Taxing earnings above Social Security's wage cap would close more of its long-term funding gap than a gradual increase in the full retirement age to 69, according to two scenarios modeled by the program's actuaries.
Daylight Post found that the tax option eliminates 58% of the projected 75-year shortfall, compared with 25% for the age increase. Both use the 2026 trustees' assumptions for the combined retirement, survivor and disability programs. Neither option has been adopted.
The comparison makes the distribution of the cost visible. One would collect more from high-paid workers and their employers. The other would reduce benefits at a given claiming age for future retirees.
Two ways of sharing the bill
Under the tax scenario, all wages would become subject to Social Security's combined 12.4% payroll tax from 2027. Newly taxed earnings above the existing ceiling would earn no extra benefit credit. The change would therefore raise revenue without adding a matching promise of higher pensions.
The retirement-age scenario would raise the age for full benefits by three months for each successive group turning 62, starting in 2027. It would reach 69 for people turning 62 in 2034. Workers could still claim from 62, but would receive a smaller monthly payment than under today's schedule if they claimed at the same age.
The same scenario raises the age up to which workers can earn extra credits for delaying benefits from 70 to 72. It also raises the full-benefit age for widows and widowers on the same schedule. Those changes are included in its estimated 25% improvement.
| Modeled option | Starts or phases in | Shortfall eliminated |
|---|---|---|
| Tax all wages, with no additional benefit credit | From 2027 | 58% |
| Raise the full retirement age to 69 | 2027 to 2034 | 25% |
These are the Social Security Administration's published estimates for two specific designs. Their schedules differ: the tax change starts in full in 2027, while the age increase takes eight groups of future retirees to reach 69. The comparison does not rank every possible tax or retirement-age reform.
A funding problem does not dictate an age increase
The trustees project that reserves for retirement and survivor benefits will run out in late 2032. Continuing income would then cover 78% of scheduled benefits. Reserve depletion means a shortfall in promised payments, rather than the disappearance of all Social Security income.
The 58% and 25% figures measure a different question: how much of the combined programs' 75-year funding gap each option would close. Neither figure establishes that the separate retirement fund's 2032 problem has been solved.
Raising the full-benefit age also puts more weight on people's ability to earn for longer. Our analysis of October's US jobs figures shows why having a job and getting enough paid hours are different things. Those figures cover workers of all ages; they do not measure older workers' prospects specifically.
The actuarial comparison leaves lawmakers with a choice about contributions and benefits. Working longer is one proposed way to bear the cost; collecting tax on earnings above the cap is another, with a larger estimated effect in these two scenarios.
