Social Security trust fund projected to run out by 2032, prompting new reform proposals

New projections released this month show the Social Security trust fund will be depleted by 2032, six years sooner than previously estimated. Once reserves are exhausted, incoming payroll tax revenue would cover only about 78 percent of scheduled benefits.

The shortfall stems from decades of payroll tax collections falling short of benefit outlays, with the trust fund previously bridging the gap. Lawmakers now face a compressed timeline, as senators elected in this year’s midterms would likely vote on any fix.

Revenue-raising options Two sets of proposals focus on increasing payroll tax collections. One plan would eliminate the current $184,500 annual earnings cap, applying the tax to all wages. Sponsors cited a Peter G. Peterson Foundation estimate that the change would raise roughly $3 trillion over ten years.

A second approach would raise the taxable earnings threshold to $400,000 and extend the tax to some investment income. Both measures would increase revenue without immediate cuts to monthly payments.

Benefit adjustment and investment proposals A separate plan would cap combined benefits at $100,000 for couples and scale limits by filing status and claiming age. During a March Senate hearing, one senator noted that survivor benefits had been critical after his parents’ deaths.

Another proposal would maintain current benefit levels by borrowing $1.5 trillion to create a stock-heavy investment fund and an additional $25.1 trillion to cover near-term shortfalls. A recent simulation by Boston College’s Center for Retirement Research found that market volatility could prevent the strategy from consistently meeting targets.