Some Workers Pay Social Security Tax on $184,500 of Income. Lawmakers Want Them to Get Nothing Back
Social Security faces cuts that could push retirees into poverty, and some lawmakers have a controversial fix that punishes the very workers who played by the rules for decades.
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Without Social Security, many older Americans today would struggle to make ends meet. Unfortunately, Social Security is facing a funding crisis that could result in broad 22% benefit cuts as early as 2032.
The problem boils down to a shrinking labor force. Social Security gets most of its revenue from payroll taxes. But the ratio of workers to retirees is declining due to lower birth rates, among other factors.
Of course, cutting benefits could push countless Social Security recipients into poverty. Many people today who are living on Social Security alone are barely getting by as it is. Having to potentially live on 22% less just isn’t feasible for those who are already resorting to measures like skimping on groceries and medication.
Lawmakers know they need to come up with a way to prevent Social Security cuts. And there are different solutions they can look at. One of them, however, is unlikely to sit well with higher earners.
Some lawmakers want to take Social Security away from the rich
Social Security benefits are earned by paying taxes on wages. Workers’ 35 highest-paid years of income are taken into account when calculating retirement benefits, and their filing ages also play a role in how much money they get.
Social Security has a wage cap that determines how much earnings are taxed to fund the program each year. In 2026, that cap sits at $184,500. The cap tends to increase from year to year in line with wage growth.
To save Social Security from cuts, some lawmakers have proposed means testing retirees and cutting or taking benefits away from wealthy seniors who don’t “need” the money. The logic is that doing so preserves benefits for seniors who are less well-off and don’t have savings to fall back on.
To put it another way, if a wealthy senior enters retirement with $4 million, their Social Security checks aren’t spelling the difference between whether they can afford food or not. Those benefits are probably serving as bonus money.
Taking those benefits away might sting. But that way, seniors who truly need that money may be able to get more of it given Social Security’s precarious financial situation.
Why means testing probably won’t fly
There are different solutions that have been proposed to prevent Social Security cuts. These include raising the wage cap substantially or getting rid of it completely, increasing the current 12.4% Social Security payroll tax rate, and raising the program’s full retirement age, which is when recipients can get their monthly benefits without a reduction.
All of these solutions come with drawbacks. A higher wage cap doesn’t just burden strong earners. It burdens employers, too, since they split that Social Security tax bill equally with the people they employ.
A broad increase in the Social Security tax rate would hurt workers on a whole and cause financial strain for those who can’t afford to lose more money to taxes. And raising the program’s full retirement age effectively forces people to stay in the workforce longer, which some — namely, those in physical jobs — can’t easily do.
But these proposals don’t change the nature of Social Security. Means testing does.
Means testing retirees and taking benefits away from the rich converts Social Security from an entitlement program to a welfare program. And that’s not what it’s supposed to be.
Means testing also penalizes retirees who maintained good financial habits and saved well.
Someone retiring with a few million dollars didn’t necessarily serve as the CEO of a big company. People who save and invest for 40 years can accumulate a lot of wealth over time. Critics of means testing argue that it’s not fair to penalize people for saving to fund their retirement when they paid into Social Security like everyone else.
Of course, means testing is one solution of many to prevent Social Security cuts, and there’s no reason to assume it will move forward. But it’s something that’s been discussed, so higher earners should be aware that the idea has been floated.
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Maurie Backman has more than a decade of experience writing about financial topics, including retirement, investing, Social Security, and real estate. Her work has appeared on sites that include The Motley Fool, USA Today, U.S. News & World Report, and Kiplinger.
Prior to becoming a full-time financial writer, Maurie worked in the financial industry trading distressed debt. She then changed course and spent a few years designing electronic toys. After a stint in content marketing and UX, she shifted back into writing and has since covered everything from the housing market to estate planning to Medicare.
When she's not busy writing, Maurie can be found hiking, walking her dogs, driving her kids to their various sports practices and games, and curling up with a good book. She cooks on occasion and bakes way too often.
