Bob Dylan was right: "The times they are a-changin'." His lyrics referenced societal changes in the 1960s. However, they could also apply to Social Security today.
A new Social Security reform bill, HR-4583, was recently introduced into the U.S. House of Representatives. This legislation notably includes seven huge Social Security changes (among other reforms) that are on the table for 2024.
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1. Across-the-board benefit increase
HR-4583 proposes increasing Social Security benefits across the board. The amount of individuals' average indexed monthly earnings used to calculate benefits would increase from 90% to 93%.
2. Changes to COLA calculation
Currently, the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) is used to calculate Social Security cost-of-living adjustments (COLAs). This metric has been criticized for not accurately reflecting seniors' costs. HR-4583 would replace the CPI-W with the Consumer Price Index for Elderly Consumers (CPI-E), which is designed to better capture the prices paid by seniors.
3. Increased minimum benefit for long-term low earners
The proposed legislation would increase minimum Social Security benefits for individuals with low earnings who work more than 10 years.
4. Eliminating government pension offset and windfall elimination provisions
Currently, the government pension offset provision reduces Social Security spousal and survivor benefits when the beneficiary receives benefits from a pension for a government job where Social Security taxes weren't paid. Also, the windfall elimination provision reduces Social Security benefits for some workers who receive pension benefits from jobs that weren't subject to the Social Security payroll tax. HR-4583 would eliminate both provisions.
5. Applying payroll tax to income over $400,000
As things stand right now, $160,200 of annual income is subject to the payroll tax that helps fund Social Security. HR-4583 would also make any income above $400,000 subject to the payroll tax.
6. Applying Social Security tax to net investment income of high earners
The proposed legislation includes an additional 12.4% net investment income tax for individuals who make more than $400,000 per year.
7. Combining the Social Security trust funds
Currently, there are two Social Security trust funds -- the Old-Age and Survivors Insurance Trust Fund and the Disability Insurance Trust Fund. HR-4583 would combine these two trust funds to provide more flexibility in funding Social Security benefits.
Chances of passing
Nearly every Democrat in the U.S. House of Representatives signed on as a co-sponsor of HR-4583. Another similar bill, HR-82, attracted the support of quite a few Republicans. The inclusion of the elimination of the government pension offset and windfall elimination provisions could be appealing to some in the GOP as well.
HR-4583 has already been referred to the House Committee on Ways and Means. A companion bill, S-2280, has also been introduced into the U.S. Senate and referred to the Committee on Finance.
Importantly, some parts of HR-4583 would help prevent Social Security from going insolvent. In particular, increasing the payroll tax cap to $400,000 would have a big impact.
President Joe Biden would almost certainly support the legislation if it's passed by Congress. But what are the chances of passage? Very slim.
The political dynamics, especially with the elections coming up in 2024, make it highly unlikely that any major Social Security reform will be enacted. However, the proposals included in HR-4583 could become key issues in the presidential and congressional elections next year.
