Retirees, and members of Congress, are increasingly concerned about Social Security’s financial viability. Is the worry enough for Republicans to finally accept changes to the annual wage base that limits the amount of taxes collected to fund the program? (Photo by Getty Images for Unsplash+)
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It’s no secret that Social Security, the federal program that pays benefits primarily to more than 70 million retirees, is in financial trouble.
The trust fund that covers the monthly benefits is projected to run out of money in 2032, according to Congressional Budget Office (CBO) projections. If that happens, benefits would automatically fall by about 22 percent.
That bleak fiscal outlook finally has a few Republican members talking — out loud and to the media — about raising taxes to help ensure that Social Security continues to pay at its current level.
Specifically, they and their Democratic counterparts on Capitol Hill are discussing an increase in the payroll tax that supports the Social Security trust fund.
But don’t freak out if you’re a worker who sees 6.2 percent of your earnings come out of each paycheck to pay for Social Security. Lawmakers aren’t looking at hiking this tax rate.
They want more, higher-paid workers to contribute more to the trust fund. To do that, they propose increasing the Social Security wage base, which is the amount of income that is subject to the tax.
Set percentages collected from each paycheck: Most workers are well aware of that pesky FICA line item on their pay stubs. The acronym stands for the Federal Insurance Contributions Act, which mandates specific amounts be paid from earnings into the Social Security and Medicare trust funds.
Total FICA taxes are 15.3 percent of your earnings. This percentage is split equally between workers and employers, with each paying 7.65 percent into the funds.
Social Security gets the most, 6.2 percent of your earnings. The other 1.45 percent in payroll tax is designated for Medicare.
Most, but not all, workers see these amounts taken from every paycheck they get in a year. The lucky workers who escape FICA levies are those whose incomes exceed what is known as the Social Security wage base.
Payroll tax income limit: The wage base is announced annually, generally in mid-October, with the increase accounting for inflation.
The 2026 limit is $184,500. When a worker’s income crosses that threshold this year, FICA tax collection, from both the employee and employer, stops.
That limit applies regardless of how much more than the wage base you make.
For example, Joe’s total 2026 income is $246,000. He hits the $184,500 wage cap with his final check in September. That means the rest of his $61,500 earnings from October through December aren’t subject to the 6.2 percent Social Security tax.
The wage base is projected to increase to $190,200 for 2027, according to the latest report from the Board of Trustees of the trust fund for the Old-Age, Survivors, and Disability Insurance (OASDI) program. And yes, OASDI is Social Security’s official name.
But those who are part of the Scrap the Cap movement say the annual wage base inflation increases are not enough. They also argue that the cap is unfair, since wealthier taxpayers tend to reach the Social Security tax early each year.
Sen. Bernie Sanders (I-Vermont) noted the disparity in an X post on June 12, the day Elon Musk became the world’s first trillionaire: “Elon Musk, a trillionaire, pays the same amount into Social Security as someone making $184,500.”
I know, Musk is an easy target. And the bulk of his income, like that of most of the very wealthy, comes from stock holdings. So, it’s unclear precisely what his Social Security tax liability is. Still, Sanders’ social media item made his point about the wage base tax inequity.
Whether someone earns $185,501 or $1 trillion this year, they won’t pay Social Security taxes on the amounts they make over the income cap.
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| A quick look at the Medicare payroll and Net Investment Income taxes |
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| Medicare’s Hospital Insurance Trust Fund will be exhausted in 2040, according to the CBO report. That possibility is not getting the same attention as Social Security’s financial issues, due in part because of the slightly longer time frame before there is a care coverage crisis. |
| There is no similar, and relatively easy, tax fix since there is no income cap on the Medicare tax. All earnings are subject to the 1.45 percent tax. |
| An additional 0.9 percent Medicare surtax is collected by employers on earned income of more than $200,000 for single filers, head of household, and qualifying widow(er)s; $250,000 for married filing jointly earners; and $125,000 for married filing separately individuals. |
| The Net Investment Income Tax (NIIT) of 3.8 percent applies to unearned income, including taxable interest, dividends, capital gains, rental and royalty income, and passive business activity. It kicks in when on Modified Adjusted Gross Income (MAGI) that exceed $200,000 for single filers; $250,000 for married couples filing jointly; and $125,000 for married spouses who file separate returns. |
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Shifting political winds: There long has been a group of tax experts and lay people who have advocated to end or at least dramatically increase the Social Security tax wage base.
The cite data that shows the change could ease the Social Security trust fund insolvency problem. For example, removing the cap without increasing benefits for high-earning workers would close more than half the program’s shortfall, according to the nonpartisan group Committee for a Responsible Federal Budget.
Democrats have been more amenable to changes to the Social Security wage base limits. Now, some Republicans are joining them.
Sen. Bernie Moreno (R-Ohio) this summer partnered with Sen. Elizabeth Warren (D-Massachusetts) to argue for an increase in the payroll tax cap.
Rep. Lloyd Smucker (R-Pennsylvania) told Roll Call last week that he would support a tax change to help boost Social Security funds. He also expressed support for means-testing policies to ensure that lower-income people receive more in Social Security benefits.
Rep. Tom Cole (R-Oklahoma), chair of the House Appropriations Committee, told the Washington Post that higher payroll taxes should be on the table.
To some, Cole’s shift seem counter-intuitive, at least if you’re relying on traditional political wisdom. But his newfound support is based not just on rescuing the program, but also on salvaging his party’s political prospects.
The Washington Post story noted that Grover Norquist, the founder and president of advocacy group Americans for Tax Reform and steadfast advocate of GOP lawmakers signing a no-tax pledge, is disdainful of the possible tax move.
“When Republicans say no to tax increases, they win. When they say yes to tax increases, they lose,” Norquist said. “They don’t get spending cuts — at all. And, they get smeared in the next election.”
Cole disagrees. He told the Washington Post that the political blowback from Social Security benefit cuts would likely be far worse than a solution that includes raising taxes.
“I love Grover. But … you’ve got to deal with Social Security,” Cole said. “And believe me, you’ll have a lot bigger problem if it goes bankrupt than you’ll have keeping it whole, because people will feel cheated.”
You also might find these items of interest:
- Retirement plan contributions get inflation boost in 2026
- Inflation helps Social Security beneficiaries some, but hurts retirees more
- Salaries are for suckers, or why the U.S. tax system should make you furious
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