Urgent Proposal Caps Social Security COLAs for High Earners

UPDATE: A new proposal just announced could significantly impact how Social Security benefits are adjusted for high earners. The Committee for a Responsible Federal Budget (CRFB) suggests capping annual Cost-of-Living Adjustments (COLA) for the wealthiest beneficiaries, a move aimed at stabilizing the program’s finances without diminishing inflation protections for the majority of recipients.

The urgency behind this proposal is clear: Social Security is under increasing financial strain, with the retirement trust fund projected to deplete within the next decade. If Congress does not take immediate action, retirees could face a staggering 24 percent cut in benefits as early as late 2032. Over 50 million Americans depend on these monthly payments, which are designed to keep pace with inflation.

This year’s COLA increase is set at 2.8 percent, effective January 2026. However, the CRFB’s new white paper proposes limiting the COLA for high earners, specifically those with the largest Social Security benefits. Under this plan, while all retirees would still receive a COLA, individuals with exceptionally high benefits would see their increases capped at a predetermined dollar amount.

For example, if inflation leads to a 2 percent COLA in 2035 and the cap is $900, someone receiving $50,000 annually would normally expect a $1,000 increase. With the cap, they would only receive $900. Importantly, retirees earning $45,000 or less would experience no changes and would continue to receive the full COLA as per current law.

According to the CRFB, this cap could yield immediate savings while enhancing the long-term sustainability of Social Security. The report estimates that implementing this cap at the 75th percentile of benefits could save $115 billion over the next decade, covering approximately one-tenth of the program’s long-term funding gap. Adjusting the cap to the 50th or 90th percentile could save between $35 billion and $385 billion, addressing up to one-quarter of the solvency shortfall.

The proposal has sparked discussions among lawmakers. The CRFB stated,

“A COLA cap could meaningfully and quickly improve the solvency of Social Security’s trust funds while concentrating adjustments on those most able to bear them.”

This approach aims to maintain full inflation protection for the majority of beneficiaries without imposing nominal benefit cuts or freezes.

As Congress grapples with the looming shortfall, various strategies are emerging. Notably, the Fair Share Act, introduced by Democrats Sheldon Whitehouse of Rhode Island and Brendan Boyle of Philadelphia, seeks to bolster Social Security and Medicare by increasing taxes on individuals earning over $400,000. This would subject all wages, self-employment earnings, and investment income above that threshold to Social Security taxes.

Additionally, a bipartisan effort led by Senator Bill Cassidy (Republican, Louisiana) and Senator Tim Kaine (Democrat, Virginia) proposes establishing a new investment fund. This fund would differ from existing Social Security trust funds by diversifying into stocks and other investment vehicles, aiming for higher returns to support the program’s longevity.

As debates continue, the urgency for effective solutions is palpable. The proposed cap on COLA increases for high earners could be a critical step towards ensuring that Social Security remains a viable safety net for millions of Americans. Stay tuned for further updates as this story develops.