John Larson, the Chair of the House Social Security Subcommittee, has been pushing the Social Security 2100 Act. Now comes word that he's planning a hearing on the bill next month and a markup in September. This doesn't guarantee that the bill will proceed to markup before the full Ways and Means Committee much less that it will get a vote on the House floor but it's a sign that the bill is moving forward. Of course, the bill won't get a vote in the Senate in this Congress. This is about setting the stage for what happens after the 2020 election if Democrats control both Houses of Congress plus the White House. Of course, that's a big "if" but this bill would be hugely important if that "if" comes to pass.
Here are the major provisions of the Social Security 2100 Act:
- Benefit bump for current and new beneficiaries – Provides an increase for all beneficiaries that is the equivalent of 2% of the average benefit. The United States faces a retirement crisis and a modest boost in Social Security benefits strengthens the one leg of the retirement system that that is universal and the most reliable. [Sec. 101]
- Protection against inflation – Improves the annual cost of living adjustment (COLA) formula to better reflect the costs incurred by seniors through adopting a CPI-E formula. This provision will help seniors who spend a greater portion of their income on health care and other necessities. Improved inflation protection will especially help older retirees and widows who are more likely to rely on Social Security benefits as they age. [Sec. 102]
- Protect low income workers – No one who paid into the system over a lifetime should retire into poverty. The new minimum benefit will be set at 25% above the poverty line and would be tied to wage levels to ensure that the minimum benefit does not fall behind. [Sec. 103]
- Cut taxes for beneficiaries – Over 12 million Social Security recipients would see a tax cut[ii]. Presently, your Social Security benefits are taxed if you have non-Social Security income exceeding $25,000 for an individual or $32,000 for couples. This would raise that threshold to $50,000 and $100,000 respectively. [Sec. 104]
- Holding SSI, Medicaid, and CHIP Beneficiaries Harmless – Ensures that any increase in benefits from the bill do not result in a reduction in SSI benefits or loss of eligibility for Medicaid or CHIP. [Sec. 105]
- Have millionaires and billionaires pay the same rate as everyone else – Presently, payroll taxes are not collected on wages over $132,900. This legislation would apply the payroll tax to wages above $400,000. This provision would only affect the top 0.4% of wage earners. [Sec. 201, 202]
- 50 cents per week to keep the system solvent – Gradually phase in an increase in the contribution rate beginning in 2020 so that by 2043, workers and employers would pay 7.4% instead of 6.2% today. For the average worker this would mean paying an additional 50 cents per week every year to keep the system solvent. [Sec. 203]
- Social Security Trust Fund Established – Social Security provides all-in-one retirement, survivor, and disability benefits funded through the dedicated FICA contribution paid by workers. There are technically two trust funds, Old-Age and Survivors (OASI) and Disability Insurance (DI), and that are usually referred to as the Social Security Trust Fund. This provision combines the OASI & DI trust funds into one Social Security Trust Fund, to ensure that all benefits will be paid. [Sec. 204]
The tax cut point is incorrect where it says "your Social Security benefits are taxed if you have non-Social Security income exceeding $25,000 for an individual.." Part of your Social Security benefits are taxable (up to half) if your non-Social Security taxable income *plus half your Social Security benefits* exceed $25,000, and if this exceeds $34,000, up to 85% of benefits can be taxed. These thresholds are not adjusted for inflation, so more Social Security benefits are taxable every year inflation goes up.
ReplyDeleteNot all "millionaires and billionaires" have any earned income let alone earned income over $132,900. And some people who earn $400,000 are worth a million, let alone a billion. Wealth and income are not the same thing. OASDI and Medicare taxes are only paid on wages or self-employment. Millionaires and billionares may not be paying any OASDI taxes at all. So the title is false. But it sure makes a good soundbite.
ReplyDeleteI agree with raising the cap on contributions, but it will also result in an increase in PIA's. Would be interesting to see an analysis of that. But it has nothing to do with taking money away from millionaires and billionaires. High wage workers yes, but that is not the same group.
Section 202 does create a AIME calculation for the excess wages and that does seem to change the PIA, but I couldn't use the Actuary's charts to get a firm grasp on it. If there is a benefit bump (albeit smaller than "normal" using these new rules) I suppose this is to recognize that the FICA tax on these higher wages isn't confiscation with no benefit impact. There is something in return, just less than "normal". It's also unclear on how COLA applies to it and how a DRC situation would be calculated, and it would make a difference if this new amount was built into "the base" for COLA and DRC or if it were simply added on as an additional amount at the end of an otherwise normal calculation. Interested in those aspects of it.
ReplyDeleteIt is not that wealthy people will pay now -- like they never did before. It is that all earned income will now pay the same FICA. I am sure that rich people will still dividend and off-shore income and convert to perk-income; but the program for workers will ostensibly be less unfair.
ReplyDeleteI would simply eliminate the earnings cap and avoid a new donut hole. Yes, for a select few, this could result in a very large PIA and potentially, at least, a very large benefit, particularly if a person who earns over a Million dollars per year were to become disabled. I am thinking specifically about a football player who suffers a devastating injury that leaves them unable to work at any job. I would have no real problem if that resulted in a large benefit of $10,000 per month or even more, but if that was an issue for some, there could be an overall benefit cap set of say $5,000 per month indexed for inflation, which is well more than the current maximum possible payment with capped earnings.
