America’s seniors and other Social Security recipients are being hit hard by inflation that has outpaced their benefit growth this year. Now, some lawmakers plan to increase Social Security by $2,400 a year per recipient while supporting the program financially.
The Social Security Expansion Act is introduced On June 9, Rep. Peter DeFazio, a Democrat from Oregon, and Sen. Bernie Sanders, an independent from Vermont.The plan comes after the Social Security Administration earlier this month If no action is taken to support the program, Americans will stop receiving full Social Security benefits in about 13 years.
Social Security recipients receive an annual cost-of-living adjustment, or COLA, that is based on inflation and should align their benefits with price increases. But this year, the purchasing power of beneficiaries is declining as inflation outpaces their most recent COLA increase of 5.9%. Inflation in May was 8.6% higher than a year ago,This drives up the cost of food, shelter, energy and other staples.
The new bill would ease the pressure on people to collect Social Security by increasing monthly checks by $200 per recipient (an increase of $2,400 per year).
“Many seniors depend on Social Security for most, if not all, of their income,” said Martha Shedden, president of the National Association of Certified Social Security Analysts. “$200 a month means a lot to many.”
The average monthly Social Security check is about $1,658, so an increase of $200 would represent a 12% increase. The bill would also make some additional changes to the program, including supporting funding for the program through a Social Security payroll tax on all income over $250,000. Currently, income over $147,000 is exempt from Social Security taxes.
“With half of America’s seniors without retirement savings and millions living in poverty, it’s time to address Social Security’s problems now,” Rep. Steve Cohen, D-Tennessee, co-sponsor of the bill, said in a statement. The future problems are far behind.” . In a tweet, he called the $147,000 Social Security tax cap “untenable.”
Shedden said that while the bill could face hurdles in Congress, given the eventual shortfall, lawmakers could take steps to support Social Security, which would result in a roughly 20% cut in monthly benefits starting in 2035.
“I’m confident that a change will be made,” Shedden said. “I don’t know if this is going to pass, but it’s moving more and more.”
Below is information about the Social Security Expansion Act.
Benefit Enhancement: $200 plus COLA change
Anyone who is currently receiving Social Security or will turn 62 in 2023 (the earliest age an individual can apply for Social Security) will receive an additional $200 monthly check.
There are a few additional tweaks that can boost long-term gains. One of the main changes is to base the annual COLA on the Consumer Price Index for Seniors (CPI-E) rather than the current index used by the Social Security Administration for calculations – the Consumer Price Index for Urban Wages and Clerical Workers (CPI-W) .
According to Social Security experts, the CPI-E more accurately reflects the spending patterns of older adults. For example, it puts more emphasis on health care costs, which can be considerable for older adults.
If the CPI-E were used to index the Social Security annual COLA, seniors who filed for Social Security benefits more than 30 years ago would have about $14,000 more in retirement income compared to the CPI-W, according to to the Seniors Alliance.
The bill would also boost benefits for America’s lowest earners, who receive benefits under a program called the “Special Minimum Benefit.” Under the legislation, it would be indexed to equal about 125 percent of the federal poverty level, or about $1,400 a month. In 2020, the special minimum benefit pays about $900 per month, according to to the Social Security Administration.
More help for children of deceased workers
Some people may not know that Social Security provides benefits for the children of disabled or deceased workers if they are full-time students.
The legislation raised the eligibility age for students to receive benefits to 22 if the individual was a full-time student at a university or vocational school. Currently, the program ends when the children of disabled or deceased workers turn 19, or before that age if they are no longer full-time students.
Lawmakers said expanding the benefit would help ensure children of deceased or disabled parents can continue their education after high school.
Will tax hikes pay for it all?
The bill would increase Social Security payroll taxes on high-income workers. Currently, workers are subject to Social Security taxes on the first $147,000 of earnings. To be sure, most Americans earn less than that. But high-income workers earning more than $147,000 a year don’t pay Social Security taxes on any income above that level.
Under the bill, those earning more than $250,000 would again be subject to payroll taxes. Only the top 7% of earners will see their taxes go up as a result, according to To DeFazio.
However, this arrangement has a quirk: It would create a “doughnut hole” in which income between $147,000 and $250,000 would be exempt from payroll taxes, Shedden noted.
The bill also expands the Social Security payroll tax to investment and business income, an issue that could face resistance. “I’m skeptical about that,” she said. “Social Security was created based on contributions to labor income, which confused the basket of labor and unearned income.”
Will the changes address the program’s funding shortfalls?
According to DeFazio, expanding the payroll tax would increase the Social Security Administration’s trust fund, ensuring its solvency through 2096.
Whether or not the bill moves forward, raising the payroll tax in some way is seen as a way to ensure current and future retirees don’t lose benefits after 2035.
For example, Congressional Research Service Say In a 2021 report, “Raising or eliminating the taxable wage cap could reduce the long-term deficit in the Social Security trust fund.”