Mandatory Spending
Function 650 - Social Security
Reduce Social Security Benefits for High Earners
CBO periodically issues a compendium of policy options (called Options for Reducing the Deficit) covering a broad range of issues, as well as separate reports that include options for changing federal tax and spending policies in particular areas. This option appears in one of those publications. The options are derived from many sources and reflect a range of possibilities. For each option, CBO presents an estimate of its effects on the budget but makes no recommendations. Inclusion or exclusion of any particular option does not imply an endorsement or rejection by CBO.
Billions of dollars | 2025 | 2026 | 2027 | 2028 | 2029 | 2030 | 2031 | 2032 | 2033 | 2034 | 2025– | 2025– | |
Change in outlays | |||||||||||||
Add a bend point at the 70th percentile of earners and reduce PIA factors over 9 years | 0 | * | * | -1 | -2 | -3 | -6 | -8 | -12 | -16 | -3 | -48 | |
Add a bend point at the 50th percentile of earners and reduce PIA factors over 9 years | 0 | * | -1 | -2 | -5 | -8 | -13 | -20 | -29 | -39 | -8 | -117 | |
Add a bend point at the 50th percentile of earners and reduce PIA factors over 5 years | 0 | * | -2 | -4 | -9 | -15 | -24 | -35 | -47 | -61 | -15 | -197 | |
This option would take effect in January 2026.
Estimates displayed in this table include budgetary effects for Social Security benefits; that spending is classified as off-budget.
PIA = primary insurance amount; * = between -$500 million and zero.
The Social Security benefit paid to a retired worker who claims benefits at the full retirement age or to a disabled worker is called the primary insurance amount (PIA). It is calculated using a formula applied to that worker's average indexed monthly earnings (AIME). A worker's AIME is a measure of their average taxable monthly earnings, with past earnings indexed to account for growth in economy-wide earnings using the national average wage index. For retired workers, the average is taken over the 35 years in which they received the highest earnings.
The AIME is separated into three brackets using two threshold amounts, often called bend points. In calendar year 2024, the first bend point is $1,174 and the second bend point is $7,078. The AIME in each of the three brackets is multiplied by three corresponding factors (90 percent, 32 percent, and 15 percent) to calculate the PIA; the largest factor applies to the bracket containing the lowest average indexed earnings. The bend points change each year with average wages, but the PIA factors do not change.
This option consists of three alternatives, each of which would create an additional bend point in the PIA formula between the two existing bend points and would reduce the PIA factors for new beneficiaries with higher lifetime earnings. Under all three alternatives, the PIA factor for the lowest bracket would remain at 90 percent and at 32 percent for the second-lowest bracket (although that bracket would be smaller than it is under current law). The PIA factor applied between the new bend point and the highest bend point would decrease from 32 percent to 10 percent, and the PIA factor applied above the highest bend point would be reduced from 15 percent to 5 percent. People already eligible for Social Security benefits would not be affected. Only new beneficiaries with an AIME above the new bend point would receive smaller benefits under this option.
Under the first alternative, the bend point would be added at the 70th percentile of earners—that is, about 70 percent of newly eligible beneficiaries would have an AIME below the new bend point, so their benefits would not change. The top 30 percent of newly eligible beneficiaries (those whose AIME was above the new bend point) would receive smaller benefits than under current law. The changes to the PIA factors would be phased in over nine years. Under the second alternative, the new bend point would be set at the 50th percentile of earners—that is, about 50 percent of newly eligible beneficiaries would have an AIME below the new bend point—and the changes would be phased in over nine years. Under the third alternative, a new bend point would be added at the 50th percentile, but the changes to the PIA factors would be phased in over five years.
For information about the long-term and distributional effects of this option, see the appendix.