S-3462-119
Read twice and referred to the Committee on Finance.
Sponsored by Brian Schatz (D-HI)
What it does
This bill would phase out the cap on wages subject to Social Security payroll taxes, so that earnings above the current contribution and benefit base (approximately $176,100 in 2025) would become fully taxable by 2030, with an 80% phase-in starting in 2026. It would also increase the benefit formula for lower earners (raising the lowest-bracket replacement rate from 90% to 95%), add a new 5% credit for earnings above the cap, adjust the "bend points" used to calculate benefits, and switch the cost-of-living adjustment (COLA) index from the standard Consumer Price Index to a new Consumer Price Index for Elderly Consumers (CPI-E), which the Bureau of Labor Statistics would be directed to publish monthly.
Who benefits
Current Social Security beneficiaries, who would receive a retroactive benefit recalculation effective January 2026. Future retirees and disability insurance recipients, who would receive higher base benefits under the revised formula. Lower-wage workers, who would see the largest proportional benefit increase from the 90%-to-95% formula change. Older Americans broadly, whose COLAs would be tied to a price index that more heavily weights healthcare and housing costs typical of elderly spending. The Social Security trust fund, which would receive significantly more revenue from high-wage earners. Economists and researchers who study elderly consumer spending, who would gain a new official BLS data series.
Who is hurt
High-earning workers — those earning above the current payroll tax cap (roughly $176,100 in 2025) — who would pay Social Security payroll taxes on all wages by 2030, with no corresponding proportional increase in their future benefits. Employers of high-wage workers, who pay a matching share of payroll taxes and would face increased labor costs. Self-employed high earners, who pay both the employee and employer share of the self-employment tax. Businesses with large numbers of highly compensated employees, such as financial services and technology firms, who would face higher aggregate payroll costs. Taxpayers generally, to the extent that the BLS appropriation for the new CPI-E index draws on discretionary funds.
Supporters argue
Supporters argue that Social Security's trust funds are projected to be depleted by the mid-2030s, at which point benefits would be automatically cut by roughly 20% under current law — and that lifting the payroll tax cap is the most direct way to close that funding gap without cutting benefits. They contend that the current cap creates an inequity in which a worker earning $200,000 pays the same total Social Security tax as a worker earning $2 million, and that the benefit formula changes and CPI-E switch would correct a long-standing undercompensation of lower-wage workers and retirees whose costs — especially healthcare — rise faster than the general CPI.
Opponents argue
Opponents argue that eliminating the payroll tax cap fundamentally breaks the contributory insurance structure of Social Security, which has historically linked taxes paid to benefits received — and that taxing high earners without proportional benefit increases converts the program into a general welfare transfer, potentially undermining its broad political durability. They contend that the combined employer-employee payroll tax increase on high earners could reach nearly 15 percentage points on affected wages, which may reduce employment or compensation for those workers, and that the CPI-E, which has historically run slightly higher than the standard CPI, would accelerate trust fund expenditures and partially offset the revenue gains from lifting the cap.
Constitutional context
The Taxing and Spending Clause (Art. I, §8, cl. 1) grants Congress broad authority to levy taxes for the general welfare, which has historically been interpreted to cover Social Security financing. The Origination Clause (Art. I, §7, cl. 1) requires revenue bills to originate in the House; this bill was introduced in the Senate, which could raise a procedural challenge if it advances. The bill does not implicate the unresolved realization question from Moore v. United States (2024), as payroll taxes on wages are clearly realized income under the Sixteenth Amendment.
Checks and balances
Congress gains authority to expand Social Security revenue and benefits; the Social Security Administration and Bureau of Labor Statistics gain new administrative mandates; the Senate Finance Committee currently holds the bill, and any enacted version would be subject to presidential veto and judicial review of the tax provisions.
Historical precedent
The Social Security Amendments of 1983 (the "Greenspan Commission" reforms) last made major structural changes to Social Security financing, including taxing benefits and gradually raising the retirement age, to address a similar near-term trust fund shortfall.