Scary Social Security headlines have been making the rounds for weeks now in the wake of the latest Trustees’ Report’s findings. The program is now just six years away from a benefit cut that could cost all seniors 22% of their checks, unless Washington acts to prevent this.
While Congress has yet to come up with a workable strategy, the solution is obvious to former Social Security Commissioner Martin O’Malley, whose plan will no doubt resonate with millions of Americans: Make the wealthy pay more. But there’s one big problem with this approach that O’Malley and other supporters don’t like to acknowledge.
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How taxing the rich could help Social Security
Social Security payroll taxes provide the bulk of the program’s income each year, but compared to their annual incomes, ordinary Americans face a much bigger burden than the wealthy. These taxes only apply to the first $184,500 you earn in 2026, regardless of your income.
If you earn $60,000 per year, you’re paying these taxes on every dollar you make. If you make $1 billion in a year, you’ve likely finished paying your Social Security taxes on Jan. 1. The ceiling on taxable income for Social Security increases slightly each year, but it still leaves wealthy people paying these taxes on only a fraction of their earnings.
Raising the ceiling, as O’Malley suggested in a recent interview with NewsNation, would go a long way toward alleviating the burden on Social Security’s dwindling trust funds. The program would take in more revenue each year without affecting ordinary Americans, many of whom are already under financial strain.
But what proponents of this approach often leave out is that it wouldn’t be enough. Even if you eliminated the cap and made wealthy Americans pay Social Security taxes on every dime they earned without increasing the benefits they qualify for, it would only eliminate about 67% of the projected funding shortfall. That’s a huge weight lifted, but it means average earners will still have to brace for changes.
What will the Social Security fix look like?
Raising the payroll tax ceiling could be part of Congress’ plan to fix Social Security, but it won’t be the whole solution. It could also involve a combination of raising the payroll tax rate (currently 12.4%, split evenly between employees and employers) across the board, raising Social Security benefit taxes on seniors, or raising the full retirement age (FRA).
We don’t know what it’ll decide yet, and we may still have to wait a while before it settles on a plan. But when it does, everyone will need to revisit their retirement plans and make changes.
