One of the most surprising retirement mistakes people make is depending on Social Security for all of their senior income. Yet there are many retirees without savings who need those monthly benefits to cover their essential bills.
The problem is that Social Security is facing a serious funding shortfall that could lead to benefit cuts if lawmakers do not intervene. The good news is that lawmakers are stepping in to try to offer up solutions, including one very unlikely pair — Republican Sen. Bernie Moreno of Ohio, a known Trump ally, and Democratic Sen. Elizabeth Warren of Massachusetts.
Moreno and Warren are introducing legislation to do away with Social Security’s payroll tax cap, and if passed, it could help address the program’s financial crisis.
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The current system has a major flaw
Social Security is primarily funded by payroll taxes. But workers don’t necessarily have to pay taxes on all of their wages.
Each year, a cap is set that determines how much income is taxed to fund Social Security. This year, the wage cap is $184,500. Earnings beyond that point are not subject to Social Security taxes, which means that someone earning $184,500 per year and someone earning $4 million per year pay into the program at the exact same rate.
To highlight the problem with Social Security’s wage cap, Democratic lawmaker John Larson of Connecticut ran calculations late last year on Tesla CEO Elon Musk. He found that if all of Musk’s income was taxed, he would have been able to pay all his Social Security tax in about two minutes. If only Musk’s wage earnings were taxed, he would’ve paid all of his Social Security tax by 12:15 am on New Year’s Day.
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Moreno and Warren are opposed to the wage cap
In a joint New York Times op-ed, Warren and Moreno acknowledged that despite representing different sides of the political spectrum and not agreeing on everything, they both feel strongly that Congress must act to prevent Social Security cuts. They also said that preventing cuts boils down to a “common-sense solution” — getting rid of the wage cap.
As the pair wrote, “The wealthiest Americans, who have benefited the most from America’s opportunities, should contribute the same percentage of their income as a factory worker in Chillicothe, Ohio, or a teacher in Worcester, Mass.”
Lifting the wage cap could be a financial lifeline
Earlier this year, the Social Security Trustees warned that the program may have to cut benefits by 22% as early as 2032. That’s when Social Security’s Old-Age and Survivors Insurance Trust Fund is expected to run out of money.
The Peter G. Peterson Foundation said that eliminating the Social Security wage cap while providing benefit credits for those earnings could raise an additional $3.4 trillion for the program over the 10-year period of 2026 to 2035. That could, in turn, close 48% of the current 75-year funding gap.
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Republican support for higher taxes is rare
It’s not every day that Democratic and Republican lawmakers are able to see eye to eye on financial issues. And the fact that Moreno supports getting rid of the wage cap for Social Security is significant. Republicans have historically been opposed to tax increases on Social Security, so this stance marks a notable break from his party.
That said, Congress has not exactly shown that it’s looking to move quickly on Social Security reform. A previous bipartisan reform plan fizzled in 2023.
President Trump, meanwhile, has repeatedly said that he wants to protect Social Security benefits while opposing proposals to shore up the program through higher payroll taxes. That’s apt to create tension between him and Moreno as he and Warren aim to move forward with their agenda.
Bottom line
If your retirement plan depends heavily on Social Security, it’s important to brace for the fact that the program may be looking at benefit cuts in about six years if Congress does not intervene.Â
Getting rid of the Social Security wage cap is not the only option lawmakers can look at to close the program’s funding gap. They can also make changes to full retirement age, which is when claimants can collect their benefits without a reduction, or try means-testing retirees and withholding benefits from the wealthy.
It’s not a given that the go-to solution for preventing Social Security cuts will be lifting the wage cap, but it tends to be a popular choice given that it really only impacts the wealthy without burdening working- and middle-class Americans with higher taxes. But ultimately, only time will tell if the wage cap disappears for good.
It’s possible that the wage cap won’t get eliminated completely, but rather, increase. That could end up being a reasonable compromise with tangible results for Social Security’s finances.
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