Why some Washington lawmakers want to tax high earners
A person holds a sign that reads “Protect Our Social Security” during a rally against President Donald Trump’s tax plan near the U.S. Capitol in Washington on April 10, 2025.
Bryan Dozier | Afp | Getty Images
Washington lawmakers have a new deadline for when they will fix Social Security’s retirement fund funding. annual report It was released this month by the program’s board of trustees.
By the fourth quarter of 2032, this trust fund, called Old-Age and Survivors Insurance, or OASI, will be depleted and 78% of Social Security benefits will be payable, according to the Social Security trustees’ latest estimates.
The new projection is several months earlier than previously anticipated for the fund that Social Security uses to pay monthly benefits to millions of retired workers, their spouses and children, and the survivors of deceased workers.
This led to a new push to tax the wealthy to fund the program.
On Tuesday, Sen. Elizabeth Warren, D-Mass. and Bernie Moreno, R-Ohio, co-author of a column He said they are working together on legislation to eliminate the payroll tax cap to help increase Social Security’s solvency.
Currently, earnings up to $184,500 are subject to Social Security payroll tax. Once high-income earners reach this limit, they do not pay into the program for the rest of the year. On March 9, people with $1 million in annual wage and salary earnings stopped paying Social Security payroll taxes for 2026, according to the Center for Economic and Policy Research.
on wednesday Senate Finance subcommittee Sen. Bernie Sanders, I-Vt., hearing about the future of Social Security, said it’s time to “ask the richest people in this country, who have never been better off, to start paying their fair share in taxes.”
Sanders proposes a bill Social Security Expansion Act The legislation, co-sponsored by Warren and nine other Senate Democrats, would increase taxes on wages, salaries and self-employment earnings above $250,000 while also providing certain benefit increases. The proposal also calls for an increase in this rate. net investment income tax are subject to these taxes while actively trading or generating business income.
Rep. John Larson, D-Conn. Another bill proposed by Social Security Act of 2100It would make incomes over $400,000 subject to the Social Security payroll tax and also provide benefit increases. This proposal, put forward in 2023, was not brought up again in this session of Congress. It had 189 Democratic co-sponsors.
Larson said in a speech that Moreno’s support was a “tremendous breakthrough” among Democratic leaders’ efforts to build a coalition to solve this problem. expression.
The payroll tax cap is adjusted each year to keep pace with national wage growth. As a result, the gap between this wage floor and any threshold at which payroll taxes are reimposed (whether it’s $250,000 or $400,000) will eventually narrow over time.
Unequal wage growth hurt Social Security solvency
The Social Security reform, which took effect in 1983 when the program’s funding was reduced, aimed to ensure the program’s 75-year debt solvency, which would bring it to 2058.
But that time horizon has shortened, mostly due to rising income inequality and the impact of the Great Recession, according to Stephen Nuñez, director of stratification economics at the Roosevelt Institute, a left-leaning think tank.
Nuñez said he assumes that in 1983 the Social Security payroll tax cap was sufficient to cover 90% of eligible earnings and that reforms would continue thereafter.
But by 2000, FICA taxes covered only 82.5% of taxable income and remained at that level, he said.
“This was a very, very large decrease in expected revenue at a time when the program was intended to build reserves,” Nuñez said.
How much raising the payroll tax cap could improve Social Security’s solvency today depends on certain changes, including whether they will be paired with benefit increases.
Social Security was enacted to provide basic economic security when there is a loss of wages due to old age, disability or death, Social Security Affairs Director Nancy Altman said at Wednesday’s Senate subcommittee hearing. Social Security is an advocacy organization focused on expanding social security services.
The first question to be answered in reform is “What level of benefit should Social Security provide?” is the question. said Altman.
He said today’s benefits are “inferior in almost every respect.” Altman said cutting benefits would hurt retirees who are already struggling both financially and economically.
But if those tax increases were applied directly to small businesses whose profits are included in their owners’ personal tax returns, it could hurt their ability to invest in growth and create jobs, Elizabeth Milito, vice president and chief executive of the National Federation of Independent Business Small Business Law Center, told a Senate subcommittee hearing.
In response, Sanders said the bill would exempt the “vast majority” of small business owners from paying additional taxes because those taxes would fall below the $250,000 threshold.
Bipartisan compromise may be challenging
But it remains to be seen whether lawmakers on both sides of the aisle will be willing to pass a package that would raise taxes.
“The present value of Social Security’s unfunded liabilities is a staggering $30 trillion,” Sen. Chuck Grassley, R-Iowa, chairman of the Senate Finance subcommittee on Social Security, retirement and family policy, said at Wednesday’s hearing.
“This fiscal hole cannot realistically be closed by raising taxes on the wealthy, which is the Democrats’ favorite solution, or by reducing waste, fraud and abuse, which is the Republicans’ favorite solution,” Grassley said. he said.
Shai Akabas, vice president for economic policy at the Bipartisan Policy Center, said at Wednesday’s Senate subcommittee hearing that any new reforms to Social Security must be bipartisan. He said Senate rules require 60 votes to pass Social Security reform and that “no single party is likely to get there alone.”
Akabas said the Bipartisan Policy Center, a think tank that promotes bipartisanship, agrees that raising the taxable maximum on Social Security should be considered as part of comprehensive reform.
But he said the ability to raise taxes to solve all the problems that need to be solved, including closing the growing federal deficit, is limited.
“We think a balance is needed that includes both additional revenue to the program and benefit adjustments,” Akabas said. he said.
