Social Security Is Running Out of Money—Here’s What Business Owners Need to Know (and How Smart Reform Can Help)

Social Security—the government’s largest program and the foundation of retirement for most Americans—is facing a massive funding crisis. With a project $23 trillion deficit over the next 75 years, it's projected that social security will run dry by 2033 and only be able to pay about 77% of current benefits. That means across-the-board benefit cuts of nearly 25% and more in subsequent years unless Congress intervenes.

While this is often framed as a political or social challenge, it’s also a pressing issue for America’s business owners. Why? Because Social Security isn’t just a government program—it’s a major line item in every employer’s budget. The good news? Reforming it doesn’t have to mean more taxes or more red tape. In fact, smart reforms could help business owners by stabilizing costs, simplifying compliance, and restoring confidence in the system.

Why It’s Going Broke—and Why the Usual Narratives Miss the Mark

Social Security is funded through a 12.4% payroll tax on wages, split between employers and employees. But those taxes are only levied on earnings up to a cap—$176,100 in 2025. Once employees hit that cap, neither they nor their employer pays additional payroll taxes.

That cap has created a narrative that the “rich” are skipping out on their fair share, and many in Washington have responded by calling to eliminate or raise it dramatically. While that might sound like an easy fix, it would mean steep tax hikes on successful businesses and high-performing employees—many of whom are small business owners themselves.

But here’s the reality: The shortfall isn’t primarily caused by income inequality. It’s driven by two forces that policymakers often overlook—and that have nothing to do with anyone “dodging” taxes.

Hidden Problem #1: Tax Policy That Punishes Entrepreneurs

The 1986 Tax Reform Act encouraged small business owners to report more of their income as wages instead of dividends, which are taxed differently. That might sound technical, but here’s the result: business owners who once paid themselves in dividends to reinvest in growth now had to pay themselves higher wages—which pushed their income above the Social Security tax cap.

So while it may look like these owners aren’t paying into Social Security, the truth is their income was never taxed by the system to begin with. The real problem isn’t tax dodging—it’s how tax law treats business income, and it’s creating confusion, not fairness.

Hidden Problem #2: Soaring Health Care Costs Are Shrinking Taxable Wages

Employer-sponsored health insurance is another culprit. As premiums have surged, many employers have had to shift compensation away from wages to cover insurance costs. But those insurance premiums aren’t subject to Social Security taxes—meaning every dollar spent on health insurance is one less dollar counted toward the program’s funding.

This hits small and mid-sized businesses especially hard. Unlike large corporations that can negotiate bulk rates, many smaller employers are seeing wage growth stagnate as healthcare eats more of their payroll budget. And since lower-wage employees are disproportionately affected, the system’s funding base is eroding from the bottom up.

Smart Reforms That Help Business Owners and Workers Alike

Rather than reflexively raising taxes or punishing success, reforms should focus on strengthening Social Security while encouraging growth and entrepreneurship. That means:

• Incentivizing Voluntary Contributions or Private Savings: Exploring opt-in or supplemental savings mechanisms could reduce reliance on the public system over time and promote private retirement planning—especially for entrepreneurs who don’t benefit from traditional employer plans.

• Adjusting Benefit Formulas: Currently, benefits are tied to wage growth rather than inflation, which has dramatically inflated long-term costs. Updating the formula to reflect more sustainable cost-of-living metrics would keep promises manageable—without burdening the private sector.

• Preserving the Cap, Encouraging Ownership: Maintaining a reasonable payroll tax ceiling helps avoid punishing successful owners and incentivizes productivity. Encouraging more Americans to save, invest, and own businesses—rather than just rely on government benefits—should be part of a fiscally responsible future.

• Reducing Health Care and Other Costs: A big problem for business and their employees are the sky-rocketing costs of health care insurance and similar costs. Consider ways to reduce healthcare costs and wages will go up, along with contributions to the Social Security Trust Fund and other retirement funds.

Why Business Owners Should Care

For employers, Social Security is a real cost. It affects hiring decisions, payroll structure, and long-term planning. Business owners deserve a system that is fair, sustainable, and doesn’t penalize growth. Reforms that stabilize the program without raising rates or punishing success will reduce long-term uncertainty, making it easier to plan, invest, and hire.

This is a solvable problem—but time is short. If Congress waits until the 11th hour, the result may be politically convenient but economically destructive: sudden tax hikes, rushed benefit cuts, or new compliance burdens that fall hardest on small businesses.

By advocating now for thoughtful reforms—like broadening the tax base, adjusting benefits sustainably, and protecting incentives for growth—business owners can help steer Social Security toward a healthier future.

It’s not just about saving a program. It’s about protecting the freedom to build, hire, and grow.