In Congress, an under-the-radar bill aims to make major changes to Social Security.
The bill, Social Security 2100 Act, was introduced by Connecticut Rep. John Larson. If passed, here’s what it would do:
No.1: Adjust the cost-of-living adjustment
First, section 102 of the proposed bill calls for a new metric to be used to compute annual inflation, which is commonly referred to as the cost-of-living adjustment, or COLA. As Social Security stands now, the annual COLA is determined by the movement in the Consumer Price Index as reported by the Bureau of Labor Statistics. In general, if the price of a basket of goods rises by 2% in a given year, then Social Security benefits will rise by a complementary amount. This helps protect beneficiaries from having their benefits eroded by inflation.The problem with the current method is that it takes into account all goods purchased by the entire population. Social Security, on the other hand, predominantly benefits the elderly. Therefore, Larson proposes that the COLA be calculated using another BLS statistic known as the Consumer Price Index for Elderly Consumers. Tying the COLA to the goods that matter to retirees would all but ensure that inflation wouldn’t erode monthly benefits.
No. 2: Boost Social Security payroll taxes
In order to generate enough tax revenue to pay out more than $850 billion in Social Security benefits each year, employers and employees are each responsible for paying a 6.2% payroll tax on income up to a maximum of $117,000 (as of 2014). Combined, this works out to a 12.4% tax.Under the proposed Social Security 2100 Act, beginning in 2018 and running through 2037, the Social Security tax would rise by 0.5% per year. In other words, the tax rate for employers and employees would increase from 6.2% in 2017 to 7.2% by 2037. This increase should help offset the tax revenue lost to retiring baby boomers while minimizing the shock of a temporary tax hike for existing workers and businesses.
No. 3: Increase the tax on the highest-earning individuals
Finally, the Social Security 2100 Act aims to put wealthy Americans on a similar tax footing to John and Jane Q. Public. Under the new proposal, wages in excess of $400,000 would be subject to a reduced payroll tax of 2%. This represents an attempt to get Americans to pay a more nearly equal percentage of their income into the program.
What are the chances of the bill gaining traction? ThinkAdvisor explains the politics:
Given the Republicans’ hold on both the House and Senate, Larson’s overall plan may not be politically viable. “It’s probably going to be difficult to get Republican support on six of the eight provisions – the ones which increase benefits or raise taxes,” said [Social Security Advisors co-founder] Allen. “They don’t generally like to push things through that a Democrat is proposing, and vice versa.” While the GOP may favor the idea of investing part of the Trust Fund, the bill has yet to gain any Republican co-sponsors.
You can read the bill for yourself here.
Photo by Tony Brooks via Flickr CC License
