Social Security’s long-term financial challenges are putting renewed attention on one possible way to close the program’s funding gap: raising the payroll tax paid by workers and employers.
Social Security’s long-term financial challenges are putting renewed attention on one possible way to close the program’s funding gap: raising the payroll tax paid by workers and employers.
A recent analysis reported by CBS News examined what could happen if policymakers attempted to address Social Security’s projected shortfall primarily through higher payroll taxes. The analysis found that such a change could add thousands of dollars a year to the combined tax burden for a typical worker and employer.
Social Security Faces a Growing Funding Gap
The Social Security program currently collects most of its revenue through payroll taxes. Under current law, employees and employers each pay 6.2% of covered wages for Social Security, while self-employed workers generally pay the combined 12.4% rate.
The 2026 Social Security Trustees report projects that the combined retirement and disability trust funds will be able to pay scheduled benefits through 2034. After that point, continuing program income would be sufficient to cover about 83% of scheduled benefits if Congress makes no changes to the program.
The retirement portion of the program faces an earlier deadline. The Old-Age and Survivors Insurance trust fund is projected to deplete its reserves in the fourth quarter of 2032, at which point incoming revenue would cover about 78% of scheduled benefits.
What a Payroll Tax Increase Could Mean
CBS News examined a hypothetical increase in the Social Security payroll-tax rate from the current 12.4% combined rate to 17%.
For a worker earning around $62,000 a year, the change could mean roughly $2,600 to $3,000 more in annual payroll taxes when the additional cost to both the employee and employer is considered, according to the report.
The calculation illustrates the scale of a tax increase that would attempt to address the funding problem primarily through payroll-tax revenue. An economist cited by CBS described the resulting burden as potentially unaffordable for many households.
It is important to note that the 17% rate discussed in the CBS report is a hypothetical scenario, not a current federal tax rate or an enacted proposal.
Other Options Are Also Being Discussed
Increasing payroll taxes is only one potential approach to Social Security’s financing problem.
Policymakers and policy organizations have discussed a range of possibilities, including changing the amount of earnings subject to Social Security taxes, modifying benefits, changing eligibility rules, or combining revenue increases with benefit changes.
The 2026 Trustees report estimates that Social Security’s combined retirement and disability system has a 75-year actuarial deficit equal to 4.42% of taxable payroll. The report says a uniform payroll-tax increase could address the actuarial deficit under certain assumptions, although larger changes would be needed to produce positive and non-declining reserves over the long term.
Why the Issue Matters to Workers and Retirees
Social Security’s financial position affects both current beneficiaries and workers who are paying into the program.
If lawmakers do not change the program’s finances, the depletion of trust-fund reserves would not mean Social Security payments automatically disappear. Instead, benefits would be limited by the amount of ongoing program revenue available to pay them.
The Trustees currently project that the combined trust funds could pay 83% of scheduled benefits after reserves are depleted in 2034. For the retirement trust fund alone, the projected payable amount is 78% after its projected depletion in 2032.
The Debate Over Social Security’s Future
The latest projections underscore the financial challenge facing Social Security, but they do not determine which policy changes Congress will ultimately pursue.
A payroll-tax increase could generate additional revenue, while potentially increasing costs for workers and employers. Other policy approaches could distribute the financial effects differently among workers, employers, taxpayers and beneficiaries.
For now, the central issue remains how lawmakers will address the projected funding gap before the trust funds reach their depletion dates.
As the 2032 and 2034 projections approach, the debate over Social Security is likely to remain focused on the balance between additional revenue, benefit changes and the financial impact on Americans who depend on the program.
Source: cbsnews