Social Security provides monthly benefits to millions of retired seniors, many of whom don't have any other income sources at their disposal. But even so, those benefits often fall short in allowing seniors to cover their essential living costs in full.
Now to be fair, Social Security was never supposed to sustain seniors in the absence of other income. But the reality is that many of today's retirees didn't manage to save for their later years on their own, and don't have generous company pensions to fall back on. And many future retirees are likely to end up in a similar boat.
Compounding the problem is that Social Security is looking at an impending financial shortfall that could result in significant benefit cuts. And that's something that has current and future recipients worried.
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But a new bill is on the table that could shore up Social Security's finances. Just as importantly, it could also result in higher benefits for those in need.
Lawmakers are paying attention
The fact that Social Security is facing financial difficulties isn't exactly news. For many years, the program's trustees have been warning that Social Security's combined trust funds have an expiration date, and once they run out of money, benefit cuts will be on the table.
The trustees' latest projections show those funds being depleted by 2035. That's not so far off, and if lawmakers want to prevent benefit cuts, they'll need to act quickly. And two notable ones are spearheading that effort.
Senators Bernie Sanders and Elizabeth Warren have put together a proposal known as the Social Security Expansion Act. That bill calls for an increase in benefits to the tune of $200 a month, or $2,400 per year. It also calls for increased Social Security taxes on higher earners to pump more money into the program and prevent benefit cuts.
Currently, only wages of up to $147,000 are taxed for Social Security purposes. That means someone making $147,000 a year pays the same amount into the program as someone earning $2 million. The Social Security Expansion Act is seeking to raise that wage cap and apply it to income above $250,000. It also wants to raise the Social Security tax rate that applies to the wealthy.
Currently, all individuals pay a 6.2% Social Security tax, with employers matching that percentage. Those who are self-employed pay a 12.4% Social Security tax rate, though a portion of those self-employment taxes are deductible. The aforementioned bill would have the wealthy pay more through a 12.4% tax on investment and business income.
Can benefit cuts be prevented?
If Social Security were to slash benefits, it could result in a catastrophic poverty crisis among the elderly. That's something lawmakers are no doubt eager to avoid.
There are multiple solutions being worked through that do have the potential to tighten up Social Security's finances and prevent benefit cuts. But each solution on the table inevitably has its drawbacks, and so lawmakers do indeed have a challenging task ahead of them -- and one they'll need to tackle fairly quickly, seeing as how Social Security's cash reserves could be gone as early as 2035.
