Social Security Expansion Act?

[thaneschaffer]

I don't see any discussions about this bill introduced by senators Warren and Sanders?  Where is the review and input (support or commendation) by AARP???

[fffred]

My wife's family lives in Canada and I am familiar with their retirement system to some extent. I have mentioned before that their system might be considered as a possible model for the US.

Canada's retirement system consists of 3 government benefits, with different sources of income (they also have savings plans similar to IRAs, etc)

CPP - Canada Pension Plan - funded by payroll tax deductions on worker and employer. Benefits are paid from this plan, not from general tax revenue. So this is very much like our Social Security. The tax rate is a bit less than Social Security's.

OAS - Old Age Supplement - funded by general revenues and is paid to most retirees who collect CPP.

GIS - Guaranteed Income Supplement - funded by general revenues and is disbursed to assure a minimum income for retirees. This is like our SSI - Supplemental Security Income, which is a welfare plan administered by the Social Security Administration and paid for by general tax revenue. And people seem to continually confuse/conflate the two programs.

Canada seems to permit taking benefits earlier than does the US. The flip side is that the overall benefits don't seem to be particularly high, this is my own idle observation without having really studied it in depth, other than for the specific cases of family members.

I like the concept of this three-tiered program with benefits coming from different sources. I would not want to see wholesale changes to our existing Social Security plan. I think that simply adding something like the Canadian GIS, Guaranteed Income Supplement (which is income-tested, though not means-tested), would go a long way to benefit the US retirees.

[GailL1]

@fffred 

That's a really interesting concept .  After I get my taxes done 😛 - I think I will do more research on how these three systems work together.

Thanks for the incite. 

[GailL1]

I think if a person pays into the system, they deserve to get a benefit from it regardless of how progressive the formula might be.

I think that by taxing UNEARNED income for purposes of SS contributions that there will be unintended consequences for even lower income people.  Also if these UNearned income streams continue into retirement will they have to continue to pay SS contributions.

I don't think most people understand how the SS system even works - so it is very hard to discuss any proposal.  Seems the only thing of priority that most people, especially those over about 50 years old, want to discuss is WHAT DO I GET - doesn't matter how so much.

Now if anybody wants to discuss this newest proposal - I'm game.

SSA - Social Security Expansion Act PROPOSAL

Here are the points of change:

The proposal includes nine provisions with direct effects on the OASDI program -

• Section 2. Increase the first primary insurance amount (PIA) bend point above the current law level, and increase the first PIA factor from 90 to 95, for all OASDI benefits payable based on eligibility for January 2023 and thereafter. Increase the first PIA bend point by 22 percent for benefits payable for eligibility in 2023 and later, regardless of when any beneficiary became initially eligible. Increase the first PIA factor by 5 percentage points, fora PIA factor of 95 percent for benefit eligibility in 2023 and later.

• Section 3. Use the increase in the Consumer Price Index for the Elderly (CPI-E) rather than
  the increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers
  (CPI-W) to calculate the cost-of-living adjustment (COLA), effective for December 2024 and
  later COLAs. We assume this change would increase the COLA by an average of 0.2
  percentage point per year.

• Section 4. Increase the special minimum PIA for workers who become newly eligible for
  retirement or disability benefits or die in 2023 or later. For workers becoming newly eligible
  or dying in 2023, the minimum initial PIA for workers with 30 or more years of coverage
  (YOCs) is 125 percent of the annual poverty guideline for a single individual, as published
  by the Department of Health and Human Services for 2022, divided by 12. For workers
  becoming newly eligible or dying after 2023, the minimum initial PIA increases by the
  growth in the national average wage index (AWI).

• Section 5. Continue benefits for children of disabled, or deceased workers until they attain
  age 22 if the child is in high school, college, or vocational school, beginning in 2023.

• Sections 6 and 7. Apply the combined OASDI payroll tax rate on earnings above $250,000,
  effective for 2023 and later. Tax all earnings once the current-law taxable maximum exceeds $250,000. Do not credit the additional taxed earnings for benefit purposes

• Section 8a. Apply a separate 12.4-percent tax on investment income as defined in the
  Affordable Care Act (ACA), payable to the OASI and DI Trust Funds with unindexed
  thresholds as in the ACA, effective for 2023 and later. The ACA thresholds are $200,000 for
  a single filer and $250,000 for a married couple filing jointly. Under this provision, there is
  no limit on the amount taxed.

