Warren, Moreno Propose Largest Tax Increase in Decades to Fund Social Security

WASHINGTON — In a rare bipartisan move, Senators Elizabeth Warren (D-MA) and Bernie Moreno (R-OH) on June 23, 2026, proposed a plan to shore up Social Security's finances by eliminating the cap on earnings subject to the payroll tax. The plan, outlined in a New York Times op-ed, would represent the largest single tax increase in over 40 years, with significant implications for high-earning employees and the businesses that employ them.

For small and mid-sized business owners, this proposal transcends the political debate over retirement security; it represents a potential and significant change to their cost structure and future hiring capabilities. The plan aims to address a looming fiscal crisis within the Social Security program. According to the Social Security fund's trustees, without congressional action, the program's trust funds will be depleted by 2032, triggering automatic benefit cuts of approximately 25% for all recipients.

Under the current system for 2026, both employees and employers pay a 6.2% tax on wages up to an annual limit of $184,500, for a combined 12.4%. Self-employed individuals pay the full 12.4% on their earnings up to the same cap. Any income earned above this threshold is not subject to Social Security taxes. The Warren-Moreno proposal would remove this cap entirely, subjecting all earned income to the payroll tax.

In their op-ed, the senators argued the change is a matter of fairness. "Since the vast majority of Americans make less than that, most people are paying Social Security taxes on 100 percent of their earnings while the highest earners are paying on only part of theirs," they wrote. "Why should a middle-class nurse pay a larger share of her paycheck than a wealthy corporate lawyer?"

Proponents estimate the policy change would generate substantial new revenue, closing a significant portion of the program’s long-term funding gap. The Peterson Foundation, a non-partisan fiscal policy group, projects that eliminating the cap would raise about $3.4 trillion over the next decade. Warren and Moreno stated their plan would extend the solvency of Social Security for another generation.

However, independent analysis suggests the economic consequences could be severe. According to the Tax Foundation, removing the payroll tax cap would be the largest tax increase since 1982, amounting to about 0.83% of GDP in its first full year. The organization projects that while the tax would generate $3.2 trillion in revenue over a decade on paper, that figure would shrink to just $1.5 trillion after accounting for the negative economic effects.

Those effects, the Tax Foundation estimates, include the loss of approximately 1.8 million full-time equivalent jobs and a 1.5% reduction in long-run economic output. A key reason for this is that half of the payroll tax is paid by employers. Critics argue that businesses would not simply absorb this new, uncapped expense. Instead, they would likely respond by reducing hiring, suppressing wage growth, raising prices on goods and services, or providing less value to shareholders.

In our experience advising growing companies, a new, uncapped 12.4% tax on labor is a direct impediment to expansion. While pitched as a tax on the wealthy, the reality is that the 6.2% employer-side contribution on all wages—including those for highly compensated executives, engineers, or surgeons—is a material increase in the cost of doing business. This isn't an abstract economic model; it's a direct hit to the profit and loss statement that forces difficult decisions about headcount and investment. The proposal would also create punishingly high marginal tax rates for entrepreneurs and pass-through business owners, who could see their top rates climb as high as 60% in states like New York. Navigating such a seismic shift requires expert tax preparation and compliance. Business owners facing uncertainty about future tax liabilities can contact C&S Finance Group LLC at csfinancegroup.com for strategic guidance.

The proposal also departs from the program's original design as an "earned benefit," where contributions were linked to eventual payouts. Lifting the cap would require high earners to pay significantly more in taxes without receiving a proportional increase in their future Social Security benefits, effectively turning part of the program into a general revenue transfer.

The bipartisan nature of the proposal is notable, but it has already drawn opposition from other Republicans. Senator Jon Husted (R-OH) criticized the plan as a "giant tax increase." Alternative solutions have been floated, including a more modest one-percentage-point increase in the payroll tax rate from 12.4% to 13.4%, which the Peterson Foundation estimates would close about a quarter of the funding gap.

Ultimately, while the goal of securing Social Security is widely shared, the proposed mechanism places a heavy burden on the nation's job creators. The trade-off between shoring up retirement funds and potentially stifling economic growth will be at the center of the legislative debate.

With the senators now working on formal legislation, the next step will be the bill's introduction in Congress. Its journey will be closely watched by business owners, investors, and workers alike as the 2032 insolvency deadline draws nearer, increasing pressure on lawmakers to act.