Social Security has a cash flow problem. Due to the mass exodus of baby boomers, it expects to fall short on revenue.

Payroll taxes are the main revenue source for Social Security. As baby boomers stop working, the program is likely to see a decline in revenue.

As baby boomers leave the workforce, it will clear the way for more younger workers to get hired. The number of workers who are expected to enter the labor force isn't large enough to compensate for all of the boomers who are leaving the workforce.

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Social Security needs to dip into its trust funds to keep up with benefits as its main revenue source shrinks. Benefit cuts are possible once trust funds run out of money. We could be 13 years away from seeing the trust funds deplete.

Many lawmakers agree that President Biden doesn't want to see benefits cut. Biden pledges to do what he can to make Social Security solvent. The most likely solution could make a lot of taxpayers unhappy.

Higher earners should prepare to pay up

Biden wants to put money into social security. He thinks it's a good idea to raise payroll taxes for workers earning more than $400,000 a year.

There is a wage cap in place that cuts off the payroll tax requirement at a certain level. The wage cap is not subject to Social Security taxes if you make more than 147,000. The cap is likely to go up.

Biden wants to impose Social Security taxes on workers if they make more than $400,000 a year. This is how that would work.

Even though that won't happen, let's assume the wage cap stays at its current level. Workers earning between $150,000 and $400,000 wouldn't have to pay Social Security tax on their income. Someone making $500,000 would pay taxes on their highest income.

Will Biden's proposal work?

It's clear that imposing Social Security taxes on income over $400,000 would increase the program's revenue substantially to the point where benefit cuts could be avoided if other fixes were implemented simultaneously. There is a lot of opposition to taxing the wealthy. There may be some resistance among lawmakers to moving forward with that plan.

Social Security needs to be addressed sooner than later because of its impending shortfall. Lawmakers have to take action to stop the program from bleeding money. The program's problems could be solved sooner than later if Biden's plan becomes reality. Higher earner will need to gear up for that.

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