Ex-Social Security Administrator Calls For Raising Income Cap As Insolvency Looms

Millions of Americans rely on Social Security benefits as part of their retirement plan, and those benefits could be reduced if the program becomes insolvent. Former Social Security Administration Commissioner Martin O'Malley is making a public push for legislators to raise the payroll tax cap, generating more income for the program and potentially fixing the funding shortfall. With the program's trust fund projected to be depleted by 2032, the pressure is on legislators to find a solution, and the tax cap might be one option.

If you depend on Social Security benefits, here's what you should know about the program's funding and potential solutions.

The projected Social Security insolvency date

The 2026 Social Security trustees' report projects that the trust fund may run out in the fourth quarter of 2032. At that point, the revenue generated by payroll taxes may cover just 78% of retirement benefit payments, and benefits could be automatically reduced by 22%.

The issue is a looming one, and it's becoming more urgent. The trustees' 2025 report projected that the fund wouldn't be depleted until 2033, but the agency moved that insolvency date up by a quarter in August. The agency referenced the tax changes implemented by the One Big Beautiful Bill Act as being the reason for the revised projection.

Raising the payroll tax cap

Under the current payroll tax cap, only annual earnings up to $184,500 are taxed for Social Security, meaning raising the tax cap wouldn't affect a large portion of the population. Thanks to the cap, high earners don't pay into the program beyond that threshold, so Social Security misses out on a large amount of potential income that a higher cap could generate.

"It's only 6 percent of us that experience any benefit from the cap and an even smaller percentage, three or four who benefit from scrapping the cap on income above $250,000," said O'Malley. "Most Americans, Blake, think it is unfair that wealthy people don't pay the same tax rate as a custodian in a school or a teacher."

How the cap is affecting the program

According to O'Malley, the payroll tax cap is causing the trust fund to drain faster than expected. Income above the cap isn't taxed by Social Security, and O'Malley attributes that gap to growing income inequality.

He said that lifting or raising the cap could generate more income for the program, helping to close or solve the financial gap. In doing so, the changes to the cap might help preserve benefits for retirees.

What raising the cap could mean

If the cap were raised or even eliminated, high earners would pay more taxes to Social Security based on their income. The portion of their annual income exceeding $184,500 would also be taxed, which would help generate annual income that the Social Security program could use to pay benefits.

Raising the cap wouldn't impact workers who earn $184,500 or less per year. Those workers would continue paying the 6.2% Social Security tax on their income. But it could prompt high earners to pay more into the program, generating increased revenue.

Additional Social Security proposals

Democrats and Republicans have proposed other potential solutions. The current retirement age to claim full Social Security benefits is age 67, and some researchers are suggesting it should be raised again. Social Security benefits could potentially be capped at $100,000 for couples to limit the program's spending, and it's also possible to increase the Social Security payroll tax to generate extra revenue.

One proposed solution involves means-testing benefits, or reducing or eliminating benefits for people with incomes over a certain threshold. Another reform suggestion involves scaling back traditional benefits and instead creating a system of individual retirement accounts.

The Social Security Expansion Act proposes to raise the tax cap so that all income over $250,000 would be subjected to a payroll tax. It would also apply those payroll taxes to some investment income.

The pressure for a solution

Legislators are under pressure to find a solution to the program's insolvency. According to the Bipartisan Policy Center, the ratio of workers to beneficiaries has fallen. In 1960, the ratio was more than 5-to-1, but today, the ratio is 2.9-to-1, meaning there are fewer taxes being paid into the program to support benefits. By the 2070s, that ratio is predicted to fall even further to 2.2-to-1.

Bottom line

Without action from legislators, Social Security beneficiaries could face an automatic across-the-board cut once the trust fund is depleted. While benefits would still be paid out, their amounts would be reduced. Retirees who depend on those benefits and who already live with a tight budget could be put in a very challenging financial position.

There's lots of conversation around Social Security, and legislators are proposing solutions. If benefits are part of your retirement plan, be sure to follow this issue for updates.