Social Security Proposal Would Raise Taxes for Millions to Save Program
As Social Security’s financial outlook grows increasingly concerning, a bipartisan group of lawmakers is reviving a proposal to require higher-income Americans to pay Social Security taxes on more of their earnings.
To many, it presents as one of the least painful ways to shore up the retirement program, but it also could amount to one of the largest tax increases in decades.
Democratic Senator Elizabeth Warren and Republican Senator Bernie Moreno wrote in a recent New York Times op-ed that removing the payroll tax cap would be a “no-brainer” as the Social Security Administration faces funding insolvency as early as 2032.
Why It Matters
According to the latest Social Security trustees’ projections, the program’s Old-Age and Survivors Insurance trust fund is expected to become depleted in the fourth quarter of 2032. If Congress does nothing, incoming payroll tax revenue would only be sufficient to pay about 78 percent of scheduled benefits, resulting in an automatic 22 percent cut for retirees and survivors.
What To Know
Under current law, workers and employers each pay a 6.2 percent Social Security payroll tax on earnings up to $184,500 in 2026. However, wages earned above that amount are exempt from Social Security taxes.
Warren and Moreno are two lawmakers so far to call for eliminating the cap entirely, arguing that wealthy Americans should pay Social Security taxes on all earnings rather than stopping once they exceed the annual threshold.
“Why should a middle-class nurse pay a larger share of her paycheck — than a wealthy corporate lawyer? This is doubly unfair in an economy in which top earners’ wages, over time, have pulled far ahead of those of the average worker,” the senators wrote in their Times op-ed.
“This is a no-brainer: The wealthiest Americans, who have benefited the most from America’s opportunities, should contribute the same percentage of their income as a factory worker in Chillicothe, Ohio, or a teacher in Worcester, Mass.”
The proposal would directly affect only about 6 percent of workers.
Alex Beene, a financial literacy instructor for the University of Tennessee at Martin, told Newsweek: “Raising the payroll-tax cap is one of [the] easier Social Security fixes because the system currently stops taxing wages above $184,500, meaning many high earners pay Social Security tax on only part of their income.
“The impact would be concentrated on upper-income earners, and proposals that tax earnings above $250,000 could raise roughly over a trillion dollars over the next decade, but that still would not fully solve the program’s long-term shortfall.”
How Much Would It Raise?
The Social Security Administration estimates that eliminating the taxable maximum while not providing additional benefits for those earnings would close roughly 67 percent of the program’s 75-year funding gap.
And Warren and Moreno said the change could generate roughly $3 trillion over 10 years.
How This Proposal Would Work
Is There Actual Legislation?
A bipartisan Warren-Moreno proposal is still being developed, but other ideas are also on the table.
Senator Bernie Sanders, an independent from Vermont, reintroduced the Social Security Expansion Act, which would require higher earners to pay more into the system and strengthen Social Security’s finances.
Most of the Democratic-backed proposals share a common theme: increasing taxes on higher earners rather than cutting benefits. However, Republican pushback could stifle efforts to raise taxes on higher earners.
“Raising the payroll tax disproportionately impacts the most vulnerable portion of the income spectrum, but it may be a necessary step to help address the funding shortfall. Raising or completely removing the wage cap is another option,” Kevin Thompson, the CEO of 9i Capital Group and the host of the 9innings podcast, told Newsweek.
“To be completely fair, both need to be on the table. This is not a one-or-the-other solution. Fixing Social Security will likely require a combination of multiple options, and everyone may have to feel a little bit of the pain.”
What If Congress Raised Payroll Taxes for Everyone?
Instead of targeting high earners, lawmakers could also raise the Social Security payroll tax rate itself.
Today, the total Social Security tax rate is 12.4 percent, split equally between workers and employers.
Eliminating the program’s long-term actuarial shortfall through taxes alone would require increasing the tax rate to roughly 16.6 to 16.7 percent, according to the Social Security Trustees Report.
That represents an increase of about 4.25 percentage points overall, or about 2.1 percentage points for employees, since employers pay half.
Other Proposals Under Discussion
Congress is not limited to those two options, however, and as the deadline to save Social Security fast approaches, it’s likely they will combine several reform ideas. That could include the following:
- Eliminate or increase the taxable wage cap
- Raise payroll tax rates gradually
- Expand taxes to more forms of compensation
- Increase full retirement age
- Reduce future benefits for high earners
- Change annual cost-of-living formulas
Why the Social Security Problem Has Gotten Worse
Demographic changes are placing increasing pressure on Social Security.
Every year through 2027, more than 4 million Americans will turn 65, while birth rates remain low and workers will support more retirees than in previous generations.
The 2026 Trustees Report also said lower fertility rates and immigration were major reasons the program’s finances have deteriorated further this year.
“The reality is we cannot accurately predict the future size of the labor force or the long-term impact of reduced immigration on payroll tax revenue flowing into the Social Security system,” Thompson said.
“Even a 2 to 3 percent increase in FICA taxes could mean thousands of dollars in lost discretionary income for some Americans. Yet, on the other side, Social Security benefits are generally spent, not saved, by the older population. So those dollars flow directly back into the economy. That is the trade-off no one really wants to discuss.”
What Happens Next
Pressure is intensifying on Congress to act to save Social Security.
The bipartisan Warren-Moreno proposal has drawn attention because it targets higher-income earners rather than broad tax increases that would affect every worker. However, estimates from the Social Security Administration suggest that eliminating the payroll tax cap alone would close only about two-thirds of the long-term funding gap.
To fix the entire problem, lawmakers would have to make other changes as well.
“The more viable long-term solution is probably a blended package involving higher contributions from top earners and benefit protections for the Americans who depend on Social Security most,” Beene said.
Contact Newsweek editors on this story: Jason Lemon and Sam Wilson.