Social Security's funding deadline is getting closer. 4 policy changes could prevent retirement benefit cuts.

Lawmakers are weighing proposals to tackle a looming shortfall in the Social Security program’s retirement trust fund reserves, which could trigger across-the-board benefit reductions unless Congress acts.

Without action, beneficiaries could face an automatic reduction in payments of about 22% in 2032. Lawmakers agree that action is needed, but are divided on how to close the funding gap.

A bipartisan group of senators, including Bill Cassidy, Thom Tillis, Dick Durbin and Tim Kaine, have urged their congressional colleagues to address the program’s looming deadline.

In a joint statement released on June 10, the four lawmakers called on Congress to “join us in doing what we were elected to do — legislate on hard issues and protect this lifeline program for our kids and grandkids.”

At a June 24 hearing of the Senate Finance Subcommittee on Social Security, Pensions and Family Policy hearing, Shai Akabas, vice president of economic policy at the Bipartisan Policy Center, put the projected 2032 benefit reduction in stark terms, warning that it would cost a married couple with two average earners about $10,600 per year.

“When both parties decide the cost of inaction exceeds the cost of action, a deal gets made,” he told lawmakers. “The American people are at that point. Congress needs to catch up.”

Here are some of the leading ideas to tackle the problem before time runs out.

1. Bring in payroll tax for higher earners

One often-cited proposal to shore up the funds is to increase the revenue flowing into Social Security, rather than reducing future benefits. The approach has been championed by many Democrats, and broadly asks higher earners to pay more into the program.

One approach, backed by Sen. Bernie Sanders, is to introduce the Social Security payroll tax for high earners.

Under the current law, wages above the annual taxable maximum — $184,500 — are exempt from the 12.4% Social Security payroll tax, though they remain subject to Medicare payroll taxes.

Sen. Sanders & Rep. Peter DeFazio, who are authors of the Social Security Expansion Act, propose partially lifting the cap by re-applying the 12.4% Social Security payroll tax for those earning above $250,000.

Known as the ‘donut hole’ approach, it means earnings between $184,500 and $250,000 would not be subject to 12.4% in tax. However, as the lower cap gradually increases over time, the $250,000 cap will remain, meaning the size of the gap (the hole in the donut) gradually shrinks until everyone is paying 12.4% on all their earnings.

Sanders has frequently stated it is “absurd” that a billionaire pays the same amount of Social Security taxes as an everyday worker.

According to projections from the Social Security Administration requested by the authors, this policy shift would fully fund Social Security through the end of the century (extending solvency for 75 years, and spare 91% of workers.

2. Take away the payroll tax cap

Another solution, proposed by Democratic Sen. Elizabeth Warren and Republican Sen. Bernie Moreno, is eliminating the Social Security payroll tax cap altogether.

The pair say their bipartisan proposal could raise trillions of dollars and help shore up the program’s finances by requiring those with the greatest ability to pay to contribute more.

Writing in the New York Times, the senators argued that scrapping the cap, which applies only to the first $184,500 of a person’s earnings, would generate roughly $3 trillion in additional Social Security tax revenue over a decade, according to the Peter G. Peterson Foundation. This, they write, would ensure “the solvency of Social Security for another generation.”

Although Moreno’s support has given the proposal some bipartisan clout, it has nonetheless attracted criticism from other corners of the GOP. Conservative policy analysts, including experts at the Tax Foundation think tank, said the proposal could increase labor costs, reduce take-home pay, or discourage work and investment. They argue that additional revenue alone may not fully address the demographic pressures created by an aging population.

3. Increase retirement age

Many Republicans have instead argued for slowing the growth of future Social Security benefits, rather than raising taxes. The approach has been championed by Sen. Lindsey Graham, and has appeared in several Republican Study Committee budget blueprints, even as there is no single Republican proposal to overhaul Social Security.

The most widely discussed idea is to gradually push the full retirement age beyond 67. Supporters argue that because Americans are living longer than they did when Social Security was created, asking future retirees to work longer before receiving full benefits would help strengthen the program’s long-term finances.

Speaking at a town hall in March, Graham said Congress should consider another bipartisan overhaul, similar to the Social Security reforms of 1983.

“My belief is you can’t tax your way out of this, but you do need more revenue,” he said. “My belief is, maybe you adjust the [retirement] age one more time … you’re going to have to do an all-of-the-above approach.”

Workers would generally still be able to claim retirement benefits at 62 unless Congress changed that rule separately, but those who claimed before the new full retirement age would face larger permanent reductions in their monthly payments. Other proposals would change the formula used to calculate initial benefits or slow benefit growth for higher earners.

Supporters say these changes would improve Social Security’s long-term finances while largely protecting current retirees and avoiding payroll tax increases. But critics argue they would amount to benefit cuts, because future retirees would receive less than they would under the current law.

The American Association of Retired Persons (AARP) has also warned that raising the retirement age could fall hardest on lower-income workers and people in physically demanding jobs who may be less able to extend their careers.

4. Create a government-backed investment fund

Another proposal, backed by Sens. Bill Cassidy and Tim Kaine, would establish a government-backed investment fund designed to strengthen Social Security over the long term.

Under the plan, the federal government would borrow roughly $1.5 trillion over several years to create a professionally managed investment fund, separate from the Social Security trust funds. The money would be invested in a broad mix of stocks and other assets, with supporters projecting that returns over the next 65 to 70 years could cover 60-65% of the program’s future funding gap and eventually help pay for future Social Security benefits.

Outlining his proposal on CNBC, Cassidy said: “The longer you wait, the harder it is to fix, the more painful to fix … we need to do something now.”

The proposal could improve Social Security’s finances without immediately raising payroll taxes or cutting scheduled benefits, but some retirement policy experts have questioned its reliance on federal borrowing and its forecast of decades of investment gains. The Committee for a Responsible Federal Budget has called it a “dangerous debt-funded gamble,” while Boston College retirement economist Alicia Munnell argues it would do little to address the program’s underlying financing imbalance.