• Section 8b. Apply a 16.2-percent net investment income (NII) tax on active S-corporation
  holders and active limited partners, effective for 2023 and later. Of the total 16.2 percent
  tax, 12.4 percentage points would be payable to the OASI and DI Trust Funds, and 3.8
  percentage points would be payable to the General Fund of the Treasury.

• Section 9. Combine the current separate Old-Age and Survivors Insurance (OASI) and
  Disability Insurance (DI) Trust Funds into a single Social Security Trust Fund, effective
  January 1, 2023.

[roachme]

You're right, Gail.  Most people only care what they will get out of the bills.  Personally, I think this one is more harmful than H.R.5723 - Social Security 2100: A Sacred Trust.  The SS 2100 ups the first break point calculation to 93% and taxes wage income over $400K.  All of the added taxes in both proposals will increase the National Debt because the taxes far exceed the benefits paid.  I used the SS wages and formula and found most new benefits would go up 5-8% but I couldn't tell what the exact increase due to Sec. 4 would be.

Looking at the sections:

Section. 2.  If the goal was to increase low benefit payments, it does it.  But the section also increases everyone's benefit, even upper benefits.  Upper earners at FRA would receive about a 8% increase, somewhere in the $300-400 per month.  The average cost increase to SS would be about 8%, or $103 Billion a year because lower earners could see a 10-11% increase.

Sec. 3.  The CPI-E isn't always the better COLA reference.  For 2022 the COLA would have been 1.1% less, which translates to a 18.6% lower COLA than was received.  Right now using the COLA formula on the May 2021-May 2022 index, the CPI-E is running 1.4% less than the CPI-W.  But in the 40 years of the CPI-E, it does work out to a 3.0% annual COLA versus the 2.8% using the CPI-W.  That's a 4.1% total extra benefit spread over 20 years of payments.  Extra cost: $50 Billion per year

Sec. 4.  That formula would make the minimum 2022 benefit be $1415/mo.  That's close to the median benefit (not the average or mean) so if the Sec. 2 & 3 doesn't raise a benefit to this much, Sec. 4 will.  My best guess would be 20 million beneficiaries would get an additional increase.  Maybe a $2 Billion cost increase per year?

Sec. 5.  Extra 4 years may add cost of a couple of billion dollars a year to roughly a $15 Billion a year cost.

Sec 6 & 7.  This additional tax would provide income of about $500-700 Billion a year to SS.  Way in excess of the new costs in both proposed changes.  That means the excess goes to buying bonds and transferring those funds to the General Fund for Congress to spend.  And increasing the National Debt by $2 Trillion over 10 years.

Sec. 8a.  This could include FICA taxing the sale of a house or retirement savings withdrawn from a non-IRA account.  I only found an exclusion for Roth IRA in my ACA investment income research.  This could result in hundreds of billions in taxes a year at 12.4% which on top of other excess income gets fed through bonds to the General Fund to Congress and increasing the National Debt trillions more.

Sec. 8b.  More excess funds, more for Congress to spend, and more National Debt.

Sec. 9.  Looking at the SS Trust Fund OASI and DI funds, the current drop in DI claims would help the OASI fund but I don't see much to be gained by combining the funds other than a possible reduction in administrative costs.

[MargaretH372397]

04-15-2023

Social Security is VITAL FOR MANY SENIORS WHO RELY SOLELY UPON THIS AS THEIR ONLY SOURCE OF INCOME.

I worked two jobs since 1996 to receive the benefits I now have - this caused me to also go on disability status until I retired (when I could no longer find employment).

Margaret Hyer 

[fffred]

@MargaretH372397 

I understand your concern that Social Security is vital for many recipients. It's vital for me, it's long been considered as a fundamental component of my retirement income. And I understand that for many seniors it may be almost their only source of income, giving more weight to the word "vital".

