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

Employer Compensation Tax for Social Security and Medicare

The Social Security retirement and Medicare Hospital Insurance trust funds are approaching insolvency, expected to be depleted in seven years.

Without action, retirees face a 24 percent benefit cut in 2032, and Medicare hospital payments would be cut by 12 percent.

Restoring solvency requires slowing benefit growth, lowering health care costs, increasing revenue, or a combination.

The Social Security and Medicare trust funds are financed by a 15.3 percent payroll tax, split between worker and employer.

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

A new alternative: replacing the employer side of the payroll tax with a flat Employer Compensation Tax on all employer compensation costs.

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

Author's summary: Solving Social Security and Medicare solvency issues requires new revenue solutions.

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