The nation's largest retirement program will reach a cliff in six years unless Congress acts. Social Security is going bankrupt, facing a structural imbalance between promised benefits and dedicated revenues.

The 2026 Social Security Administration Trustees' report predicts the Old-Age and Survivors Insurance trust fund that backstops Social Security will run out in the fourth quarter of 2032, after which incoming payroll taxes would cover just 78% of scheduled benefits. Even including the disability insurance trust fund, reserves last until 2034 with continuing revenues covering only 83% of benefits.

If nothing is done, this means automatic benefit cuts of 20% or more for millions of retirees, reducing payments by hundreds of dollars per month for the typical American.

To stave off insolvency, Senators Elizabeth Warren, D-Mass., and Bernie Moreno, R-Ohio, have proposed extending the 12.4% payroll tax that funds Social Security to all wages without limit. This amounts to a massive tax hike on high-wage earners like surgeons or engineers, and the companies or practices they build.

Currently, the 12.4% payroll tax applies only to wages up to $184,500, with the employee and employer each contributing half. Earnings above that cap are not subject to the tax. They are also excluded for benefits calculations, maintaining the link between contributions and payouts.

The senators' proposal would eliminate this rate cap so all income is taxed at 12.4%, yet it would not increase benefits for higher earners. In other words, like any tax, it takes and gives nothing back. Decoupling increased contributions from additional benefits shifts the system towards a model of redistributionism.

In a New York Times article, the destructive duo argue that higher taxes make the system fairer and would generate $3 trillion over 10 years. This pretense— framing policies as making high-earners and corporations "pay their fair share"—overlooks the fact that the proposal delays Social Security bankruptcy but does not reform it.

Since Congress will continue treating Social Security as a piggy bank, it is simply a short- term tax-grab gimmick that postpones the day of reckoning. This plan would be one of the largest tax hikes in history, pushing combined federal, state, and payroll taxes over 50-60% in high-tax states like New York and California.

With more money taken out of weekly paychecks, this tax on productive work and investment will slow wage growth and job creation. The Tax Foundation similarly finds that the Warren-Moreno plan would not restore long-run solvency, instead slowing the economy while defaulting on the program’s original earned-benefit design. It's a major tax increase rather than a true fix and will ultimately fail to fully close the long-term shortfall.

The reason Social Security is permanently going bust is because it is set up as a Ponzi scheme rather than an individual savings account that can be invested in for the future. Social Security hands payroll taxes to Congress for general government spending and puts Treasury Bonds—IOUs—into a pot called the Social Security Trust Fund.

Despite being called a trust fund, the money you pay in taxes is not set aside for your future but rather spent on today's bills. This was great for the first recipients who paid in very little and got spectacular returns they never earned. But participants today are stuck footing the bill, paying in but seeing low or even negative returns.

Sustainable solutions do not involve baseless tax increases and redistributive models like Sens. Warren and Moreno peddle. Rather, Social Security can be updated to reflect changing demographics like longer lifespans, lower birth rates, and fewer workers per retiree.

The ratio of workers to recipients shrunk from 4 to 1 in 1965, to just 2.7 to 1 in 2023. For example, raising the retirement age via increasing the age by one or two months per year and indexing it to life expectancy would address this demographic mismatch.

Far better is structuring Social Security like the massively successful 401(k) or similar defined-contribution plans which have amassed nearly $20 trillion of assets against the broader U.S. retirement market exceeding $47 trillion. Allowing workers to direct a portion of payroll taxes into personal accounts they own and control would capture higher historical market returns, leading to lower tax burdens and social security checks paying double or more what they do today.

Social Security needs reform, but the Warren-Moreno proposal snowballs the coming crisis while squeezing the economy to buy time. A durable solution would blend demographic adjustments, benefit refinements, and 401(k)-style elements that increase personal responsibility and returns.

Americans deserve more than IOUs and higher taxes, so it's up to Congress to stop patching the failing Social Security Ponzi scheme and finally fix it.

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Peter St. Onge, Ph.D., is senior economist at the Heritage Foundation. Nicole Huyer is a Senior Research Associate in Heritage’s Roe Institute for Economic Policy Studies.

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