ReplyDeleteAs to the commenter that pointed out that earnings over $400,000 does not necessarily mean a person is a millionaire, that is absolutely correct. It is also true that many millionaires/billionaires receive earnings from sources not now subject to FICA and would not necessarily be paying increased taxes. You could, of course, subject all earnings including otherwise tax exempt earnings to FICA at the same or lower rate, or simply accept that only wages and self employment income is subject to FICA as we have now.
There could be other tweaks as well, but overall, passage of this bill would be a landmark achievement putting to bed forever Republican claims of unfunded liabilities from Social Security payments. Social Security solvency would be assured for the 75 year maximum period of estimation as well as for any foreseeable period thereafter.
Re "No one who paid into the system over a lifetime should retire into poverty." If their SSA benefit is so low, it's because they worked at very low paying jobs or didn't work very much. People in that boat already get 90% of the first bend point in their AIME comps and now we are to give them more?
ReplyDeleteNot sure what poverty guideline is now but one place I looked up it was over $1000 per month for an individual and that was 2017.
"The new minimum benefit will be set at 25% above the poverty line and would be tied to wage levels to ensure that the minimum benefit does not fall behind."
Now we are to pay these low earners $1250 or more a month. That's just a couple of hundred bucks less than the average benefit for people who actually worked more and made more money. If someone's SSA is very low, they can file for SSI if they don't have other income and are under the asset limit.
It's counter-intuitive to pay people who made very little close to what others made that worked longer and at much higher paying jobs.
To limit very high wage earners from receiving super high monthly benefits, add another bend point and pay 1% or less for that income in the AIME comp.
@3:47
ReplyDeleteFederal Poverty Level is $12,490/year for 2019 for an individual, so setting benefit at at 125% FPL would be $15,612.50/year or $1,301.04/month. The average monthly benefit for 2018 was $1,422/month.
As to whether "we" are to pay "low earners $1250 or more a month," no. Even assuming the worker earned the bare minimum to qualify, they would need to have 40 quarters of wages which would result in a benefit amount of roughly $450/month, so "we" would only be paying the worker roughly $850/month in a worst-case scenario. And, as you said, SSI might be available, meaning about $350/month would already be covered under that program, so roughly $500/month in the end would be paid by society in general.
As to it being "counter-intuitive" to pay people who made very little close to what others made that worked longer or were paid more, not really. The system already has built in bendpoints which, by design, reduces the benefit amount proportional to the amount paid into the system increases. So this would pretty much just be an extension of that.
Finally, as to your suggestion that a 4th bend point should be added for particularly high amounts paid in, sure. Why not?
@4:46 Social Security computations do indeed favor those with lower wages and you want to give these people an additional $850 a month for life?? Not all of these folks worked at McDonalds. Many have been self employed and living a very nice lifestyle while under reporting their earnings for years and the remedy for that is not a low SSA benefit but the same as the person who worked for an employer and didn't have the option to misrepresent their earnings?
ReplyDeleteSocial Security enjoys quite a bit of support because it is reasonably fair in how it pays benefits. Turn it into a welfare program and the support will fade. I know I wouldn't be happy with someone receiving the same amount as me if they goofed off, under reported their earnings, etc their whole life.
@2:23
ReplyDelete4:46 here. Yeah, I might be odd but an extra $850 per month for a few years doesn't really upset me. The system already provides proportionally higher benefits to lower wages, as you acknowledge. I believe that's a strength of the system, not a weakness. It makes sure those who are most in need of financial support receives the benefits.
In regard to those who have a low PIA due to underreporting self employed earnings and living a very nice lifestyle, that seems like an issue which enforcement of tax obligations would address, which I also support. As to people working for an employer and not having the "option" to misrepresent their earnings, I wouldn't consider tax fraud an "option," at least not one without severe consequences. I do not regret not being self-employed so that I could have an "option" to commit a crime. Again, I might be odd though.
As to you being unhappy with someone receiving the same amount as you who "goofed off" their entire lives, two issues; 1, I'm unclear why you believe earnings are relevant to "goofing off." High earnings are generally a result of wages, which in turn are a result of workforce scarcity, not a result of the worker not "goofing off." 2, it's anecdotal, but I've never seen any indication that the average worker would prefer to remain impoverished, rather than stop "goofing off." My personal observations are that work ethic is pretty much across the spectrum of society, rather high. Again, it's anecdotal and I might just be weird.
@333PM
ReplyDelete$850 is only for a few years. Some people collect Social Security retirement for 30 or more years. In my world that's more than just a little bit of extra money.
Re SEI underreporting--let me rephrase that and say that some IRS rules can be either generous or easily bent to allow quite a few writeoffs. Paying oneself rent for a business may not substantially reduce one's reported income (or may for all I know) but it can cut down on paying Social Security tax. I have talked to a substantial number of self employed folks and seen their reported self employment income and it's not unusual for someone with pretty low earnings to be living a life that seems as odds with low earnings for decades. On the other hand, I see quite a few who report $8-13K in self employment yearly to fraudulently claim the earned income tax credit.
Re goofing off--maybe I have run across a larger segment of folks that are not very motivated to work. Maybe less goofing off than poor lifestyle choices that result in little earnings and little work and little motivation to change.
My impressions are just anecdotal but I have taken and processed about 30-35K retirement, medicare, survivors and disability (both titles) in the past.