs in the United States are voluntary. The Australian superannuation is mandatory. And that’s the key difference.
If you look at American voluntary savings behavior, when people actually have a choice about how much to put into their 401(k)s or IRAs and they’re not forced to, you find that younger workers tend to be less focused on retirement savings, as they should be, and more focused on other investments. Some invest in education, some start businesses, and some borrow to buy or build homes to raise their families. As Americans reach their peak earning years, their retirement savings go up. This tends to be the case around ages 40 to 60, which is why our system allows for so-called catch-up contributions.
I think one of the downfalls of having a mandatory defined-contribution system like Australia’s is that you’re taking away people’s choice about when to save and how much to save, which can actually make younger people worse off by taking away money they could use in better ways.
That said, if you’re comparing it to U.S. Social Security, you could say it’s superior, because at the very least it’s not just a pure income transfer. The Australian system is actually a retirement savings account. People’s income is forcibly saved and then gets to grow. And so Australians often end up with higher income in retirement from superannuation than Americans generally receive from Social Security, depending on income level.
The key difference is that Social Security is redistributive, from workers to seniors, generally from lower-income earners to higher-income earners, although some of that is changing. Australia, by contrast, is contributive. It’s mandatory, but it’s a contribution system.
My favorite system combines the best of two worlds. It would provide a predictable basic benefit, like New Zealand does, where everyone gets the same amount. You know how much you can expect from the government, which then tells you how much you should be saving on top to meet your personal preferences for the living standards you’d like to enjoy in old age.
And then New Zealand makes it simple and easy for people to save in private accounts through automatic enrollment. There you get at the concern that some people will be too short-sighted and won’t be saving for retirement. Many people argue that therefore we have to force them, but if you look at automatic enrollment, that’s one nudge you can use where people can opt out. People who are too lazy to opt in will often also be too lazy to opt out. So you capture that population without reducing individual autonomy for those who want more control over their own income and savings.
What reforms would actually make Social Security sustainable?
We have to get at that question from two angles. One is how do we get it done politically, because that’s really the bigger issue. And then two is what reforms would actually make a difference. That depends on your preferences about how much redistribution you think government should be doing and how much economic growth you want to prioritize.
So first, how do we get it done politically? Given the political nature of Social Security and all the misconceptions people have about how the program works, we will most likely need to rely on an expert commission. This is not something Congress is willing to tackle directly, because the incentives are against it. Members of Congress want to be reelected, and if you poll people on tax increases or benefit reductions, both are unpopular. So politicians find themselves between a rock and a hard place, and their choice has been to do nothing. But if Congress delegates responsibility to an independent commission, that can give politicians the necessary political cover to implement economically necessary reforms, while allowing them to point to the commission rather than take the full political fallout themselves.
Then there’s the question of what should actually be done. You have two primary levers. You can reduce benefits to close the imbalance, or you can raise taxes. And so the question becomes: what is the most equitable approach, and what is most conducive to economic growth? People will have different preferences.
For example, European countries tend to have more expensive welfare states that are primarily funded by lower- and middle-income taxpayers through consumption taxes. In the United States, we currently have a very progressive tax system, but there’s a limit to how much you can tax upper-income earners if you’re unwilling to tax lower- and middle-income earners. Right now, the top 10 percent of income earners pay about 70 percent of the entire income tax burden.
Things change when you look at payroll taxes because they actually affect lower-income taxpayers. But some of the top proposals that are most politically popular right now for fixing Social Security would actually try to raise taxes more on higher income earners. One of them is about lifting the payroll tax cap, because right now, about $189,000 in annual income are subject to payroll taxes, but also people’s benefits are based on that payroll tax cap. And so there’s a maximum benefit that some of the highest earners can collect, in 2025, that’s roughly $62,000 annually for an individual.
But if you eliminate the payroll tax cap and tax all earned income, you immediately raise another question: do you give higher-income earners credit for those additional tax contributions? If you do, you could end up paying a top earner a $200,000 annual benefit. Is that really something the government should be doing, especially given our fiscal situation? If instead you raise taxes on higher-income earners without increasing their benefits, then you fundamentally alter the nature of the program. And if we’re willing to go that far and delink benefits from earnings and contributions, then why not ask a more substantive, foundational question: who actually needs Social Security, and what is the most economically efficient way to provide a needs-based benefit?
Lifting the payroll tax cap also comes with real tradeoff costs. In high-tax states like New York and California, marginal tax rates for top earners could rise above 60 percent, meaning every additional dollar earned would face a 60-cent tax. That changes behavior. People work less, invest less in their own human capital, and we all end up with lower innovation and slower economic growth as a result. That’s not very economically efficient, especially for the purpose of paying outsized benefits to the highest-income earners. What’s the point?
