The Social Security 2100 Act of 2023, a sweeping reform proposed earlier this year, seeks to address the program’s financial challenges by reinstating taxes on those 1.8 percent of earners who rake in more than $400,000.
Social Security currently stands at a crossroads. Without action and intervention, the Social Security Board of Trustees projects that by 2035, the program will be able to fund only 75 percent of scheduled benefits.
The Social Security 2100 Act of 2023, introduced by Democratic Representative John Larson in July, is a step to secure the future of America’s keystone retirement program and would come as the first enhancement to Social Security beneficiaries in 52 years.
The $400,000 Threshold
Under the current law, there is a cap on earnings subject to the Social Security payroll tax, which is $160,200 in 2023. Larson’s proposed legislation introduces a “donut hole” approach, maintaining a tax-free zone for wages between $160,200 and $400,000, considered upper class and 20 percent of the workforce. However, earnings above $400,000 would be taxed again, a move that targets high-earners while shielding lower classes from additional tax burdens.
For example, let’s say a person earns $1 million per year. For such earners, the initial $160,200 of their income would be taxed at 6.2 percent for Social Security, yielding $9,932.40. Income between $160,200 and $400,000 would fall into the so-called untaxed “donut hole,” while earnings exceeding $400,000 would be taxable again.
In that case, the amount from $400,000 to $1,000,000 would face the same 6.2 percent tax rate, adding $37,200 in Social Security taxes, bringing the individual’s total contribution to $47,132.40 for the year.
The Social Security 2100 Act, which has not made it to the House floor for a vote yet, is a multifaceted blueprint for the program’s enhancement. It includes a 2 percent benefit increase across the board, improved cost-of-living adjustments, extended student benefits, and the combination of the Old-Age and Survivors Insurance (OASI) and the Disability Insurance (DI) Trust Funds into a unified fund.
It would also raise the annual balance of Social Security by between 1 and 1.1 percent of the current law payroll from 2025 through 2034.
“While Republicans band together to dismantle the program, Democrats are making it clear they are coming together to both protect and expand Social Security,” Larson said in a press release when the bill was reintroduced in July.
Max Richtman, CEO of the National Association to Preserve Social Security and Medicare, championed the bill as a “commonsense plan” that ensures the wealthiest pay their share, which echoes President Biden’s sentiment of a “sacred trust” with American retirees.
However, the CEO said the bill is unlikely to see a House vote anytime soon, as Democrats and Republicans have the more pressing matter of a government shutdown at hand. Offering respite, Richtman said that Republicans “should have the courage of their convictions and bring Social Security 2100 up for a vote.”
Conversely, Alicia Munnell, former Assistant Secretary of the Treasury for Economic Policy, voiced concerns over the 2023 Act. In an October op-ed, she praised the 2019 bill’s sustainable mix of benefits and revenue but criticized the latest version for its short-term benefit boosts and aggressive revenue goals.
Munnell warned that making temporary increases permanent could significantly drain resources, and questions the linkage of payroll taxes to investment income, cautioning it may not align with the program’s long-term goals.
The former assistant secretary said that while addressing Social Security’s financial issues is critical, the approach should be strategic and sustainable. The allure of temporary benefit increases carries the risk of future financial strain, she said, as making them permanent would consume significant revenue meant to ensure the program’s solvency.
More than that, she critiqued Larson’s method of funding Social Security through investment income taxes, pointing to the importance of maintaining consistency with the program’s funding principles. She advocates for measures that support the long-term viability and reliability of Social Security, rather than short-term fixes that could lead to greater challenges.
The Social Security Office of the Chief Actuary’s July evaluation offered a counterpoint, however. If the provisions of Larson’s Social Security 2100 Act are enacted, the anticipated depletion date for the combined OASDI Trust Fund reserves would be extended from 2034 to 2066, according to the intermediate assumptions set forth in the 2023 Trustees Report.
Despite Munnell’s critiques, the bill has gained bipartisan support for raising the payroll tax cap, with politicians on both sides of the aisle calling for its passage.
No one should make more than the President. Everything over 400K should be taxed at 100 percent. Now there is a fair share for the socialist.
So here is a novel idea. Instead of giving billions of dollars to countries that hate us or just use us as their personal piggy bank, how about Congress propose a bill to fund the account for the money taken out and then put it in a fund that they can’t touch? Too easy I guess. These scumbags in governent positions should have their pensions revolked until it is fixed. Good luck with that!
Are there actually some people on Social security that are getting that much?
What would be wrong with cutting recipients such as students, illegal immigrants, and others who have never piad a red cent of social security taxes from distributions? It seems to me that social security was never meant to be welfare, which is certainly what it has become. But, I’m just wasting my breath…
I have a better idea let’s put the SS into a trust fund and write a new law that says the federal government can no longer use it for their own personal gain, let’s let it accrue interest for the benefits it was started for in the beginning of the twentieth century.