Bad news usually gets more attention than good news does. That’s especially the case when the news is about Social Security, a program that millions of Americans depend on to help make ends meet every month.
There’s been plenty of bad news lately about Social Security lately. The Social Security Trustees recently released their 2022 report. It was no shock that they project that the program’s trust funds will run out of money by 2035. However, the possibility that seniors on Social Security could be in store for a 20% pay cut down the road wasn’t comforting.
But there just might be some good news, too. Could a $2,400 pay raise for Social Security recipients be on the way instead of a big pay cut?
U.S. Rep. Peter DeFazio (D-Ore.) and Senator Bernie Sanders (I-Vt.) introduced the Social Security Expansion Act (SSEA) in both houses of the U.S. Congress on June 9, 2022. This legislation seeks to keep Social Security solvent through 2096. But it goes beyond just keeping the program going.
The SSEA would boost benefits for current and new Social Security beneficiaries by $200 per month, or $2,400 per year. Individuals wouldn’t have to wait until their full retirement age under the bill, either. Anyone who turns 62 would be eligible for the increase.
In addition, DeFazio and Sanders want to increase Social Security’s cost-of-living adjustments (COLAs). They propose changing the formula used to calculate COLA amounts by using the Consumer Price Index for the Elderly (CPI-E), which factors in seniors’ healthcare costs.
The average Social Security check for retired workers was $1,666 as of April 2022. An extra $200 per month would reflect a 12% increase to this amount.
Footing the bill
Where would the money come from to pay for the additional costs of the SSEA? Wealthier Americans would foot the bill.
Currently, Social Security taxes are paid only on the first $147,000 of earnings. DeFazio and Sanders want to change this. Their bill would also apply the tax on any income of more than $250,000. A fact sheet on the proposed legislation stated that “over 93% of households would not see their taxes go up by one penny.”
One key thing to note about the bill is that it leaves a “doughnut hole” in place. Any income between $147,000 and $250,000 would not be subject to Social Security taxes.
Also, Social Security taxes are currently only applied to income earned from working. However, the SSEA would extend the tax to investment and business income.
Assessing the prospects
The proposed bill has already picked up a long list of co-sponsors in the U.S. House of Representatives. More than 40 organizations have also come out in support of the SSEA. They include the AFL-CIO, Alliance for Retired Americans, American Federation of Teachers, and the National Organization for Women.
It seems likely that the SSEA could win enough votes to pass in the U.S. House of Representatives — at least right now. The Senate, on the other hand, presents a much more difficult challenge.
The prospects for passage of major Social Security reform could become even more difficult after the November elections. However, political leaders will likely feel the pressure to bolster the federal program at some point, even if benefit increases aren’t in the mix.
In an interview with CBS News, Martha Shedden, president of the National Association of Registered Social Security Analysts, stated, “I’m confident changes will be made.” Shedden added, “I don’t know if this is the bill that will pass, but there is more and more movement on it.”
The bad news is that the promise of a $2,400 pay raise for Social Security recipients could be nothing but a mirage. The good news is that the significant cuts in the future many are worried about might not materialize either.
The $18,984 Social Security bonus most retirees completely overlook
If you’re like most Americans, you’re a few years (or more) behind on your retirement savings. But a handful of little-known “Social Security secrets” could help ensure a boost in your retirement income. For example: one easy trick could pay you as much as $18,984 more… each year! Once you learn how to maximize your Social Security benefits, we think you could retire confidently with the peace of mind we’re all after. Simply click here to discover how to learn more about these strategies.
The Motley Fool has a disclosure policy.