Transcription
With a new bipartisan push by Republican Senator Bernie Moreno and Democratic Senator Elizabeth Warren, what they're looking to achieve is to lift the cap on the amount of taxes you have to pay in via the payroll tax into the Social Security Trust Fund. Right now, this year in 2026, the cap is set at $184,500, meaning that those who earn millions of dollars per year are only paying the Social Security payroll tax on the first $184,500 that they earn. However, at the same time, we have another senator completely shooting that idea down, saying that it would be a violation of the foundation of Social Security. So, in today's video, we are going to be covering everything that you need to know about the plan.
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Okay, so diving right into it for today. So, once again, we have a surprising bipartisan push. Senators Bernie Moreno and Senator uh Elizabeth Warren don't agree on much, but there is one thing that they have recently come together on, and that is lifting the cap on the amount of taxes you have to pay in via the payroll tax that goes into the Social Security Trust Fund. This tax is 6.2% if you're a W-2 employee, and and the entire 12.4% if you are self-employed. Now, this year in 2026, you only pay the payroll tax that goes into Social Security on the first $184,500 that you earn. That means that someone who earns, you know, for example, $20 million per year is only paying the payroll tax on the first $184,500 that they earn, uh leaving, you know, 19 million plus dollars going untaxed, meaning less money is not flowing uh meaning that there is money that's not flowing into the trust fund that potentially could be.
So, that is the plan that they're pushing out there. Before we didn't have any Republicans pushing this idea, but now we have Bernie Moreno uh in Ohio, which is actually a, you know, a fairly red state. So, kind of a surprise, those two coming out together in support of this idea. And there have been some studies out there showing that they could do this. They could lift the cap on the amount of payroll taxes you have to pay into Social Security, and in return, it would make it solvent for the next 75 years. But then again, we have a recent one, another one by the Tax Foundation, saying that it actually would not save Social Security, and at the same time, we actually have a senator completely shooting that idea down.
So, according to the uh Tax Foundation, they say in the New York Times, "Senators Bernie Moreno and Elizabeth Warren propose to save Social Security by lifting the cap on earnings subject to the payroll tax. While the proposal would generate substantial revenue, it would not fix the program's long-run solvency." So, that is one of the you know, obviously one of the biggest issues right there if it's not actually going to fix the whole issue. Uh they also say, "It would, however, impose a steep tax increase on higher earners, weigh on growth, and depart from the program's original earn benefit design."
So, for 2026, the payroll tax applies only to the first $184,500 of an employee's wages, a threshold that is adjusted each year for growth in the national average wage index. The 12.4% payroll tax is split evenly between the employee and the employer. The cap mirrors the benefit structure of the program. During retirement, Social Security replaces a share of income only up to the taxable maximum. The Moreno-Warren proposal would apply the payroll tax to all earnings above the cap with no corresponding changes to benefits, meaning that you would pay more taxes and there wouldn't be a way you could actually earn more in benefits over your lifetime. And at the same time, they said the solvency crisis would actually remain unresolved. So, it wouldn't really do anything about, you know, the solvency issue.
So, they say that to understand why this seemingly simple fix would not restore balance to the trust fund, we first need to grasp the scale of the problem. So, the latest Social Security Trustees report shows that by the fourth quarter of 2032, the Old Age Survivors Trust Fund will be able to pay only 78% of scheduled benefits. This means that under current law, benefits would be reduced by 22%. To restore act restore actual balance in 2032, if no other changes are made to the program, the total shortfall over the next 75 years equals $25 trillion or about 1.3% of GDP. Absent other changes, restoring solvency through 2100 would require an immediate across-the-board payroll tax increase on the current payroll tax base of 4.25% points. And the Social Security Administration has modeled uncapping the payroll tax with no benefit changes and found that it would return the program to annual surpluses for just 3 years through 2029, at which point annual deficits would once again resume. At best, it would close 67% of the long-run shortfall, leaving the remaining third to be covered by higher taxes on other workers or by benefit cuts.
So, basically, you know, they could raise taxes on those earning above $184,500. But as they also mentioned there, at a certain point in time, even lower earners would have to pay an additional tax, probably like 4 to 5% to keep the trust fund solvent. So, basically they're just going to have to keep increasing taxes in order to keep the trust fund solvent. Uh so, they also say that un-capping the payroll tax in addition to that would actually hurt the economy. So, they they say that we estimate that lifting the payroll tax cap would reduce the long-run GDP by 1.5% and cost 1.8 million jobs. Obviously, that is something that we definitely would not want to see either.
And here is Senator Ron Johnson again absolutely shooting down the idea of lifting the cap on the amount of taxes you have to pay into the trust fund. Let's go ahead and watch.
>> Thank you. Senator Johnson.
>> Uh Mr. Chairman, well, we'll we'll never fix this if we're not willing to take a look at the reality of what Social Security is. Again, it was a forced savings program. What you paid in was supposed to was supposed to be invested, and then the beauty of compound interest you'd be able to collect through retirement based on what you paid in. Correct? Mr. Akebus?
>> Excuse me. Sorry, Senator. Yes.
