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A ‘chop the top’ approach could save Social Security

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by Karl Polzer, opinion contributor - 05/01/26 7:30 AM ET

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by Karl Polzer, opinion contributor - 05/01/26 7:30 AM ET

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AP Photo/Jenny Kane, FIle

With Social Security’s annual “Groundhog Day” fast approaching, three prominent fiscally minded think tanks in Washington that stress fiscal discipline are coalescing around the idea of cutting Social Security benefits from the top down.

Year after year, as the spring flowers bloom, Social Security’s trustees release their annual report warning policymakers of the program’s looming insolvency. Congress and the White House then do nothing, and the program’s fiduciaries and actuaries creep back underground.

Last year’s report cautioned that reserves in Social Security’s combined trust fund would be depleted by 2034. The trustees projected that Social Security would draw down $181 billion from the trust funds in 2025, with the annual amount rising to $405 billion in 2033. This year’s report is likely to paint a slightly darker picture.

In March, Social Security chief actuary Karen Glenn told members of the Senate Budget Committee: “The math is simple — lawmakers need to take actions that will increase program income by about one-third, lower scheduled benefits by about one-fourth, or adopt a combination of these approaches.”

Progressives tend to favor solvency solutions that raise taxes for the highest earners. But economists at these three center-to-right think tanks say it would be better to cut Social Security benefits from the top down.

In a recent study, the libertarian Cato Institute suggested we “transition Social Security into a targeted anti-poverty program, similar to New Zealand’s Superannuation, which effectively reduces old-age poverty while containing costs for taxpayers. If Congress is unwilling to significantly change Social Security’s earnings-related design, it should at a minimum reduce benefits for higher earners to prevent harmful payroll tax hikes and focus limited taxpayer resources on those most in need.”

During an April 14 webinar, economists at the conservative-leaning American Enterprise Institute presented a couple of similar chop-the-top approaches. One offers “a framework in which monthly benefits in 2033 would be capped at $2,050 (in 2024 dollars), an amount that would provide full scheduled benefits for roughly half of retirees.” Benefit reductions for the remaining, higher-income half of retirees would be graduated or progressive.

The budget-minded and centrist Committee for a Responsible Federal Budget recently proposed capping annual Social Security benefits at $100,000 per couple and $50,000 for single retirees. Very few beneficiaries would hit those caps now, but because the caps would not be adjusted for inflation or other factors, an increasing number of high-income retirees would hit the benefit limit each year.

It remains to be seen whether top-down benefit cuts like these would pass muster with voters.

In contrast to cutting benefits at the top, a recent survey found that Americans favor raising taxes — particularly for higher earners — if that’s what it takes to keep Social Security financially stable. Funded by AARP, this National Academy of Social Insurance study identified three features that would boost a solvency package’s appeal the most: first, applying the Social Security payroll tax, which in 2025 is assessed on work income up to $176,100 a year, to earnings above $400,000 as well; second, gradually raising the payroll tax rate from 6.2 percent of gross wages to 7.2 percent for both employees and employers; and third, not raising the full retirement age.

Last year the Congressional Budget Office estimated that Social Security’s actuarial deficit over the next 75 years is equal to 1.5 percent of GDP — roughly $400 billion annually. That’s about the same amount that the Trump tax bill adds to the national debt each year. Walking back the tax cuts is not necessarily the best way to fully fund Social Security. But this analysis shows that there is ample room to restore its solvency by reversing tax changes of a magnitude that did not disrupt the U.S. economy. An amount equal to 2025 tariff revenues could eliminate most of Social Security’s financing gap.

If Congress fails to act before Social Security trust fund depletion, it could opt to move money from general revenues into the trust fund, either as an intra-governmental loan or a longer-term funding source. After all, the reserves that Social Security is now drawing down from its trust fund are IOUs for money the Treasury borrowed to pay for other commitments when the program was running