Could raising the payroll tax rate save Social Security?
(NewsNation) — Social Security‘s long-term funding challenges are prompting renewed debate about whether Congress should repeal or raise the payroll tax cap.
Your offer bipartisan support withdrawn. In an opinion piece published in the New York Times last month, Democratic Senator Elizabeth Warren and Republican Senator Bernie Moreno argued that removing the cap was a “no-brainer” that would help strengthen the program’s finances.
Latest Social Security Trustees Report projects It was stated that retirees could face a 22% benefit cut from 2032 if the scheme’s main pension fund fund is depleted.
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One option not included in the report is raising or eliminating the payroll tax cap. While the current Social Security payroll tax rate is 12.4% (split equally between workers and employers), requiring more earnings to be taxed could help reduce or prevent future benefit cuts.
What happens if the Social Security payroll tax cap is increased?
If the payroll tax cap is adjusted to fully close the funding gap this year, the tax rate would rise from 12.4% to 16.6%.
Experts say the longer Congress waits to act, the larger the increase could be. If lawmakers delay it for another eight years, the rate would have to rise to 17.3 percent.
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“Raising the payroll tax rate is not the only strategy to close the gap,” said Kailey Hagen, retirement analyst at The Motley Fool.
“When the government announces a strategy to fix Social Security, you will likely need to update your retirement plan to account for the changes,” Hagen added. “This might mean adjusting your savings rate or making changes to when you plan to retire. Making these changes as soon as possible will give you the best chance of retiring comfortably.”
What is the Social Security payroll tax cap?
Under current law, workers and employers each pay a 6.2% Social Security payroll tax on wages, up to the maximum taxable amount. This limit, commonly known as the payroll tax cap, is adjusted annually to reflect wage growth.
In 2026, annual limit It is $184,500, meaning earnings above that amount are not subject to Social Security payroll tax.
As a result, a worker earning $90,000 pays taxes on his entire salary, while a worker earning $350,000 pays taxes on only a portion of his income.
When Congress last enacted major Social Security reforms in 1983, about 90% of wages were subject to the payroll tax. Bipartisan Policy Center. Today, that share has fallen to roughly 83% as an increasing share of earnings exceed the taxable wage cap.
NewsNation’s Andrew Dorn contributed to this report.
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