Social Security’s funding challenges may stem from more than an aging population. New research suggests that changes in the American economy, particularly how income is earned and distributed, have also played a significant role.
A report from the AARP Public Policy Institute finds that shifting income patterns have cost Social Security trillions of dollars in potential payroll tax revenue since the early 1980s.
The findings raise fresh concerns about the program’s long-term financial outlook.
The 2026 Social Security Trustees Report projects that the combined trust fund reserves will be depleted in 2034, leaving enough revenue to cover just 83% of scheduled benefits unless Congress takes action.
For decades, discussions about Social Security’s financial future have centered on an aging population and a shrinking ratio of workers to retirees. But AARP’s analysis highlights another factor: a growing share of wages, investment income, and corporate profits falls outside the payroll tax system.
The report could influence the debate over how Social Security is funded, who should contribute more, and what changes may be needed to secure the program’s future.
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Social Security’s payroll tax base has been shrinking for decades
The share of gross domestic product (GDP) subject to Social Security’s payroll tax dropped from 41% in 1984 to 34% in 2025, the AARP Public Policy Institute found. That sustained decline has compounded into a revenue gap that has fundamentally weakened the program’s financial position over time.
Had payroll tax receipts held steady relative to GDP, the program would have collected an additional $10.8 trillion between 1984 and 2034 in inflation-adjusted 2025 dollars, the research estimated.
That lost revenue has effectively shortened the trust fund’s projected life by 25 years, pushing its depletion from 2059 to 2034.
The report argued that the program’s revenue structure has never been updated to reflect how Americans earn income in the modern economy.
Richard Johnson, AARP’s vice president of Policy and Financial Security, argued during a press briefing that the program’s outdated revenue structure, not demographics alone, is driving the financial decline, CNBC reported.
<strong>Social Security’s finances have weakened not simply because America has grown older, but because the economy has changed, while the program’s revenue system has not</strong>.
Payroll taxes generated 91% of Social Security’s revenue in 2025, with interest income contributing 5% and federal income taxes on benefits making up the remaining 4%.
That heavy reliance on a single revenue source means any sustained erosion of the taxable wage base directly threatens the program’s ability to cover promised benefits.
How income inequality widened Social Security’s funding gap
Social Security collects a combined 12.4% payroll tax on worker earnings up to an annual cap set at $184,500 in 2026 and scheduled to increase to $192,300 in 2027.
Earnings above that ceiling are completely exempt from the tax, although only about 6% of workers earned at or above the cap in 2024, the SSA showed.
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Wage growth over the past four decades has been concentrated disproportionately among the highest-paid workers, pushing a larger share of total earnings beyond the taxable threshold.
When Congress last overhauled Social Security in 1983, roughly 90% of all covered wages fell under the payroll tax, but that share has since dropped to about 83%, the Bipartisan Policy Center reported.
Changes in how businesses are structured have further drained the program’s revenue base beyond what the wage cap alone would explain.
More business owners now organize as S corporations, which allows them to classify a portion of their labor income as corporate profits that escape the payroll tax, the AARP Institute found.
The combined effect is a funding system that has not kept pace with how Americans earn and accumulate wealth in the modern economy. More national income now flows to high wages above the cap, investment returns, and pass-through corporate profits, AARP concluded.
Rising income inequality and earnings above Social Security’s payroll tax cap have weakened revenue collection, widening the program’s long-term funding gap.Juanmonino / Getty Images
Lawmakers weigh new taxes on high earners and investment income
The AARP research identifies several proposals in Congress that would capture more income from high earners without raising the tax burden on low- and middle-income workers.
Those include the Social Security 2100 Act, the Social Security Expansion Act, and the Medicare and Social Security Fair Share Act.
Removing the cap without providing additional benefit credits for newly taxed earnings would close about 67% of the 75-year funding gap on its own, Social Security’s Office of the Chief Actuary estimated.
That figure underscores why advocacy groups view expanding the payroll tax base as the most direct route toward restoring the program’s long-term solvency.
Joel Eskovitz, a director of Social Security and Savings at AARP Public Policy Institute, described the program in a recent conference call reported by CBS News as “a very strong program that can be fixed.”
The organization has consistently opposed benefit cuts and urged Congress to pursue revenue-side changes that protect current and future beneficiaries from automatic reductions.
What AARP’s findings signal for workers and retirees
The retirement-only trust fund faces an even tighter timeline, with depletion projected for the fourth quarter of 2032, the 2026 trustees report found. That would trigger an automatic 22% cut to retirement and survivor benefits for tens of millions of American households.
Even a 5% benefit cut could push older recipients to reduce spending on necessities or delay health care, an August 2026 AARP survey found.
AARP CEO Myechia Minter-Jordan urged Congress to strengthen the program without reducing the benefits Americans have earned through decades of payroll contributions. Some 81% of the public supports that position, opposing benefit cuts to close the funding gap, AARP found in a May 2026 poll.
For workers still decades from retirement, AARP’s findings underscore that their promised benefits may depend on whether Congress expands the payroll tax base before the trust fund’s reserves run out.
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