Debate over how to finance Social Security is intensifying in the United States as current projections show benefit cuts could become a reality in about six years if Washington fails to act. One of the main ideas under discussion is to raise or remove the payroll tax cap so that higher earners contribute more to the program.
That approach was once backed mainly by Democrats, but it is now drawing support from some Republicans as well. In June, Ohio Republican Sen. Bernie Moreno and Massachusetts Democratic Sen. Elizabeth Warren argued in a joint New York Times op-ed that lifting the Social Security payroll tax cap would be a “common-sense solution.” Republican Reps. Tom Cole of Oklahoma and Lloyd Smucker of Pennsylvania have also said separately that they would consider higher payroll taxes to help finance the system.
In 2026, workers pay Social Security payroll taxes on earnings up to $184,500. People with incomes above that level effectively stop paying the tax once they hit the cap during the year. According to the Roosevelt Institute, about 83% of total worker earnings are currently covered by the tax.
How much the change could help
According to the program’s trustees, Social Security may no longer be able to pay full scheduled retirement benefits starting in the fourth quarter of 2032. At that point, the retirement trust fund would be able to cover 78% of promised benefits. If the retirement and disability trust funds were combined, full payments could continue until the third quarter of 2034, after which 83% of benefits would remain payable.
The same June report said Social Security faces a nearly $30 trillion shortfall over 75 years, up from about $25 trillion a year earlier. That gap reflects the program’s “unfunded obligation,” or the difference between scheduled income and costs.
Research from the Roosevelt Institute suggests that fully eliminating the Social Security payroll tax limit would close 67% of the program’s 75-year solvency gap. If benefits were also increased, the effect would fall to 48%. Another option — permanently setting the taxable maximum at 90% of total earnings — would close 28% of the gap, or 22% if monthly benefits were raised as well.
A 2024 survey of 2,243 Americans aged 21 and older found the most preferred option was eliminating the payroll tax cap for earnings above $400,000. The poll was conducted by the National Academy of Social Insurance, AARP, the National Institute on Retirement Security and the U.S. Chamber of Commerce with Greenwald Research. Nearly as popular was raising the payroll tax rate to 7.2% from 6.2% for both employees and employers.
Tyler Bond, a senior fellow at the National Academy of Social Insurance, said changes to the taxable maximum are now “almost unavoidable” in any congressional reform effort. He noted that only about 6% of workers earn above the cap in a given year, while roughly 20% will ever cross that threshold at any point in their careers.
Experts broadly say Social Security’s funding problem can be addressed through higher taxes, lower benefits, or some combination of the two. Another idea that is often raised — increasing the retirement age — is generally treated as a benefit cut.
Why critics are pushing back
Not all policy experts see a higher payroll tax cap as a silver bullet. The Tax Foundation argues that applying the tax to income that is currently exempt would amount to a 12.4-percentage-point tax increase and would mark the largest such increase since 1982. Chief economist William McBride said that could lead some high earners to work less or report less of their income as taxable wages.
Tax Foundation research estimates that raising the cap to $346,000 in 2027 so it covers 90% of wages, and then indexing it to wage growth, would eliminate nearly 900,000 jobs and reduce GDP by 0.7%. McBride said the economic impact would be even greater if the cap were fully removed.
Andrew Biggs of the American Enterprise Institute said supporters frame the proposal as a way to impose an extra tax burden of about 12 percentage points on 5% of people while leaving the other 95% untouched. But he argues the proposal targets taxpayers who already face high marginal rates, which could create broader economic consequences.
The debate is unfolding as Medicare faces its own financing strain. In June, Medicare’s trustees projected that the Medicare Hospital Insurance trust fund may run out in the second quarter of 2033, at which point only about 89% of scheduled Medicare Part A costs would be covered. At the same time, U.S. government debt has recently surpassed $40 trillion.
Jessica Riedl of the Urban-Brookings Tax Policy Center said removing the payroll tax cap to fund Social Security would sharply raise tax burdens in states such as California, where the top marginal rate could climb to 63% when income, payroll and state taxes are combined. She also warned that if higher Social Security taxes do not lead to higher monthly benefits, the link between contributions and benefits would be weakened.
