Courtesy of NAELA News
CHICAGO (Reuters) – The idea that Social Security benefits should be expanded – not cut – is going mainstream.
Until the last few years, all Washington could talk about was how to cut Social Security benefits, and by how much. But a grass-roots progressive coalition began campaigning for expansion in 2013, and the idea has since moved straight to the heart of the Democratic Party.
That was evident this week when U.S. Representative John Larson introduced his Social Security 2100 Act in the House of Representatives. The Connecticut Democrat’s proposal calls for a small across-the-board bump in benefits, a more generous annual cost-of-living adjustment and a higher minimum benefit for low-income workers. Larson’s plan would pay for the expansion in two ways. First, it would add new payroll taxes to wages over $400,000 (currently, tax collection stops at $132,900 of annual income). The bill also would gradually phase in a higher payroll tax rate, with workers and employers each paying 7.4 percent by 2042, compared with the current rate of 6.2 percent.
This is not the first time Larson has proposed this legislation, but this year it stands a very good chance of passage in the House. The proposal had 54 co-sponsors when Larson first introduced it in 2015; now, it has more than 200 House co-sponsors – more than 85 percent of the Democratic majority.
Larson himself is the new chairman of the Social Security subcommittee of the House Ways and Means Committee. The new chairman of the powerful Ways and Means Committee, Massachusetts Democrat Richard Neal, is a co-sponsor of the bill.
Moreover, progressive support for Social Security expansion was an important campaign plank for many successful Democratic candidates in November’s midterm elections. And nearly every declared and potential Democratic presidential candidate has endorsed expansion of some type for Social Security.
The bill is not likely to become law while Republicans control the Senate and White House. But Larson plans to hold hearings on the bill this year in Washington and around the country – the first congressional hearings focused on expansion in 50 years.
That will provide an important forum to help educate the public and could puncture many of the toxic myths that have taken hold about Social Security in recent decades. Among the most pernicious of those myths is that Social Security is headed for bankruptcy, and that benefits will not be there for young people when their retirement rolls around.
“We need to educate and unmask so many of these myths,” Larson told me in an interview. “We need to talk about why Social Security is an earned benefit and not an entitlement. Certainly it is something you are entitled to, but the word makes Social Security sound like a poverty program or a handout. Nothing roils people who have been paying into the program their entire lives more.”
FIXING THE SHORTFALL
The myths are built on one very important kernel of truth. Social Security does face a shortfall in revenue needed to pay scheduled benefits. If Congress fails to act, Social Security benefits will be cut nearly 25 percent in 2034 – just 15 years from now. This would be a financial disaster for current and future retirees, and it would undermine trust in the program.
Larson’s bill puts Social Security back into balance over the next 75 years – the period of time the program is required by federal law to project its finances. On the benefit side, it provides an increase for all enrollees equivalent to 2 percent of the average benefit, about $30 per month. It would shift to a more generous annual cost-of-living adjustment formula that is more sensitive to medical inflation and other costs disproportionately affecting seniors. The bill would also beef up the special minimum benefit paid to low-income retirees.
For higher-income seniors, the bill also includes, effectively, a benefit boost in the form of a tax cut.
Beneficiaries with higher income – usually from work, a pension or drawdowns from tax-deferred saving – often wind up paying income taxes on their Social Security benefits.
The proportion of benefit that is taxable is determined using a formula called “provisional income” – your adjusted gross income (excluding Social Security benefits), plus non-taxable interest and half of your Social Security benefits. If your provisional income is $25,000 to $34,000 (single return) or $32,000 to $44,000 (joint return), up to 50 percent of your Social Security benefit must be counted as adjusted gross income. If your provisional income is more than $34,000 on a single return or $44,000 on a joint return, 85 percent must be added to AGI.
The Larson bill would replace those thresholds with $50,000 (single filer) and $100,000 (joint filers), and if provisional income is above those levels, up to 85 percent is counted in adjusted gross income.
Despite the bill’s strong odds in the House, the Republican-controlled Senate is not likely to take it up this year – although Larson says he is reaching out. He also has put feelers out to the White House, noting that President Donald Trump opposed cuts to Social Security during the 2016 campaign.
“I think we’re coming to some common-sense solutions,” Larson said. “Especially when one of the biggest champions of protecting Social Security is the President of the United States.”
(This story corrects payroll tax cap figure in third paragraph to $132,900 for 2019)