By Alex Moore
As you probably already know, Social Security is funded by a payroll tax. The rate is currently 12.4 percent, with employees and employers each paying 6.2 percent of wages up to the taxable maximum of $176,100 in 2025. People who are self-employed pay the entire 12.4 percent.
This tax is set by law, and it has often come under debate as Social Security faces a looming financial crisis in the 2030s. Should Congress raise the tax to better fund the program, or would it be better to lower the tax rate and pump more money back into the economy? Seniors certainly have an opinion. Among 997 respondents to TSCL’s 2025 Senior Survey, 35 percent support increasing the payroll tax.
So, what would the impact be? It’s easy to find out because the Social Security Administration has already imagined many scenarios and calculated their impact. We can measure each scenario by how much of the budget shortfall they would eliminate. In this article, we’ll look at a few options for raising the payroll tax and how they’d play out.
Immediate, moderate increase
One proposal is to raise the payroll tax rate immediately, starting in 2025, from 12.4 percent to 16.0 percent. Companies and their employees would split the difference, each paying an additional 1.8 percent of wages into the program. This change would eliminate 100 percent of Social Security’s shortfall.
Gradual, mild increase
Another proposal is to slowly raise the payroll tax over time, by 0.1 percentage point each year from 2030 to 2049, until the tax rate reaches 14.4 percent. This proposal would have a much more limited impact on Social Security’s finances, eliminating an estimated 43 percent of the budget shortfall.
Remove earnings caps
A third option is to eliminate the cap on Social Security’s payroll tax contributions instead of raising the tax rate. This way, most American workers would continue to pay the same tax rate, but high earners would no longer be able to exempt some of their wages from the program. (As we mentioned earlier, all wages above $176,100 are exempt from the payroll tax in 2025.) The Social Security Administration estimates this approach would eliminate up to 73 percent of the program’s budget shortfall.
Raise earnings caps
Congress could also choose to raise the limit of income that is subject to Social Security payroll taxes rather than eliminating it, ensuring that high earners pay more into the program while still providing at least some exemption. If Congress increased the taxable maximum such that 90 percent of earnings, regardless of how much someone made, was subject to the payroll tax, it could reduce the budget shortfall by up to 31 percent.
What do you think?
Do you think Congress should raise Social Security’s payroll taxes? Let us know by taking our poll.
