A Proposal Would Cap Social Security at $100,000. Will It Fly?

A Washington think tank caused a stir recently with a paper that proposed capping annual Social Security benefits at $100,000 to shore up the retirement trust fund.

Social Security faces a shortfall as soon as 2032. If Congress does nothing, research suggests, retirees will see a 28% cut in monthly benefits.

But the “Six Figure Limit” proposal, pitched in March by the nonpartisan Committee for a Responsible Federal Budget, drew swift rebukes. Retirement advocates see any cap or cut in Social Security benefits as a slippery slope.

Fortunately, there’s no shortage of other ideas for fixing Social Security.

“You and I could do it in an hour,” said Alicia Munnell, senior adviser at the Center for Retirement Research at Boston College, speaking to USA TODAY in April. “It is not hard. It is just a question of will, which is totally missing.”

Congress will walk a perilous path in reforming Social Security, a program so precious to so many that it’s often termed the third rail in American politics.

Here are eight of the most popular proposals for closing Social Security’s funding gap, and the pros and cons of each.

Raise the Cap on Income Taxed for Social Security

Social Security revenues come from a tax on incomes. But there’s a cap: In 2026, only incomes up to $184,500 are taxed to fund the benefits.

Raising the income cap would deliver more taxes to fund Social Security.

One proposal would raise the income limit to a level that covers 90% of all wages. The current limit covers just over 80% of all income. Setting it at 90% would put the limit around $330,500, according to the nonpartisan Committee for a Responsible Federal Budget.

That fix, by itself, would close 26% of the Social Security funding gap, the CRFB estimates.

Remove the Income Cap

A more drastic option: Remove the income cap so that all worker income is taxed for Social Security.

Eliminating the income cap would close 68% of the Social Security shortfall, CRFB estimates.

The argument against it: Scrapping the cap would burden high earners. Already, top earners receive a much smaller share of their past income in Social Security benefits than lower-income Americans.

Increase the Payroll Tax Rate

The money Americans pay into Social Security comes from a payroll tax. The total tax is 12.4% of your income, half paid by you, half by your employer.

A one-point increase in that tax rate, to 13.4%, would close roughly one-quarter of the Social Security funding gap, CRFB estimates. A two-point increase would close half of it.

The big downside: It’s a tax increase.

Extend the Payroll Tax to Health Benefits

Under current law, the payroll tax applies only to income, and not to other forms of compensation, like health insurance.

Extending the payroll tax to cover employer health insurance contributions would close 23% of the Social Security shortfall, the CRFB estimates.

Raise the Social Security Retirement Age

Until the 1980s, 65 was termed the “full” retirement age for receiving Social Security. In 1983, with Social Security facing insolvency, Congress passed legislation that gradually raised the full retirement age to 67.

That’s the age when you qualify for full Social Security benefits. You can claim earlier, but your check is smaller. You can also claim later and reap an even larger payment.

With a new shortfall looming, one potential fix would raise the retirement age again. A one-year increase would close 12% of the Social Security funding gap, CRFB estimates.

Index Retirement Age to Life Expectancy

One downside to raising the retirement age is that any age you pick – 65, 67 or 68 – might seem arbitrary.

A more fact-based alternative might be to index Social Security’s retirement age to hard data on human life expectancy.

In this proposal, the “full” retirement age would move up or down with changes in life expectancy, which has generally been rising over time.

The policy change would close 18% of the Social Security funding gap, CRFB estimates.

One drawback: Critics say raising the retirement age would unfairly disadvantage low-income Americans. Research shows a link between income and longevity: Older Americans living in poverty tend to die several years sooner than high earners.

Slow Benefit Growth for Higher Earners

Social Security benefits are progressive: The lower your income, the more of it you get back in your Social Security checks.

Under current law, Social Security “replaces” 90% of your income up to $1,286 a month. The replacement rate drops to 32% for incomes between $1,286 and $7,749, and to 15% for incomes above $7,749.

Changing the percentages could save money. One proposal would add a fourth bracket, with replacement rates dropping from 90% to 30%, 10% and 5% as income rises.

The math is complicated, but the CRFB estimates the change would close 41% of the Social Security funding gap.

Cap Social Security Benefits

A final proposal calls for capping the total Social Security benefit retirees can draw in a year. Recently, the CRFB suggested capping benefits at $100,000 for couples, $50,000 for single retirees.

