Eliminating the funding shortfall in Social Security solely by raising payroll taxes could cost the typical U.S. worker and their employer thousands of dollars — a “financially impossible” burden for many Americans, according to an economist with the Cato Institute.

Payroll taxes are the primary funding source for Social Security, although the program now pays out more in benefits than it collects through those taxes due to America’s growing number of retirees. Because of the shortfall in tax revenue, the program is drawing on its retirement trust fund to cover the gap. 

Risk of benefit cut

Unless Congress acts, the Social Security trust fund is projected to run out in 2032, when benefits could be cut by about 22%.

One way to close the funding gap would be to raise the payroll tax from its current rate of 12.4% to 17%, according to Cato, a nonpartisan think tank that advocates for free markets and limited government. Setting the tax at that level would replenish the fund and ensure that Social Security could pay benefits in full for the foreseeable future, Cato said.

Workers and employers generally split the payroll tax equally, while self-employed workers pay the full amount. The tax, which was set at 2% when Social Security launched in 1937, has steadily risen over the decades. 

Cato estimates that raising it to 17% would add $2,600 to $3,000 per year in taxes for a median worker earning about $62,000 annually, split between the worker and their employer. As a result, many workers would struggle to absorb the increase, Romina Boccia, Cato’s director of budget and entitlement policy, told CBS News.

“Most of the individuals we’re talking about … don’t even have $400 set aside to respond to an emergency,” she said. “It’s financially impossible for most workers to bear that additional cost, so Congress will need to look at other options.”

A better option?

Stabilizing Social Security by raising the payroll tax alone doesn’t appear to have widespread support from lawmakers or policy experts. One alternative attracting bipartisan interest is raising or eliminating the maximum amount of individual income subject to the Social Security tax, currently at $184,500.

Eliminating that cap would require high-income workers to pay the Social Security tax on more of their income, but without raising the tax rate on earnings below the cap.

In July, Sens. Elizabeth Warren, a Democrat from Massachusetts, and Bernie Moreno, a Republican from Ohio, called for lifting the payroll tax cap, which they say would create a fairer system in which high-income earners pay the same share of their income into the program as low- and middle-class workers. 

Many policy experts believe shoring up Social Security will require an approach that combines both raising additional revenue, either through a small payroll tax increase or lifting the cap, and reducing future benefits, such as by gradually increasing the retirement age or limiting benefits to high-income households.

Raising or eliminating the payroll tax cap is gaining support “in part because people like the idea of making someone else pay,” Boccia said. 

A 2025 poll of more than 4,000 Americans from the Bipartisan Policy Center found that 65% of Democrats and 62% of Republicans supported lifting or removing the cap. A majority of households earning more than $200,000 a year also backed the idea, the poll found.

Boccia said increasing or removing the cap could result in unintended consequences, such as raising the top marginal rates for high-income households to above 60% in several states. That could push some high earners to retire early, rather than pay the higher tax, she said. 

Instead, Boccia thinks bigger reforms are needed to ensure Social Security’s long-term survival, noting that the program was created 91 years ago, before the advent of 401(k)s, target-date funds and auto-enrollment in retirement plans. Despite those advancements, millions of Americans approach retirement with little to no savings for old age.

“We need an approach that’s much heavier on the benefit reduction side because, if you look at how the program works, the key driver of the shortfall is that benefits are growing more generous over time,” she said. 

Should high earners get less?

To be sure, higher-earning individuals can collect more in monthly benefits than low-earning workers, with monthly payments maxing out for people who retire in 2026 at $5,181, or more than $62,000 a year. The workers who claim the maximum benefit are typically those who earned near or above the income cap.

“A dual high-earning household can collect $120,000 annually from Social Security, which is excessive in comparison to most other nations’ public retirement benefits,” Boccia said. 

Another strategy would be to peg the retirement age to longevity, which has risen for Americans over the past few decades, Boccia said. In other words, because people are living longer, they should also work longer.

But such a change could prove politically unpalatable, given that the median retirement age in the U.S. is 62, according to data from the Transamerica Center for Retirement Studies. Most people also retire years before they expected — not by choice, but due to layoffs, health issues or other setbacks, the organization found.

Boccia’s own preference is a flat benefit, meaning a predictable amount that workers could plan around and supplement with their own savings. The complexity of Social Security may discourage planning because many workers aren’t sure of what they’ll receive in retirement.

“The current formula is so complex that most people have no idea what to expect, so they can’t reasonably plan for it either,” she said.