An Employer Compensation Tax for Social Security and Medicare | Committee for a Responsible Federal Budget

Social Security and Medicare Trust Funds: A Looming Crisis

The Social Security retirement and Medicare Hospital Insurance trust funds are facing insolvency, with depletion expected in just seven years.

Without action, significant cuts are imminent: a 24 percent benefit cut for retirees in 2032 and a 12 percent reduction in Medicare hospital payments.

Restoring Solvency

Restoring solvency to these trust funds will require a combination of slowing benefit growth, lowering healthcare costs, and increasing revenue.

Current Financing

The Social Security and Medicare trust funds are primarily financed by a 15.3 percent payroll tax on wages, split evenly between workers and employers.

The 12.4 percent Social Security tax applies only to the first $176,100 of annual wages in 2025.

A New Alternative: Employer Compensation Tax

A proposed solution involves replacing the employer side of the payroll tax with a flat Employer Compensation Tax (ECT) on all employer compensation costs.

Proposals to boost revenue often involve increasing the tax rate or the tax cap.

Author's summary: Social Security and Medicare face insolvency, requiring urgent revenue boosts.

more

Committee for a Responsible Federal Budget Committee for a Responsible Federal Budget — 2025-10-16

More News