Americans Face $110,000 Earnings Loss to Prop Up Social Security

American workers may need to pay an additional $110,000 in tax to keep Social Security solvent over the next 75 years, researchers have found.

Why It Matters

Social Security forms the backbone of financial security for tens of millions of Americans, with the Social Security Administration (SSA) distributing monthly checks to some 70 million people.

But its finances are creeping toward insolvency, and Congress has yet to agree on a solution.

What To Know

Two trust funds help pay benefits to Americans: the Old-Age and Survivors Insurance (OASI) Trust Fund, which pays for retirement, spousal and survivor benefits, and the Disability Insurance (DI) Trust Fund, which endows programs like Supplemental Security Income (SSI) for disabled Americans.

Payroll taxes, income tax on Social Security benefits, and interest on trust-fund reserves fund the majority of benefit payments. This rate is set at 6.2 percent for employees and companies, and 12.4 percent for self-employed workers, up to the current threshold of $176,100 in annual earnings.

When combined, these are scheduled to run out of money in 2034, according to the latest report from the Social Security Trustees. Insolvency would not mean that the program stops altogether, though future payments would become entirely reliant on the amount collected in payroll taxes each year. If no solution is found, this would result in an automatic benefit cut of around 21 percent.

The Cato Institute, a libertarian think tank based in Washington, D.C., has found that maintaining benefits at current levels while keeping Social Security trust funds financially stable would require a significant tax increase for American workers.

Under the current payroll tax rate of 12.4 percent, a median worker entering the workforce in 2025 is projected to pay approximately $374,133 in Social Security taxes over a 45-year career.

However, if Congress were to raise taxes to ensure the program remains solvent for the next 75 years, the rate would need to increase to 16.05 percent, as cited in the Trustee’s report. That would boost the total lifetime tax burden to around $484,261—an increase of more than $110,000.

To make Social Security permanently solvent, the required tax rate would rise even higher to 17.6 percent, pushing the lifetime burden to roughly $531,028, or nearly $157,000 more than under current law.

US dollars — File photo of a U.S. Treasury check on top of a $100 bill.

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Social Security Trust Funds

This situation is not without precedent, as Social Security trust funds also neared insolvency in the early 1980s. In response, Congress enacted several reforms, including accelerating payroll tax hikes, gradually increasing the retirement age, and taxing a portion of Social Security benefits.

As insolvency concerns resurface, lawmakers are once again considering reforms. Senator Sheldon Whitehouse of Rhode Island and Representative Brendan Boyle of Pennsylvania, both Democrats, have reintroduced the Medicare & Social Security Fair Share Act, which would apply payroll taxes to wages and investment income over $400,000.

Republican Senator Bill Cassidy and Democratic Senator Tim Kaine have unveiled a plan to establish a new investment fund for Social Security. A fund of $1.5 trillion, paid by the Treasury, would be invested in a mix of “stocks, bonds and other investments that generate a higher rate of return” for 75 years. The Treasury would be repaid at the end of the term, and the funds would be used to shore up benefits.

What People Are Saying

The Cato Institute, in its report: “The bottom line is that promises to keep Social Security benefits exactly as currently legislated are immensely expensive for younger workers, whether Congress tries to levy additional taxes on all workers or only on those with earnings above the payroll tax cap.

“Social Security reform is coming. The real question is how this generation will balance the promise to keep seniors out of poverty in old age with keeping the American dream alive for younger generations.”

Senators Tim Kaine and Bill Cassidy, in a July 9 opinion piece for The Washington Post: “There is a nationwide appetite to implement a bipartisan, commonsense plan like ours. Waiting until the Social Security Trust Fund is on the eve of crisis would have difficult and preventable consequences. Congress should seize the moment.”