Seniors and other Social Security recipients in the United States are being hit hard by inflation, which has outstripped their benefit increases this year. Now, some lawmakers have a plan to increase Social Security payments by $2,400 per beneficiary per year, while bolstering the program financially.
The law on the expansion of social security was introduced Thursday by 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 Americans will stop receiving their full Social Security benefits in about 13 years without actions to shore up the program.
Social Security recipients receive a cost-of-living adjustment, or COLA, each year that’s based on inflation and is supposed to keep their benefits in line with rising prices. But this year, beneficiaries are seeing their purchasing power decline as inflation outpaces their last COLA increase by 5.9%. Inflation in May increased by 8.6% compared to a year ago,which has driven up the cost of food, housing, energy and other basic necessities.
The new bill would aim to reduce the strain 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 Shedden, president of the National Association of Registered Social Security Analysts. “$200 a month can make a big difference for many people.”
The average monthly Social Security check is about $1,658, so a $200 increase would represent a 12% increase. The bill would also make several additional changes to the program, including strengthening funding for the program by applying the Social Security payroll tax on all earnings over $250,000. Currently, income over $147,000 is not subject to Social Security tax.
Although the bill is likely to face obstacles in Congress, lawmakers are likely to take steps to bolster Social Security given the potential shortfall, which would cut monthly benefits by about 20% from 2035, Shedden said.
“I’m confident there will be changes,” Shedden said. “I don’t know if this is the bill that will pass, but there is more and more movement on this.”
Here’s what you need to know about the Social Security Expansion Act.
An increase in benefits: $200, plus COLA changes
Anyone who is currently on Social Security or turns 62 in 2023 — the earliest age a person can qualify for Social Security — would receive an additional $200 via monthly check.
There are a few more tweaks that would increase the benefits in the long run. One of the key changes would be to base the annual COLA on the Consumer Price Index for Senior Citizens (CPI-E), rather than the current index that the Social Security Administration uses for its calculation – the consumer price index for urban wage and office workers (CPI-W).
The CPI-E more accurately reflects the spending habits of senior citizens, according to social security experts. For example, it weighs more heavily on healthcare costs, which can be considerable for older people.
If CPI-E had been used to index Social Security’s annual COLA, a senior who filed for Social Security more than 30 years ago would have received about $14,000 more in retirement. that compared to the CPI-W, according in the Senior League.
The bill would also increase benefits for low-income people in the United States, who receive benefits under a program called Special Minimum Benefit. Under the law, it would be indexed so that it equals about 125% of the federal poverty level, or about $1,400 a month. In 2020, the special minimum benefit paid around $900 per month, according to the social security administration.
More help for the children of deceased workers
Some people may not be aware that Social Security pays 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 collect 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 before that age if they are no longer in full-time education.
Lawmakers say extending this benefit would help ensure that children of deceased or disabled parents can continue their education beyond high school.
Would a tax increase pay for all of 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 of earnings. Granted, most Americans earn less than that. But high-income workers who earn more than $147,000 a year don’t pay Social Security taxes on earnings above that level.
Under the bill, the payroll tax would come back into effect for people earning more than $250,000. Only the 7% of the highest earners would see their taxes increase accordingly, according to DeFazio.
However, there is a quirk about this arrangement: It would create a “doughnut hole” in which earnings between $147,000 and $250,000 would not be subject to payroll tax, Shedden noted.
The bill would also extend the Social Security payroll tax to investment and business income, an issue that could face resistance. “I’m suspicious of that,” she said. “Social security was created to be based on contributions on labor income, which mixes the basket of labor and capital income.”
Would these changes solve the program’s lack of funding?
The payroll tax expansion would boost the Social Security Administration’s trust fund, ensuring its solvency through 2096, according to DeFazio.
Whether or not this bill goes ahead, raising payroll taxes in some way is seen as a way to ensure that current and future retirees don’t lose their benefits after 2035.
For example, the Congressional Research Service said in a 2021 report that “increasing or removing the ceiling on wages subject to tax could reduce the long-term deficit of social security trust funds”.