Social Security is often in the news, and often because the program is at a point where it stops collecting more taxes from employees than it has to pay in benefits to retirees. That is sometimes mischaracterized because the program goes bankrupt — when instead it means pension benefits will be cut by an estimated 20% unless Congress takes action to support the program.
Well, Congress is take action, which is promising. But how much it can achieve may be hampered by something President Biden has said — more on that soon.
The change most likely to happen in Social Security will come from the Social Security Fairness Act, which was introduced by Rep. Rodney Davis (R-IL), and recently had more than 300 co-sponsors – including 210 Democrats and 91 Republicans. The bill, recently voted out of committee and moving to next steps, would abolish the Windfall Elimination Provision (WEP) and repeal the Government Pension Offset (GPO), two rules that reduce or eliminate benefits for certain people, such as those who receive other retirement income, such as a government pension. This could help millions of teachers, police officers, firefighters and others.
Another promising move coming out of Washington is President Biden’s proposed budget for fiscal year 2023, which aims to allocate nearly $15 billion to the Social Security Administration (SSA). That would be a 14% increase over the 2022 budget.
It remains to be seen how much the administration will end up with if Congress rules out the differences over what different members want to see in the budget. The proposed increase would help the Tax and Customs Administration to do more, such as processing declarations more efficiently and tackling fraud more effectively. Customer service would probably also be improved.
Get to know the Social Security Act 2100
Then there’s the Social Security 2100 Act, introduced by Rep. John Larson (D-CT). It includes many proposed changes, such as:
- Increase all benefits by 2% to compensate for inadequate past cost of living adjustments (COLAs).
- Future COLAs base on an inflation measure, “CPI-E,” which more accurately reflects retiree spending.
- Set a new minimum benefit of 25% above the poverty line to protect low-income workers.
- Taxing incomes over $400,000 for Social Security. There is currently a threshold above which income is no longer taxed for social security. By 2022, it’s $147,000, so someone making $147,000 and someone making $3,147,000 would pay the same taxes to Social Security. Lifting the cap will bring more money into the program.
These are just a few of the many provisions that would bolster the program, but the latest version of this bill is actually a bit toned down from an earlier one, probably because of something President Biden said.
But President Biden said…
In his January 2022 State of the Union address, President Biden said:[N]Anyone making less than $400,000 a year pays an extra cent in new taxes. Not a single cent.” He reiterated that at a Democratic National Committee reception in mid-September, saying, “And by the way, no American making less than $400,000 will pay a single, lone cent in additional taxes. I made that commitment and we kept it.”
That is probably why an important provision from the Social Security Act 2100 has been deleted. It suggested gradual raising the rate at which we are all taxed for Social Security from 12.4% to 14.8%. If those numbers don’t look familiar to you, it’s because salaried employees pay only half — 6.2% — and their employers also pay 6.2%. (The self-employed must pay the full 12.4% themselves.)
Time will tell which legislation will make it into law and in what form. If President Biden and/or other key Democrats are willing to raise that tax rate, it may not be popular, but it could keep the program solvent for years to come.
Few of us can afford not to keep up with Social Security developments, as Social Security is likely to be a critical part of our retirement income. For many Americans, it could even provide a third, half, or more of their future income. So don’t be just a bystander. Let your representatives in Washington know if you want Social Security to be strengthened.