The Case for Lifting the Social Security Payroll Tax Cap

On the night of February 7, 2023, Joe Biden was partway through his State of the Union address when he went off his prepared rhythm. Some Republicans, he said, wanted Social Security and Medicare to expire every five years. The Republican side of the chamber erupted. Members shouted back, some of them loudly, that it was not true. Biden had been referring to a plan published the year before by Senator Rick Scott of Florida, which proposed that all federal laws sunset after five years unless Congress renewed them; Scott later revised it to exempt Social Security and Medicare. In the chamber, Biden seized the moment. If they all agreed that the programmes were not to be touched, he said, then it sounded like they had unanimity. Members on both sides of the aisle rose and applauded. It was one of the strangest and most bipartisan moments in a deeply divided Congress: a room full of people, on live television, standing to promise not to cut Social Security. Nobody, that night, said how they would pay for keeping the promise.

In short: Both parties now say they will not cut Social Security benefits, but the trustees project a shortfall in the 2030s that would force cuts automatically unless Congress acts. This post argues that the fairest way to keep the promise is to apply the payroll tax to earnings above the current cap, which today lets the highest earners stop paying for part of each year. It also takes on the strongest objections.

The promise both parties made

The scene in 2023 was not a one-off. In the years since, the commitment not to cut Social Security has become close to an article of faith in both parties' national campaigns. Donald Trump said repeatedly during the 2024 campaign that he would not cut benefits. Democrats have made defending Social Security a central part of their identity since the 1930s, and many ran on it again in 2026.

That broad agreement is good news. It reflects a fact about the programme that politicians understand well: Social Security is one of the most popular things the federal government does, it is the main source of income for a large share of older Americans, and voters in every region depend on it.

But a promise not to cut is not a plan. Under the law as it stands, if Congress does nothing, the programme's reserves will run out in the 2030s, and benefits will then be cut automatically to match incoming revenue, by roughly a fifth. A politician who promises no cuts and refuses to consider any new revenue is, in practice, promising a cut later. The honest question is not whether to pay for Social Security. It is who pays.

Every option on the table puts the cost on somebody. Cutting benefits puts it on retirees, survivors and disabled workers. Raising the retirement age puts it on people who cannot keep doing physical work into their late sixties. Raising the tax rate for everyone puts it on every paycheck, including the smallest. Lifting the cap puts it on the people with the highest wages.

What the cap does

Social Security is funded mainly by a payroll tax of 12.4 percent, split evenly between worker and employer. That tax applies to each worker's wages up to a ceiling, set at $176,100 in 2025 and adjusted every year as average wages grow. A nurse, a welder or a teacher earning less than the cap pays the tax on every dollar they earn. A person earning ten times the cap pays the tax on only the first tenth of their wages.

One way to picture it: for a worker earning several times the cap, the payroll tax effectively stops sometime in the spring, and the rest of their earnings for the year go untaxed for Social Security. For the great majority of workers, it never stops at all. Only a small slice of workers, by most estimates around 6 percent, earn above the cap in a given year.

The cap has been there since the beginning. In 1937, it was $3,000, a level that covered nearly all the earnings of nearly all workers at the time. Since the 1970s it has risen automatically with average wages. What has changed is not the rule but the economy around it.

Why the cap catches less than it used to

When Congress last reformed Social Security in 1983, the cap was set at a level that covered about 90 percent of all wages earned in covered jobs. The idea was that the tax would reach the vast bulk of the country's paychecks, while the very top earnings would be left out.

Since then, wages at the top have grown much faster than wages in the middle and at the bottom. Because the cap rises with the average wage, and the average is pulled along by everyone, earnings above the cap have grown faster than the cap itself. The share of total covered wages that falls under the cap has slipped to somewhere in the low 80s in percentage terms. That missing slice is a meaningful part of why the programme's finances look the way they do.

Put plainly: inequality has quietly been defunding Social Security. Every dollar of pay growth that went to the top rather than the middle was a dollar that escaped the payroll tax. Lifting the cap is not a new tax invented to soak the rich. It is a way of restoring the coverage the system was built around.

What the proposals actually say

There is no single plan to lift the cap; there are several, and the differences matter.

The simplest would remove the cap entirely, so that all wages are taxed at the same rate. Another approach, which many Democratic proposals take, leaves a gap or doughnut hole: the tax would continue to stop at the current cap but resume above a higher threshold. Joe Biden campaigned in 2020 on applying the tax to earnings above $400,000. Representative John Larson's Social Security 2100 Act, which has had many Democratic cosponsors in the House, takes a similar approach. Senators Bernie Sanders and Elizabeth Warren have proposed applying the tax above $250,000, along with taxing some investment income, and using the money to both extend solvency and raise benefits.

Because the cap rises each year and the threshold in a doughnut-hole plan usually does not, the gap closes over time and eventually disappears.

Plans also differ on whether high earners would get any additional benefits for the extra tax they pay. Some give no credit, which raises the most money. Others give partial credit, which keeps more of the link between paying in and getting out.

