Both politicians and policymakers are finally talking openly about reforming Social Security—a subject that has long been off limits, especially in election years.

The reason why is obvious. The long-term financial viability of Social Security is in peril. According to the Congressional Budget Office, by 2034 Social Security revenues are projected to equal only 75% of the program's benefits payments, which amounts to a 25% shortfall.

While analysts believe a combination of benefits cuts or new taxes is needed to shore up Social Security, Sen. Sheldon Whitehouse, a Democrat from Rhode Island, and Rep. Brendan Boyle, a Democrat from Pennsylvania, have introduced legislation to solve the problem solely by raising taxes on people earning more than $400,000.

Whitehouse said in a statement that he had no choice but to go the taxation-only route. “Republicans recently joined Democrats in promising not to cut Social Security, which leaves raising revenue as the only option to protect the program,” he said.

Analysis from “the Social Security Administration shows we can protect this bedrock program for all and improve our broken tax code—a win-win in my book,” Whitehouse added.

But new analysis from Garrett Watson, senior policy analyst at the Tax Foundation, paints a different picture. “Relying solely on raising taxes on the top 1% will not fully solve the entitlement crisis and will hurt economic growth,” Watson said in a new blog.

Applying the Social Security payroll tax on income over $400,000, as the bill would do, “would bring the top combined marginal income tax rate to about 53.4%, placing the U.S. at number 11 in the OECD for top marginal income tax rates including employee-side payroll taxes, up from number 22 today," Watson said. "If we include employer-side payroll taxes borne by employees, the combined income tax rate would rise to just below 59.6."

Whitehouse wants to levy a 2.4% Social Security payroll tax on both wages and self-employment income more than $400,000. Under current law, it only applies to the first $168,600 in earnings for 2024, Watson noted.

The bill would also increase the additional Medicare tax from 0.9% to 2.1% on wages and self-employment earnings over $400,000 (single) or $500,000 (joint). Under current law, additional Medicare tax applies to income earned over $200,000, Watson said.

The proposal would also raise the net investment income tax (NIIT) from 3.8% to 17.4% for single filers earning over $400,000 or joint filers earning income over $500,000. Under current law, NIIT applies only to a taxpayer’s passive investment income, such as capital gains or dividends, for people earning over $200,000 as a single filer or $250,000 as a joint filer, Watson noted. The bill would also expand the NIIT tax base to include active business income, such as business income derived from actively participating in a partnership, S corporation, or sole proprietorship, he said.

Combined, Watson said, the changes “would raise more than $3 trillion over 10 years on a conventional basis. The Social Security tax increase would raise about $1.3 trillion, while the additional Medicare tax change would raise about $190 billion. The NIIT increase and expansion would raise another $1.6 trillion.”

The problem, according to Watson, is that the tax increases “would penalize work, saving and investment, negatively impacting the economy and reducing revenue collections compared to the conventional estimate."

The bill would also “reduce long-run GDP by 1.2%, which under 2024’s economy would amount to $340 billion in lost output annually," Watson said. "Higher effective tax rates on both labor and capital income under the bill would reduce investment incentives and returns from work. About half of the negative impact would come from the Social Security tax hike on earnings over $400,000, while the large increase in the net investment income tax (NIIT) tax rate and base expansion would reduce long-run GDP by 0.5%."

Watson also estimated that wages would fall by 0.5% and employment by 759,000 full-time equivalent jobs. “American incomes (GNP) would fall by 1.3% in the long run,” Watson said.

In the long run, “the proposal would reduce after-tax incomes across the entire income spectrum," he said. "On average, households would see a 2.1% reduction in after-tax income. This ranges from a 1% decrease for people in the bottom 60% up to an 8.3% decrease in after-tax income for the top 1 percent of earners."

“While the political rhetoric may focus on the tax hikes directly applied to the top 1%, most taxpayers would earn lower incomes in the long run because of the Medicare and Social Security Fair Share Act,” Watson concluded.