Social Security is one of the most popular and enduring government programs in U.S. history and has funded the lives of senior citizens for more than 80 years, through good times and bad. For some, social security plays an integral role in retirement benefits. For others, these payments help to supplement retirement income.
Before social security was created in 1935, about half of our nation’s seniors were living in poverty. Today, the senior poverty rate is below 9 percent. According to the social security office website, the last 11 Trustees Reports indicated that Social Security’s Old-Age, Survivors, and Disability Insurance (OASDI) Trust Fund reserves would become depleted between 2033 and 2035 under the intermediate set of assumptions provided in each report. In an effort to extend the program’s solvency, Democrats have introduced a bill aiming to expand Social Security, but at a cost.
Democrats Introduce a Bill to Fund Social Security for 75 More Years
Senator Bernie Sanders (I-VT), along with 20 Democratic co-sponsors, introduced the Social Security Expansion Act to the Senate floor. Aiming to improve benefits and ensure the long-term reliability of the Social Security program, the bill proposes an increase in taxes to support the aging U.S. population for 75 more years.
To do this, the bill proposes increasing the tax limits in the program. Sponsors of this social security expansion act would raise Social Security benefits by $200 across the board for both new and current beneficiaries. This means an additional $ 2,400 per year for participants equating to a nearly 13% hike for those receiving the average Social Security check of $1,540 per month.
Not only would this bill change taxes, but it would change the existing Social Security Cost of Living Adjustment (COLA) formula to more heavily consider the costs of healthcare and prescription drugs. Currently, the formula is based on the increase in the Consumer Price Index for Urban Wage Earners. But social security enforcement agency would change this to base it on the Consumer Price Index for the Elderly. The authors of the bill believe this change will more accurately reflect what older Americans spend their income on — healthcare and prescription drugs.
Additionally, the bill would update the Special Minimum Benefit to help low-income workers, whereas the benefit level would equal 125% of the poverty level or roughly $17,000 per year for a single worker who worked a full career. As proposed, the bill would also restore student benefits up to age 22 for the children of disabled recipients.
Your Taxes Could Skyrocket Under This New Social Security Bill
As mentioned above, this new legislation would require an increase of taxes. Currently, the Social Security program limits the amount of earnings subject to taxation in a given year. In 2022, the set taxable maximum is $147,000. The tax rate for wages is set at 12.4%, which is split evenly between employers and employees and is deposited into the program’s Trust Fund. The Social Security Expansion Act would amend this payroll tax to subject all income over $250,000 to the tax. Sponsors of this bill further estimate that 93% of American households would see no increase, but rather high earners could see a substantial impact in their net pay.
Self-employed, business owners and investors would be the target of this tax. This means the self-employed would see the same tax increase as the salaried, with a new payroll tax on those earning more than $250,000. Net investment income taxes would therefore jump from 3.8% to 16.4% in order to include additional taxes in lieu of Social Security and Medicare payroll taxes. Business owners, too, would be hit with a new 12.4% Social Security tax on business income not already covered by payroll taxes.
With a diminishing Social Security fund, the social security expansion act aims to expand by potentially increasing taxes for high earners. Currently, taxable Social Security earnings are capped at $147,000 per year, but this new legislation could subject individuals earning more than $250,000 to an additional 6.2% in payroll taxes. The bill also proposes an increase in taxes on investors and businesses. While these changes could support more elderly Americans in their retirement, the impact on higher earners is significant.
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