Romina Boccia and Krit Chanwong
Eliminating the Social Security payroll tax cap is often presented as a simple way to close the program’s worsening financing gap. Setting aside that this change would at best close 30 percent of the funding shortfall, who would end up paying the higher tax? Our analysis identifies where workers earning above the cap live and which occupations would be most affected.
Affluent Democratic congressional districts would bear the largest share of the tax increase. 62.7 percent of individuals who earn more than the taxable maximum live in districts represented by Democrats.
The average Democratic district has 92 workers earning above the taxable maximum per 1,000 residents, compared with 53 in the average Republican district.
The top ten congressional districts with the highest shares of workers earning above the taxable maximum are all represented by Democrats and are concentrated in New York City, Seattle, and coastal California.
The workers most affected by the elimination of the taxable maximum are surgeons, physicians, nurse anesthetists, architectural and engineering managers, and dentists.
With Social Security’s trust fund depletion fewer than six years out, Senators elected this fall will be confronted with the prospect of automatic benefit cuts in 2032. Discourse about Social Security’s dire finances and what solutions might work has thus heated up this election year.
Legislators from both parties are floating a massive payroll tax increase on high earners as one possible solution. Since only about 6 percent of workers would be affected by a policy that raises or eliminates the payroll tax cap in any given year, concentrating the higher tax burden on a minority of their constituents seems like the easier path forward than reducing benefits or broad-based tax increases.
Yet a tax increase affecting a small share of workers can still have far-reaching implications. Eliminating the taxable maximum would disproportionately affect physicians and other medical professionals, who tend to be older. Legislators should be aware of the geographic and occupational concentration of this tax increase and its potential effects on work, compensation, and economic growth.
The Geographic Distribution of Eliminating the Payroll Tax Cap
Figure 1 maps the percentage of residents in each congressional district whose earnings exceed the Social Security payroll tax cap. Every district will be affected by the elimination of the payroll tax cap. However, affluent districts, usually represented by Democrats, tend to be the most affected, as 62.7 percent of high earners (those earning above the taxable maximum) lived in Democratic districts in 2024.
The average Democratic district has 73 percent more high earners than the average Republican district, with 92 high earners per 1,000 residents in blue districts versus 53 per 1,000 in red districts.
Table 1 ranks the ten congressional districts with the highest percentage of residents earning above the Social Security payroll tax cap. All ten are represented by Democrats and are in New York City, Seattle, and coastal California. The incidence of eliminating the payroll tax cap is highly concentrated even beyond these ten districts: the top 50 most affected districts, representing 11.5 percent of all districts, account for 31.4 percent of all workers nationwide who earn above the cap.
The Occupational Distribution of Eliminating the Payroll Tax Cap
Table 2 ranks the top 10 occupations most affected by the elimination of the payroll tax cap, arranged by the percentage of individuals in those professions earning above the taxable maximum, including the percentage of affected workers aged 55 and older. These occupations account for approximately 22 percent of all individuals earning more than the taxable maximum.
Medical professionals are heavily affected. Approximately 8 out of 10 surgeons and 6 out of 10 physicians earn more than the taxable maximum. Across all occupations, healthcare workers make up about 12 percent of those above the cap, compared with about 5 percent in legal professions.
Age matters because a substantial share of affected medical professionals are approaching retirement. About 27 percent of surgeons and 33 percent of physicians earning above the cap are 55 or older. A higher marginal tax on earnings could lead some to reduce their hours or retire earlier. That possibility is especially consequential in medicine: the Health Resources and Services Administration projects shortages across many physician specialties. While our analysis does not conclusively establish how many physicians would respond to the change in their financial return on work, even a modest response could reduce health care capacity.
The Economic Effects of Eliminating the Payroll Tax Cap
Eliminating the payroll tax cap would raise taxes on every additional dollar a worker earns above the current maximum. That could affect decisions about how much to work and, for workers nearing retirement, when to stop working. Like any tax increase, eliminating the taxable maximum is likely to reduce taxable income.
The negative effects could extend beyond fiscal concerns. If some physicians and surgeons reduce their hours or retire sooner, this could exacerbate the physician shortage, reducing access to health care, for example.
A Penn Wharton Budget Model analysis illustrates the potential scale of the economic effects. It projected that raising the cap to $300,000 without crediting the additional taxed earnings toward benefits would reduce GDP by 1.7 percent and the capital stock by 3.4 percent by 2050, relative to its baseline. Penn Wharton attributes most of the output loss to reduced saving and investment, with a smaller decline in hours worked. Its estimate applies to raising the cap, not eliminating it.
Scrapping the taxable maximum could also reduce incentives to invest in skills. Higher marginal taxes discourage skill investment, with significant effects on long-run GDP. In a 2021 paper, economist Adam Blandin projected that eliminating the taxable maximum would reduce long-run GDP by three percent. Blandin also found that eliminating the taxable maximum may decrease income taxes since workers will earn less. While Social Security would collect more payroll tax revenue, some of the government-wide revenue increase would be offset as federal income tax revenue falls.
Don’t Eliminate the Taxable Maximum
Eliminating the payroll tax cap is politically tempting: it promises new revenue while asking a small share of workers to pay for it. The added tax burden would fall heavily on a geographically concentrated group of workers, with most living in Democratic congressional districts. Medical professionals account for a notable share of those affected, where decisions to cut back hours or retire earlier could affect Americans’ access to health care. Over the long term, eliminating the taxable maximum could lead to reductions in economic output and human capital accumulation, leading to a lower-skilled workforce and thus lower economic growth.
Meanwhile, eliminating the cap would address only a fraction of Social Security’s financing gap. Congress cannot tax its way around the need to confront the program’s growing benefit obligations.
Instead, Congress should consider benefit reforms to Social Security, such as increasing the retirement age to account for rising life expectancy and reducing benefits for higher earners to provide anti-poverty protection for vulnerable seniors at a lower cost to working American families.
Reducing program spending would be more economically beneficial than significantly increasing taxes on highly productive workers, as a payroll tax cap increase or elimination would. To learn more about Social Security and the best ways to reform the program, please visit Cato’s Hub for Social Security Reform.
Appendix: Methodology
Data analysis was performed by Krit Chanwong, who relied on 2024 1‑Year American Community Survey (ACS) microdata retrieved from the Integrated Public Use Microdata Series. A high-income earner is defined as anyone with a wage income of $168,600 or more. Since ACS data is geographically linked to public-use microdata areas (PUMAs), PUMA-specific estimates were converted to congressional district-specific estimates. The district lines here are for the 119th Congress and do not account for mid-decade redistricting. The National Bureau of Economic Research’s Tax Simulator (TAXSIM) is the basis for the estimation of taxable income. The top marginal rates calculated are for high-income single filers.
This analysis has certain limitations. For one, it assumes that the geographic distribution of taxable maximum earners is uniform throughout a PUMA. Moreover, most of our marginal tax calculations assume single filing without claiming any special deductions or credits. This might tend to overstate a person’s tax liability and, as such, underestimate the marginal percent tax increase due to the elimination of the taxable maximum. Lastly, income data for high earners in the original data is top-coded at the 99.5th percentile for the state.
