Seniors and other Social Security recipients in the US are being hit hard by inflation, which has outpaced increases in their benefits this year. Now, some lawmakers have a plan to boost Social Security payments by $2,400 per recipient annually, while also shoring up the program financially.
The Social Security Expansion Act was introduced on Thursday by Rep. Peter DeFazio, a Democrat from Oregon, and Senator Bernie Sanders, an Independent from Vermont. The plan comes after the Social Security Administration earlier this monthAmericans will stop receiving their full Social Security benefits in roughly 13 years without actions to shore up the program.
Social Security recipients receive one cost-of-living adjustment, or COLA, each year, which is based on inflation and is supposed to keep their benefits in line with rising prices. But this year, beneficiaries are seeing their purchasing power wane as inflation overtakes their latest COLA increase of 5.9%. Inflation in May rose 8.6% from a year ago,that pushed up the cost of food, shelter, energy and other staples.
The new bill would seek to lessen the strain on people collecting Social Security by boosting each recipient’s monthly check by $200 — an annual increase of $2,400.
“Many, many seniors rely on Social Security for the majority, if not all, of their income,” said Martha Shedden, president of the National Association of Registered Social Security Analysts. “$200 a month can make a significant difference for many people.”
The average monthly Social Security check is about $1,658, so a $200 increase would represent a 12% boost. The bill would also make several additional changes to the program, including buttressing the program’s funding by applying the Social Security payroll tax on all income above $250,000. Currently, earnings above $147,000 aren’t subject to the Social Security tax.
Although the bill would likely face obstacles in Congress, lawmakers are likely to take steps to shore up Social Security given the eventual shortfall, which would result in a cut to monthly benefits by about 20% starting in 2035, Shedden said.
“I’m confident changes will be made,” Shedden said. “I don’t know if this is the bill that will pass, but there is more and more movement on it.”
Here’s what to know about the Social Security Expansion Act.
A benefits boost: $200, plus COLA changes
Anyone who is a current Social Security recipient or who will turn 62 in 2023 — the earliest age at which an individual can claim Social Security — would receive an extra $200 per monthly check.
There are some additional tweaks that would boost benefits over the long-term. One of the primary changes would be to base the annual COLA on the Consumer Price Index for the Elderly (CPI-E), rather than the current index that the Social Security Administration uses for its calculation — the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W).
The CPI-E more accurately reflects the seniors’ spending patterns, according to experts on Social Security. For instance, it puts more weight on health care expenses, which can be considerable for senior citizens.
If the CPI-E had been used to index the annual COLA for Social Security, a senior who filed for Social Security benefits over 30 years ago would have received about $14,000 more in retirement than compared with the CPI-W, according to the Senior Citizens League.
The bill would also boost benefits for the lowest income earners in the US, who receive benefits under a program called the Special Minimum Benefit. Under the legislation, it would be indexed so that it is equal to about 125% of the federal poverty line, or about $1,400 a month. In 2020, the Special Minimum Benefit paid about $900 per month, according to the Social Security Administration.
More help for children of deceased workers
Some people may not be aware that Social Security benefits to children of disabled or deceased workers if they are full-time students.
The legislation would raise the eligibility age for students to collect benefits to 22, provided the individual is a full-time student in college or a vocational school. Currently, the program ends for children of disabled or old workers when they turn 19 years or before that age if they are no longer a full-time student.
The lawmakers say extending this benefit would help ensure that the children of deceased or disabled parents can continue their education beyond high school.
Would a tax increase pay for all this?
The bill would increase the Social Security payroll tax on higher-income workers. Currently, workers pay the Social Security tax on their first $147,000 of earnings. To be sure, most Americans earn less than that. But higher-income workers who make more than $147,000 annually don’t pay the Social Security tax on any earnings above that level.
Under the bill, the payroll tax would kick in again for people earning above $250,000. Only the top 7% of earners would see their taxes go up as a result, according to DeFazio.
However, there’s one quirk about this arrangement: It would create a “donut hole” in which earnings between $147,000 and $250,000 would not be subject to the payroll tax, Shedden noted.
The bill would also extend the Social Security payroll tax to investment and business income, an issue that could face resistance. “I’m leery about that,” she said. “Social Security was set up to be based on contributions on earned income, and this mixes up the basket of earned and unearned income.”
Would those changes fix the program’s funding shortfall?
Expanding the tax payroll would boost the Social Security Administration’s trust fund, ensuring its solvency through 2096, according to DeFazio.
Whether this bill moves forward or not, boosting payroll taxes in some fashion is viewed as a way to guarantee that current and future retirees don’t lose benefits after 2035.
For instance, the Congressional Research Service said in a 2021 report that “raising or eliminating the cap on wages that are subject to taxes could reduce the long-range deficit in the Social Security trust funds.”