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Public Reason Institute, LLC
Legislative Proposal
Public Reason Institute, LLC
Retirement Security Series
Social Security and Medicare Fairness and Solvency Act
Originally Published: February 25, 2026
Updated: Mar 24, 2026 · 6:56 AM EDT
| Publication Type | Legislative Proposal |
| Series | Retirement Security Series |
| Policy Area | Retirement Security |
| Jurisdiction | Federal |
| Target Body | U.S. Congress |
| Prepared By | Public Reason Institute, LLC |
| Status | Published |
| Publication Date | February 25, 2026 |
| Last Updated | Mar 24, 2026 · 6:56 AM EDT |
Summary
Executive Summary
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Key Provisions
The proposal introduces several structural reforms designed to restore long-term solvency while preserving earned benefits.
• Gradual elimination of the Social Security payroll tax wage cap so that high earners contribute proportionally to program financing.
• A modest contribution on certain high levels of investment income to better align Social Security financing with modern income distribution.
• Protection of all currently earned benefits and preservation of the core Social Security guarantee.
• Modernization of cost-of-living adjustments through adoption of an elder-weighted inflation measure that more accurately reflects retiree expenses.
• Strengthened program enforcement and reporting requirements designed to maintain transparency and long-term fiscal stability.
These provisions operate together to stabilize the Social Security trust funds while protecting retirees, workers, and beneficiaries from benefit reductions.
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Problem Statement
The long-term stability of Social Security and the affordability of Medicare are increasingly threatened by outdated financing structures and rising costs that no longer reflect the realities of today’s economy. While Social Security remains one of the most successful programs in American history, its revenue system is based largely on wage income patterns from decades ago, even as national earnings have shifted toward high salaries and investment-based income. As a result, middle- and lower-income workers carry a disproportionate share of the funding burden, while a growing portion of national income remains outside the system.
Without modernization, current projections show that trust fund reserves will decline over time, leading to automatic benefit shortfalls under existing law. At the same time, retirees face declining purchasing power because traditional cost-of-living adjustments do not fully reflect the real expenses seniors experience, particularly healthcare, housing, and utilities. Rising Medicare premiums and hospitalization costs further erode retirement income, creating financial stress for individuals who depend on these earned benefits.
The challenge is not that Social Security or Medicare are fundamentally broken, but that their financing and inflation protections have not kept pace with demographic changes, income inequality, and the modern economic landscape. Addressing these issues requires a balanced policy framework that preserves benefits, strengthens solvency, and distributes responsibility more fairly across the full spectrum of income sources.
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Policy Framework
The Social Security and Medicare Fairness and Solvency framework proposes a comprehensive, long-term solution designed to restore financial stability while protecting retirees and workers. The policy approach is built on four core pillars: modernization of revenue, protection of earned benefits, accurate inflation adjustment, and strengthened program integrity.
First, the framework modernizes Social Security financing by eliminating the payroll tax wage cap so that all earned wages contribute equally to the system. This aligns contributions with today’s income distribution and strengthens long-term solvency without reducing benefits. In addition, a modest investment-income contribution is phased in gradually to reflect the growing role of wealth-based earnings in the modern economy. This diversification of funding sources improves resilience during economic cycles.
Second, the proposal preserves and strengthens earned benefits by ensuring that no reductions in benefit levels, retirement age increases, or privatization measures are included. Instead, enforcement measures and anti-avoidance provisions ensure that existing obligations are met fairly and consistently.
Third, the framework introduces an elder-weighted inflation index to calculate cost-of-living adjustments more accurately. By reflecting the real expenses seniors face, this approach protects purchasing power over time and prevents gradual erosion of benefits.
Fourth, the policy improves Medicare affordability by limiting the share of Social Security benefits consumed by premiums and establishing protections against excessive hospitalization costs. These measures help ensure that healthcare expenses do not undermine retirement security.
