Seniors and other Social Security recipients in the US are being hit hard by inflation, which this year has outpaced the increase in their benefits. Now, some lawmakers have plans to increase Social Security payments by $2,400 per recipient per year, while also supporting the program financially.
The Social Security Expansion Act was enacted on June 9 by Rep. Peter DeFazio, an Oregon Democrat, and Senator Bernie Sanders, an Independent from Vermont. The plan comes after the Social Security Administration earlier this monthAmericans will stop receiving their full Social Security benefits in about 13 years with no actions to support the program.
Social Security recipients receive one cost of living adjustment, or COLA, each year, which is based on inflation and is supposed to keep their benefits in line with rising prices. But this year, beneficiaries are seeing their purchasing power dwindle as inflation surpasses their latest COLA rise of 5.9%. Inflation rose 8.6% in May compared to a year ago,which drove up the cost of food, shelter, energy and other staples.
The new bill would reduce the pressure on people who want to collect Social Security by increasing each recipient’s monthly check by $200 — a $2,400 annual increase.
“A lot of seniors depend on Social Security for most, if not all of their income,” said Martha Shedden, president of the National Association of Registered Social Security Analysts. “$200 a month can make a big difference for a lot of people.”
The average monthly Social Security check is about $1,658, so a $200 increase would mean a 12% increase. The bill would also make a number of additional changes to the program, including supporting the funding of the program by applying the Social Security payroll tax to all income above $250,000. Currently, income above $147,000 is not subject to Social Security tax.
“With half of older Americans lacking retirement savings and millions living in poverty, it’s long past time to tackle the future of Social Security,” said Rep. Steve Cohen, D.-Tennessee, a co-sponsor of the bill, in a statement. In a tweet, he called the $147,000 limit on Social Security taxes “indefensible.”
While the bill is likely to face hurdles in Congress, lawmakers are likely to take steps to strengthen Social Security given the eventual deficit, which would result in a cut in monthly benefits by about 20% from 2035, Shedden said.
“I’m confident changes will be made,” Shedden said. “I don’t know if this is the bill that will pass, but there is more and more movement.”
Here’s what you need to know about the Social Security Extension Act.
A benefits boost: $200, plus COLA changes
Anyone who is a current Social Security recipient or who turns 62 in 2023 — the earliest age at which a person can claim Social Security — would receive an additional $200 per monthly check.
There are some additional adjustments that would increase the long-term benefits. One of the major changes would be to base the annual COLA on the Consumer Price Index for Older Persons (CPI-E), rather than the current index the Social Security Administration uses for its calculation – the Consumer Price Index for Urban Wages and White-collar workers (CPI-W). .
According to social security experts, the CPI-E provides a more accurate picture of seniors’ spending patterns. For example, it weighs more heavily on healthcare costs, which can be significant for seniors.
If the CPI-E had been used to index the annual Social Security COLA, a senior who filed for Social Security more than 30 years ago would have received approximately $14,000 more in retirement than compared to the CPI-W, according to the Senior Citizens League.
The bill would also provide benefits to the lowest-income earners in the US, who receive benefits under a program called the Special Minimum Benefit. Under the law, it would be indexed to equal about 125% of the federal poverty line, or about $1,400 a month. In 2020, the special minimum benefit paid about $900 per month, according to the Social Security Administration.
More help for children of deceased employees
Some people may not be aware that Social Security provides benefits to children of disabled or deceased employees if they are full-time students.
The legislation would raise the age at which students are eligible to receive benefits to 22 years, provided the individual is a full-time student in college or a vocational school. Currently, the program for children of disabled or deceased employees ends when they turn 19 or before that age if they are no longer a full-time student.
Lawmakers say extending this benefit would allow the children of deceased or disabled parents to continue their education after high school.
Could a tax hike pay for all of this?
The bill would increase the Social Security payroll tax for higher earners. Currently, employees pay Social Security taxes on their first $147,000 in earnings. Sure, most Americans earn less than that. But higher-income workers who earn more than $147,000 a year don’t pay Social Security taxes on income above that level.
Under the bill, payroll taxes would go back into effect for people earning more than $250,000. According to DeFazio, only the top 7% of earners would see their taxes rise.
There’s one quirk about this arrangement, though: It would create a “donut hole” in which income between $147,000 and $250,000 isn’t subject to payroll taxes, Shedden noted.
The bill would also expand Social Security payroll taxes to include investment and business income, an issue that could meet resistance. “I’m wary of that,” she said. “Social security is set up to be based on contributions on earned income, and this mixes the basket of earned and unearned income.”
Would those changes solve the program’s funding gap?
Expansion of payroll taxes, DeFazio said, would boost the Social Security Administration trust fund and ensure solvency through 2096.
Whether this bill advances or not, raising payroll taxes in some way is seen as a way to ensure current and future retirees don’t lose benefits after 2035.
For example, the Congressional Research Service said in a 2021 report that “increasing or eliminating wages subject to taxes could reduce the long-term deficit in Social Security trust funds.”