Inflation not seen in four decades is taking a bite out of American household finances. None feel this more acutely than those who receive Social Security benefits. The shortfall, however, is not new and has been growing over several decades.
At the same time though, if nothing is done in Congress, Social Security beneficiaries could see their monthly payments cut thirteen years from now. A proposal by Democrats would address the issue for the recipients of Social Security benefits with a $200 monthly boost, while shoring up the program for the next 75 years.
Without Congressional action Social Security benefits will be cut in 2035
Democratic Representative Peter DeFazio from Oregon and Independent Senator Bernie Sanders from Vermont introduced on 9 June the Social Security Expansion Act (SSEA). Earlier this month the Social Security Administration announced that the fund that pays for benefits will encounter shortfalls in 13 years if nothing is done to undergird the program. The bill would address the predicted shortfall that the Social Security Trust Fund will have starting in 2035, when the Social Security Administration will no longer be able to pay full benefits to recipients.
According to Martha Shedden, president of the National Association of Registered Social Security Analysts, if Congress doesn’t shore up Social Security, benefits would be cut by around 20 percent in thirteen years’ time. “Many, many seniors rely on Social Security for the majority, if not all, of their income,” she told CBS News.
Additionally, the bill would boost the monthly amount that recipients receive by $200, change the way benefits are indexed annually and put in place a mechanism to full fund the changes for the next three quarters of a century.
Social Security recipients could receive an extra $200 a month
In 2022, the average monthly Social Security check is about $1,658 which is indexed annually to inflation. That was an increase of $93 on average over the previous year after the cost-of-living adjustment (COLA) increase of 5.9 percent for this year was implemented. However, inflation has been running at a faster clip than when the 2022 COLA was set last year, 8.6 percent in May alone, the fastest increase since December 1981.
One of the measures in the SSEA would be to boost monthly benefits by $200 which would represent a 12 percent increase for the average recipient. The bill proposes raising the Special Minimum Benefit for the lowest income earners. Tracking with the annual federal poverty level, the minimum payment would be around 125 percent of the federal poverty line.
Changing how COLA is calculated would help Social Security benefits keep up with inflation
Additionally, the proposal would change how the COLA is calculated so that benefits more accurately keep pace with the expenses that seniors have. Instead of using the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), the legislation proposes basing the annual increase on the Consumer Price Index for the Elderly (CPI-E).
The Senior Citizens League estimates “that a senior who filed for Social Security with average benefits over thirty years ago would have received nearly $14,000 more in retirement if the CPI-E had been used.”
How would the increased Social Security benefits be paid for?
In order to pay for the increased benefits and at the same time shore up the Social Security program, the bill would apply the payroll tax that funds the program on all income above $250,000. Over 93 percent of households would not see their taxes go up the proposal states.
At present, Americans don’t have to pay additional taxes for Social Security on income above $147,000. The additional funding would keep the program solvent through 2096 according to the plans proposed.
What are the chances of the extra $200 a month for Social Security recipients passing Congress?
Currently, any legislation that gets to the Senate requires a de facto 60 vote majority to pass due to the filibuster unless the “budget reconciliation” process is used. Democratic Senators Joe Manchin from West Virginia and Kyrsten Sinema from Arizona have made their opposition to changing the filibuster known, so passing the legislation with a simple majority is unlikely.
Republicans have put forth their own proposals, however they would make cuts to Social Security or possibly do away with it all together. Republican Senator Rick Scott from Florida has presented 11-point platform, now 12, for the 2022 midterms which would sunset all federal legislation after five years. Which would mean Congress would have to reauthorize programs like Social Security and Medicare every half decade.
Senator Mitt Romney from Utah has proposed the Trust Act which would establish “congressional rescue committees to develop recommendations and legislation to improve critical social contract programs,” such as Social Security.