As the United States edges closer to a Social Security funding shortfall, lawmakers are facing mounting pressure to act. Without reform, the Social Security trust fund is projected to be depleted by 2035, at which point benefits could be slashed by 17%, according to the Social Security Trustees’ 2024 report (SSA.gov).
The challenge isn’t new, but the urgency has grown. With baby boomers retiring in droves and the worker-to-retiree ratio shrinking, the system is being strained. The big question now: What can lawmakers actually do to preserve one of America’s most important safety nets?
Raise or Eliminate the Payroll Tax Cap
Currently, workers and employers each contribute 6.2% of wages to Social Security, but only on income up to $168,600 in 2024. Earnings above that threshold are not taxed for Social Security purposes.
Eliminating or raising this payroll tax cap could significantly close the funding gap. A 2023 analysis by the Social Security Administration (SSA) found that removing the cap entirely taxing all wages could eliminate up to 73% of the long-term shortfall.
Increase the Payroll Tax Rate
Another straightforward solution is raising the payroll tax rate itself. A modest increase—say from 6.2% to 8.1% for both workers and employers could keep the program solvent through 2095, according to a report by the Congressional Research Service.
This approach would spread the financial burden across all working Americans but may face pushback, particularly in periods of inflation or wage stagnation.
Raise the Full Retirement Age
When Social Security was created in 1935, the average life expectancy was about 61. Today, Americans live well into their 70s and beyond. Some policymakers argue that the full retirement age (FRA) currently 67 for those born in 1960 or later should reflect modern longevity.
Raising the FRA to 69 or 70 would reduce the number of years people collect benefits, saving the system billions. However, critics argue this change could disproportionately hurt low-income workers and those in physically demanding jobs.
Means-Testing Benefits
Means testing would reduce or eliminate benefits for higher-income retirees. Under such a policy, wealthier Americans might receive reduced payments or none at all based on their income and assets.
While this would make the program more progressive, it could face resistance from those who feel Social Security should remain a universal program, not a welfare-style benefit. It may also discourage saving, as higher savings could lead to benefit cuts.
Modify Cost-of-Living Adjustments (COLAs)
Each year, Social Security benefits are adjusted for inflation through Cost-of-Living Adjustments (COLAs). Switching to a “chained CPI” inflation measure a formula that assumes consumers substitute cheaper goods when prices rise—would slow benefit growth and reduce expenditures over time.
According to the Congressional Budget Office (CBO), this could cut the long-term deficit by around 20%, but it would also result in gradually lower benefits for all recipients (cbo.gov).
A Flat Universal Benefit
The CBO has floated a more radical idea: replace the current earnings-based system with a flat monthly benefit—for example, $1,660 per individual and $2,250 per couple. This would simplify the system and provide a basic income floor, but would lower benefits for about 75% of future retirees, according to CBO estimates.
Supporters say it would streamline administration and enhance fairness. Critics argue it could undermine incentives to work and contribute more to the system.
What’s at Stake
Despite bipartisan recognition of Social Security’s funding challenges, political gridlock continues to stall action. Democrats tend to favor higher taxes on wealthy individuals to shore up the system, while many Republicans have supported raising the retirement age or introducing benefit adjustments.
Former President Donald Trump, for instance, has pledged not to cut benefits, but has proposed eliminating taxes on Social Security income a move that could increase retiree take-home pay but worsen the program’s solvency unless offset.
Learning from the Past
The last major Social Security reform came in 1983, when Congress, in a rare bipartisan move, raised payroll taxes, increased the retirement age, and taxed some benefits. It was enough to stabilize the system for decades.
Experts suggest that similar gradual, phased-in reforms could work again, as long as they’re implemented well before 2035.
Conclusion
Social Security is facing a significant funding gap, but lawmakers have several options to address the issue, including raising taxes, increasing the retirement age, or modifying benefit structures. Timely, bipartisan action is needed to ensure the program’s solvency and protect the financial security of future retirees. With the right reforms, Social Security can continue to serve as a vital safety net for millions of Americans.
