Social Security could last until 2059 if payroll is tied to GDP: AARP

Social Security taxable payroll, which makes up the bulk of the revenue for the Social Security system that pays monthly benefits to millions of Americans, has declined as a share of gross domestic product over the past 40 years, according to a new report from the AARP Public Policy Institute.

Studies show that if payroll tax revenues matched GDP, the program could pay out full benefits through 2059. This is an additional 25 years from 2034, the latest year when the program’s total funding is projected to be depleted. The AARP Public Policy Institute conducts policy research, analysis and development at AARP, a nonprofit, nonpartisan organization representing Americans 50 and older.

“Social Security financing has weakened not just because America is getting older, but because the economy has changed. Meanwhile, Social Security’s revenue system hasn’t changed,” Richard Johnson, deputy director for financial security at AARP’s Public Policy Institute, said in a Tuesday press conference about the study.

“The American economy is larger and more productive than it was 40 years ago, but Social Security accounts for a smaller share of the economy,” Prime Minister Johnson said.

Social Security’s Board of Trustees predicted in June that the program’s combined retirement and disability trust funds could be depleted in the third quarter of 2034. The trustees project that 83% of scheduled benefits will be paid at that point unless Congress takes action.

The trustees’ report also includes a projected early depletion date for Social Security’s retirement trust fund, the fourth quarter of 2032, when 78% of benefits will be paid. However, AARP said it based its analysis on a late 2034 date because Congress has moved money between funds in the past.

The program’s current shortfall is deeper than lawmakers anticipated in 1983, when the last major Social Security reform was enacted.

Rising income inequality means that the payroll tax cap no longer covers 90% of income, a percentage that lawmakers expected to remain unchanged during the 1983 reform, according to a study by the Roosevelt Institute, a New York-based liberal think tank. According to the institute, the share of Social Security payroll taxes in income fell to about 83% in 2000, but has remained roughly stable since then.

AARP cites an aging population as another reason for Social Security funding challenges. The worker-to-beneficiary ratio is expected to decline from 3.4 to 2.4 between 2000 and 2030. Due to the decline in birth rates, the worker-beneficiary ratio is also shrinking.

Changing income patterns also mean that a smaller share of U.S. GDP is subject to Social Security payroll taxes. Taxable payroll has fallen from 41% of GDP in 1983 to 34% in 2025, and the level of Social Security fiduciary projects will remain the same, according to AARP.

AARP attributes this decline to a shift from wages to business and investment income, which is not typically subject to payroll taxes. The report says automation will reduce demand for workers and pass-through businesses will allow some managers to report compensation as profits rather than wages.

According to AARP, if taxable payroll remained at 41% of GDP, Social Security would have collected $10.8 trillion in additional funding between 1984 and 2034. This figure is $2025 adjusted for inflation.

In 2026, up to $184,500 in wages will be subject to Social Security payroll taxes.

According to AARP research, payroll taxes accounted for 91% of Social Security income in 2025, with 5% coming from interest income and 4% coming from federal income taxes paid by high-income beneficiaries on benefits.

To increase Social Security revenue, lawmakers could consider changes that would increase contributions to the program for higher-income taxpayers, while saving low- to moderate-income taxpayers, according to the AARP report.

“Fixing Social Security isn’t about cutting the benefits you’ve already earned, it’s about rebuilding the income behind them,” Johnson said.

According to AARP, the increase in the payroll tax threshold (which is phased in annually to match average wages) will not affect most workers, as only 6% of individuals were earning above the cap in 2024.

In 2027, the Social Security tax cap is scheduled to increase to $192,300.

Bills have been introduced in Congress that would either increase the cap on higher thresholds, such as $250,000 or $400,000, or eliminate the cap altogether. An AARP study based on an assessment by the Social Security Administration found that eliminating the cap would close 67% of the 75-year funding gap if workers did not receive increased benefits in exchange for contributions.

Another option: Given the rise in business activity through pass-through entities such as sole proprietorships, partnerships, limited liability companies and S corporations, lawmakers could also strengthen the program by taxing income not currently subject to Social Security payroll taxes, according to AARP.

Lawmakers could create a new tax on investment income to help fund Social Security’s trust fund. New 12.4% tax on active S corp investment income. Directors and limited partners will close about 25% of Social Security’s 75-year funding gap, according to AARP, which cited a study of Social Security actuaries.

One option not mentioned in the AARP study is raising the payroll tax rate, which currently stands at 6.2% for workers and employers combined, for a total of 12.4%. The Social Security Administration Board estimated that if the combined tax rate were raised to 16.65% starting in January 2026, the combined program could last for 75 years, until 2100.

In a national survey conducted in February, 62% of individuals said they supported gradually increasing payroll taxes from 6.2% to 6.5%, according to the University of Maryland School of Public Policy. 2,509 adults participated in the study.

The 1983 Social Security reform included changes to benefits, such as gradually increasing the retirement age from 65 to 67, delaying cost-of-living adjustments by six months, and taxing Social Security benefits.

Jen Jones, AARP’s vice president of financial security and livable communities, said in a press conference Tuesday that these changes show that lifetime retirement benefits for people who turn 65 in 2026 have been reduced by about 19% compared to what they would receive under the previous rules.

Although AARP does not support specific benefit changes, Jones said the organization opposes any reduction in monthly checks.

“Millions of Americans — whose voices we hear from every day — cannot afford to lose a penny,” Jones said.