...
By Suzanne Blake
Reporter
0
Share
Newsweek is a Trust Project member
See more of our trusted coverage when you search.Prefer Newsweek on Googleto see more of our trusted coverage when you search.
A larger share of Americans' income subject to payroll taxes could dramatically extend Social Security's life and potentially allow the program to pay full benefits until 2059, according to a new report.
New research from the AARP Public Policy Institute found that the share of the U.S. economy subject to Social Security payroll taxes has declined substantially over the past four decades.
Taxable payroll made up about 41 percent of gross domestic product in 1983 but just 34 percent in 2025.
Read More on Politics
Had that share remained at its 1983 level, the report found the program would have collected an additional $10.8 trillion in payroll tax revenue and interest between 1984 and 2034. And that additional revenue could have allowed the combined Social Security trust funds to continue paying full scheduled benefits until 2059, 25 years longer than currently projected.
“In general, any type of tax increase is typically not popular with Americans, but we have seen studies over the last few years that indicate an increasing number may be open to the idea of higher payroll taxes if they can preserve Social Security as a program,” Alex Beene, a financial literacy instructor for the University of Tennessee at Martin, told Newsweek. “Social Security remains the most popular federal government program and has kept generations of elderly Americans out of poverty.”
Why It Matters
Social Security is facing a rapidly approaching insolvency deadline.
The 2026 Social Security Trustees Report projects that the Old-Age and Survivors Insurance trust fund, which supports retirement and survivor benefits, will be depleted in 2032. At that point, incoming revenue would cover about 78 percent of scheduled benefits.
That does not mean Social Security would disappear. But without congressional action, the program would no longer have enough incoming revenue to pay 100 percent of scheduled benefits.
...
How Are Social Security Payroll Taxes Calculated?
Most of Social Security's funding comes from payroll taxes.
Employees and employers each pay 6.2 percent, for a combined 12.4 percent tax. Self-employed workers generally cover the full amount themselves.
But the tax does not apply to unlimited earnings.
In 2026, only the first $184,500 in a worker's earnings is subject to the Social Security payroll tax. The taxable maximum is scheduled to rise to $192,300 in 2027.
That means someone earning $100,000 generally has all of those wages subject to the tax, while a worker earning substantially more than $184,500 stops paying the Social Security portion once their covered earnings reach that year's limit.
“If we’re looking at the long-term solvency of Social Security, higher payroll taxes would certainly have an impact,” Kevin Thompson, the CEO of 9i Capital Group, told Newsweek. “The real issue is that raising payroll taxes is politically unpopular because it can be viewed as regressive.”
Payroll taxes provided about 91 percent of the program's revenue in 2025, according to the AARP report, while another 5 percent came from interest income and roughly 4 percent from federal income taxes on benefits.
Why Has Social Security's Tax Base Shrunk?
According to the AARP Public Policy Institute, taxable payroll has declined from about 41 percent of GDP in 1983 to 34 percent in 2025, but several factors contribute to this.
For one, a greater share of national income now comes through business and investment income, which generally is not subject to Social Security payroll taxes.
Income inequality has also played a role. Because wages above the taxable maximum are not subject to the Social Security tax, more earnings above that threshold means a smaller percentage of overall wages is taxed.
CNBC found that around 83 percent of worker earnings are now covered by Social Security payroll taxes, down from the roughly 90 percent lawmakers anticipated when they enacted the major 1983 reforms.
Demographic shifts are key as well. The worker-to-beneficiary ratio is expected to fall from 3.4 workers per beneficiary in 2000 to 2.4 in 2030, according to AARP.
Could Higher Payroll Taxes Save Social Security?
Congress could bring more income under the Social Security payroll tax system, and the consequences could be major.
One hotly discussed idea is raising or eliminating the taxable earnings cap rather than increasing the 6.2 percent rate that applies to workers generally.
Only around 6 percent of individuals had earnings at or above the taxable maximum in 2024, according to AARP, so raising the cap could target additional taxes toward higher earners without directly raising the payroll-tax rate on most workers.
Eliminating the taxable maximum altogether could close approximately 67 percent of Social Security's projected 75-year financing gap, assuming those additional contributions did not produce correspondingly larger benefits, according to AARP.
The Social Security Trustees also estimated that raising the combined payroll tax rate from the current 12.4 percent to 16.65 percent beginning in January 2026 would have been sufficient to achieve a balance over the 75-year projection period.
For an employee and employer splitting the tax evenly, that would be equivalent to roughly 8.325 percent each, compared with 6.2 percent today.
“For future generations who are concerned their retirement savings won't be enough, Social Security remains an important pillar of their post-work financial plan,” Beene said. “The reality is regardless of many Americans' personal opinions on higher taxes, any plan that is going to help Social Security survive for another generation is going to have to rely on them to some degree.”
What Happens Next
Congress would ultimately need to change federal law to substantially alter Social Security's payroll tax.
“I believe raising payroll taxes will remain politically unpopular, and other measures will need to be considered to make up the difference,” Thompson said. “At the end of the day, you’re effectively placing an additional tax burden on the American worker while other forms of income remain largely untouched by payroll taxes.”
Newsweek’s reporters and editors used Martyn, our AI assistant, to produce this story. Learn more about Martyn here.
Contact Newsweek editors on this story: Samantha Beech and Gray R. Thomas
View 0 Comments
Submit Correction
View Editorial & AI Guidelines