The Bipartisan Social Security Fix That Wouldn't Cost Most Americans a Dime

As Social Security's approaching insolvency threatens reductions in monthly benefits for seniors, legislators have identified a potential fix that most Americans wouldn't feel in their paychecks. The proposal of raising the Social Security payroll tax cap has rare bipartisan support, and it has the potential to only increase taxes on high earners. Even so, critics are poking holes in the idea, and Congress hasn't yet moved to enact the solution.

There's lots of conversation around the issue of Social Security's insolvency and how to identify the best potential fix. Here's what you should know.

Social Security's approaching insolvency

A 2026 report by the Social Security Trustees projected that the Old-Age and Survivors Insurance (OASI) trust fund may become depleted by the fourth quarter of 2032. That projected date is one quarter earlier than the date the trustees projected in 2025.

If the trust fund becomes depleted, the Social Security program would only have enough revenue to pay for approximately 78% of the total scheduled benefits. As a result, benefits would automatically be reduced by about 22% if Congress doesn't act and implement a solution.

How the current payroll tax cap works

In 2026, Social Security payroll taxes only apply to the first $184,500 an individual earns during the year. Any income beyond that threshold isn't taxed for Social Security. Employers and employees split the 12.4% payroll tax, each paying 6.2% tax on the income.

The payroll tax cap means that low- and mid-earners pay taxes on their entire income, while high earners only pay taxes on a percentage of their income. It also means that the Social Security program misses out on potential revenue that it could earn if the payroll tax cap were higher or removed entirely. If the cap were lifted, it would mean that top earners pay more in taxes, while the majority of Americans who earn less than $184,500 per year would see no change in their taxes.

Bipartisan support for lifting the payroll tax cap

Democratic Senator Elizabeth Warren and Republican Senator Bernie Moreno published an op-ed in the New York Times in June. The op-ed called for Congress to lift the payroll tax cap in order to save the Social Security program.

During an August Senate Finance Committee meeting, Warren explained that Congress has a choice. "Either we can decide to protect the top 6% of all earners in America and let the Social Security trust fund get into trouble, cut benefits for seniors, throw more seniors into poverty, or we can decide that everybody pays the same share, and protect Social Security forever into the future," she said.

The bipartisan support here is rare, especially in today's divided political scene, though Moreno and Warren have united in supporting a concept, not a bill moving toward passage.

What lifting the payroll tax cap might accomplish

According to the Tax Foundation, the Social Security shortfall over the next 75 years totals $25 trillion. If no other changes were implemented, to keep the program solvent through 2100 would require the immediate implementation of a payroll tax increase of 4.25%.

The Social Security Administration has calculated the effects of uncapping the payroll tax without making any other changes to the program. According to the calculations, in a best-case scenario, eliminating the payroll tax cap would close just 67% of the program's shortfall. Either cutting benefits, implementing higher taxes, raising the retirement age, or another solution would be needed to fully keep the program solvent. Some of those changes could affect lower-income workers.

The fairness debate

Supporters of eliminating the tax cap argue that it's fair to make the wealthy pay taxes on 100% of their income, since lower earners already pay taxes on their full income. Rebecca Vallas, Chief Executive Officer of the National Academy of Social Insurance, stated that lifting the tax cap could offer extra protection for people such as seniors and those with disabilities, since coping with reduced benefits could be particularly challenging for these groups.

Others argue that taxing income could have harmful effects and is unfair. Lifting the tax cap wouldn't change the benefits that higher earners ultimately receive, since Social Security only replaces income up to the taxable maximum of $184,500.

If the tax rate were still divided among employees and employers, lifting the cap might mean that employers face punishingly high tax rates, eating into their revenue. Employers might shift to non-taxed compensation, like offering employees fringe benefits or 401(k) contributions, to avoid the higher taxes.

Bottom line

The idea to lift the payroll tax cap is just one of many ideas that have been proposed, and it hasn't been formally introduced as a bill. No plan has become law yet, and Congress is exploring many potential solutions.

Given the uncertainty of what may happen with Social Security, this may be a good time to stress-test your retirement budget. Do some calculations and determine what your budget might look like if Social Security benefits were reduced, and make any necessary adjustments to your retirement plan now.

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