>> And again, Americans thought that that money was being invested, but the money was spent. It's gone, right? And in its place was a US government bond put into the trust fund. So, how how much value does a US government bond have to the US government agency? The answer is zero, right? Cuz when the trustees take that bond to pay out benefits because benefits exceed revenue right now, US Treasury just has to issue another bond, right?
>> Correct.
>> So again, the trust fund is a fiction. And already we are either borrowing or taking out of the general fund to make up the difference between benefits and receipts, correct?
>> On an annual basis, yes.
>> So again, what's unfair about the lifting the cap is it violates the basis you know, the basic foundation of Social Security, which is a you know, you you pay in and you get out what you pay in. But but you know, so if you want to turn it into a welfare system, that's a different conversation. Um already it's quite the welfare system. Uh I'll I'll submit for the record table one, the money's worth ratios for hypothetical workers with >> [snorts] >> various earnings levels and I'll just talk about the middle three. Uh low income, median income and high income. Uh the people who benefit best are two are one earner couples. They get the most out of Social Security. So if you're a low income, again, this is a very detailed table. But [snorts] the the people make out the best is somebody uh born in 1973, >> [clears throat] >> single income couple, they get it $3.33 out for every buck they put in. Okay? Uh if you're a single man, high wage earner, born in 1943, you're going to get 63 cents out. So yeah, it's all over the map. But it's very imprecise in terms of, you know, what you put in versus what you get out. And now what Democrats want to do is they just want to alleviate that, do great harm to our economy, cuz again, small businesses that, you know, that gets taxed at the individual level. You know, Mr. Bezos is a C corp and I'd love to talk to you about taxing all business income at the ownership level, turn everybody into pastures, then you wouldn't have that problem. Um but again, you've got to recognize how grossly mismanaged Social Security was. I I did a chart, this is a spreadsheet years ago. Had we taken those surpluses, actually invested them into, let's say, stock index fund, which I know we didn't have back then, but something equivalent, back then we would have something $8 trillion with the with the run up in the uh stock market, it's probably about $15 trillion of hard assets. We we'd be talking about increasing benefits, but we didn't do that. So so now the solution for fixing Social Security is lift the cap and just tax the wealthy. Who who are who are by the way based on the deal that Social Security was supposed to be, a dollar put in you're going to get that plus compound interest. They're not getting it. They're getting 63 cents. As low as 63 cents. So Mr. Akabas, just comment on what I on what I the points I made there.
>> Well Senator, I certainly agree that we have reached a point where the significant majority of beneficiaries are receiving far more than they contributed into the program over their lifetime. And that's frankly
>> that's pretty much the case right now.
>> That yes, that is the case and and that's, you know, in part why we are at a point where the program is mismatched between the revenues that are paid in and the benefits that are being taken out. And so we need to find ways on on both sides of the ledger to make those lines grow closer together.
>> So again, my point is let's honestly look at what Social Security was, how it was set up, how grossly mismanaged it was, how economically destructive it'll be to increase I mean, 12% increase in taxes on a small business person and you may say is wealthy, but you make them 250 grand as a small business, you make half million, you're putting that additional $250,000 into plant and equipment to grow the business, to to create jobs. And again, unfortunately, a lot of our Democrat colleagues don't understand how the private sector works and what wealthy people do with their money, they invest it to the benefit of our economy. So again, it starts with recognizing reality how grossly mismanaged Social Security was, and then start looking for real solutions. And by the way, it's not [snorts] going to be a calamity. It shouldn't be. I mean, already we are making up benefits because benefits exceed revenue. Just because the trust fund runs out doesn't mean that we won't be able to or shouldn't plus up benefits to meet the promise, right? It's just that the fiction of the trust fund runs out and now all of a sudden by you're supposed to have to reduce benefits, but we won't. What we need to do is reduce the deficit, return to a reasonable pre-pandemic level of spending, so we have the wherewithal to plus up benefits. That's the first thing we ought to do. Reduce the deficit by reducing spending. Thank you.
Okay, so once again, that is Senator Ron Johnson. Leave your thoughts and comments below. Do you agree with him or do you disagree with him? Now, the article that we're looking at before they go on to mention, you know, more of a sensible path forward at least in their opinion. So, they go on here and say that rather than concentrate the burden of funding the social security system on the small share of the workforce that earns above the taxable maximum, a better way to increase payroll tax revenue would be to apply the tax to certain fringe benefits such as employer-sponsored health insurance. We estimate that eliminating the exclusion for ESI would raise $1.8 trillion over the next decade with a smaller cost to the economy, reducing GDP by 0.2%.
So, there are a lot of benefits that employees receive such as employer sponsored health insurance, um money that goes into their 401k, for example. This is uh you know, benefits that they're receiving that are going untaxed. So, they're making a point here that you maybe you could tax uh the benefits that they're getting for their health insurance, for example, and they would of course bring more revenue into the trust fund. But again, leave your thoughts and comments below. Which ideas are you in support of? Would definitely love to hear your thoughts, but that's all we have for today's video, and I will see you in the next one.