This proposal eliminates the Social Security payroll tax cap while maintaining the benefit calculation cap, requiring high earners to pay 12.4% tax on all earnings but receiving no additional benefits. This would generate approximately $3.0-3.5 trillion over 10 years, extend trust fund solvency by 20-35 years, and eliminate 73% of the long-term deficit. The reform is highly progressive, affecting only the top 6% of earners, but breaks the traditional contribution-benefit link, raises top marginal tax rates above 60%, and still leaves a long-term funding gap requiring additional reforms.
Social Security currently taxes earnings up to an annual cap ($184,500 in 2026), with both contributions and benefits calculated based on this same cap. The 12.4% payroll tax (split between employer and employee) applies only to earnings below this threshold, meaning high earners pay the same absolute amount as anyone earning at or above the cap. Only 6% of workers earn above this cap. The program faces a 3.82% of payroll actuarial deficit over 75 years, with the OASI trust fund projected to be depleted in 2033, after which only 77% of scheduled benefits could be paid.
This bill makes two fundamental changes: (1) eliminates the cap on wages subject to Social Security payroll taxes starting in 2027, so all earnings face the 12.4% tax; and (2) maintains the current cap for benefit calculations, meaning earnings above approximately $184,500 (indexed) would not increase future benefits. This creates an unprecedented separation between the contribution base and benefit base, fundamentally altering Social Security's structure from a contributory insurance program to a hybrid system with significant wealth redistribution.
Fiscal Solvency: Research shows this approach would eliminate 73% of Social Security's projected 75-year shortfall and extend trust fund solvency by 20-35 years, from 2033 to approximately 2053-2068. This represents the most significant solvency improvement of any single policy option.
Progressive Tax Reform: The current cap is regressive—middle-income workers pay 6.2% on all earnings while high earners pay far less as a percentage of total income. Someone earning $72,000 pays $4,464 (6.2%), while someone earning $216,000 pays only $10,918 (5.1%). Eliminating the cap addresses this inequity.
Addresses Wage Inequality: Due to rising income inequality, the share of total wages subject to Social Security tax has declined from 90% in 1983 to 83% today. This proposal would restore the tax base and ensure high earners contribute proportionally.
Broad Support: 77% of workers would see no tax increase, as they never earn above the cap. Even among high earners, research suggests 70% of those currently above the cap would lose more from benefit cuts than from paying higher taxes.
Breaks Contribution-Benefit Link: Social Security has always maintained a connection between taxes paid and benefits received. Completely severing this link for high earners transforms the program into a welfare system, which New Deal architects specifically avoided to maintain political support. This could undermine the program's universal appeal.
Only Partial Solution: Despite being the largest single tax increase in U.S. history, this would still leave Social Security with a 27% funding gap. The system would return to annual deficits by 2029 and face depletion again around 2055, requiring additional reforms.
Extremely High Marginal Tax Rates: High earners in states like California would face combined marginal rates exceeding 60% (37% federal income tax + 13.3% state income tax + 12.4% Social Security + 2.9% Medicare + 0.9% additional Medicare). This exceeds revenue-maximizing rates suggested by economic research and could trigger significant behavioral responses.
Economic Distortions: Employers and employees may shift compensation to non-wage forms (401k contributions, health benefits, deferred compensation) to avoid the tax. This could reduce actual revenue below projections and create economic inefficiencies.
Affects Upper-Middle Class: The cap affects households earning above $184,500, which includes many dual-income professional families in high-cost areas, not just the ultra-wealthy. This could be politically challenging.
No significant constitutional issues. Congress has broad taxing authority under Article I, Section 8, and the Supreme Court upheld Social Security's constitutionality in Helvering v. Davis (1937). Congress has modified the tax cap numerous times. While separating the tax and benefit bases is unprecedented in degree, it does not violate constitutional principles. The proposal could face political challenges but not legal ones.
Based on Congressional Research Service and SSA Office of the Chief Actuary estimates, eliminating the cap without providing benefit credits would generate approximately $3.5-4.0 trillion in gross additional Social Security revenue over 10 years. However, this is partially offset by reduced income tax revenues (as workers have less after-tax income) and behavioral responses, resulting in net federal deficit reduction of approximately $3.0-3.5 trillion over 10 years. The proposal would reduce the 75-year actuarial deficit from 3.82% to approximately 1.0% of taxable payroll, extending solvency by roughly 20-35 years depending on economic assumptions.
The distributional impact is highly progressive. The bottom 94% of earners see no tax increase. The top 6% of earners would face tax increases ranging from modest amounts for those slightly above the cap to very substantial increases for high earners. For someone earning $250,000, the additional annual tax would be approximately $8,100 (12.4% × $65,500). For someone earning $500,000, it would be approximately $39,100 (12.4% × $315,500). For millionaires, the increase would be over $100,000 annually.
Research using the MINT microsimulation model shows that among the highest lifetime earnings quintile, the median equivalent tax increase would be 1.92 percentage points, but for the top 5%, it would be 5.84 percentage points. Benefits would remain unchanged for 77% of workers. For the 23% who exceed the cap during their careers, they would receive no additional benefits despite paying substantially higher taxes, representing a significant wealth transfer from high earners to the rest of the system.
The proposal would increase Social Security's progressivity substantially, with low earners continuing to receive benefits worth more than their contributions while high earners would receive benefits worth far less than their contributions. This addresses income inequality but fundamentally changes the program's insurance character.
This proposal will decrease the USA's debt by $3,250 billion over 10 years. This is equivalent to decreasing the debt by $24,809 per American household.
| Income Group | Annual Impact per Household |
|---|---|
|
Bottom 20% <$30K |
$0 (0%) |
|
20-40% <$59K |
$0 (0%) |
|
40-60% <$95K |
$0 (0%) |
|
60-80% <$160K |
$0 (0%) |
|
80-100% >$160K |
-$2,850 (-1.2%) |
|
Top 1% >$590K |
-$18,500 (-1.1%) |
|
Top 0.1% >$2.4M |
-$95,000 (-1.1%) |