Analysts Say Hiking High Earner Payroll Taxes Won’ t Save Social Security
Can Congress save Social Security simply by raising payroll taxes on higher-income Americans? Not according to Alex Durante, senior economist at the Tax Foundation, who said in a late June blog that a bipartisan proposal from two U. S. senators to eliminate Social Security’ s payroll tax cap would amount to one of the largest tax increases in decades while still failing to restore the program’ s long-term solvency.
To shore up the trust fund, Democrat Elizabeth Warren of Massachusetts and Republican Bernie Moreno of Ohio proposed to eliminate the payroll tax cap, currently set at $ 184,500 of wages in 2026. That would require higher-income workers to continue paying the 12.4 % Social Security payroll tax on earnings above that threshold without increasing their future benefits.
The quest for“ fixes” comes as Social Security’ s financial outlook continues to deteriorate. The latest report from the program’ s board of trustees projects that its main retirement trust fund will be depleted in the fourth quarter of 2032. At that point, Social Security would be able to pay only about 78 % of scheduled benefits— unless Congress intervenes.
Durante said the Warren-Moreno proposal sounds simpler than it actually is.
“ While the proposal would generate substantial revenue, it would not fix the program’ s long-run insolvency,” Durante said. Instead, he argues that it would“ impose a steep tax increase on higher earners, weigh on growth and depart from the program’ s original earned-benefit design.”
According to the Social Security Administration’ s own analysis, eliminating the payroll tax cap without increasing benefits would return the program to annual surpluses for only about three years. Annual deficits would resume after that, and the proposal would close only about 67 % of Social Security’ s long-term funding gap, leaving roughly onethird of the shortfall unresolved.
“ The latest trustees report shows that by the fourth quarter of 2032, the Old-Age and Survivors Insurance Trust Fund will be able to pay only 78 % of scheduled benefits,” Durante noted. He added that Social Security’ s 75-year funding shortfall now totals about $ 25 trillion.
He also warned that the proposal could carry significant economic consequences.
He estimated that removing the payroll tax cap would raise about $ 3.2 trillion over the next decade on a conventional basis. However, he also anticipated slower economic growth and negative taxpayer behavioral responses as a result, phenomena that would hurt the revenue increase. Long-run gross domestic product would be eroded by 1.5 %, about 1.8 million jobs would be eliminated, and the revenue gain would fall to roughly $ 1.5 trillion, he said.
The Tax Foundation concluded that the proposal would amount to the largest federal tax increase since the Tax Equity and Fiscal Responsibility Act of 1982, equal to about 0.83 % of gross domestic product. As a result, in some jurisdictions, business owners could face combined marginal tax rates approaching 60 %, creating incentives to shift compensation into fringe benefits or retirement contributions rather than taxable wages.
Durante also questioned whether the proposal would fundamentally change the character of Social Security.
The current system maintains a link— although an imperfect one— between the payroll taxes that workers pay during their careers and the benefits they receive in retirement. Lower-income workers receive higher replacement rates than higher-income workers; that’ s part of the program’ s progressive structure, but it’ s one that makes sure taxes are tied to an earned benefit arrangement.
“ Uncapping the payroll tax without adjusting the benefits... would sever that link,” Durante wrote.“ Social Security would look less like the social insurance program it was designed to be and more like a conventional welfare program.”
Rather than concentrating additional taxes on roughly 7 % of workers whose earnings exceed the taxable wage base, Durante suggested broadening the payroll tax to include forms of compensation currently excluded from Social Security taxes, such as employer-sponsored health insurance.
He estimated that applying the payroll tax to company health coverage would generate about $ 1.8 trillion over the next decade while reducing long-run GDP by only about 0.2 %— a significantly smaller economic impact than eliminating the payroll tax cap.
For financial advisors, the debate underscores how quickly Social Security has moved from a long-term policy issue to a more immediate retirement planning concern. With the trustees projecting trust fund depletion in just over six years and the program’ s long-term funding gap worsening by 16 % in a single year, pressure is building on Congress to act.
— Tracey Longo
JULY / AUGUST 2026 | FINANCIAL ADVISOR MAGAZINE | 9