S-1690-119
Read twice and referred to the Committee on Finance.
Sponsored by Sheldon Whitehouse (D-RI)
What it does
This bill would make three major changes to federal taxes. First, it would reinstate Social Security payroll taxes on wages between the current taxable maximum (around $176,100 in 2025) and $400,000 — closing a gap where wages in that range are currently exempt. Second, it would add a new 1.2% Medicare tax on wages and self-employment income above $400,000 (or $500,000 for joint filers). Third, it would significantly expand and increase the Net Investment Income Tax (NIIT) on high earners, raising the rate to as high as 17.4% on investment and business income above those same thresholds. Revenue from these changes would be directed into the Social Security and Medicare trust funds.
Who benefits
Current and future Social Security and Disability Insurance beneficiaries, whose trust funds would receive additional revenue, potentially extending solvency. Current and future Medicare beneficiaries, whose Hospital Insurance trust fund would similarly be shored up. Lower- and middle-income workers who depend on these programs and would not face the new taxes. Trustees and administrators of the Social Security and Medicare programs. Taxpayers broadly, if extended trust fund solvency reduces pressure for future benefit cuts or general-revenue transfers.
Who is hurt
Wage earners with salaries between the current Social Security taxable maximum (~$176,100) and $400,000, who would pay Social Security payroll taxes on that previously exempt income. High-income self-employed individuals, who would face both the payroll tax gap closure and the new 1.2% Medicare surcharge. Investors and business owners with modified adjusted gross income above $400,000 ($500,000 for joint filers), who would face a dramatically higher NIIT rate — potentially up to 17.4% — on investment and active business income. Trusts and estates, whose NIIT rate would rise from 3.8% to 17.4% on net investment income. Employers of high-wage workers, who would face new withholding obligations. Pass-through business owners whose active business income would newly fall under the expanded NIIT.
Supporters argue
Supporters argue that the Social Security trust fund is projected to be depleted by 2033, at which point benefits could be automatically cut by roughly 21% under current law, according to the Social Security Trustees' 2024 report. They contend that the current payroll tax structure creates an inequity where a worker earning $80,000 pays Social Security taxes on every dollar, while a worker earning $500,000 stops paying after the first $176,100 — meaning higher earners pay a smaller share of their income into the system. They further argue that extending taxes to investment income closes a parallel gap, since wealthy households derive a larger proportion of income from capital rather than wages, allowing them to avoid payroll taxes entirely on that income.
Opponents argue
Opponents argue that the bill would impose some of the highest marginal tax rates on investment income in the modern U.S. tax code — a combined federal rate on capital gains that could exceed 40% when added to existing taxes — which may reduce incentives to invest, start businesses, or retain capital in the United States. They contend that the "donut hole" structure for Social Security taxes (exempting wages between the current cap and $400,000) adds complexity and that workers paying into the gap would not receive proportionally higher future benefits, breaking the program's contributory logic. They also argue that taxing active business income through the expanded NIIT effectively double-taxes pass-through business owners who already pay self-employment taxes, and that the trust fund shortfall could be addressed through less economically disruptive means.
Constitutional context
The Taxing and Spending Clause (Art. I, §8, cl. 1) gives Congress broad authority to levy taxes for the general welfare, which courts have consistently upheld as covering Social Security and Medicare financing. Because this bill originated in the Senate, it may face an Origination Clause challenge (Art. I, §7, cl. 1), which requires revenue-raising bills to originate in the House — though Senate amendments to tax law have historically survived this challenge when structured carefully. The expanded NIIT provisions, which tax income from pass-through businesses that has not been "realized" in the traditional sense, could also implicate the unresolved realization question left open in Moore v. United States (2024).
Checks and balances
Congress gains revenue authority over high-income earners and redirects it to specific trust funds; the Treasury Department and IRS implement and enforce the new withholding and payment rules; courts retain authority to review constitutional challenges, particularly on Origination Clause grounds given the bill's Senate origin.
Historical precedent
The Social Security Amendments of 1983 (the Greenspan Commission reforms) last made major structural changes to Social Security financing, including raising the payroll tax rate and taxing benefits — the most recent precedent for legislatively addressing trust fund solvency through revenue increases.