Social Security Reforms
Reform 1: Raise the taxable wage-base cap
Social Security is funded primarily through a 6.2% payroll tax, levied on both employees and employers. Individuals only pay taxes on the first $110,100 of their income, a limit known as the wage base cap. This cap can increase each year as national average wages increase. This reform would bump up the payroll tax wage base cap to no more than $150,000, and then allow the cap to increase based on the current formula during each following year.
A significant amount of money earned by Americans is not subject to Social Security payroll taxes. When Social Security began in 1937, 92.5% of all wages collected by American workers was payroll taxable. In 2009, only 83% of all wages earned by Americans was subject to the payroll tax. Today, for 90% of all wages to be payroll taxable, the cap would have to be raised to over $200,000, according to the Urban Institute.
This reform would result in a significant increase in Social Security revenues over the long term. For example, raising the cap to $150,000 would result in over $200 billion in additional deficit reduction in the first ten years.
Reform 2: Gradually raise the retirement eligibility ages (by two years over 20-30 years)
Currently, senior citizens are eligible to begin collecting Social Security benefits at age 62 and to collect full benefits at 66. The full Social Security retirement age is scheduled to gradually increase to 67 in 2027. This reform would gradually raise both the early Social Security eligibility age and the full Social Security retirement age another two years, to 64 and 69, respectively over the next 30 years. Afterwards, both retirement ages will automatically increase at the same rate as the average American lifespan. Disabled individuals and certain workers with physically demanding jobs would be granted an exception to these increased retirement ages.
Our nation has grown older. In 1950, there were 16.5 workers paying payroll taxes for each Social Security beneficiary. By 2012, the ratio has fallen to 2.8.
The nature of the U.S. economy has changed dramatically. Life expectancy is higher today for retirees as a result of the country’s prosperity, medical technology, and change from industrial/agriculture society to more service based employment. This change in work environment and life expectancy allows people to work longer compared to when the program was created in 1935.
This reform would result in significant savings for Social Security spending over the long term.
Reform 3: Revise benefit structure based on income
Retirees’ monthly Social Security benefits are designed to replace a certain percentage of the average income they previously earned during their working lives. Currently, the Social Security benefits formula replaces a higher percentage of pre-retirement income for lower-income individuals, and a lower percentage of pre-retirement income for high-income individuals. This is because low-income retirees have a greater need for Social Security benefits. This reform would better target Social Security benefits towards those most in need by decreasing the percentage of pre-retirement income of higher income retirees and shifting the savings to increase the benefits of lower-income retirees.
The current Social Security benefits formula already targets benefits more towards lower-income individuals. Retirees who earned an average salary of $2,000 a month during their working years (adjusted for inflation) receive about 52.4% of their former earnings in Social Security benefits. Retirees who earned an average salary of $4,500 a month receive about 41.9% of their former earnings in Social Security benefits.
This reform would make Social Security slightly more progressive without turning it into a welfare program. Through the use of better targeting, Social Security would support lower-income individuals more, while still providing a benefit to wealthier individuals.
Results from the town hall events
- 77% supported package of Social Security reforms
- 64% support making Social Security solvent by a combination of raising taxes and reducing beneﬁts
Do you support this package of reforms? We encourage you to use the social media sharing functions below ( for example, Facebook, Twitter, or LinkedIn) to express your support, or if you disagree, make comments about why. In addition, we encourage you to provide other options that you believe should be considered. To find out more about the town hall events or the $10 Million a Minute Bus Tour, click here.