Social Security Fix or Job Killer? Raising Social Security Tax Cap Could Cost 900,000 Jobs, Cut GDP

Social Security could get a major funding boost if Congress raises or eliminates the cap on earnings subject to the program’s payroll tax. But the move could also carry a significant economic cost, with one modeled scenario showing nearly 900,000 fewer jobs and a 0.7% hit to GDP.

Social Security currently taxes workers’ earnings only up to $184,500 in 2026. That means a worker earning $2 million pays the 6.2% Social Security tax only on the first $184,500.

Roosevelt Institute research outlines two ways to raise more revenue. Completely eliminating the taxable maximum could close 67% of Social Security’s 75-year solvency gap, while setting the cap so 90% of earnings are taxable could close 28% of the gap. Those figures fall to 48% and 22%, respectively, if benefits are also increased.

Economic Trade-Off

The Tax Foundation estimates that lifting the cap would amount to a 12.4-percentage-point tax increase on currently exempt income. In one scenario, raising the taxable maximum to $346,000 starting in 2027 and indexing it to wage growth would eliminate nearly 900,000 jobs and reduce GDP by 0.7%.

William McBride, chief economist at the Tax Foundation, said high earners could respond by working less or reporting less taxable income. He also warned that fully eliminating the cap would be even more extreme, according to a CNBC report.

Andrew Biggs, a senior fellow at the American Enterprise Institute, told CNBC that the proposal would amount to a "huge tax increase on a very small number of people" and could have broad economic repercussions.

The $184,500 cap means workers earning millions can reach the same maximum Social Security payroll-tax liability as someone earning exactly $184,500, a disparity that has fueled calls to lift the ceiling.

Calls to remove the wage cap entirely have also emerged as lawmakers consider ways to strengthen Social Security.

Disclaimer: This content was produced with the help of AI tools and was reviewed and published by Benzinga editors.

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