Seniors and other Social Security recipients in the United States are hit hard by inflation, which has outpaced increases in their benefits this year. Now, some lawmakers have a plan to increase Social Security payments by $2,400 per recipient per year, while also supporting the program financially.
Social Security Expansion Act was inserted June 9, by Representative Peter DeFazio, D-Oregon, and Senator Bernie Sanders, R-Vermont. The plan follows the Social Security Administration earlier this month Americans will stop receiving full Social Security benefits in about 13 years without taking action 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, recipients are seeing their purchasing power dwindle as inflation outpaced the last increase in COLA of 5.9%. The inflation rate in May increased by 8.6% from last year,This has increased the cost of food, shelter, energy and other basic commodities.
The new bill would seek to relieve pressure on people collecting Social Security by increasing each recipient’s monthly check by $200 — an annual increase of $2,400.
“Many, many seniors depend on Social Security for most, if not all, of their income,” said Martha Sheden, president of the National Association of Registered Social Security Analysts. “$200 a month can make a big difference to a lot of people.”
The average monthly Social Security check is about $1,658, so an increase of $200 would represent a 12% payment. The bill would also make several additional changes to the program, including supporting program funding by applying Social Security payroll tax to all income over $250,000. Currently, earnings over $147,000 are not subject to Social Security tax.
“With half of older Americans having no retirement savings, and millions living in poverty, it’s time to deal with the future of Social Security,” Representative Steve Cohen, D.T., one of the bill’s sponsors, said in a statement. . In a tweet, he called the $147,000 cap on Social Security taxes “untenable.”
Although the bill would likely run into hurdles in Congress, lawmakers are likely to take steps to shore up Social Security given the eventual shortfall, which would cut monthly benefits about 20% starting in 2035, Sheden said.
“I am confident that changes will be made,” Shadin said. “I don’t know if this will be the law that will be passed, but there is more and more movement on it.”
Here’s what you need to know about the Social Security Expansion Act.
Benefits Increase: $200, plus COLA changes
Anyone who is currently a recipient of Social Security or will turn 62 in 2023—the earliest an individual can claim Social Security—will receive an additional $200 per monthly check.
There are some additional adjustments that will enhance the benefits in the long run. One key change would be to base the annual COLA on the Consumer Price Index for Older People (CPI-E), rather than the current index the Social Security Administration uses to calculate it – the Consumer Price Index for Urban Wage and Clerical Workers (CPI-W).
CPI-E more accurately reflects the spending patterns of older adults, according to Social Security experts. For example, it gives more weight to health care expenses, which can be significant for the elderly.
If CPI-E was used for the annual Social Security COLA index, a senior who applied for Social Security benefits more than 30 years ago would have earned about $14,000 in retirement compared to a CPI-W, according to to the Seniors Association.
The bill would also boost benefits for lower-income earners in the United States, who receive benefits under a program called Special Minimum Benefits. Under the legislation, it would be indexed so that it equals about 125% of the federal poverty line, or about $1,400 per month. In 2020, the minimum payment for special benefits is about $900 per month, according to to the Social Security Administration.
More help for children of deceased workers
Some people may not realize that Social Security provides benefits to the children of disabled or deceased workers if they are full time students.
The legislation would raise the age of eligibility for students to receive benefits to 22, provided the individual is a full-time student at a college or vocational school. Currently, the program ends for children of disabled or deceased workers when they turn 19 or earlier if they are no longer a full-time student.
Lawmakers say extending this benefit will help ensure that children of deceased or disabled parents can continue their education after high school.
Will the tax increase pay for all this?
The bill would increase the Social Security payroll tax for high-income workers. Currently, workers pay Social Security tax on their first $147,000 in earnings. To be sure, most Americans earn less than that. But high-income workers who earn more than $147,000 annually do not pay Social Security tax on any earnings above that level.
Under the bill, payroll tax will start again for people with incomes over $250,000. As a result, the top 7% of earners will see their taxes rise, according to to DeFazio.
However, there’s one problem with this arrangement: It will create a “round hole” where earnings between $147,000 and $250,000 will not be subject to payroll tax, Sheden noted.
The bill would also expand the Social Security payroll tax to include investment and business income, an issue that could meet resistance. “I’m worried about that,” she said. “Social Security was created on the basis of contributions on earned income, and this confuses the basket of earned and unearned income.”
Will these changes fix the program’s funding shortfall?
Expanding the payroll tax would bolster the Social Security Administration trust fund, ensuring its solvency through 2096, according to DeFazio.
Whether or not that bill goes forward, increasing payroll taxes is somehow seen as a way to ensure that current and future retirees don’t lose out on benefits after 2035.
For example, the Congressional Research Service He said In a 2021 report, “Raising or eliminating the maximum taxable wage could reduce the long-term deficit in Social Security Trust Funds.”