During discussions with clients, one could say I’m quite fond of dismissing Congress’s ability to enact and apply real fixes to the Social Security Retirement fund insolvency problem. That is, it’s been known for many years (decades actually) that the Social Security Trust Fund is projected to be fully depleted by 2034 without congressional action to remedy. If the trust fund were to actually be depleted, SS Retirement recipients would receive the equivalent of whatever SS tax revenue is collected, which equates to about a 25% reduction in payments. Not a good scenario for millions of retirees, many of whom rely solely on these benefits as their only source of recurring income.
So, you can imagine how happy I was to see that after a long dry spell of Congress pretty much ignoring Social Security despite repeated annual calls by the trustees to pass legislation to restore solvency to the system, there has been a flurry of new bills in the House. On October 26, 2021, Rep. Al Lawson (D-FL) introduced H.R. 5737, Social Security for Future Generations Act of 2021. Like many such bills, it may or may not (ever) come up for a vote in Congress, but we’re very hopeful!
This proposal calls for earnings above $250,000 to be subject to Social Security tax. As the maximum taxable wage base ($147,000 in 2022) rises with inflation in the years ahead, it is expected to reach $250,000 in 2037. At that point all wages would be subject to Social Security taxes. This would have a fairly major effect on restoring solvency.
Other provisions of the bill that are relevant to Social Security retirement recipients include:
Changing the index used for the COLA to the CPI-E from the CPI-W - (this is good for SS retirement recipients because the CPI-W is tied to urban wages which typically have a higher rate of inflation than the CPI-E, which ties into the traditional “basket of goods”.)
Extending dependent benefits to age 23 if the child is a full-time student
Establishing an alternative benefit for surviving spouses of 75% of their joint benefits as a couple. This one could be significant. As it stands now, surviving spouses get 100% of only the higher earning person, while the lower earning spouse’s benefit is completely eliminated. For example, if the total household Social Security benefit equals $4,000 per month, where each spouse earned $2000 per month in Social Security, under the current plan when one spouse dies, the household sees a $2000 reduction. Under the new plan (should the bill pass), the total household benefit would be reduced by 75%, so the remaining Social Security benefit would be $3000 per month (quite a large increase!).
Importantly, Social Security actuaries have determined that this bill, if passed, would extend the trust fund depletion date by ten years, to 2044. What this bill does not include are the sunset provisions proposed by John Larson in his Social Security 2100: A Sacred Trust bill, which would have extended the depletion date by just four years.
The bill has been referred to the Ways and Means Committee. Again I need to reiterate from above: “Like many such bills, it may or may not (ever) come up for a vote in Congress, but we’re very hopeful!”
