Key Points
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Social Security's main source of funding is payroll taxes.
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The program is facing a revenue shortfall as baby boomers retire in droves.
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Lawmakers could raise Social Security taxes to prevent benefits cuts, but that has many Americans concerned.
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The $22,924 Social Security bonus most retirees completely overlook ›
At this point, you may have heard the rumor that Social Security is on the verge of going broke. But thankfully, that's completely false.
Social Security can't go broke because it gets the bulk of its revenue from payroll taxes. So, as long as people continue to hold down jobs and pay into the program, it can continue to get funded.
That said, Social Security is facing a serious revenue shortfall as baby boomers stage a mass exodus from the U.S. labor force in the coming years, and an inadequate number of replacement workers come in. Social Security can use the money in its trust funds to keep up with benefit payments as needed. But once those trust funds are emptied, Social Security may have to cut benefits.
And it's not like that scenario is decades away. We could be roughly 10 years from seeing Social Security slash benefits broadly if lawmakers don't manage to intervene.
Thankfully, lawmakers do have solutions they can employ with the goal of preventing a broad reduction in Social Security benefits. But one popular solution could come with a world of backlash.
Could lawmakers increase Social Security taxes?
There are a number of different steps lawmakers could take to boost revenue for Social Security. One is to move full retirement age up by a year or two so that workers have to wait longer to collect their monthly benefits without a reduction.
Another option is to raise Social Security taxes. But that's not something workers want. And not surprisingly, they're very concerned about lawmakers going down that road.
In a recent survey by the Employee Benefit Research Institute, 39% of workers said they're worried about increased taxes for Social Security. That's understandable, given that many Americans feel tax-burdened to begin with.
What increases in Social Security taxes could look like
Lawmakers have a couple of choices for raising Social Security taxes. First, they could increase the Social Security tax rate. Or, they could raise the Social Security wage cap.
Currently, workers pay a 12.4% tax rate for Social Security purposes. Of that, half comes out of their paychecks, and their employers pay the rest. People who are self-employed, however, must cover the entire 12.4% Social Security tax.