Social Security Funding: 5 Tax Paths to Help Close the Gap

Social Security funding has several possible paths, but none is free of tradeoffs. Ideas include taxing more forms of compensation, applying small fees to certain financial trades, or directing estate-tax revenue to the program. Any Social Security funding proposal should be judged by both its revenue and who bears the cost: these choices could shift … Read more

Coreaster

Published Oct 11, 2026· 5 min read

A clean flat illustration of Social Security funding with a trust-fund ledger, tax forms and balanced scales on white

The 2026 Trustees’ summary gives a precise starting point for the Social Security funding debate. The Old-Age and Survivors Insurance trust fund is projected to pay scheduled benefits through the fourth quarter of 2032. After that, continuing program income is projected to cover 78% of scheduled benefits if lawmakers do not change the law. That is a serious financing gap, but it is not the same as Social Security ceasing to send checks.

Social Security funding starts with the trust-fund outlook

Measure	Current framework	Why it matters
OASI reserve projection	Depletion in Q4 2032	A projected date for reserves, not a program shutdown
Benefits payable after depletion	78% of scheduled benefits	Ongoing revenue would still flow
Employee payroll tax	6.2%	Applied to covered wages up to a cap
Self-employed payroll tax	12.4%	Self-employed workers cover both shares
Financial-transaction tax proposal	0.1% in one option	Could affect investors and trading costs

How Social Security funding works today

Workers and employers each generally pay 6.2% of covered wages for Social Security, while self-employed workers pay 12.4% on covered earnings. The taxable-wage cap cited for 2026 is $184,500. About 6% of covered workers earn above that limit, and roughly 83% of covered earnings are taxed, compared with 90% in 1983. These figures help explain why some proposals focus on income above the cap or forms of compensation that are not currently included.

Changing the tax base can alter both revenue and incentives. If more compensation is counted, some employers may adjust wages or benefits. If high earners pay more without receiving proportional additional benefits, the program’s link between contributions and earned benefits could become less direct. That is a policy choice, not simply a technical accounting change.

Five Social Security funding paths under discussion

One proposal would count employer-sponsored health insurance toward payroll-tax calculations. A cited estimate says that approach could raise $2.4 trillion over ten years. Another option would tax other fringe benefits, such as life insurance or commuter benefits, with an estimated $235.3 billion in revenue. Those approaches would reach compensation that workers may not see as cash in their paycheck.

A separate idea is a 0.1% financial-transaction tax on specified investment purchases and sales. One estimate puts its ten-year revenue at $777 billion. The effect would depend on which transactions are covered, how trading changes in response, and whether costs are passed to investors or customers. The revenue estimate is a projection, not a guaranteed deposit to the trust fund. A Social Security funding plan must also account for the benefits it promises and any new costs it adds.

The Social Security Expansion Act would eliminate the taxable-wage cap and add a 12.4% tax on certain net investment income and business investment income. A letter from a former chief actuary estimated $33.8 trillion in revenue, while also indicating the bill would increase benefit costs. Redirecting existing estate-tax revenue to Social Security is another possibility; the account gives no revenue estimate for that option and cites a $15 million individual and $30 million married estate-tax exemption for 2026.

A broader flat employer compensation tax has also been proposed, covering wages, health premiums, retirement contributions, stock options, and transportation benefits. Its proponents say a larger package could delay insolvency by 20 years or more. That depends on the package design and assumptions. The official Social Security Administration 2026 Trustees’ summary provides the baseline projection against which any proposal should be evaluated.

The Social Security funding tradeoffs

Taxing employer health coverage or fringe benefits could affect workers even if the tax is formally paid by employers. Businesses might respond through lower wage growth, reduced benefits, higher prices, or some mix of those choices. Research does not establish that every employer would pass the full cost through to employees, so the distributional effect is uncertain.

A financial-transaction tax would directly touch investors and traders, but the ultimate impact could vary with trading volume and market structure. Estate-tax changes would be concentrated among taxable estates and heirs, though the revenue available for Social Security is uncertain. Expanding payroll taxes or applying them to investment income could raise more from high earners while also changing how benefits relate to contributions.

There is also a savings tradeoff. If households face higher taxes on investment income, they may have less money to invest privately. If employer benefits become more expensive, some workers could receive different compensation packages. Policymakers must compare revenue projections with possible changes in work, saving, benefit design, and employer behavior.

What to watch next for Social Security funding

Compare each proposal on a consistent timeline, and ask whether its estimate includes behavioral changes and future benefit spending. Look for a clear statement of who pays, how much revenue is expected, and whether the money goes directly to the trust funds. Also distinguish a bill introduced in Congress from a law enacted and from a policy that has actually begun collecting revenue.

Annual trustee projections can move as wages, employment, longevity, inflation, and investment returns change. The 2032 date is a forecast under current law, not a fixed countdown that removes the need for legislative choices. Earlier action can give workers and employers more time to plan.

Bottom line

Social Security funding can be strengthened through a mix of tax and policy changes, but each path shifts costs differently. The 2026 trust-fund projection makes action urgent without eliminating the choices ahead. The practical test for any Social Security funding package is whether it closes the long-term gap without quietly shifting the burden onto the people it is meant to support.