That cap, indexed to inflation for future years, would close at least one-fifth of Social Security’s funding gap, CRFB estimates.

Critics warn, though, that a benefit cap could eat into benefits for the middle class.

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A Washington think tank proposed capping annual Social Security benefits at $100,000 for couples as a way to shrink a looming deficit in the retirement trust fund.

The idea might sound reasonable enough: Only the wealthiest Americans can collect $100,000 a year from Social Security, a federal program that was meant to ease poverty, not pad wealth.

But the “Six Figure Limit” idea has drawn swift rebukes from retirement advocates, who see any cap or cut in Social Security benefits as a slippery slope.

The March 24 paper comes from the Committee for a Responsible Federal Budget, a centrist, nonpartisan think tank in the nation’s capital. It suggests a $100,000 cap on the total annual benefit for a couple at full retirement age, and a $50,000 limit for a single retiree, starting this year.

“This is for people who already have millions and tens of millions in assets,” said Marc Goldwein, senior policy director at CRFB.

The Social Security program for retirees is projected to run short of funds by 2032. Once the fund is depleted, recipients could see a 28% cut in monthly benefits.

Is a Six-Figure Social Security Income Too Much?

Retiree advocates say any shortfall or benefit cap goes back on a fundamental promise of Social Security: That Americans who pay into the trust fund can count on getting the money back.

“Proposals that focus on capping Social Security don’t address the problem in front of Congress: ensuring every American gets every dollar they have earned,” Jenn Jones, vice president of financial security and livable communities at AARP, said in a statement.

But the six-figure limit also has prominent supporters, including the editorial board of the Washington Post.

“The Six Figure Limit is the right idea for a program that currently pays about one-third of benefits to retirees with incomes over $100,000,” the board at the newspaper wrote. “The wealthiest members of the wealthiest generation in human history do not need more government largesse. . .”

According to the Washington think tank, a $100,000 cap could save the Social Security program $100 billion to $190 billion over the next decade, depending on how it was implemented.

Who Collects $100,000 in Social Security?

Currently, only a small share of retired couples collect Social Security payments over $100,000 a year.

Monthly benefits rise with age, maxing out at 70. According to the agency website, the top monthly benefit is $5,181 for someone who retires in 2026 at 70. That works out to $62,172 a year.

The white paper calculates that a top-earning couple retiring at age 67 in 2026 would collect $101,000.

The proposed cap would vary with age: A couple retiring at 62 would face a $70,000 limit. Spouses who retire at 70 could collect up to $124,000. The cap might rise with inflation over time.

The paper arrives at a moment when many Americans fear for the future of Social Security. Surveys suggest most American workers worry the promised benefits won’t be there when they retire.

Retirement experts widely predict Congress will find a way to make the program solvent, by collecting more taxes, tweaking the “full” retirement age for benefits, or borrowing funds, among other options.

The appeal of a $100,000 cap, Goldwein said, is that it affects only top earners. The Social Security program began in 1935 as a safety net “against poverty-ridden old age,” as President Franklin Roosevelt told Congress when signing it into law.

Congress Needs to Find Ways to Close the Social Security Deficit, Experts Say

In any case, Goldwein said, a benefit cap would only be part of a solution to the Social Security shortfall.

The proposed cap “is a worthy thread as part of a broader discussion that needs to take place at the highest levels, as well as at kitchen tables across America,” said Mark Hamrick, senior economic analyst at Bankrate, in response to the proposal.

Other economic experts voiced skepticism about a benefit cap.

“The short answer is that it’s a bad idea – a distraction from what would really make a difference: taxing all earnings at the same rate,” said Monique Morrissey, senior economist at the progressive Economic Policy Institute.

Her organization favors a different approach to closing the shortfall: Eliminating an existing cap on the payroll taxes that fund Social Security.

Workers pay into Social Security with a levy split between employers and employees. In 2026, earnings above $184,500 are not taxed for Social Security. Eliminating that cap could fund nearly three-fourths of the Social Security shortfall, EPI estimates.

“We can look at revenues, and we should,” Goldwein said, of collecting more Social Security taxes. “But we’re not going to solve it all on the revenue side.”

This article originally appeared on USA TODAY: A proposal would cap Social Security at $100,000. Will it fly?

Reporting by Daniel de Visé, USA TODAY / USA TODAY

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