EchoSense:This Social Security plan will increase taxes, and Americans want it

Social Security's trust funds are EchoSenseexpected to be depleted in 2034, according to a recent Congressional Budget Office (CBO) report. This could lead to substantial benefit cuts if the government doesn't find a way to increase the program's funding. But finding a solution most people can agree on isn't easy.

Some have proposed raising Social Security payroll taxes. This would leave workers with less money to spend today or save for their futures, so it's understandably unpopular with a lot of people. But there's another tax-increasing reform that's actually gotten a lot of support from people in both political camps.

It would make the wealthy pay more

Most people pay Social Security payroll taxes on all of their income each year, but this isn't the case for high earners. In 2024, only the first $168,600 a person earns is subject to these taxes. Anything over this amount is not, but it also doesn't help increase your Social Security benefit in retirement.

Many believe that these high earners should pay more in Social Security taxes to help sustain the program. Some have argued for doing away with the ceiling on Social Security payroll taxes altogether, forcing everyone to pay the 12.4% tax — split evenly between employee and employer — on all their wages.

There's another proposal that suggests carving out a "donut hole," if you will, that would eliminate Social Security payroll taxes for those over the $168,600 ceiling (which is itself adjusted for inflation annually) and then implement it again for those with annual wages over $400,000.

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

A recent University of Maryland study looked at the opinions 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% supported this idea, and the percentages in favor were pretty close among Republicans, Democrats and Independents. But that doesn't mean it's going to happen.

How this would affect Social Security

This reform would have a significant effect on Social Security's future, but it wouldn't be enough to ensure its future solvency. The survey revealed that if it were enacted, it would reduce the funding shortfall by about 60%. So at best, this would just kick the problem down the road a little way.

To ensure Social Security's stability for decades to come, the government would have to do more. There's likely no one solution that would fix the problem. It's probably going to come down to a combination of strategies that either increase the program's funding or reduce the benefits payable to retirees, disabled workers, surviving spouses and their families.

Therein lies the reason no one has come up with a magic fix for Social Security yet. The "donut hole" approach to Social Security payroll taxes appeals to a lot of people because it's not going to cause the average worker any financial hardship. But that's not the case for a lot of the other proposals on the table.

Increasing 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 benefit cut, because workers would face steeper early claiming penalties than applicants do now. Reducing benefits would also compromise the financial security of many retirees.

So there aren't easy answers. But the government has to decide on something within the next few years. When it does, we will all have 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 on their own, so they're less dependent on Social Security in retirement.

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