When it comes to Social Security, Democrats and Republicans are on the same page about one thing: it needs fixing. The program's trust funds are now just six years from depletion, according to the latest Trustees' Report. After that, beneficiaries could see their checks slashed by 22% unless the government intervenes.
Figuring out a solution both parties can agree upon has proved more challenging. But there is one move that politicians on both sides of the aisle have shown some support for, and it could be a win for ordinary Americans, too.
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How taxing the wealthy could help save Social Security
The only way to avoid Social Security benefit cuts is to increase the program's funding so it can continue issuing checks as scheduled. The problem with this is that raising funding means raising taxes. The bulk of the program's income comes from Social Security payroll taxes, with some money also coming from the benefit taxes that many seniors pay.
Most Americans pay the payroll tax -- currently 12.4%, split evenly between employee and employer -- on all of their income each year, but that's not true for the wealthy. The Social Security Administration only assesses this tax on the first $184,500 a person earns in 2026, so those who earn more than this aren't paying the tax on money over this limit.
While the ceiling increases slightly every year, one bipartisan proposal would eliminate the cap altogether. That would force all Americans to pay the tax on every dollar they earn each year, substantially increasing the program's annual income. But it wouldn't be enough to resolve the funding issue on its own.
Ordinary Americans will pay some sort of price
The most optimistic scenario -- taxing all income each year at the current payroll tax rate without providing an accompanying benefit increase for high earners -- only covers 67% of the projected funding shortfall over the next 75 years. A move like that could buy the government more time to develop a long-term strategy or soften the blow to ordinary workers, but there's no way around asking average Americans to foot some of the bill.
The payroll tax rate may need to increase, or the government may need to change how Social Security benefit taxes are applied to seniors. It could also raise the full retirement age (FRA), which would act as an indirect benefit cut for younger workers.
We still don't know what will happen, and it could be a few years before we find out. Once Washington decides on a strategy, workers and seniors alike will probably need to revisit their retirement plans to adapt to the changes.
