If you are wondering why there is suddenly so much talk about Social Security and Medicare possibly going broke, you are not alone. These programs are essential for millions of retirees, but they are facing a serious financial shortfall. According to the Social Security Administration’s 2024 report, benefits could be cut by 17 percent as early as 2035 if no changes are made.
Why is Social Security running out of money?
Here is the issue: the U.S. population is aging. As more Baby Boomers retire, there are fewer workers paying into the system compared to the number of people drawing benefits. Combine that with longer life expectancy and lower birth rates, and you have a perfect storm that is putting enormous pressure on both Social Security and Medicare.
What is the new tax plan for high earners?
To address the problem, Democratic lawmakers have reintroduced a bill called the Social Security and Medicare Fair Share Act. The idea is simple: ask the wealthiest Americans to pay more into the system to help keep it afloat. Right now, workers and employers each pay 6.2 percent into Social Security, but only on income up to $168,600. Anything above that is not taxed for Social Security.
This bill changes that. It proposes to start taxing income again once someone earns more than $400,000, effectively creating a new tax tier for high earners. The Medicare tax already applies to all wages, but this bill closes a major gap in the Social Security tax structure.
So if someone earns $500,000 a year, their first $168,600 would be taxed as usual, the next chunk up to $400,000 would still not be taxed, but anything above $400,000 would be taxed again. That gap from $168,600 to $400,000 would remain untaxed, but the proposal still brings in significant revenue.
How would this help Social Security and Medicare?
If you are thinking, “Will this really make a difference?”—the answer is yes, a big one. Groups like the Center for American Progress estimate that taxing earnings over $400,000 could close almost 80 percent of Social Security’s funding gap. That would go a long way in ensuring that you, your parents, and even your kids can count on getting their benefits.
Senator Sheldon Whitehouse put it plainly: “We should be working to extend and strengthen Social Security and Medicare, not slash them. Our bill does that by asking millionaires and billionaires to contribute a little more.”
Do Americans support higher taxes for the wealthy?
Chances are, you already have an opinion on whether the rich should pay more taxes. But the data shows you are probably not alone. A 2023 Pew Research Center poll found that 68 percent of Americans support raising taxes on high-income earners to preserve Social Security and Medicare.
Many people feel it is only fair. While some politicians have floated ideas like raising the retirement age—which could hurt future retirees—this bill focuses on a solution that does not impact the middle class.
What are the chances this bill becomes law?
This is where things get tricky. While the bill has support among Democrats and progressive organizations, Republicans in Congress have their own ideas. In 2024, the Republican Study Committee proposed raising the retirement age instead of increasing taxes. So expect this to be a heated debate, especially as the next election draws near.
Regardless of which side you are on, one thing is clear: something has to be done. The longer Congress waits, the harder the fix will be.