According to estimates from the Social Security Administration's chief actuary, plans that apply the tax to high earnings would close a substantial part of the long-range gap, and some would close all of it when combined with other changes. Lifting the cap alone, with no other changes, generally does not close the entire shortfall in those estimates, which is worth being honest about.

The strongest case against

The best objections come from people who care about Social Security's long-term health as much as progressives do, and they deserve a fair hearing.

It weakens the earned-benefit idea. Social Security has lasted because people believe they earned their benefits. If high earners pay much more without getting more back, the programme starts to look like a transfer, and some worry that would erode support among the people with the most political influence. This is a real concern, and it is the reason some plans give partial benefit credit for earnings above the old cap.

It is a large tax increase on high earners. For someone earning well above the cap, applying the payroll tax would increase their combined marginal tax rate significantly, especially in states with their own income taxes. Some economists argue this would discourage work and encourage high earners to take pay in forms not subject to payroll tax, such as business income or capital gains. That risk is real. It is also a design problem with known answers, for example extending the tax to more forms of income, as some plans do.

It does not solve the problem alone. As noted, lifting the cap without other changes may not close the full gap. Critics argue it should be part of a broader deal, perhaps including some benefit changes, rather than a substitute for one.

Answering the objections

This section is my argument, and readers should weigh it as such.

First, on the earned-benefit idea: the programme already redistributes. The benefit formula pays lower earners a higher share of their past wages than higher earners, and has done so since the start. Social Security has always mixed insurance and fairness. Lifting the cap adds more of what is already there, and partial credit can preserve the link.

Second, on the tax burden: I think it is worth asking why the tax rate on a teacher's last dollar of earnings should be higher than on a hedge-fund manager's. The payroll tax as it stands is regressive at the top: the more you earn above the cap, the smaller the share of your income that goes to Social Security. Correcting that is not an extraordinary demand.

Third, on the size of the fix: the alternatives are worse. The main other options are raising the retirement age, which falls hardest on people in physical jobs and those who die younger, who are disproportionately poorer; shrinking the annual cost-of-living adjustment, which cuts benefits more the longer people live; or raising the 12.4 percent rate on all workers, which puts more of the burden on low-wage workers. The Republican Study Committee's budget proposals have called for gradually raising the retirement age, for example. If we are going to choose who pays, I think the people who have gained the most from the economy of the last forty years should pay first.

Where the votes are

Polling has consistently found large majorities, including many Republicans, support requiring high earners to pay the payroll tax on all their wages. The obstacle has never been public opinion. It has been the difficulty of passing any Social Security legislation through a closely divided Congress, and the reluctance of either party to put a specific plan on the table before a crisis forces its hand.

The new Congress, with Democratic majorities in both chambers, will be sworn in on January 3, 2027. Whether it takes up Social Security, and in what form, is not known, and the president would have to sign any bill. But the longer Congress waits, the larger the changes needed and the fewer choices remain. Acting in the late 2020s gives time to phase changes in gently. Acting in 2033 means doing it all at once.

The promise made that night in 2023 was a promise to retirees, disabled workers and survivors. Keeping it honestly means saying out loud where the money will come from. I think the answer that best fits the programme's history, and the economy we actually have, is to tax all high earnings the way we already tax everyone else's.

What the cap looks like on a pay stub

A little arithmetic makes the point better than any slogan. Take the 2025 cap of $176,100 and the worker's share of the tax, 6.2 percent.

A teacher earning $60,000 pays 6.2 percent on every dollar, or $3,720 for the year. A software engineer earning exactly the cap pays 6.2 percent on every dollar too, about $10,918, and the system treats them the same way. Now take an executive earning $1 million in salary. He pays 6.2 percent on the first $176,100, the same $10,918 as the engineer, and nothing on the remaining $823,900. As a share of his wages, his Social Security tax comes to about 1.1 percent. The teacher's is 6.2 percent. Employers pay a matching share up to the same cap, so the picture on the employer side is identical.

None of this is hidden or illegal. It is how the system was designed. But most people who learn the numbers for the first time are surprised by them, and it helps explain why the idea of lifting the cap polls so well. It is not a question of making the rich pay a special rate. It is a question of whether the rate that the teacher pays on all of her wages should also apply to all of his.

It also shows why plans that create a gap between the current cap and a higher threshold are a compromise. Under a plan that resumes the tax at $400,000, the executive above would pay on $600,000 more of his salary, while a worker earning $250,000 would see no change at all.

What you can do

• Ask your members of Congress a direct question. Not whether they support Social Security, which everyone says they do, but how they would pay for it. Look up your representative and senators for their phone numbers, contact forms and recent votes.
• Watch who leads in the new majority. The progressive caucus page lists members of the Congressional Progressive Caucus and the Democratic leadership, many of whom have cosponsored cap-lifting bills. Their committee assignments will matter once the new Congress organizes.
• See the inequality that drives the shortfall. The inequality page shows the wealth shares of the top 1 percent and bottom 50 percent alongside real wages, which is the gap that has been pulling earnings above the cap.
• Follow the revenue debate. The topic page on inequality and taxing the rich tracks proposals to raise revenue from the top, including the payroll tax cap.