House Democrats are pushing for a bill that may save Social Security. They say it will keep the entitlement program solvent for the rest of the century, but at what cost? Republicans say it amounts to an unfair tax increase on American workers. But this bill is gaining steam in the Democratic-controlled House. It’s called the Social Security 2100 Act, introduced a few months ago by House Democrat John Larson, of Connecticut.
If you haven’t heard of this legislation, it’s identical to an effort last year that was dead on arrival in Congress, when Republicans controlled the House and the Senate. Democrats believe they will have the support they need in the House to pass this bill, but some say the bill will never make it through the Senate. Others feel that election year politics could change that.
As reported by the New York Times, “A strong vote for the bill in the House, combined with political pressure in a presidential election year, could create momentum for the bill in the Senate in 2020.” (1) So, what does this bill propose to do to save Social Security? And how is Representative Larson and the bill’s supporters planning to pay for it? (2)
Social Security 2100 Act
The nuts and bolts of the Act include:
- An across-the-board increase in benefits for all Social Security retirees. This increase would be given to all current and new beneficiaries. It would amount to an average 2% increase for most people.
- A higher minimum benefit. Due to the difference between price inflation and wage inflation, the current minimum is now about $10,000 a year which is lower than the federal poverty line of about $15,000 a year. Larson would like to raise the Social Security minimum to that higher level or 125% of the current amount.
- A formula for determining annual cost-of-living bumps that better reflect higher senior expenses. This new formula would create a consumer price index that covers costs that are important to seniors, such as health care. Based on that criteria, Larson says the rate of increase would rise .2 percentage points faster than it does now.
- A tax reduction on benefits for millions of middle-income recipients. The cuts would affect about 12 million of the 63 million current recipients. But to pay for the increased benefits, taxes would go up elsewhere. (2)
Who’s Footing the Bill?
Right now, American workers pay a 6.2% Social Security tax on the first $132,900 earned in wages per year. If you earn more than that, you don’t pay that tax. Employers pay a matching amount for a total of 12.4%, again, up to $132,900. Self-employed individuals pay the entire amount.
Under Larson’s plan, those taxes would increase .05% per year for 24 years until they reach 7.4% for both employees and employers. Larson likes to point out that that amounts to about 50 cents a week for an average worker or one $4.50 cup of Starbucks coffee every nine weeks.
Larson would also like workers to view the money they pay into Social Security as an “insurance premium” and not a tax. If you look on your wage stub, it’s marked as your FICA contribution which stands for Federal Insurance Contribution Act tax. Maybe it’s a little of both.
The bill would also establish a “new” tax for high-income workers earning more than $400,000 a year. That would create a donut hole from $132,900 to $400,000 in which workers would not pay this tax. Above that, all earnings would be subject to the tax, which is one of the more controversial parts of the bill. Larson and his supporters believe this will be the biggest challenge facing them for support among Republicans.
But as we’ve heard so many times, Social Security is running out of money. The Trust Fund, which is used to make up the difference between money coming into the program and money going out, is expected to run dry by 2034.
Without reform, benefits would have to be cut, but many Republicans don’t want to pump more money into the system to avoid that. They already blame programs like Social Security, Medicare, and Medicaid for the growing federal deficit. It’s expected to top $1 trillion by the end of this year.
As reported by the New York Times, federal spending on entitlement programs will account for 50% of all federal spending outside of the interest payments for current debt. That’s up from 35% in 2005, and 40% in 2018.
Republicans have said in recent years, that instead of expanding Social Security, benefits should be cut according to a cost-of-living formula that reduces them. They’ve also suggested a higher age at which you can collect Social Security, because people are healthier and living longer as productive individuals.
President Trump took a stand in support of Social Security when he was campaigning for President. He said, “I’m not going to cut Social Security like every other Republican.” Of course, that helped him win the senior vote.
Republican Andrew G. Biggs, who served as principal deputy commission of Social Security under President George W. Bush, has come out in support of some parts of this bill. He said, in the Times article, “It doesn’t just fix Social Security for 75 years. It would keep the system permanently solvent.” But, he says, “The bill would give a lot of money to middle- and upper-income retirees who are already doing well. And it would significantly increase payroll taxes on workers.”
The bill was introduced on February 12th. That was the 137th birthday of President Franklin D. Roosevelt who created Social Security back in 1935, as part of the New Deal. It’s a system that’s definitely in need of a fix and possibly one that goes beyond the question of “what’s in it for me?”
If we truly are facing a time of massive poverty because millions upon millions of retirees don’t have the money they need to pay for shelter, clothes, or food in their golden years – we could end up surrounded by a landscape of seniors struggling with poverty. That scenario will only be made worse if we don’t do something about Social Security.
Disclaimer: The information provided on this page is for educational purposes only. Real Wealth Network makes no warranty or representation as to the accuracy, completeness or reliability of this information. Please be advised that this content may contain errors, is subject to revision at all times, and should not be relied upon for any purpose. Under no circumstances shall Real Wealth Network be liable to you or anyone else for damage stemming from the use or misuse of this information.