Social Security tax hike "financially impossible" for many, expert says

Raising payroll taxes enough to stabilize Social Security could add thousands of dollars in annual costs, according to one analysis. Eliminating the funding shortfall in Social Security solely by raising payroll taxes could cost the typical U.S. worker and their employer thousands of dollars — a "financially impossible" burden for many Americans, according to an economist with the Cato Institute. Payroll taxes are the primary funding source for Social Security, although the program now pays out more in benefits than it collects through those taxes due to America's growing number of retirees. Because of the shortfall in tax revenue, the program is drawing on its retirement trust fund to cover the gap.

Unless Congress acts, the Social Security trust fund is projected to run out in 2032, when benefits could be cut by about 22%. One way to close the funding gap would be to raise the payroll tax from its current rate of 12.4% to 17%, according to Cato, a nonpartisan think tank that advocates for free markets and limited government. Setting the tax at that level would replenish the fund and ensure that Social Security could pay benefits in full for the foreseeable future, Cato said. Workers and employers generally split the payroll tax equally, while self-employed workers pay the full amount. The tax, which was set at