Inflation not seen in four decades is taking a toll on American domestic finances. None feel this more acutely than those who receive Social Security benefits. The deficit, however, is not new and has been growing for several decades.
At the same time, however, if nothing is done in Congress, Social Security beneficiaries could see their monthly payments cut thirteen years from now. A proposal by the Democrats would address the issue for Social Security benefit recipients with a monthly increase of $200, while also bolstering the program for the next 75 years.
Without Congressional Action Pension benefits will be cut in 2035
Democratic Representative Peter DeFazio of Oregon and Independent Senator Bernie Sanders of Vermont introduced the Social Security Expansion Act (SSEA) on June 9. Earlier this month, the Social Security Administration announced that the fund that pays the benefits will run into deficits in 13 years if nothing is done to sustain the program. The project would address the projected deficit that the Social Security Trust Fund will have from 2035, when the Social Security Administration will no longer be able to pay full benefits to beneficiaries.
According to Martha Shedden, president of the National Association of Registered Social Security Analysts, if Congress does not strengthen Social Security, benefits would be reduced by about 20% over thirteen years. “Many, many seniors rely on Social Security for most, if not all, of their income,” she told CBS News.
Additionally, the bill would increase the monthly amount recipients receive by $200, change the way benefits are indexed annually and implement a mechanism to fully fund changes for the next three-quarters of a century.
Social Security recipients can receive an extra $200 a month
In 2022, the average monthly Social Security check is about $1,658, which is indexed annually for inflation. This was an increase of $93 on average over the previous year after implementing the 5.9% cost of living adjustment (COLA) for this year. Nonetheless, inflation is running at a faster pace than when COLA 2022 was set last year, 8.6% in May alone, the fastest increase since December 1981.
One of the SSEA measures would be to increase monthly benefits by US$ 200 which would represent a 12% increase for the average recipient. The bill proposes raising the Special Minimum Benefit for those with lower incomes. Tracking the annual federal poverty level, the minimum payment would be about 125% of the federal poverty line.
Changing the way COLA is calculated would help Social Security benefits keep up with inflation
Additionally, the proposal would change the way COLA is calculated so that benefits more accurately track the expenses that older people have. Instead of using the Consumer Price Index of Urban Salaried and Office Workers (CPI-W), the legislation proposes to base the annual increase on the Consumer Price Index of the Elderly (CPI-E).
The Elderly Citizens League estimates “that an elderly person who applied for Social Security with average benefits over thirty years ago would have received nearly $14,000 more at retirement if the IPC-E had been used”.
How would increased Social Security benefits be paid?
To pay the increase in benefits and, at the same time, strengthen the Social Security program, the bill would apply the payroll tax that funds the program to all income above $250,000. More than 93% of households would not see their taxes rise in the proposed states.
Currently, Americans do not have to pay additional Social Security taxes on income over $147,000. The additional funding would keep the program solvent until 2096, according to the plan proponents.
What are the odds of the extra $200 a month for Social Security recipients getting passed Congress?
At the moment, any legislation reaching the Senate requires a de facto majority of 60 votes to pass due to obstruction unless the “budget reconciliation” process is used. Democratic Senators Joe Manchin of West Virginia and Kyrsten Sinema of Arizona both voiced their opposition to the obstruction change, therefore, passing legislation with a simple majority is unlikely.
Republicans put forward their own proposals, however, they would cut Social Security or possibly end it all together. Republican Senator Rick Scott of Florida presented an 11-point, now 12-point platform for the 2022 midterm election, which would end all federal legislation after five years. Which would mean that Congress would have to reauthorize programs like Social Security and Medicare every half-decade.
Senator Mitt Romney of Utah proposed the Trust Act that establish “Congress rescue committees to develop recommendations and legislation to improve critical social contract programs,” such as Social Security.