For quite some time, Congress has shied away from taking real action on Social Security, whether it meant cutting benefits, raising taxes, or doing a mix of both. But now, it seems that the moment for procrastination has passed, and some lawmakers are beginning to confront this reality.
The ticking clock is getting louder. Recent projections indicate that the Social Security Trust Fund is on track to deplete its funds more quickly than previously anticipated, with benefits possibly facing a significant cut of 22% by 2032 unless changes are made.
In the past, payroll tax revenue hasn’t kept pace with the benefits being paid out, leading to a reliance on a trust fund to cover the gap. However, once that fund is exhausted, Social Security will only be able to distribute what it collects in real-time.
With only six years left until the program potentially faces bankruptcy, it’s likely that newly elected senators will prioritize finding a solution. Various proposals are already surfacing.
Generate more revenue
Senators Bernie Moreno, a Republican from Ohio, and Elizabeth Warren, a Democrat from Massachusetts, have recently pushed for plans that would increase revenue through payroll taxes.
At the moment, only salaries up to $184,500 are subject to these taxes; income above that amount is exempt. The senators argue that most Americans earn less than this cap, meaning they pay Social Security taxes on their entire income while wealthier individuals only pay on a portion.
“Why should a middle-class nurse earn less than a rich corporate lawyer?” they asked. “It seems particularly unjust in an economy where the wages of high earners have grown far more than the wages of the average worker.”
Moreno and Warren propose eliminating the tax cap altogether, estimating that this could generate about $3 trillion for the program over a decade.
In a similar vein, Senator Sheldon Whitehouse and Representative Brendan Boyle have suggested raising the income threshold for payroll taxes to $400,000 and including investment income in the tax base.
Of course, raising taxes poses political challenges. However, there’s evidence suggesting voters are more inclined to tax higher earners. Nevertheless, Congress seems to be moving in the opposite direction; for instance, the previous year’s One Big Beautiful Bill Act introduced new tax breaks for workers and Social Security beneficiaries.
Relying on risky investments
Another concept, floated by Senators Bill Cassidy and Tim Kaine, aims to maintain existing benefits while avoiding hardship for both recipients and taxpayers by relying heavily on the stock market—albeit with substantial new debt.
The plan involves the federal government taking on $1.5 trillion in debt for investment funds tied to stocks and other high-risk assets, which are expected to grow profits over 75 years and outpace the returns of government bonds.
Simultaneously, an additional $25.1 trillion would need to be borrowed to reconcile the disparity between Social Security income and benefits over a similar timespan. The investments are expected to pay back the total borrowing of $26.6 trillion.
However, there’s skepticism about this approach. Recent analysis from Boston University’s Center for Retirement Research indicates that historical stock returns might not be reliable over the long haul.
“While past averages suggest good returns, the reality of stock market volatility means that such a gamble is far from guaranteed,” the analysts concluded.
Lowering benefits
On the flip side, there are proposals on the table to cut Social Security payments. This course could prove particularly challenging, as older voters are a powerful demographic in elections.
The bipartisan Committee for a Responsible Federal Budget has introduced a plan targeting couples receiving more than $100,000 in Social Security benefits. Dubbed the “six-digit cap,” it seeks to impose a ceiling on the maximum payout for those with the highest benefits.
This cap would hinge on marital status and the age at which benefits are collected. For example, a single individual would be limited to $50,000, while a married couple retiring at age 62 would see a maximum of $70,000.
During a Senate hearing earlier this year, Senator Lindsey Graham expressed some support for the idea of capping benefits for high-income recipients. He shared a personal story about how significant Social Security checks were during a difficult period of his life. Now, he feels he could manage with less if it helps preserve the program.
Introducing Trump accounts?
Senator Ted Cruz recently introduced the concept of “Trump accounts” for American children as a potential part of Social Security reform.
The One Big Beautiful Bill Act enables parents or authorized adults to set up tax-advantaged savings accounts for children under the age of 18 who have Social Security numbers.
During a panel discussion, Cruz noted that conservatives in the U.S. are inspired by Australia’s superannuation system, where employers contribute to investment funds for employees. This could potentially lessen reliance on state pensions.
Cruz suggested that parents might be more motivated to accept changes in how their payroll taxes are allocated once they see their children’s Trump accounts grow.
“Wouldn’t you prefer a Trump account for your child instead of just paying those taxes to the government?” he posed. “My prediction is that in five years, this will create a compelling constituency because people will recognize the difference.”
