A bipartisan proposal to eliminate the cap on Social Security payroll taxes would rank as the largest tax increase since 1982 but still wouldn't restore the program's long-term solvency, according to an analysis published June 24, 2026, by the Tax Foundation. Senators Bernie Moreno (R-OH) and Elizabeth Warren (D-MA) have proposed lifting the $184,500 payroll tax cap to shore up Social Security finances, but the report finds the plan would close only 67 percent of the program's long-run shortfall while significantly harming the economy. The proposal would apply the current 12.4 percent payroll tax to all earnings above the cap without changing benefits.
The numbers paint a stark picture of Social Security's looming crisis. By the fourth quarter of 2032, the Old Age Survivors Trust Fund will be able to pay only 78 percent of scheduled benefits, meaning a 22 percent benefit cut would be required to restore balance if no changes are made. The total shortfall over the next 75 years equals $25 trillion, or about 1.3 percent of GDP. The Social Security Administration has modeled uncapping the payroll tax with no benefit changes and found it would return the program to annual surpluses for just three years—through 2029—before annual deficits resume. Restoring solvency through 2100 would require an immediate payroll tax increase of 4.25 percentage points across the board on the current tax base. The share of wages covered by the payroll tax has shrunk from 90 percent in 1982 to around 83 percent today, even as the percentage of workers earning above the taxable maximum has remained roughly constant at around 7 percent.
The Tax Foundation estimates that lifting the payroll tax cap would raise $3.2 trillion from 2027 through 2036 on a conventional basis and $1.5 trillion after accounting for negative economic effects. The payroll tax increase of 12.4 percentage points would amount to about 0.83 percent of GDP in 2027. According to the report's authors, a business owner in New York City could face a top marginal rate as high as 60 percent under the proposal—"well above the approximately 52 percent revenue-maximizing rate recently estimated by Treasury and Joint Committee on Taxation economists." The report notes that uncapping the payroll tax without adjusting benefits "would sever that link" between taxes paid and benefits earned, transforming Social Security to "look less like the social insurance program it was designed to be and more like a conventional welfare program."
The economic damage would be substantial because the proposal would push tax rates beyond the point where they maximize revenue, triggering behavioral changes that erode the revenue gain. The Tax Foundation projects the change would reduce long-run GDP by 1.5 percent and cost 1.8 million jobs. Workers would shift compensation to non-taxed forms like employer fringe benefits or 401(k) contributions to avoid the tax hit. The current system maintains a progressive structure while preserving an earned-benefit design: Social Security replaces about 26 percent of earnings for workers who earn the taxable maximum, compared to 74 percent for the lowest earners. Lifting the cap without benefit adjustments would concentrate the burden of funding Social Security on the roughly 7 percent of workers who earn above the maximum.
The report recommends a different approach: applying the payroll tax to employer-sponsored health insurance, which currently escapes taxation. This alternative would raise $1.8 trillion over the next decade while reducing GDP by just 0.2 percent—a fraction of the economic cost of uncapping the payroll tax. The authors argue that any serious solution must address both sides of the ledger, combining tax and expenditure reforms without disproportionately burdening current workers. With the trust fund exhaustion date now just six years away, the window for a balanced fix is closing fast.