I also understand (and understood even as a youngster in the 1950's) that Social Security was never intended to be the sole support for retired persons. It was "one leg of a three-legged stool", the other two legs being a company pension and personal savings. Though nowadays I wonder how many workers of older generations were able to get those company pensions, I'm thinking "not that many", but that's a digression. I wonder why so many people "got the message" about Social Security being just one leg while others didn't. I do understand that for many people just slogging through life and paying bills is a trial, let alone having private savings for retirement. But the point still stands. And it's important, or relevant, to understand that Social Security retirement benefits are canted towards the lower income retirees, see discussion in paragraph below that the benefits are mathematically regressive

So we're left with the fact that Social Security (the "OASDI" that shows up on most people's payrolls: Old Age, Survivors, and Disability Insurance) was (1) not intended to be the sole income for those retired, and (2) was intended to be self-funding system, meaning it was not funded by income taxes and general revenue, but was funded by only the OASDI taxes on workers and employers.

Also factual is that many workers aren't saving sufficiently for their retirement (they either can't or won't) and there is a "pinch point" where income for the OASDI program may not be sufficient to pay for the intended benefits. This is due in part to there being fewer workers per retired person these days and promised benefits have gone up.

One thing to remember or understand is that the OASDI retirement benefits are "regressive" in that lower income workers will receive a (much) greater proportion of the income of their working years than will those workers who had higher incomes, thus the benefits "regress" for the higher income retirees. This is the opposite of our "progressive" income tax system where the tax rate(s) increases as income increases. In any case, the SS formulas are already kindly to lower income workers.

Certainly something needs to be done. And I suspect that it will mean belt-tightening for many people...workers and retirees alike. The tax burden can't fall entirely on current workers...if so, then how do they save up for their own other two legs (that company pension leg has mostly been supplanted by 401(K) plans and similar...some of them even without a company match!).

[GailL1]

The Social Security 2100: A Sacred Trust - also had another BIG, GIANT FLAW - the added benefits that it was giving, sunset after (5) years - LOL - talk about cooking the books.

Within this most recent proposal - The Social Security Expansion Act Proposal - I agree with what the SS Actuary said in their analysis concerning Sections 6 & 7:

Per the Actuary on page 7

  https://www.ssa.gov/OACT/solvency/SandersDeFazio_20220609.pdf 

In response to the application of the OASDI payroll tax to covered earnings above $250,000 for 2023 and later, we assume employers and employees will redistribute total employee compensation among taxes, wages, and other compensation. This behavioral response is projected to reduce somewhat both the payroll tax revenue and the scheduled benefits that would accrue in the absence of this behavioral response.

Now think about that - employers will be looking for ways to cut their losses here - so what might they do - remove employee benefits like employer health coverage, less hiring, caps on wages.

This provision alone will, IMO, drastically change employment in our society for the generations that will come afterwards.

You know I have always had the belief that if one wants more - they have to pay more.  This "expansion" proposal does nothing to cure the ratio between contributions and benefits for the vast majority of the middle to lower income earners.  We all know that the price of everything rises with time - so somewhere down the road, in less than 75 years, there will be another demand for MORE benefits - 

I wonder how those current beneficiaries that WANT MORE would think about having to raise payroll taxes on their kids and their families to get them MORE.

I think we might come out better just making the whole system a welfare program and just put the (looking forward) contributions into the General Fund and dishing it out according to some needs-based formula.  In essense, that is what these Sections (6 & 7) of the Expansion proposal is doing when it talks about selectively taxing more income levels but NOT giving any benefit - regardless of how progressive the benefits formula.

Most folks don't even understand the reasoning for the payroll cap that we currently have - IT RELATES TO THE HIGHEST BENEFIT PAID OUT.  

Neither do they understand the difference in a SS benefit and SSI.  

[sktn77a]

And, perhaps sadly, it'll never get off the ground.

"I don't see any discussions about this bill introduced by senators Warren and Sanders? "

[GailL1]

Senator Sanders resubmitted it in Feb. 2023

The Social Security Actuaries have done an analysis on it - 

SSA.gov - Office of the Chief Actuary's Estimates of Proposals to Change the Social Security Program...

If you click on the PDF version link, it will take you to the actual analysis of this plan in detail by the SS Actuary

I didn’t see much different - it still gives NO benefit for added contributions - that’s the only way it seems to work when trying to give MORE benefits to some people and try to correct the financial problems of the program over the long haul.  

Seems to me they should fix it under current law/rules and then if they want to add more benefits to some, they could just figure out where the money has to come from to give these new benefits or higher benefits.

February 13, 2023

Bernie Sanders

Estimate of the Financial Effects on Social Security of the "Social Security Expansion Act," introduced on February 13, 2023 by Senator Bernie Sanders (PDF version)