Social Security is a critical source of income for millions of retired Americans. But the program is facing a key funding shortfall that could soon result in benefit cuts.
Social Security’s Trustees say that benefits could be reduced by 22% by 2032 if Congress doesn’t come up with a fix. And one area lawmakers are already looking at is raising taxes on higher earners.
The current set of rules limits the extent to which higher earners pay into Social Security. But some are fighting to change that so that millionaires aren’t let off the hook so easily.
There’s a push to change the rules for higher earners
Social Security gets most of its funding from payroll taxes. Workers pay taxes on up to a certain amount of wages that changes from one year to the next.
In 2026, up to $184,500 of income is taxed fund Social Security. This means someone earning $184,500 and someone earning $2 million pay the same exact amount of Social Security tax. Not surprisingly, some lawmakers don’t approve of this setup.
To be fair, Social Security has a maximum monthly retirement benefit it will pay that’s tied to the wage cap. But some policymakers still think higher earners should pay Social Security taxes on all of their wages — or at least more of them. In fact, a big point of contention among lawmakers who support higher Social Security taxes on the wealthy is that millionaires often stop paying into Social Security by early March.
Someone earning $1 million a year, for example, has daily earnings of about $2,740 per day, assuming they earn that money evenly throughout the year. Since Social Security’s current wage cap is $184,500, it means it only takes about 67 days of wages for a millionaire to fulfill their Social Security tax obligation.
Or, to put it another way, someone earning $1 million would be done paying into Social Security before the midpoint of March, while lower earners might pay into Social Security for the entire year. Changing that rule could provide Social Security with much-needed revenue and help prevent or reduce benefit cuts.
The flipside is complicated
At first, imposing more taxes on higher earners might seem like a simple solution to Social Security’s financial woes. But lawmakers will also need to decide whether higher earners then become eligible for higher benefits due to paying more.
Right now, Social Security benefits are based on workers’ highest-paid 35 years of earnings. But only earnings up to the annual wage cap count in that formula.
If that wage cap is raised or eliminated, the only way to keep things fair and not change the nature of Social Security would be to raise the program’s maximum benefit. At that point, it’s unclear what the net financial gain would be.
Still, some lawmakers continue to push for higher Social Security taxes on the wealthy. And with just six years until insolvency, Congress is going to have to do something soon to prevent benefits from being slashed broadly.
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