Taxing high earners to help fund Social Security gains bipartisan attention — what it could mean for benefits

As Social Security faces a funding shortfall, some lawmakers have renewed calls to raise taxes on high earners to help shore up the program.

Proponents of the strategy, who until recently have all been Democrats, now include several Republicans.

In June, Republican Sen. Bernie Moreno of Ohio teamed up with Democratic Sen. Elizabeth Warren of Massachusetts to pen an op-ed in The New York Times that called lifting the Social Security payroll tax cap a "common-sense solution."

Republican Reps. Tom Cole of Oklahoma and Lloyd Smucker of Pennsylvania also recently said in separate interviews that they would consider raising payroll taxes to help fund the program.

Changing how Social Security taxes are taken out of workers' paychecks may help avoid benefit cuts, experts say.

In 2026, workers contribute Social Security payroll taxes on up to $184,500 in earnings.

High earners may pay into the program for just part of the year. About 83% of total worker earnings are currently covered by these taxes, according to the Roosevelt Institute, a liberal think tank.

Social Security may not be able to pay scheduled retirement payments as promised as of the fourth quarter of 2032 — about six years from now — according to an annual report released by the program's trustees in June. At that time, 78% of benefits from that trust fund — which provides income to qualifying retired workers, their spouses and children, and survivors of deceased workers — will be payable, according to the trustees' projections.

Combining the program's retirement trust fund with its disability trust fund could make full benefits payable until the third quarter of 2034, when 83% of benefits would be payable.

Social Security faces a nearly $30 trillion, 75-year shortfall, the program's trustees said in their June report, up from about $25 trillion the year before. That gap represents the program's "unfunded obligation," or the value of scheduled income minus costs, according to the report.

Just how much of that shortfall would be covered by lifting the taxable maximum depends on how the policy is structured.

Completely eliminating the Social Security payroll tax limit would cover 67% of the program's 75-year solvency gap, according to the Roosevelt Institute. But if benefits were also increased, the change would instead cover 48% of the solvency gap, according to the think tank's research.

Another option — permanently setting the taxable maximum at 90% of earnings — would address 28% of the 75-year solvency gap if benefits are not increased, or 22% if monthly checks go up, according to the Roosevelt Institute.

Eliminating the Social Security payroll tax cap for earnings above $400,000 was the most strongly preferred choice among 2,243 Americans age 21 and older surveyed in 2024, according to the National Academy of Social Insurance, AARP, the National Institute on Retirement Security and the U.S. Chamber of Commerce, with Greenwald Research. The survey was conducted Oct. 15, 2024, to Nov. 20, 2024, and had a margin of error of plus or minus 2.1 percentage points.

Another choice that was nearly as popular, according to the survey, was raising the payroll tax rate to 7.2% from 6.2% for both employees and employers.

Social Security advocacy groups such as Social Security Works and the Committee to Preserve Social Security and Medicare also back taxing high earners to help shore up the program.

It's "almost unavoidable" that Congress will include changes to Social Security's taxable maximum when it reforms the program, according to Tyler Bond, a senior fellow at the National Academy of Social Insurance, a nonprofit focused on economic security programs. Bond co-authored the Roosevelt Institute's new research on how to fund Social Security's shortfall.

About 6% of workers earn above the cap each year, Bond said. Only 20% of workers will ever earn above the threshold at any point in their career, he said.

"We're talking about a fairly small segment of the workforce," Bond said.

Social Security's funding woes may generally be resolved through tax increases, benefit cuts or a combination of both. Another suggested proposal — raising the retirement age — would be considered a benefit cut.

"It's really hard to just ignore the fact that scrapping the cap closes so much of the funding gap without needing to implement any other changes," Bond said.

Some policy experts do not see raising the payroll tax limit as a silver bullet for Social Security's funding woes.

Lifting the payroll tax cap would be the equivalent of implementing a 12.4-percentage-point tax hike on that currently exempt income, and would represent the largest tax increase since 1982, according to the Tax Foundation, an independent tax policy nonprofit.

"We have just not experienced that in the modern economy," said William McBride, chief economist at the Tax Foundation.

Those high-earner taxpayers may react by working less or reporting less in taxable wages, McBride said.

The change would also impact the economy. For example, expanding the payroll tax cap to cover 90% of wages by setting the cap at $346,000 starting in 2027 and then indexing it to wage growth would eliminate nearly 900,000 jobs and reduce GDP by 0.7%, according to the Tax Foundation's research.

"It would be even more extreme if we were to fully lift the cap and apply the payroll tax to all wages," McBride said.

Proponents of raising or eliminating the payroll tax limit argue that a roughly 12-percentage-point increase on 5% of people will mean 95% get off scot-free, said Andrew Biggs, a senior fellow at the American Enterprise Institute, a conservative think tank based in Washington.

But the proposed hikes target those at the top who already pay higher marginal tax rates, he said.

"It's a huge tax increase on a very small number of people with a lot of economic repercussions they haven't thought of," Biggs said.

Social Security's funding dilemma comes as Medicare also faces its own funding shortfall. Medicare's trustees projected in June that the Medicare Hospital Insurance trust fund may run out in the second quarter of 2033. At that point, just about 89% of the scheduled Medicare Part A costs may be covered.

Meanwhile, the nation's debt recently surpassed $40 trillion.

A big payroll tax increase would leave the government "tapped out" for other tax hikes, according to Biggs. Medicare, Medicaid and the rest of the debt would fall on middle-class and lower-income people, he said.

Uncapping the payroll tax to pay for Social Security would be a significant tax hike for taxpayers in places like California, whose top marginal rate would go up to 63%, including income, payroll and state taxes, said Jessica Riedl, an economic studies fellow at the Urban-Brookings Tax Policy Center.

"There'd be no room to tax the rich for anything else," Riedl said.

Moreover, if higher taxes paid into Social Security don't come with higher monthly checks, that would sever the link between contributions and benefits, she said.