The 3 Biggest Social Security Changes Congress Could Make Before 2032

Social Security is facing one of the biggest financial challenges in its history. And if lawmakers don’t intervene soon, benefits could be headed for a serious reduction.

Social Security’s Trustees recently reported that the program’s Old-Age and Survivors Insurance Trust Fund will only be able to pay 100% of benefits through the fourth quarter of 2032. Once that fund runs out of money, Social Security could be looking at a 22% cut.

Congress has historically stepped in to prevent Social Security cuts in the past, so there’s a good chance action will be taken prior to 2032. Here are three of the biggest changes that could come down the pike in the next six years to allow Social Security to continue paying benefits in full.

A higher payroll tax rate

Social Security’s main source of funding is payroll taxes. But a shrinking workforce is going to leave Social Security short of payroll tax revenue in the coming years unless a change to the system is made.

Lawmakers could opt to raise the current Social Security payroll tax rate, which is 12.4%. That tax is split evenly between employers and employees, so workers pay 6.2% on their wages and the companies that employ them pick up the other half of that tab.

If Congress raises that tax rate, it could give Social Security the cash infusion it needs to continue paying benefits on schedule.

No more wage cap

Workers don’t necessarily pay Social Security taxes on all of their income. Each year, a cap is set, and wages beyond that point aren’t subject to the 12.4% Social Security tax on the employee or employer side. The current wage cap is $184,500.

Congress could raise that cap so that higher earners pay Social Security taxes on more of their wages. That cap could also be eliminated completely so workers are taxed on all earned wages.

A new (and not improved) full retirement age

Full retirement age, or FRA, is when Social Security recipients are able to collect their benefits without a reduction. For those born in 1960 or later, FRA is 67.

Lawmakers could push back FRA by a few years. This would achieve a couple of things.

First, it would take some of the pressure off of Social Security, since many workers would no doubt wait until longer to file for benefits. Secondly, it would likely keep more people in the labor force longer, allowing Social Security’s incoming tax revenue to increase.

No single solution is perfect

While any or all of these Social Security changes could happen before 2032, the reality is that no single solution is perfect.

Raising taxes on all working Americans hurts people who are barely making ends meet now. Raising taxes on higher earners by lifting the wage cap doesn’t just burden the rich — it leaves companies on the hook for higher payroll costs, which could have consequences. And raising FRA either forces workers to accept reduced benefits or potentially delay retirement.

Of course, lawmakers might come up with another creative solution to stave off Social Security cuts. But they’ll need to act quickly given that the clock is ticking down.

Either way, workers today should brace for some sort of change, whether it’s one of the proposals above, a combination, or something completely new.

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