Social Security Solvency Options

Americans pay into and earn their Social Security through a lifetime of hard work. Social Security provides benefits to retired workers and their families; to the spouses and dependents of workers who have died; and to workers who have experienced a serious disability and their families.

Social Security is primarily funded by dedicated payroll taxes paid by almost all U.S. workers. Before 2021, the program collected more in revenue than it paid out in benefits, building up a surplus in the Social Security trust funds. Today, with the boomers retiring and the beneficiary population growing, the surplus is being used to supplement incoming payroll tax income and pay benefits in full, but eventually, the trust funds will face a shortfall — in about 10 years, according to current estimates.

If Congress doesn’t act to cover the shortfall, the money flowing into Social Security would only be enough to fund about 80 percent of benefits. To avert that, Congress would have to cut benefits, raise payroll taxes, come up with new funding sources or craft a plan that combines all three approaches.

Congress must act to make sure Social Security can pay the full benefits Americans have earned and determine a path forward to address the program’s long-term fiscal challenges. Any solution Congress may propose could contain many modifications to the program; the list below provides an overview of commonly discussed changes Congress might consider as part of a larger package. 

Eliminate or raise the wage cap: Social Security taxes are paid on only the first $168,600 of wage earnings in 2024. That threshold is called the taxable maximum; any work earnings above it are not subject to the Social Security payroll tax. The taxable maximum is automatically adjusted every year based on overall wage growth in the economy. Various proposals would help close the shortfall by either removing this cap altogether or setting it higher to capture a larger share of wage growth above the cap. Most of these proposals would increase benefits to reflect higher earners’ increased contributions but at a lower rate of return.

Increase the payroll tax rate: Employees and employers each pay a 6.2 percent payroll tax on the first $168,600 of annual wages. This is part of the FICA tax on your paycheck. (Self-employed people pay both shares, or 12.4 percent of their net income.) One way to help close the Social Security funding gap would be to increase the payroll tax rate. Various proposals would phase in this increase over time, raising both the employer and employee share of the payroll tax.