The idea could raise substantially more money without immediately increasing the Social Security payroll tax rate paid on wages below the existing cap. Yet it would not, by itself, eliminate the program’s projected shortfall. According to reports, even the most favorable version of the proposal would cover only 67% of the estimated funding gap over the next 75 years.
Removing the Wage Cap Would Increase Social Security Revenue
Social Security receives most of its income from payroll taxes. Employees currently pay a 6.2% Social Security tax, while employers contribute another 6.2%, producing a combined rate of 12.4%. According to reports, Social Security taxes in 2026 apply only to the first $184,500 a worker earns. Someone earning above that amount does not pay the 12.4% Social Security payroll tax on wages exceeding the limit.
Removing that cap would change the calculation for higher-income workers. Under the bipartisan proposal, all wages would become subject to Social Security taxation, increasing the amount of money flowing into the program.
The structure differs from Medicare taxation. According to Investopedia, employees and employers each pay 1.45% toward Medicare, while employees earning more than $200,000 are also subject to an additional 0.9% Medicare tax. Social Security, by contrast, has traditionally applied its tax only up to an annual earnings ceiling.
Payroll taxes are deducted directly from workers’ wages and finance specific government programs. Investopedia explains that Social Security contributions are directed to the Old-Age and Survivors Insurance Trust Fund, which pays retirement and survivor benefits, and the Disability Insurance Trust Fund, which finances disability benefits.
For self-employed workers, the obligation is different in practice. They pay both the employee and employer portions themselves. Investopedia reports a self-employment tax rate of 15.3%, consisting of 12.4% for Social Security and 2.9% for Medicare.
The Proposal Would Still Leave Part of the Shortfall Unresolved
The Social Security funding problem is approaching a point where lawmakers may have to make broader choices. The program’s trust funds are six years from depletion, based on the latest Trustees’ Report. If no action is taken, beneficiaries could face a 22% reduction in their checks.
Eliminating the taxable wage ceiling could delay or reduce the scale of other measures, but the proposal does not generate enough revenue to solve the problem alone. The Motley Fool reports that taxing all income at the existing payroll tax rate, while providing no corresponding increase in benefits for higher earners, would cover 67% of the projected 75-year shortfall.
That leaves lawmakers with other possible changes already being discussed. The payroll tax rate could rise, the taxation of Social Security benefits received by seniors could be changed, or the full retirement age could increase. Raising that age would operate as an indirect benefit reduction for younger workers.
No final strategy has been determined. The eventual approach could therefore combine higher contributions from top earners with measures affecting a much wider group of workers and retirees.