Together, these reforms create a balanced and sustainable approach that restores long-term solvency, strengthens economic fairness, and safeguards retirement stability for current and future generations.
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Estimated Impact
The reforms outlined in this framework are designed to restore long-term solvency to the Social Security system while preserving earned benefits and strengthening retirement security.
Expected outcomes include:
• Restoration of long-term solvency of the Social Security Trust Funds through modernization of program financing.
• Alignment of Social Security revenue with the modern distribution of income, including high-wage and investment-based earnings.
• Protection of earned benefits without reductions to benefit levels or increases in the retirement age.
• Improved protection of retiree purchasing power through a cost-of-living adjustment that more accurately reflects senior household expenses.
• Strengthened program transparency and enforcement safeguards to support long-term fiscal stability.
Formal actuarial scoring of the proposal would occur through the Social Security Administration and the Congressional Budget Office during legislative review.
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Implementation Plan
The Social Security and Medicare Fairness and Solvency framework is designed for phased and responsible implementation that strengthens long-term program stability while minimizing disruption for workers, retirees, and financial markets. The implementation plan prioritizes immediate solvency protections while allowing gradual adjustment where appropriate.
Phase 1 — Legislative Enactment and Agency Preparation (0–12 Months)
Following enactment, the Department of the Treasury, the Social Security Administration, the Bureau of Labor Statistics, and the Department of Health and Human Services will begin coordinated rulemaking and administrative preparation. During this period, agencies will issue regulatory guidance, update payroll systems, develop reporting standards, and establish the elder-weighted inflation index methodology. Public education and outreach will ensure employers, beneficiaries, and financial institutions understand upcoming changes.
Phase 2 — Initial Policy Activation (Year 1)
The elimination of the payroll tax wage cap will take effect at the beginning of the first calendar year following enactment, immediately strengthening Social Security Trust Fund revenues. At the same time, enforcement measures and transparency safeguards will begin operation. The investment-income contribution will launch at an initial rate of 0.4 percent, consistent with the gradual phase-in schedule, allowing markets and taxpayers to adjust smoothly.
Phase 3 — Gradual Revenue Modernization (Years 2–5)
The investment-income contribution will increase incrementally each year until reaching the full 2.0 percent rate in Year 5. This phased approach balances long-term solvency with economic stability and predictability. The solvency auto-accelerator mechanism ensures that, if Trust Fund projections worsen, scheduled increases can occur sooner to prevent depletion risk.
Phase 4 — Benefit and Affordability Enhancements (Years 1–3)
The Bureau of Labor Statistics will finalize and publish the elder-weighted Consumer Price Index, enabling updated cost-of-living adjustments to begin once finalized. Medicare affordability protections, including premium limits and hospitalization cost safeguards, will be implemented through coordinated rulemaking by the Department of Health and Human Services.
Phase 5 — Long-Term Monitoring and Adjustment (Ongoing)
Annual solvency reports will provide transparent updates on program performance, revenue outcomes, and purchasing power protection. Automatic stabilizer provisions allow temporary adjustments if economic conditions change, ensuring long-term sustainability without abrupt policy shifts.
Through this structured implementation timeline, the framework delivers immediate progress toward solvency while providing a predictable and responsible transition that protects workers, retirees, and the broader economy.
Legislative Draft
Federal Legislative ProposalA BILL
To restore permanent solvency to the Social Security Trust Funds, modernize contribution structures to reflect contemporary income patterns, preserve the purchasing power of earned benefits, ensure Medicare affordability, and safeguard retirement security for current and future generations.
Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the “Social Security and Medicare Fairness and Solvency Act”.
SEC. 2. CONGRESSIONAL FINDINGS AND PURPOSES.
(a) Findings.
