Its representatives may finally seize the dreaded “third rail” of American politics. When Social Security and Medicare trust funds run out in the early 2030s, the law is clear: benefits must be cut. That would mean a roughly 24% cut in Social Security checks and an 11% cut in Medicare benefits. But Congress almost certainly won't let that happen.
The easy, if irresponsible, political path may seem obvious: change the law, keep benefits full, and pay back by borrowing the money. This way lawmakers won't have to cast unpopular votes in favor of spending cuts or tax increases. This only makes sense if the consequences will not become clear until much later, when voters have completely forgotten about it.
What most people don't know is that, this time, the consequences can appear quickly. Inflation may not wait for debt to accumulate. It may come at a time when Congress commits to that debt-ridden path.
Unfortunately, this part may not be as obvious to policymakers analyzing the projections.
According to the Congressional Budget Office, borrowing to cover Social Security and Medicare shortfalls would raise the federal debt to about 156% of GDP by 2055. These deficits represent approximately $116 billionincluding interest, during those 30 years. Despite all this debt, projections assume that inflation will remain low for decades and that interest rates will rise only very slowly. That calm perspective is misleading.
Think of government debt as shares of a company, whose value is based on what investors believe they will earn in the future. Public debt works in the same way: its value depends on whether those who buy it believe that future primary surpluses (revenues minus expenses, excluding interest) will be sufficient to pay that government's promises and obligations.
When belief weakens, markets do not sit back and wait for the reckoning. They adapt immediately. And in the United States, that adjustment usually manifests itself in the form of inflation.
We saw this happen just a few years ago, between 2020 and 2022, when Congress approved about $5 trillion in debt-financed spending without a clear repayment plan. Households received pandemic stimulus checks, spent them quickly and saw no reason to expect higher taxes or fewer services. They were right. The post-pandemic era did not bring austerity.
Inflation followed, and not simply because the Federal Reserve expanded the money supply. People realized that the new debt lacked a credible plan behind it. The purchasing power of the dollar weakened until the real value of public debt fell back in line with the expected future primary surpluses available to support it. By the time inflation peaked at 9% in 2022, federal debt equivalent to about 10% of GDP had been effectively erased by higher prices.
Voters hated inflation and made it clear at the 2024 polls.
The rights deadline could provoke an even stronger reaction. Senators elected this year will be tempted to borrow as much as they need to preserve profits. But without serious reform, new revenue and spending restraint, investors may not wait to see if some future Congress finally finds a way to pay.
If they reprice US debt immediately, prices could rise much faster than official forecasts suggest, perhaps almost immediately. Not because the debt is huge (that's already true), but because people no longer trust the plan behind all that future debt.
At that point, the Federal Reserve would be in a terrible position. Raising interest rates to combat inflation would also immediately raise the government's borrowing costs on debt that must be quickly refinanced. Paying higher interest bills with even more debt would be like paying off one credit card with another. The Federal Reserve would be forced to choose between tolerating inflation or triggering a deeper fiscal crisis.
Either way, the costs would be severe.
Inflation is a silent and unvoted tax. It devours savings, pensions and fixed incomes. It hurts retirees who did everything right and relied on safe assets. It squeezes workers whose wages don't keep up with rising prices. It pushes families to spend more on food, rent, energy and healthcare. And it distorts the entire economy by rewarding speculation over productive investment.
Nobody escapes. Not the poor. Not the middle class. Not even the rich. It is the most painful way to finance government promises.
Legislators know this, but reform is difficult. The temptation is to borrow, avoid conflict, and let others clean up the mess when the political prospects are better. But this time, inflation could break out under the watch of the same legislature. The reckoning will not be postponed, nor will the accountability. As in 2021, voters will pay first and blame later.
Rugy Veronica He is a senior fellow at the Mercatus Center at George Mason University. This article was produced in collaboration with Creators Syndicate.
