Social Security is one of the most contentious issues in American politics, and as the 2020 presidential campaign continues to ramp up, candidates have looked at ways to change the program. In particular, an increasing number of proposals have looked for ways to expand Social Security to extend larger benefits to some recipients, especially those in demographic groups who have greater financial needs.
Sen. Elizabeth Warren (D-Mass.) has long been a proponent of expanding Social Security, and earlier this week, she revealed her latest proposal about the program. Warren's strategy would make major changes to Social Security, boosting benefits for all and imposing new taxes on high-income earners to finance them.
Why Warren's looking at Social Security
Warren's proposal focuses on the financial straits that many Social Security recipients are in right now. According to her numbers, more than 7 million senior citizens live under the poverty line. With costs of living on the rise, especially in key areas for seniors like healthcare, it's hard to make ends meet. Few older Americans have significant retirement savings, and many even still have considerable debt to repay.
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Warren also notes that younger workers have even greater challenges. Between tough economic conditions in the labor market and high debt, it's been hard for typical Gen Xers and millennials to make much headway toward financial security.
Lastly, Social Security's financial condition poses an approaching threat. Current expectations have the Social Security trust funds running out of money in 2035, and that could bring about benefit cuts of roughly 20%.
The basics of the Warren plan
In response, Warren offers a simple remedy: a higher Social Security benefit for all. Under the proposal, everyone would get a $200 increase in monthly payments from Social Security, including both retirement and disability benefits. It would also tie future cost of living adjustments to a measure of inflation that's tailored toward the basket of goods and services that older Americans have to pay.
Certain groups would see even larger increases. Family caregivers would have the value of their work recognized for Social Security eligibility and benefit calculation purposes, which Warren says will especially help women and people of color. Disabled widows and widowers would be able to claim survivor benefits earlier, and Warren's plan would reinstate special minimum benefit rules that would ensure an annual benefit of at least 125% of the federal poverty line. Public sector employees would avoid negative adjustments from provisions like the Windfall Elimination Provision and Government Pension Offset.
In order to cover these benefits and shore up Social Security's future finances, Warren would impose two new taxes. First, a new payroll tax would apply to wages above $250,000, with employees paying 7.4% and employers matching with 7.4% of their own. This is above the 6.2% employee rate that applies to current wages up to $132,900 in 2019, under the rationale that Social Security should have a similarly progressive tax rate structure as the regular income tax system does. Warren notes that the current payroll tax scheme for Social Security is regressive as it charges no tax on earnings above the wage base limit.
Second, individual filers making more than $250,000 or joint filers above $400,000 would owe a heightened net investment income tax at a rate of 14.8%. That would be in addition to the current 2.9% net investment income tax, which is based on the Medicare payroll tax withholding rate.
Expect more contentious debate
Warren argues that the new taxes would simply be "asking the top 2% to contribute their fair share to the program." It's not the first time that the presidential candidate has targeted the rich, with a previous proposal seeking to impose a wealth tax on those with a net worth above $50 million.
Critics of that wealth tax were quick to note ways that wealthy taxpayers could potentially avoid paying it. With the payroll tax system already having the collection infrastructure in place across millions for employers throughout the nation, the new Social Security taxes would avoid some of the enforcement problems that the wealth tax would have faced.
The Warren proposal breaks new ground by largely disconnecting the benefits that Social Security pays from the wages on which the program collects taxes. That's sure to draw the ire of opponents, and regardless of what happens in the 2020 election, the issue of Social Security will remain a contentious one well into the future.
