Social Security bill would give seniors an extra $2,400 a year. Here’s how it would work.

Seniors and other Social Security recipients in the U.S. are being hit hard by inflation, which has outpaced increases in their benefits this year. Some lawmakers now have a plan to increase Social Security payments by $ 2,400 per recipient annually, while financially supporting the program.

The Social Security Expansion Act was introduced Thursday by Oregon Democrat Peter DeFazio and Vermont Sen. Bernie Sanders. The plan comes after the Social Security Administration earlier this month dit Americans will stop receiving their full Social Security benefits in about 13 years without action to bolster the program.

Social Security beneficiaries receive a 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 decline as inflation outpaces its latest COLA increase of 5.9%. Inflation in May rose 8.6% from a year ago. a maximum of four decades which increased the cost of food, housing, energy and other commodities.

The new bill would seek to reduce pressure on people covered by Social Security by increasing each recipient’s monthly check by $ 200, an annual increase of $ 2,400.

“Many, many seniors depend on Social Security for most, 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 to many people.”

The average monthly Social Security check is about $ 1,658, so an increase of $ 200 would represent a 12% increase. The bill would also make several additional changes to the program, including strengthening program funding by applying Social Security payroll tax to all income in excess of $ 250,000. Currently, income in excess of $ 147,000 is not subject to Social Security tax.

While the bill is likely to face obstacles in Congress, lawmakers are likely to take steps to bolster Social Security given the potential deficit, which would result in a cut in monthly benefits by around $ 20 million. % from 2035, Shedden said.

“I’m sure changes will be made,” Shedden said. “I don’t know if this will be the bill that will be passed, but there is more and more movement.”

Here’s what you need to know about the Social Security Expansion Act.

An increase in profits: $ 200, plus COLA changes

Anyone who is a current Social Security beneficiary or turns 62 in 2023, the earliest age at which an individual can claim Social Security, would receive an additional $ 200 per monthly check.

There are some additional adjustments that would increase long-term benefits. One of the main changes would be to base the annual COLA on the Consumer Price Index for the Elderly (CPI-E), rather than the current index used by the Social Security Administration for its calculation: l Consumer Price Index for Urban and Clerical Employees (CPI-W).

The CPI-E more accurately reflects the spending patterns of the elderly, according to Social Security experts. For example, it gives more weight to health care costs, which can be considerable for the elderly.

Had the CPI-E been used to index the annual Social Security COLA, a senior who applied for Social Security benefits more than 30 years ago would have received about $ 14,000 more in retirement than compared to CPI-W, according to the elderly. League.

The bill would also increase benefits for the lower-income U.S., who receive benefits under a program called the Special Minimum Benefit. Under the law, it would be indexed to about 125% of the federal poverty line, or about $ 1,400 a month. In 2020, the special minimum benefit paid about $ 900 a month, according to the Social Security Administration.

More help for the children of deceased workers

Some people may not know that Social Security offers benefits to the children of disabled or dead workers if they are full-time students.

The legislation would increase the age of eligibility for students to receive benefits at age 22, as long as the individual is a full-time student at a university or vocational school. Currently, the program ends for the children of disabled or deceased workers when they reach the age of 19 or before that age if they are no longer a full-time student.

Lawmakers say extending this benefit would help ensure that children of disabled 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. Workers currently pay Social Security tax for their first $ 147,000 in income. By the way, most Americans earn less than that. But higher-income workers who earn more than $ 147,000 a year do not pay Social Security tax on any income above that level.

Under the bill, payroll tax would work again for people earning more than $ 250,000. According to DeFazio, only the top 7% of workers would see their taxes increase as a result.

However, there is a peculiarity about this agreement: it would create a “donut hole” in which revenues between $ 147,000 and $ 250,000 would not be subject to 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 distrust that,” he said. “Social Security was created to be based on contributions on income from work, and that mixes the basket of income from work and unearned income.”

Would these changes address the program’s funding shortfall?

Extending payroll tax would increase the Social Security Administration’s trust fund, ensuring its solvency until 2096, according to DeFazio.

Whether this bill goes ahead or not, raising payroll taxes is somehow seen as a way to ensure that current and future retirees do not lose benefits after 2035.

For example, the Congressional Research Service said in a 2021 report that “raising or removing the cap on taxable wages could reduce the long-term deficit of Social Security trust funds.”

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• Social Security Administration