What the CRFB proposes to change about Social Security's earnings cap

The Committee for a Responsible Federal Budget (CRFB) is a nonpartisan organization that studies federal spending and revenue. One of their proposals involves the earnings cap — the maximum income amount on which you pay Social Security payroll taxes each year. Currently, you pay the 12.4% Social Security tax (split between you and your employer) only on earnings up to a certain threshold, which changes each year. The CRFB has proposed raising or removing this cap so that higher earners pay Social Security tax on more of their income.

This is one idea among many that researchers and policymakers discuss when talking about Social Security's long-term finances. The CRFB does not run Social Security and cannot change the law — they publish research and proposals for Congress to consider. Understanding what this proposal would do, and who it would affect, helps you follow the ongoing debate about Social Security's future.

Key Takeaways

  • The CRFB proposes raising or eliminating the earnings cap so that higher earners pay Social Security payroll tax on more of their annual income.
  • Currently, the cap means people earning above a certain threshold (which varies by year) stop paying the 12.4% Social Security tax on income above that point.
  • Raising the cap would increase revenue flowing into the Social Security trust fund, which the CRFB argues would help address the program's projected shortfall.
  • This proposal would affect only workers earning above the current cap threshold, not the majority of workers whose income falls below it.
  • The CRFB is an independent research organization; any change to Social Security would require action by Congress and the President.

How the current earnings cap works

Social Security is funded by a payroll tax of 12.4% on wages — you pay half (6.2%) and your employer pays half. However, this tax only applies to earnings up to an annual threshold. In 2024, that threshold is $168,600. This means if you earn $200,000 in a year, you pay the 6.2% tax only on the first $168,600 of income, not on the remaining $31,400.

The threshold rises each year based on changes in average wages across the country. A worker earning $50,000 pays tax on all $50,000. A worker earning $500,000 pays tax on only $168,600 (in 2024), so a much smaller percentage of their total income goes to Social Security tax. This structure means higher earners contribute a smaller share of their income to the program than lower earners do.

What the CRFB proposal would change

The CRFB has proposed several versions of raising or removing the cap. Some proposals would raise the cap to cover 90% of all wages in the economy (a level it historically covered). Others would eliminate the cap entirely, meaning all earnings, no matter how high, would be subject to the 12.4% tax. A third approach would raise the cap gradually over time.

Under any of these versions, high earners would pay more in Social Security taxes. A person earning $1 million would pay significantly more than they do now. The CRFB argues this would increase revenue flowing into Social Security's trust fund without raising taxes on the majority of workers, whose earnings already fall below the cap.

Who would be affected by a cap change

Only workers earning above the current cap threshold would see a change in their Social Security taxes. In 2024, that means workers earning more than $168,600 annually. The Social Security Administration estimates that roughly 6% of workers earn above the cap in any given year, though this varies by industry and region.

If you are self-employed, you pay the full 12.4% yourself (rather than splitting it with an employer), so a cap change would affect you the same way it affects employees. If you earn below the cap, nothing would change in your Social Security taxes under this proposal.

How this proposal relates to Social Security's finances

Social Security's trust fund is projected to be depleted around 2033 to 2035, depending on economic conditions and demographic changes. After that point, incoming payroll taxes would cover only about 80% of scheduled benefits. The CRFB and other organizations have proposed various ways to address this gap, including raising payroll taxes, reducing benefits, raising the retirement age, or changing how benefits are calculated.

Raising the earnings cap is one revenue-side option. The CRFB estimates that removing the cap entirely would close a significant portion of Social Security's long-term shortfall. However, this is just one proposal among many, and Congress would need to weigh it against other options and consider its effects on workers and businesses.

The difference between a proposal and actual policy

It is important to understand that the CRFB is a research organization, not a government agency. They publish proposals and analysis, but they do not make policy. Any change to Social Security — including changes to the earnings cap — would require Congress to pass a law and the President to sign it. This has not happened.

Social Security remains unchanged as of now. The earnings cap is still in place at its current threshold. If Congress does eventually address Social Security's finances, they may consider the CRFB's proposal alongside many others, or they may choose a different approach entirely.

Other proposals for Social Security's future

The CRFB has published several different proposals for Social Security, not just the earnings cap change. Some combine a cap increase with modest benefit adjustments. Others focus on raising the payroll tax rate instead. Still others propose changes to how benefits are calculated for higher earners, or gradual increases to the full retirement age.

Different organizations and policymakers favor different approaches. Some argue that raising taxes on high earners is the fairest solution. Others prefer reducing benefits for higher earners or gradually raising the retirement age. The debate involves questions about fairness, economic effects, and how to balance revenue and benefits over the long term.

Frequently Asked Questions

Would removing the earnings cap affect my Social Security benefits?

Not directly. Your benefit amount is based on your earnings history, and paying more in taxes does not automatically increase your benefit. However, some proposals pair a cap change with benefit adjustments for higher earners, which could affect how much they receive in retirement.

If the cap is raised, would I pay more in taxes?

Only if you earn above the current cap threshold. In 2024, that is $168,600. If you earn below that amount, your taxes would not change. If you earn above it, you would pay the 6.2% employee tax (or 12.4% if self-employed) on the additional income above the current cap.

When might Congress act on this proposal?

There is no set timeline. Congress has not passed major Social Security changes since 1983. Any change would require lawmakers to reach agreement on how to address the trust fund's projected shortfall, which involves difficult decisions about taxes and benefits.

Is the CRFB affiliated with the government?

No. The CRFB is an independent, nonpartisan nonprofit organization. They are not part of Social Security Administration or any federal agency. They research and publish proposals, but they do not set policy or run government programs.

What happens if Congress does nothing about Social Security?

The trust fund is projected to be depleted around 2033 to 2035. After that, incoming payroll taxes would cover approximately 80% of scheduled benefits. Beneficiaries would receive reduced payments unless Congress acts before that point.