Instead, if we focus on what the program should justifiably do—perhaps keeping seniors out of poverty—we can then ask how to achieve that goal at the lowest cost. Those are the questions we should be raising, rather than making incremental tweaks that often don’t make sense once you’re clear about the end goal. Why would we be giving a $200,000 annual benefit to someone with millions, or even billions, of dollars in assets? And even today, why are we paying $62,000 annual benefits to millionaires, including people like President Trump, who is also eligible for Social Security? The system doesn’t make sense. I think we need to look more fundamentally at what the system should do, and then how we should finance it.
How could Congress realistically create a fiscal commission given opposition from groups like the AARP?
That has actually already happened. In 2024, Congress considered a bipartisan fiscal commission, and it was voted out favorably from the House Budget Committee but never came to the House floor because special interest groups, including the AARP, opposed it.
The way for Congress to overcome those political pressures will likely be in the face of a more severe crisis. And that crisis is coming. It could be imposed externally if bondholders demand much higher interest rates to continue lending to the U.S. government, triggering a fiscal crisis that gives politicians both the motivation and the political cover to put an effective commission in place.
Or it could come from legal and statutory deadlines. In the early 2030s—2032 for Social Security and 2034 under current projections for Medicare—Congress will be forced to act, or the default will be automatic benefit cuts. If lawmakers are confronted with the prospect of their constituents facing a 24 percent Social Security benefit cut and an 11 percent cut to Medicare’s hospital benefits, which would limit access to care, they will likely look for other options.
How do you prevent a fiscal commission from being captured by institutional or political incentives?
I’ve been an advocate for a fiscal commission modeled after the successful Base Realignment and Closure Commission. One problem with these kinds of institutions is that they can get hijacked if they stick around for too long. So one important safeguard is to make the commission temporary and give it a very specific goal that it has to achieve.
Another safeguard is oversight. You have congressional watchdogs like the Government Accountability Office that can verify whether the commission’s recommendations fall within the bounds Congress set and whether those proposals actually achieve the fiscal goals Congress established.
Personnel selection also matters. You have to nominate the right people, and a system of checks and balances, such as Senate confirmation, helps ensure that compromise is built into the process. That makes it harder for either party to stack the commission with people who would undermine its purpose or push proposals that wouldn’t be palatable to the American public.
The commission should also be designed to dissolve. Once its goal is achieved, it should discontinue, or be placed on a timer so that even if it fails, it is automatically dissolved. The longer powerful institutions like this exist, the more likely they are to lose their independence over time.
And finally you have external organizations, ideally nonpartisan, that serve Congress and the American people like the Government Accountability Office. They can monitor the commission’s proceedings and review its recommendations before they go into effect to confirm that the commission did what Congress tasked it to do.
You just spoke to a class of Davidson students. What is the main takeaway you want them to leave with?
The federal budget and our national debt aren’t abstract issues that only happen in Washington. Our constitutional republic depends on an active, informed, and involved citizenry to provide real checks and balances on politicians. We all stand to gain or lose from how Congress chooses to address the growing debt crisis, which is driven in large part by unsustainable entitlement programs that provide significant benefits to some of the wealthiest people in the country.
If you look at the federal budget, about 45 cents of every dollar Congress spends goes toward benefits for people aged 65 and older, even though they make up roughly 18 percent of the population. As that population grows, so does its share of federal spending. By 2030, about half of all federal spending is projected to benefit this group.
Individuals aged 65 and older tend to have both the financial resources and the time to be politically involved, and the federal budget reflects that reality. They are disproportionately more likely to vote than younger people, with more than two-thirds of people in that age group voting compared to roughly one-third of people aged 35 and under. They have more time to attend town halls, they know who their representatives are, and they regularly contact them through phone calls, emails, and letters. Seniors also participate in powerful political organizations like the AARP, which organizes on a grassroots level to preserve Social Security and Medicare benefits, and they are more likely to donate to political campaigns because they have had more time to accumulate assets and deploy them in the political system. As a result, policymakers tend to hear primarily from people on the receiving end of these benefits, rather than from the taxpayers who are paying for them
It is important that students, who have the highest stake in this debate, become more informed about how decisions made in Washington affect their lives, their economic opportunities, and how much money they will ultimately have in their bank accounts. They also need to become more involved and make their voices heard using the tools available in our political system, not just through voting, but by contacting their members of Congress. That can mean writing letters, sending emails, or making phone calls. Politicians are representatives, and they exist to represent the people. Right now, they are mostly hearing from those on the receiving end of these benefits. They also need to hear from the taxpayers who are paying for them.
Editor’s note: Boccia also publishes regular analysis of fiscal policy and entitlement reform through her Substack, The Debt Dispatch, which is widely read by policymakers and congressional staff.