Social Security overhaul: higher COLAs for retirees, new tax on high earners
H.R. 4968 — Protecting and Preserving Social Security Act · Filed by Jill Tokuda (D-HI) · 11 cosponsors · Introduced Aug 12, 2025 · Referred to committee
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What it does
This bill makes three changes to Social Security: (1) creates a new Consumer Price Index tailored to elderly consumers (CPI-E) to calculate cost-of-living adjustments (COLAs) instead of the current general index, potentially raising COLA amounts for retirees; (2) gradually phases in taxation of earnings above the current Social Security wage cap ($168,600 in 2024), starting at 86% of surplus earnings in 2026 and reaching 100% by 2032, affecting higher-income workers and self-employed individuals; and (3) includes surplus earnings (income above the wage cap) in the Social Security benefit formula at reduced rates (3% and 0.25%), so higher earners receive modestly higher benefits. The net effect is that retirees get larger COLAs, higher earners pay more into the system, and higher earners receive slightly larger benefits in return.
Why we flagged it
The bill's core mechanism is a dual reform: it improves COLA calculations for all retirees (a benefit expansion) while simultaneously raising payroll taxes on high earners (a revenue measure). The benefit formula inclusion for surplus earnings is a secondary mechanism that partially offsets the tax increase for high earners. The bill is fundamentally about rebalancing Social Security's revenue and benefit structure.
What the text implies
- CPI-E substitution may increase federal budget outlays for Social Security COLAs over time, as elderly-specific inflation typically exceeds general inflation; no explicit appropriation cap is stated.
- Phased taxation of surplus earnings creates a six-year transition (2026–2031) during which high earners face graduated tax increases; the 0% rate after 2031 means 100% of surplus earnings are taxable, effectively eliminating the wage cap for Social Security purposes.
The full analysis lists 5 implications of this text.
Who stands to gain
Current and future Social Security beneficiaries (via higher COLAs under CPI-E); Social Security trust fund (via increased payroll tax revenue from surplus earnings taxation)