New Bill Would Tax Individual Investors to Extend Social Security Solvency

Bill from Senators Sanders and Warren aims to make Social Security solvent for 75 years and to increase benefits, especially for lower-income workers and retirees.



The Social Security Expansion Act, introduced by Senators Bernie Sanders, I-Vermont, and Elizabeth Warren, D-Massachusetts, aims to make Social Security solvent through the end of the 21st century, while also enhancing benefits.

The bill, introduced last week, would create a tax of 12.4% on investment income for individuals making $200,000 or more and married couples making $250,000 or more, matching the combined employee and employer payroll rates.

The bill would also make all income greater than $250,000 subject to the full Social Security payroll tax rate; currently, income greater than $160,200 is not subject to the full payroll tax rate. Under the bill, income between $160,200 and $250,000 would not be taxed differently at first, but the $160,200 threshold would be allowed to rise normally until it reaches $250,000, projected to happen in 2035. At that point, all income would be subject to the full payroll rate. Additionally, any income greater than $250,000 would not be counted for benefit calculation purposes.

Since the bill would raise taxes, it must be formally introduced first in the House of Representatives. Sponsored in the House by Representatives Jan Schakowsky, D-Illinois, the bill was referred to the House Committee on Ways and Means on Tuesday. The bill has 26 co-sponsors in the House, as of today, all of whom are Democrats. Republicans control the House, and the Committee on Ways and Means is chaired by Representative Jason Smith, R-Missouri.

For more stories like this, sign up for the CIO Alert daily newsletter.

A statement from Sanders’ office said the bill would make Social Security solvent for at least the next 75 years, based on a study conducted by Stephen Goss, the chief actuary at the Social Security Administration.

Goss’ report explained that the bill would change the cost-of-living index used to calculate Social Security benefit increases from the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) to the Consumer Price Index for the Elderly (CPI-E). The report estimated that the cost-of-living adjustment would increase by “0.2 percentage points per year on average” as a result.

According to the Bureau of Labor Statistics, the CPI-E is a statistic which weighs inflation to account for the spending patterns of those aged 62 and older, such as their higher proportional spending on healthcare. The Bureau warned that this statistic has certain limitations, such as a smaller sample population, and currently has no official usage.

According to a factsheet for the bill, it would also increase the Special Minimum Benefit to 125% of the poverty line, “or over $18,000 for a single worker who had worked their full career.”

The bill would also increase the first income-percentage “bend point” from 90% to 95%. This means that, going forward, 95% of the first $1,115 in monthly wages (for 2023, indexed to inflation) would count toward Social Security benefits, up from 90%. This has the effect of frontloading benefit increases such that low-income workers benefit proportionally more from them.

Sanders’ office estimates that the annual Social Security benefit would increase on average by $2,400 a year.

The Senators propose the bill shortly after some Republicans during the State of the Union address called President Joe Biden  a “liar” for saying they were threatening to cut Social Security and Medicare to reduce the national debt. The risk of future retirees seeing reduced Social Security payments due to lack of funding has been a policy topic for years, with the Congressional Budget Office warning last December that the trust fund payments may be depleted by 2033, resulting in a 23% cut in planned benefit payments in 2034.

Tags: , ,

«