How Social Security would change under new proposal (2024)

In a new proposal, Social Security's funding could be extended, but Americans would face significant tax increases.

Analysts predict that Social Security's funding will dry up in about a decade, meaning Americans are set to face major cuts to their monthly benefits if nothing changes. Funds are likely to run out in 2035, at which point the agency would be able to pay 83 percent of its promised payments to retirees.

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To prevent this decrease, lawmakers have proposed ideas to get funding up and preserve retirement and disability benefits for Americans in the years to come.

According to the Social Security Administration's Office of the Chief Actuary, benefits would be saved until 2060 if the taxable maximum were eliminated.

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All Americans making more than $168,600 pay the same amount in Social Security taxes. This is true for those making $200,000 and those bringing in billions of dollars a year. But if Social Security could tax wealthier Americans more, the SSA predicts that about two-thirds of the Social Security funding crisis could be solved.

Even if payroll taxes went to earnings above $250,000 in 2024, analysts say 68 percent of the funding deficit would be gone, and payments would be safe until the late 2050s.

Social Security payments help support more than 50 million seniors, who often rely on the monthly checks as a substantial source of their retirement income.

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"Applying the Social Security payroll tax to all earnings should form the central provision of any major proposal to strengthen Social Security finances," Mary Johnson, an independent Social Security and Medicare analyst, told MarketWatch. "This provision alone could reduce a very significant amount of the Social Security deficit. The current system sets up a tremendous tax inequity by shifting 90 percent of the financing of Social Security benefits to low- and middle-income workers. This is an inequity that has to be fixed."

It's been decades since the Social Security program had major reforms. In 1984, 90 percent of Americans' earnings were set below the taxable maximum, but income has raced far beyond what the top earners were making then, experts say.

Some experts worry that if the taxable maximum is eliminated and American workers are taxed more, this would lead to those with the highest incomes getting even more in benefits—above the set maximum amount the SSA currently stipulates.

It may be easier to get Americans to support increasing the taxable maximum rather than a widespread tax rate increase, but bipartisan legislation would need to be implemented for the changes to be enacted.

In 2022, Senator Mazie Hirono, a Democrat from Hawaii, proposed applying a 12.4 percent payroll tax to all earnings to save Social Security. And in his proposed Social Security Expansion Act, Vermont Senator Bernie Sanders outlined changes to the taxable maximum that would allow income above $250,000 to be taxed.

So far, none of the proposals has been passed.

"Far too many Americans are unaware of Social Security's unstable outlook, and the severe automatic cuts that are coming if we don't act soon," Michael Peterson, the CEO of the Peter G. Peterson Foundation, told Newsweek. "It's impossible 'not to touch' Social Security because that will lead to 21 percent across-the-board cuts to all beneficiaries in just nine years."

Alex Beene, a financial literacy instructor at the University of Tennessee at Martin, said passing these changes would likely prove difficult in today's political landscape.

"Many legislators have dismissed any tax increase, regardless of whether the primary group affected is strictly high income or not," Beene told Newsweek. "The typical arguments are that more taxation of any kind on higher-income individuals could negatively impact other investment classes, including businesses, which provide jobs and benefits to others. But when considering negative impacts, it's also more than fair to consider the millions of Americans that would be devastatingly affected if Social Security had to undergo substantial cuts in order to exist."

Kevin Thompson, a finance expert and the founder of 9i Capital Group, said this type of change was needed for Social Security—and quickly.

"It is safe to assume that if more money is going into the system, the longevity of that system would be impacted positively," Thompson told Newsweek. "If the goal is to increase the efficacy of the Social Security system, this is definitely one way to achieve that goal."

Still, Thompson cautioned that if the changes went into effect, an influx of people could start new companies and use the tax code to offset their income away from the maximum Social Security wage base.

"This would basically put higher taxes on the W-2 workers and effectively allow lower taxation on the self-employed and the business owner," Thompson said. "I believe this may even force employees to rethink their current strategy and ask their employer if they can become a contractor to control what is actually taxed toward Social Security."