Each and every month, more than 63 million people receives a benefit from the most storied social program in our nation's history, Social Security. According to an analysis from the Center on Budget and Policy Priorities, the elderly poverty rate with Social Security is a mere 9%. Comparatively, it's estimated that without this vital program in existence, the retired worker poverty rate would soar to more than 40%.

Given the program's importance, it's not surprising to learn that a number of Americans would support an expansion of Social Security benefits from current levels. For added context, the average retired worker is netting a monthly payout of $1,470.83, or $17,650 a year, which, by itself, is only a few thousand dollars higher than the annual federal poverty level. About a third of workers rely on Social Security for virtually all of their monthly income (90%-plus).

How could lawmakers go about expanding Social Security benefits? Here are three of the most logical plans that have been put on the table, as well as the reasoning why each pathway could face opposition on Capitol Hill.

A senior man counting a fanned pile of cash in his hands.

Image source: Getty Images.

1. Raise or eliminate the payroll tax earnings cap

Easily the most popular solution among the American public in polling throughout the years is the idea of raising or eliminating the payroll tax earnings cap.

Every American worker who earns a wage or salary faces a 12.4% tax (half of which will be covered by your employer if you're not self-employed) on their earned income of between $0.01 and $132,900, as of 2019. This $132,900 level, which adjusts annually in-step with the National Average Wage Index, is known as the payroll tax earnings cap. Any earned income above this amount is exempt from the payroll tax, thereby allowing workers with high incomes to escape having to pay this tax on some, or perhaps most, of their income. In 2016, the Social Security Administration estimates that $1.2 trillion in earnings escaped the payroll tax.

The thesis here is simple: Since more than 90% of American workers will earn less than $132,900 in 2019, raising or eliminating the cap won't impact them one bit. That's why it draws such strong support among the public. Plus, raising or eliminating the cap would require workers with higher annual wages or salaries to pay more into the system, which is viewed by many as a means of balancing out the tax liability of the program.

So, why hasn't this idea gained steam on Capitol Hill? Despite being popular with Democrats, Republicans aren't on board with the idea of upping taxation on well-to-do workers. And without 60 votes in the Senate, which would require bipartisan support, this measure has little chance of being implemented.

Furthermore, it could be rightly argued that high-income workers are already paying their fair share into Social Security. After all, just as the program caps taxation, it also caps the amount of benefits a person can collect each month at their full retirement age. The payroll tax cap exists because the retirement benefit payout cap exists.

Two Social Security cards lying atop a W2 tax form, highlighting payroll taxes paid.

Image source: Getty Images.

2. Increase payroll taxes across the board for all workers

Similar to the first idea, a second means of expanding Social Security benefits would be to gradually increase the payroll tax as a percentage of total earned income for the entire workforce -- not just high-income earners.

As noted, workers will pay 12.4% of their earned income, up to $132,900 in 2019, into the Social Security program. However, if a worker is employed by someone else or a company, their employer will cover half (6.2%) of their liability, with the worker responsible for the remaining half (6.2%). The idea here is that all workers, including the self-employed, and employers, would see a gradual increase in their payroll tax liability over time.

As an example, the most recent annual report from the Social Security Board of Trustees found there to be a long-term (75-year) actuarial deficit of 2.78%. In plain English, this just means that covering the program's cash shortfall, and ensuring payouts can continue at their current levels, including annual cost-of-living adjustments, would require a 2.78% increase to the payroll tax (i.e., 12.4% + 2.78% = 15.18%). This would increase the liability of most workers by half of 2.78%, or 1.39%, to 7.59%. 

Of course, expanding benefits means implementing a payroll tax hike that not only covers the projected long-term shortfall, but also puts more money in beneficiaries' pockets. That could mean the need for a 3% to 4% increase in the overall payroll tax for all workers, or an aggregate tax of 15.4% to 16.4%.

If you're wondering why increasing the payroll tax on all workers has failed to gain traction on Capitol Hill, it's because higher taxation on low- and middle-income workers could potentially place a burden on their ability to save and invest for the future. That makes it less than an optimal solution for Democrats.

Likewise, Republicans in Washington generally oppose any increased taxation on Social Security.

Although gradual payroll tax hikes were passed along in the last major overhaul of the program in 1983, it's unclear if a consensus could be reached in today's politically divided Congress.

A folded hundred-dollar bill and twenty-dollar bill partially blocking a Social Security card in the background.

Image source: Getty Images.

3. Replace the CPI-W with the CPI-E

The third and final way that Social Security benefits could be expanded is by switching the program's inflationary tether from the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) to the Consumer Price Index for the Elderly (CPI-E).

The CPI-W has been tethered to Social Security's annual cost-of-living adjustment (COLA) since 1975. Unfortunately, it's a flawed index, with a focus on working-age urban and clerical workers who spend their money very differently than senior citizens, who make up the bulk of program beneficiaries. This has led to seniors losing a third of their Social Security income purchasing power since the year 2000, according to The Senior Citizens League.

One solution offered (traditionally by Democrats on Capitol Hill) would be to switch from the CPI-W to the CPI-E. As the name implies, the CPI-E measures the costs that households with seniors aged 62 and over face. It should, therefore, provide a more accurate representation of the housing and medical care expenditures that the CPI-W fails to capture, leading to more robust annual COLAs. Over time, these larger COLAs should act as a "raise" for program recipients.

So, why haven't lawmakers switched to the CPI-E? Despite Republicans and Democrats believing the CPI-W is flawed, the GOP has its own inflationary measure it believes works better: the Chained CPI. With Social Security already facing a cash shortfall over the long run, Republicans would prefer long-term outlays be reduced, not expanded. In short, there's not enough votes in the Senate to amend Social Security and change its inflationary tether.

Additionally, the Bureau of Labor Statistics views the CPI-E as an experimental inflationary tool. In order for the CPI-E to be implemented as Social Security's inflationary tether, it would likely require further refinement, and that could be time-consuming and costly.

Make no mistake about it, there are ways to expand Social Security benefits. Unfortunately, none of these pathways looks to be a viable option anytime soon.