Social Security Lost Out on $10.8 Trillion as Taxable Wages Shrank, AARP Says

Social Security would have collected an extra $10.8 trillion between 1984 and 2034 if the share of the economy subject to its payroll tax had held steady, a new AARP study found.

That money would have let the program pay full benefits until 2059, 25 years beyond the trustees’ current projection of 2034, the AARP Public Policy Institute said in research released Wednesday.

Taxable earnings equaled 41% of gross domestic product in 1983 but fell to 34% by 2025. Social Security’s trustees project the share will stay near that level for decades.

AARP blames a shift from wages toward business and investment income, which generally isn’t subject to the payroll tax. The $10.8 trillion figure is in inflation-adjusted 2025 dollars, CNBC reported.

Automation has reduced demand for workers, and pass-through businesses let some owners report their compensation as profits rather than wages, according to the report.

Between 1970 and 2023, labor income’s share of GDP fell from 65% to 57%, while business profits and investment returns took a bigger slice, AARP said in a summary of the paper.

More owners are also organizing their companies as S corporations, which lets them claim much of their income as profits. Unlike salaries, those profits are not subject to the payroll tax.

How the Tax Works

Social Security is funded mainly by a 12.4% payroll tax that workers and employers split at 6.2% each. Self-employed people pay the full 12.4% themselves.

The tax applies only to earnings up to a cap of $184,500 in 2026, rising to $192,300 in 2027.

Payroll taxes supplied 91% of the program’s revenue in 2025, with 5% coming from interest and 4% from income taxes that higher-income retirees pay on their benefits.

“Social Security’s finances have weakened in large part because the economy has changed while its revenue system has not,” Richard Johnson, the institute’s vice president of financial security, said in a statement.

Johnson said lawmakers could raise or eliminate the taxable earnings cap or apply targeted contributions to certain forms of capital or business income. Some lawmakers have already proposed lifting the cap for high earners.

“The fix for Social Security isn’t cutting earned benefits; it’s rebuilding the revenue behind them,” Johnson said, according to CNBC.

“Strengthening Social Security does not require recreating the economy of 1983,” Johnson said.

AARP, which represents Americans 50 and older, warned that without action the program will be able to pay only about 80% of scheduled retirement and survivor benefits in 2032.

The group’s post-election polling found 80% of all voters, and 90% of older voters, said it is very or extremely important for Congress to protect Social Security from cuts.

AARP noted that senators elected in the 2026 midterms will still be serving in 2032, when lawmakers will be under heightened pressure to protect the program’s ability to pay full benefits.

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