Employer Compensation Tax for Social Security and Medicare
The Social Security retirement and Medicare Hospital Insurance trust funds are approaching insolvency, with depletion expected 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
Restoring solvency requires slowing benefit growth, lowering health care costs, increasing revenue, or a combination of these.
Current Financing
The Social Security and Medicare trust funds are financed by a 15.3 percent payroll tax on wages, split between worker and employer.
- 12.4 percent Social Security tax applied to the first $176,100 of annual wages in 2025.
Proposed Solution
A new alternative: 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: New tax approach to restore Social Security and Medicare solvency.