Social Security is often in the news, and it's often because the program is facing a point at which it will stop collecting more in taxes from workers than it needs to pay out in benefits to retirees. That's sometimes mischaracterized as the program going broke -- when it means, instead, that retiree benefits will be reduced by an estimated 20% unless Congress takes some action to shore up the program.
Well, Congress is taking some action, which is promising. But how much it can accomplish may be hampered by something President Biden has said -- more on that soon.
Image source: Getty Images.
Baby steps
The change most likely to happen to Social Security first will come from the Social Security Fairness Act, which was introduced by Rep. Rodney Davis (R-IL), and recently had more than 300 cosponsors -- including 210 Democrats and 91 Republicans. The bill, which was recently voted out of committee and onto its next steps, would eliminate 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.
Budget benefits
Another promising move coming out of Washington is President Biden's proposed budget for fiscal year 2023, which aims to allocate close to $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 once Congress hammers out differences in what various members want to see in the budget. The proposed increase would help the Administration get more done, such as processing claims more efficiently and dealing with fraud more effectively. Customer service would also likely be improved.
Meet the Social Security 2100 Act
Then there's The Social Security 2100 Act, introduced by Rep. John Larson (D-CT). It encompasses many proposed changes, such as:
- Increasing all benefits by 2% to compensate for inadequate past cost-of-living adjustments (COLAs).
- Basing future COLAs on an inflation measure, "CPI-E," that more accurately reflects retiree expenses.
- Setting a new minimum benefit 25% above the poverty line to protect low-income workers.
- Taxing incomes over $400,000 for Social Security. Right now, there's a threshold above which earnings are no longer taxed for Social Security. For 2022, it's $147,000, so that someone earning $147,000 and someone earning $3,147,000 would pay the same taxes to Social Security. Lifting the cap will bring more money into the program.
Those are just some of many provisions that would strengthen the program, but the latest version of this bill is actually a bit watered down from a previous version, likely due to something President Biden said.
But President Biden said...
In his 2022 State of the Union address, back in January, President Biden said: "[N]obody earning less than $400,000 a year will pay an additional penny in new taxes. Not a single penny." He reiterated that in mid-September at a Democratic National Committee reception, saying, "And by the way, not a single American making under $400,000 is going to pay a single, solitary penny in additional tax. I made that commitment, and we kept it."
That likely is why a key provision from the Social Security 2100 Act was removed. It proposed gradually hiking the rate at which we are all taxed for Social Security, from 12.4% to 14.8%. If those numbers don't look familiar, it's because salaried workers only pay half -- 6.2% -- with their employers paying 6.2% as well. (Self-employed folks have to pay the full 12.4% themselves.)
Now what?
Time will tell which pieces of legislation make it through to becoming law and in what form. If President Biden and/or other key Democrats are willing to boost that tax rate, it might not be popular, but it could keep the program solvent for many, many years.
Few of us can afford to not keep up with Social Security developments since Social Security is likely to provide a critical chunk of our retirement income. Indeed, for many Americans, it may provide as much as a third, a half, or more of their future income. So don't just be a bystander. Let your representatives in Washington know if you want Social Security strengthened.
