From CNBC · Lorie Konish · · 3m
The Social Security tax fight nobody can dodge
Benefit cuts land in six years, and taxing high earners is suddenly the one fix both parties will say out loud.
In brief
Benefit cuts land in six years, and taxing high earners is suddenly the one fix both parties will say out loud. Scrapping the payroll tax cap closes most of Social Security's gap in one move, but it spends the political room for taxing the rich on a single program. Originally reported by CNBC.
Six years to a cut
Social Security's retirement trust fund can only pay 78% of scheduled benefits starting in the fourth quarter of 2032 unless Congress acts. That is about six years out.
Republicans join in
Raising taxes on high earners used to be a Democrat-only pitch. Sen. Bernie Moreno co-wrote a New York Times op-ed with Sen. Elizabeth Warren backing a lift of the payroll tax cap.
“common-sense solution”
More on the record
Reps. Tom Cole and Lloyd Smucker, both Republicans, each said in separate interviews they would consider raising payroll taxes to help fund the program.
Where the cap sits
In 2026, workers pay Social Security payroll tax on earnings up to $184,500. The highest paid stop contributing partway through the year.
A $30 trillion hole
The trustees put the program's 75-year shortfall at nearly $30 trillion in their June report, up from roughly $25 trillion a year earlier.
What scrapping it buys
Eliminating the cap entirely covers 67% of the 75-year solvency gap, the Roosevelt Institute found. Pair it with higher benefits and the number drops to 48%.
The softer version
Permanently setting the taxable maximum at 90% of earnings closes only 28% of the gap, or 22% if monthly checks also rise.
What voters picked
In a 2024 survey of 2,243 adults, the top choice was taxing earnings above $400,000. Nearly as popular: raising the payroll tax rate to 7.2% from 6.2% for workers and employers.
A small group pays
About 6% of workers earn above the cap in a given year, said Tyler Bond of the National Academy of Social Insurance. Only 20% ever clear it at any point in a career.
“We're talking about a fairly small segment of the workforce”
Only three levers
Fixing the gap means tax increases, benefit cuts, or both. Raising the retirement age, often pitched as neutral, counts as a cut.
“It's really hard to just ignore the fact that scrapping the cap closes so much of the funding gap”
The biggest hike since 1982
The Tax Foundation calls uncapping the tax a 12.4-percentage-point hike on currently exempt income. Its model says a $346,000 cap in 2027 would cost nearly 900,000 jobs and 0.7% of GDP.
“We have just not experienced that in the modern economy”
Then the well runs dry
Andrew Biggs of AEI warns a hike this size leaves Washington tapped out. Medicare's hospital fund may empty in 2033, and the national debt just passed $40 trillion.
“It's a huge tax increase on a very small number of people”
The link that breaks
California's top marginal rate would reach 63%, said Jessica Riedl of the Tax Policy Center. And if bigger contributions buy no bigger checks, the tie between paying in and getting back snaps.
“There'd be no room to tax the rich for anything else”
The short version
Scrapping the payroll tax cap closes most of Social Security's gap in one move, but it spends the political room for taxing the rich on a single program.