Congress finds that—
(1) Social Security provides earned retirement, disability, and survivor benefits to millions of Americans and serves as the primary source of income for a majority of retirees;
(2) demographic changes, including increased life expectancy and declining worker-to-beneficiary ratios, have created long-term financing challenges;
(3) existing payroll tax contribution limits exclude a substantial and growing share of national wages from Social Security financing;
(4) investment-based income represents an increasing portion of national earnings but is not currently subject to Social Security contributions;
(5) inaccurate inflation measurement reduces the purchasing power of benefits over time;
(6) Medicare premiums and cost-sharing increasingly consume a growing share of retirement income; and
(7) modernization of financing is necessary to preserve earned benefits without reductions.
(b) Purposes.
The purposes of this Act are—
(1) to restore permanent actuarial solvency to the Social Security Trust Funds;
(2) to modernize contribution structures fairly;
(3) to preserve real purchasing power of benefits;
(4) to prevent automatic benefit reductions;
(5) to ensure Medicare affordability; and
(6) to strengthen long-term retirement security.
TITLE I — MODERNIZATION OF SOCIAL SECURITY CONTRIBUTIONS
SEC. 101. ELIMINATION OF WAGE CONTRIBUTION LIMIT.
Sections 3101(a) and 3111(a) of the Internal Revenue Code of 1986 are amended by striking “up to the contribution and benefit base” each place it appears, so that Social Security payroll taxes shall apply to all wages paid.
Such amendments shall take effect beginning the first calendar year following enactment. Benefit formulas under title II of the Social Security Act shall remain progressive.
TITLE II — EQUITABLE CONTRIBUTIONS FOR TAX-EXEMPT FOREIGN EARNED INCOME
SEC. 201. ADJUSTED CONTRIBUTION RATE.
For any individual eligible for the foreign earned income exclusion under section 911 of the Internal Revenue Code of 1986 who elects to maintain coverage under title II of the Social Security Act, the employee contribution rate under section 3101(a) shall be increased to 10.2 percent with respect to such excluded income.
Upon cessation of eligibility under section 911, the contribution rate shall revert to 6.2 percent.
No reduction in benefits or eligibility shall result from application of this section.
TITLE III — SOLVENCY SAFEGUARDS AND ENFORCEMENT
SEC. 301. TRUST FUND DEPOSIT.
All revenues generated under this Act shall be deposited exclusively into the Old-Age and Survivors Insurance Trust Fund and the Disability Insurance Trust Fund.
SEC. 302. ANTI-AVOIDANCE AUTHORITY.
The Secretary of the Treasury shall issue such regulations as necessary to prevent payroll tax evasion, income reclassification, and misuse of exemptions designed to avoid contributions under this Act.
SEC. 303. ANNUAL SOLVENCY REPORT.
The Commissioner of Social Security shall submit to Congress an annual report detailing Trust Fund balances, projected solvency, and revenue performance.
SEC. 304. BENEFIT PROTECTION.
Nothing in this Act shall be construed to authorize reductions in benefits, increases in the retirement age, suppression of cost-of-living adjustments, or privatization of Social Security.
TITLE IV — STATE TAX RELIEF COORDINATION PROGRAM
SEC. 401. VOLUNTARY GRANT PROGRAM.
The Secretary of the Treasury shall establish a voluntary grant program providing funds to participating States in amounts determined under regulations based on documented reductions in regressive sales taxes imposed on essential consumer goods.
States without a general sales tax as of enactment shall automatically qualify for participation.
Funds shall derive solely from revenues generated under this Act.
TITLE V — INVESTMENT INCOME CONTRIBUTION MODERNIZATION
SEC. 501. COVERED INVESTMENT INCOME.
For purposes of this Title, covered investment income shall mean net investment income as defined in section 1411(c) of the Internal Revenue Code of 1986, excluding distributions from qualified retirement plans.
SEC. 502. TRUST FUND DEPOSIT.
All revenues collected under this Title shall be deposited directly into the Social Security Trust Funds.
SEC. 503. PHASE-IN SCHEDULE.
