Americans are strongly in favor of this tax-raising Social Security reform

Social Security’s trust funds are expected to run out in 2034, according to a recent Congressional Budget Office (CBO) report. That could lead to substantial benefit cuts if the government doesn’t find a way to increase funding for the program. But finding a solution that most people can agree on is not easy.

Some have proposed raising Social Security taxes. This would leave workers with less money to spend today or save for their future, so it is understandably unpopular with many people. But there is another tax hike reform that has actually received a lot of support from people in both political camps.

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It would make the rich pay more

Most people pay Social Security payroll taxes on all of their income each year, but that’s not the case for high earners. In 2024, only the first $168,600 a person earns is subject to these taxes. Anything above that amount is not, but also does not help increase your Social Security benefit in retirement.

Many believe that these high earners should pay more in Social Security taxes to help support the program. Some have argued for eliminating the cap on Social Security payroll taxes altogether, forcing everyone to pay the 12.4 percent tax — split equally between employee and employer — on all wages.

There’s another proposal that suggests making a “doughnut hole,” if you will, that would eliminate Social Security payroll taxes for those who exceed the $168,600 cap (which is adjusted for inflation annually) and then implement it again for those with annual salaries over. $400,000.

For example, if this system were in place today, someone earning $200,000 a year would only pay taxes on the first $168,600 they earned. The remaining $31,400 would not be subject to Social Security payroll tax. If someone earned $450,000, they would pay Social Security taxes on the first $168,600. and on $50,000 over the $400,000 threshold.

A recent study by the University of Maryland looked at the views of adults in six key swing states in the 2024 election and found that a majority of them were strongly in favor of this option. Overall, 87 percent supported the idea, and the percentages in favor were fairly close among Republicans, Democrats, and independents. But that doesn’t mean it will happen.

How would this affect Social Security?

This reform would have a significant effect on the future of Social Security, but would not be sufficient to ensure its future solvency. The survey found that if enacted, it would reduce the funding gap by about 60 percent. So at best this would eliminate the problem a bit down the road.

To ensure the stability of Social Security for decades to come, the government should do more. There is probably no single solution that will solve the problem. It will likely come down to a combination of strategies that either increase funding for the program or reduce benefits payable to retirees, disabled workers, surviving spouses and their families.

Here’s why no one has yet come up with a magic solution for Social Security. The “doughnut hole” approach to Social Security payroll taxes appeals to a lot of people because it won’t cause the average worker any financial hardship. But that’s not the case for many of the other proposals on the table.

Raising the Social Security payroll tax rate would leave workers with less money to spend today. Raising the full retirement age (FRA), as some have suggested, would essentially act as a reduction in benefits because workers would face more severe penalties for claiming early than claimants today. Cutting benefits would also compromise the financial security of many retirees.

So there are no simple answers. But the government has to decide something in the next few years. When it does, we will all need to take a hard look at our retirement plans and adjust accordingly. The best thing workers can do right now is to save what they can themselves so that they are less dependent on Social Security in retirement.