CongressProposes Tax Reforms to Safeguard Social Security Amid Trust Fund Concerns

Washington legislators now have a fresh deadline to address Social Security’s retirement trust fund, according to a recent annual report from the program’s trustees.

Projections indicate that the OASI trust fund could be exhausted in the fourth quarter of 2032, at which point only 78% of scheduled benefits would be funded, per the latest trustee forecasts.

This timeline is several months earlier than earlier estimates, and the fund underpins monthly payments to millions of retirees, their spouses and children, as well as survivors of deceased workers.

Consequently, there is renewed momentum to impose higher taxes on high earners to reinforce Social Security’s finances.

On Tuesday, Senators Elizabeth Warren (D‑Mass.) and Bernie Moreno (R‑Ohio) co‑authored an op‑ed announcing collaborative legislation to raise the payroll tax cap and strengthen Social Security’s solvency.

Payroll taxes currently apply to earnings up to $184,500; income above that threshold is exempt for the remainder of the year. According to the Center for Economic and Policy Research, individuals earning $1 million annually ceased paying Social Security payroll taxes in March 9, 2026.

During a Senate Finance subcommittee hearing on Wednesday, Senator Bernie Sanders (I‑Vt.) argued that it is time for the nation’s wealthiest citizens — who have never enjoyed greater prosperity — to fulfill their fair share of tax obligations.

Senator Sanders introduced the Social Security Expansion Act, co‑sponsored by Warren and nine additional Senate Democrats, which would impose higher taxes on wages, salaries and self‑employment income exceeding $250,000, while also raising the net investment income tax and extending payroll taxes to active business and trade income.

Representative John Larson (D‑Conn.) has put forward the Social Security 2100 Act, which would subject income above $400,000 to Social Security payroll taxes and increase benefits; although introduced in 2023, it has not yet been re‑filed this session and currently enjoys 189 Democratic co‑sponsors.

Moreno’s endorsement represents a “major breakthrough” for Democratic leaders seeking to forge a bipartisan coalition on this matter, Larson noted in a statement.

The payroll tax cap is adjusted annually to reflect national wage growth; consequently, the distance between the wage base and any future threshold — whether $250,000 or $400,000 — will gradually diminish over time.

Differential Wage Growth Undermines Social Security Sustainability

The 1983 Social Security reform was enacted to achieve 75‑year solvency, projecting the program’s stability through 2058.

However, this horizon was shortened largely because of expanding income inequality and the fallout from the Great Recession, according to Stephen Nuñez, director of stratification economics at the Roosevelt Institute, a left‑leaning think tank.

In 1983, the payroll tax cap covered roughly 90% of eligible earnings, Nuñez noted, and legislators assumed the coverage would remain constant.

By 2000, FICA taxes accounted for only about 82.5% of taxable income and have remained at that level, he added.

‘That represented a massive decline in expected revenue at a moment when the program was intended to accumulate reserves,’ Nuñez said.

The degree to which raising the payroll tax cap could extend Social Security’s solvency today hinges on the specifics of the reforms, especially whether they are paired with benefit adjustments.

Social Security was created to provide basic economic security when wages are lost due to old age, disability or death, Nancy Altman, president of Social Security Works, an advocacy group focused on expanding benefits, told the Senate subcommittee hearing on Wednesday.

The foremost issue in any reform should be determining the appropriate benefit level, Altman said.

Altman said today’s benefits are “low by virtually any measure,” and reducing them would further strain financially vulnerable retirees and damage the broader economy.

However, imposing higher taxes on pass‑through small businesses — whose profits are reported on owners’ personal returns — could impair their capacity to invest and generate jobs, Elizabeth Milito, vice president and executive director of the National Federation of Independent Business Small Business Legal Center, warned at the Senate subcommittee hearing.

In response, Sanders said his bill would exempt the vast majority of small‑business owners from additional taxes, as most would remain below the $250,000 threshold.

Achieving Bipartisan Agreement on Social Security Reform Remains Difficult

Nevertheless, it is uncertain whether legislators from both parties will support a tax‑increase package.

‘The present value of Social Security’s unfunded obligations is a staggering $30 trillion,’ Senator Chuck Grassley (R‑Iowa), chair of the Senate Finance subcommittee on Social Security, pensions and family policy, said during Wednesday’s hearing.

‘This fiscal hole cannot realistically be closed solely by taxing the wealthy — a Democratic preference — or by eliminating waste, fraud and abuse, a Republican preference,’ Grassley added.

Any new Social Security reforms must be bipartisan, Shai Akabas, vice president of economic policy at the Bipartisan Policy Center, told the Senate subcommittee hearing on Wednesday. Senate rules require 60 votes for passage, and ‘no single party is likely to achieve that alone,’ he noted.

The Bipartisan Policy Center, a bipartisan think tank, concurs that raising the taxable maximum on Social Security should be part of a comprehensive reform package, Akabas said.

Nevertheless, there are limited capacity to raise taxes to solve all fiscal challenges, including narrowing the expanding federal deficit, he said.

‘We believe a balanced approach that combines additional revenue for the program with benefit adjustments is necessary,’ Akabas said.

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