Delaying Social Security reform raises risks for bond markets and the economy, research finds
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- Mercatus Center research published June 26 by Veronique de Rugy and Jason Fichtner warns that pushing reform closer to the OASI trust fund's depletion date increases fiscal risk and makes additional government borrowing more likely, straining Treasury markets.
- OASI trust fund is now projected to be depleted in Q4 2032 — three months earlier than last year's estimate — leaving only 78% of scheduled benefits payable, per the annual Social Security trustees report.
- Marc Goldwein of the Committee for a Responsible Federal Budget warned that funding Social Security through general revenue would "open the floodgate" to borrowing the country cannot afford, potentially triggering a fiscal crisis.
- Social Security's annual shortfall is projected to grow from $600 billion in 2033 to roughly $700 billion by 2036, layered atop an estimated $2.7 trillion deficit and $46.5 trillion national debt by 2033, according to de Rugy and Fichtner.
- CRFB modeling shows that if general funds were tapped for Social Security, 10-year Treasury yields could rise from 4% to 6.6% and 30-year fixed mortgage rates could jump from 6.3% to nearly 9%.
- Early warning signs flagged by the researchers include declining foreign holdings of U.S. Treasurys amid new tariff policies, persistent inflation above the Federal Reserve's 2% target, and rising longer-maturity TIPS rates.
- CRFB's 2019 reform plan projected that targeted changes — including raising retirement ages and auto-enrolling workers in supplemental accounts — could grow the economy by 3.5%–13% by 2050 and raise per-person income by roughly $8,000.
Why it matters: Borrowing costs for the government and every consumer with a mortgage, car loan, or credit card could spike if Social Security reform stalls and general revenue is tapped — CRFB modeling puts 10-year yields at 6.6% and 30-year mortgages near 9%. With the OASI trust fund now projected to empty in Q4 2032, the window for Congress to act before bond markets reprice is narrowing fast.
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