Financial and Retirement Planning Blog

What is the Social Security 2100 Act?

Democratic Congressman John B. Larson introduced the Social Security 2100 Act on January 30, 2019. The proposed legislation seeks to raise payroll taxes to keep Social Security solvent and expand benefits.

Payroll Tax Increases

Some say that Social Security is in crisis. The program has had a deficit every year since 2010. If Congress does not act, the Social Security Trust Fund is forecast to become insolvent by 2034. The Social Security 2100 Act would address that problem by raising the 12.4 percent payroll tax by 0.1 percent annually until the tax reaches 14.8 percent.

The bill increases payroll taxes in another way. Today, the Social Security payroll tax is levied on all earned income up to $132,900. The new legislation would subject earned income over $400,000 to the payroll tax. Initially, earned income between $132,900 to $400,000 would be exempt from the payroll tax. This exemption gradually would be phased out as long as the cost of living adjustment is going up. All of the bills combined tax increases are projected to keep the Social Security solvent for 75 years.

Benefits Expand

In addition to addressing the insolvency crisis, the other goal of the proposed bill is to expand Social Security benefits. The key measures to increase benefits follow.

• All recipients would see their benefits rise by about two percent.
  To accomplish this, the primary insurance amount factor would move from 90 percent to 93 percent starting in 2020.
• The cost of living adjustment would increase.
  Currently, the cost of living adjustment is calculated using the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). Although the Social Security cost of living adjustment has been tied to CPI-W since 1975, the index doesn’t reflect the spending habits of the Social Security’s primary demographic group, the elderly. The Social Security 2100 Act would base the cost of living adjustment on the Consumer Price Index for the Elderly, which takes into account that the elderly spend more in certain categories such as healthcare.
• The minimum benefit would increase.
  Today’s benefit is below the poverty level. Starting in 2020, the bill would raise the minimum benefit to reduce poverty among new retirees and the newly disabled.
• Federal income tax would be reduced or eliminated on Social Security benefits for select recipients.
  Currently, Social Security benefits are taxed if the recipient’s overall income reaches certain income tiers. For example, single tax filers who have an adjusted gross income (AGI) plus one half of benefits of greater than $25,000 can have up to 50 percent of their Social Security benefit taxed. However, at greater than $34,000 of AGI plus one half of benefits, up to 85 percent of Social Security benefits are taxed. The Social Security 2100 Act would simplify taxation by eliminating the tiers and create one income threshold for each taxpayer filing status. The new threshold is up to 85 percent of benefits are taxed for single filers with an AGI over $50,000 and an AGI over $100,000 for joint filers.

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