New bill would phase out Social Security payroll tax cap

"The trust fund is heading toward insolvency and we must act," Sanchez said. "The single most important thing we can do to protect Social Security's future is phase out the income cap so the wealthy finally pay their fair share. That alone would dramatically extend the life of the program. Our bill will also fix the cost-of-living formula so benefits actually keep up with what seniors spend."

For calculating cost-of-living adjustments, the bill replaces the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) with the Consumer Price Index for the Elderly (CPI-E).

The bill would use the CPI-E for Social Security COLA calculations for quarters ending on or after Sept. 30, 2027, Martha Shedden, president and co-founder of the National Association of Registered Social Security Analysts, told ThinkAdvisor Tuesday in an email.

The CPI-E is "intended to better reflect retiree expenses, especially health care and housing," Shedden said.  

The bill aims to "increase Social Security benefits, ensure cost-of-living adjustments accurately reflect the real expenses seniors face and improve the long-term financial condition of the trust fund," Sánchez said in a statement.

Sachez's bill would phase out the taxable wage cap after 2027.

"The bill would gradually make wages and self-employment income above the Social Security contribution and benefit base taxable again," Shedden explained.

For earnings above the wage base, the percentage excluded from Social Security tax would be, for instance, 80% in 2028, 60% in 2029, 40% in 2030, 20% in 2031and 0% in 2032 and after, "meaning effectively all earnings would be subject to Social Security tax," Shedden said.

"This is a major revenue provision," Shedden said. "It would not simply add a new 'donut hole' above a high-income threshold; instead, it appears to phase out the exclusion above the current taxable maximum until all covered earnings are taxable for Social Security starting in 2032."

The 2026 Social Security trustees' report, released last week, warned the "trust fund could reach depletion by 2032, one quarter earlier than previously projected, due in part to President Trump's tax law passed by Republicans last year," Sanchez said. Her bill "would prevent that by phasing out the income tax cap to protect the benefits that retirees have earned."

As to widows, widowers and surviving divorced spouses, the bill "would create an alternative survivor-benefit calculation," Shedden explained. "The monthly survivor benefit would be the greater of the deceased worker's PIA-based amount or, for a fully insured survivor, 75% of the sum of the survivor's own retirement/disability benefit and the deceased worker's PIA, subject to a cap based on a hypothetical average-wage worker."

The provision would apply to survivors' benefits payable for months after December 2027.

The bill is cosponsored by Reps. Eleanor Holmes Norton, D-D.C.; Janice Schakowsky, D-Ill.; Stephen Lynch, D-Mass.; Steve Cohen, D-Tenn.; and Chellie Pingree, D-Maine.