Revenues
Function 650 - Social Security
Increase the Maximum Taxable Earnings That Are Subject to Social Security Payroll Taxes
CBO periodically issues a compendium of policy options (called Options for Reducing the Deficit) covering a broad range of issues, as well as separate reports that include options for changing federal tax and spending policies in particular areas. This option appears in one of those publications. The options are derived from many sources and reflect a range of possibilities. For each option, CBO presents an estimate of its effects on the budget but makes no recommendations. Inclusion or exclusion of any particular option does not imply an endorsement or rejection by CBO.
Billions of dollars | 2025 | 2026 | 2027 | 2028 | 2029 | 2030 | 2031 | 2032 | 2033 | 2034 | 2025– | 2025– | |
Decrease (-) in the deficit | |||||||||||||
Raise the taxable share to 90 percent of earningsa | -22.5 | -72.3 | -73.9 | -75.3 | -77.0 | -78.9 | -80.2 | -81.4 | -82.5 | -83.6 | -321.0 | -727.6 | |
Subject earnings greater than $250,000 to payroll taxes | -35.7 | -122.0 | -129.4 | -136.7 | -143.7 | -152.5 | -161.7 | -171.5 | -181.5 | -192.0 | -567.5 | -1,426.8 | |
Data sources: Staff of the Joint Committee on Taxation; Congressional Budget Office.
This option would take effect in January 2025.
An offset to reflect reduced income and payroll taxes has been applied to the estimates in this table.
This option would increase receipts from Social Security payroll taxes (which would be off-budget). That increase would be offset in part by a reduction in individual income tax revenues (which would be on-budget).
a. Estimates include increased outlays for additional payments of Social Security benefits, which would be classified as off-budget.
Social Security—which consists of Old-Age and Survivors Insurance and Disability Insurance—is financed primarily by payroll taxes on employers, employees, and people who are self-employed. Only earnings up to a maximum, which is $168,600 in calendar year 2024, are subject to the taxes, and only earnings below the maximum are used to determine benefits. The Social Security tax rate is 12.4 percent of earnings. Employees have 6.2 percent of earnings deducted from their paychecks, and the remaining 6.2 percent is paid by their employers. Self-employed individuals generally pay 12.4 percent of their net self-employment income. In 2022, about 82 percent of earnings from employment fell below the maximum taxable amount and were thus subject to the Social Security payroll tax.
This option consists of two alternatives that would increase the share of earnings subject to payroll taxes. The first alternative would increase the taxable share of earnings from jobs covered by Social Security to 90 percent in calendar year 2025. Staff of the Joint Committee on Taxation estimate that doing so would raise the maximum taxable amount to $305,100 in 2024. (In later years, the maximum would grow at the same rate as average wages, as it would under current law.) Because Social Security benefits are tied to the amount of earnings on which taxes are paid, some of the increase in revenues under this alternative would be offset by additional benefits paid to people with earnings above the maximum taxable amount under current law.
The second alternative would apply the 12.4 percent payroll tax to earnings over $250,000 in addition to earnings below the maximum taxable amount under current law. (For example, in 2025, all earnings below $176,100—the taxable maximum for that year—would be taxed, as would earnings above $250,000. Earnings between $176,100 and $250,000 would not be taxed.) The taxable maximum would continue to grow with average wages, but the $250,000 threshold would not change, so the gap between the two would shrink. The Congressional Budget Office projects that the taxable maximum would exceed $250,000 in calendar year 2036; after that, all earnings from jobs covered by Social Security would be subject to payroll taxes. The current-law taxable maximum would still be used for calculating benefits, so scheduled benefits would not change under this alternative.
For information about the long-term and distributional effects of this option, see the appendix.