Year 1 after enactment — 0.4 percent
Year 2 after enactment — 0.8 percent
Year 3 after enactment — 1.2 percent
Year 4 after enactment — 1.6 percent
Year 5 and thereafter — 2.0 percent
SEC. 504. ANTI-AVOIDANCE.
The Secretary of the Treasury shall issue regulations preventing income reclassification or restructuring designed to avoid contributions under this Title.
SEC. 505. SOLVENCY AUTO-ACCELERATOR.
If the most recent Trustees Report projects depletion of the Old-Age and Survivors Insurance Trust Fund within 10 years, the next scheduled contribution increase under section 503 shall take effect beginning the following taxable year.
Such acceleration shall continue annually until depletion is no longer projected within the 10-year window.
In no case shall the contribution rate exceed 2.0 percent.
TITLE VI — PROGRAM INTEGRITY AND ACCOUNTABILITY
SEC. 601. NON-DIVERSION OF FUNDS.
Funds collected under this Act may be used solely for Social Security benefits and administration.
SEC. 602. SOLVENCY OFFSET REQUIREMENT.
Any legislation reducing revenues shall include actuarially equivalent replacement funding.
SEC. 603. SUPERMAJORITY REQUIREMENT.
A two-thirds vote of each House shall be required to weaken funding provisions.
SEC. 604. AUTOMATIC STABILIZER.
Temporary revenue adjustments shall activate under thresholds established by regulation if Trust Fund reserves decline.
SEC. 605. PUBLIC IMPACT STATEMENTS.
All proposed modifications shall disclose solvency and benefit impacts.
SEC. 606. PROHIBITION ON FAST-TRACK ALTERATIONS.
No weakening provisions may be enacted through omnibus or emergency legislation.
TITLE VII — ACCURATE COST-OF-LIVING ADJUSTMENTS
SEC. 701. ELDER CONSUMER PRICE INDEX.
The Commissioner of Labor Statistics shall develop and publish an Elder Consumer Price Index reflecting the expenditure patterns of individuals aged 62 and older.
SEC. 702. BENEFIT FLOOR.
No cost-of-living adjustment shall reduce benefits.
SEC. 703. ANNUAL REVIEW.
The Commissioner of Social Security shall report annually on purchasing-power impacts.
TITLE VIII — MEDICARE AFFORDABILITY PROTECTIONS
SEC. 801. PREMIUM LIMITATION.
Premium limitations shall apply to premiums under sections 1839 and 1860D-13 of the Social Security Act.
SEC. 802. HOSPITAL COST CAP.
The Secretary of Health and Human Services shall establish an annual out-of-pocket maximum for benefits under Medicare Part A.
SEC. 803. COST GROWTH ALIGNMENT.
Premium and cost-sharing increases shall not exceed growth under the Elder Consumer Price Index.
SEC. 804. REPORTING.
Annual affordability impact analysis shall be submitted to Congress.
TITLE IX — IMPLEMENTATION AND SEVERABILITY
Regulations necessary to carry out this Act shall be issued within 12 months of enactment.
If any provision of this Act is held invalid, the remaining provisions shall remain in effect.
Sources and References
Recommended Citation
Lester, Roger. Social Security and Medicare Fairness and Solvency Framework.
Public Reason Institute, 2026.
Institutional Note
This legislative proposal is independently developed by Public Reason Institute, LLC and is not affiliated with any legislative office or government body. It is published as a structured policy initiative for public review, civic dialogue, and consideration by policymakers.
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Sources & Citations
Recommended Citation
Lester, Roger. Social Security and Medicare Fairness and Solvency Framework.
Public Reason Institute, 2026.
Recommended Citation
Policy Development Timeline
Key milestones in the development and progression of this publication.
February 5, 2026
Submitted for Legislative Consideration — Rep Shontel Brown
February 25, 2026
Legislative Proposal Published
February 27, 2026
Status Updated: Published
Legislative Activity
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U.S. Congress
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