Closing Social Security’s long-term funding gap through payroll taxes alone would raise costs by thousands of dollars for a typical US worker and employer, according to an analysis from the Cato Institute.
Social Security receives most of its income through payroll taxes. Employees and employers each pay 6.2% of covered wages, producing a combined rate of 12.4%, while self-employed workers generally pay the full 12.4%. The tax applies to earnings up to $184,500 in 2026.
The system now spends more than it receives in total income, according to the 2026 Social Security Trustees Report. Social Security has used trust fund reserves to cover the difference as the US population ages and the number of retirees rises relative to covered workers.
Under the trustees’ intermediate projections, the Old-Age and Survivors Insurance trust fund has enough reserves to pay scheduled benefits through 2032. Without legislative changes, continuing tax revenue would cover about 78% of scheduled OASI benefits after depletion, implying a reduction of roughly 22%.
The combined Social Security trust funds, including Disability Insurance, are projected to support scheduled payments through 2034.
The Disability Insurance fund itself remains solvent throughout the trustees’ 75-year projection period, making the 2032 date specific to the retirement and survivors fund.
One approach would close the financing shortfall entirely through higher payroll tax rates. The 2026 trustees estimate an immediate permanent increase from 12.4% to 16.65% would address the 75-year actuarial gap under their assumptions.
Cato’s Social Security model places the required combined rate at 17.04%. The Congressional Budget Office has estimated 17.31% under a separate set of demographic and economic assumptions.
Those differences come largely from different projections for fertility, longevity and economic growth. Cato uses a roughly 17% rate when illustrating the financial effect on workers and employers.
For a median full-time worker earning about $61,600 annually, Cato estimates a tax-only solution would increase combined payroll taxes by roughly $2,600 to $3,000 per year.
Employees and employers generally split the direct payment, though economists often treat employer payroll taxes as part of total labor compensation.
Romina Boccia, Cato’s director of budget and entitlement policy, argues the increase would place substantial pressure on households with limited emergency savings. She told CBS News that Congress therefore needs to consider alternatives rather than relying entirely on a higher payroll tax rate.
Social Security’s payroll tax started at a much lower level. The combined rate was 2% when benefits began in the 1930s, then rose through a series of legislative changes before reaching the current 12.4%.
Another proposal focuses on the taxable earnings ceiling instead of raising the rate applied to most workers. Social Security taxes currently stop after annual wages reach $184,500, although earnings above the ceiling also don’t generate additional benefits under the standard formula.
Removing or raising the ceiling would increase taxes on workers with earnings above the current limit without changing the 6.2% employee rate below it. The financial effect depends on how lawmakers structure additional benefits for earnings newly brought into the tax base.
Sens. Elizabeth Warren of Massachusetts and Bernie Moreno of Ohio have backed this approach. In June 2026, the Democratic and Republican senators said they were working together on legislation to remove the Social Security payroll tax cap and extend the system’s solvency.
Public polling suggests the proposal has support across party lines. A 2025 Bipartisan Policy Center survey of more than 4,000 Americans found 65% of Democrats and 62% of Republicans supported lifting the cap on earnings subject to Social Security payroll taxes. Support also extended to a majority of respondents with household income above $200,000.
The same poll found 61% of Democrats and Republicans supported increasing Social Security contributions from all employers and employees. Other respondents backed changes to benefits for higher-income retirees, showing the range of options under discussion extends beyond a single revenue measure.
Boccia argues removing the taxable maximum carries its own economic costs. Depending on federal and state taxes, she said, adding the full Social Security levy to high earnings would push marginal tax rates above 60% for some households and might change work or retirement decisions.
Cato favors a larger share of the adjustment coming through changes to scheduled benefits. Boccia argues current benefit formulas produce rising real benefits for future retirees as wages increase, adding to Social Security’s long-term obligations.
Other policy proposals combine new revenue with slower benefit growth. Options discussed by researchers include a smaller payroll tax increase, changes to the taxable earnings ceiling and adjustments to retirement benefits, though each distributes the financial burden differently across workers and retirees.
One frequently discussed benefit change involves the retirement age. Linking it more closely to longevity would reduce lifetime benefits for future retirees and increase the age at which workers qualify for full payments.
Such a change would affect workers unevenly. Transamerica Center for Retirement Studies research places the median US retirement age at 62, and many workers leave employment earlier than planned because of health problems, job losses or other circumstances outside their preferred retirement schedule.
High earners also receive larger Social Security checks because benefits depend partly on workers’ earnings histories. For someone who earned at least the taxable maximum throughout a long career and starts benefits at age 70 in 2026, Social Security’s maximum retirement payment is $5,181 per month, or $62,172 annually.
The maximum for someone retiring at full retirement age in 2026 is lower, at $4,152 per month. A worker claiming at age 62 under the same maximum-earnings assumptions would receive $2,969 monthly.
Boccia favors replacing much of the current earnings-related structure with a flatter retirement benefit. Under such a model, workers would receive a more predictable Social Security payment and rely more heavily on workplace retirement plans and personal savings for income above that floor.
She argues the retirement system has changed considerably since Social Security’s creation, with 401(k) plans, automatic enrollment and target-date funds now common parts of workplace saving. At the same time, millions of Americans still reach retirement with limited private savings, leaving Social Security as a major source of income.
Congress therefore faces several choices before the OASI reserve depletion date in 2032. Raising payroll taxes, expanding the taxable wage base or reducing scheduled benefit growth would each improve Social Security’s finances, but the cost would fall on different groups depending on how lawmakers combine the measures.
