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New Bill Won’t Save Social Security

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What You Need to Know

  • The bill would only delay benefit cuts by four years.
  • While most of the bill's provisions only last five years, the payroll tax expansion would be permanent.
  • Congress should focus on paying the benefits it's already promised before expanding benefits, a former SSA official says.

The new bill put forward by Rep. John B. Larson, D-Conn. — called Social Security 2100: A Sacred Trust — aims to begin addressing the program’s impending funding crisis. The legislation, an updated version of the Social Security 2100 Act, increases funding by raising taxes on high earners to pay for a temporary expansion of the current system. 

The bill only delays benefit cuts for four years, from 2034 to 2038. While it’s an opening salvo in the Social Security funding debate, it doesn’t solve the trust funds’ long-term solvency problem.

What’s in the New Social Security 2100 Bill?

Some of the proposed changes appear to be aimed at building public support, including a 2% increase in real benefits (above the 5.9% cost-of-living adjustment in 2022) and a minimum benefit set 25% above the poverty line for Social Security beneficiaries who have worked at least 30 years.

Additional proposed benefit changes include expanding benefits for public-sector workers and increasing benefits for surviving spouses and dependents.

Proposed changes include substituting the Consumer Price Index for the Elderly, developed to capture costs paid by older consumers, for the Consumer Price Index for Urban Wage Earners and Clerical Workers when calculating annual COLAs. The CPI-E has recently outpaced the CPI-W by about 0.2% per year, according the American Enterprise Institute.

Other changes increase the minimum benefit to 25% above the poverty line, which will mainly increase income for workers who did not consistently participate in the labor market. 

Widows and widowers would receive a minimum of 75% of the combined Social Security benefits of both spouses. This would increase benefits for dual-income couples, particularly those with more equal earnings histories.

If each spouse earned $1,000, they would receive a 50% increase in benefits (75% of the $2,000 combined benefit) under the proposal. The bill would also increase benefits for public-sector workers who may have contributed to Social Security for a limited number of years.

Payroll Tax Expansion

The bill proposes an expansion of the payroll tax to eliminate the income limit (currently $142,800) while also conforming to the Biden administration promise not to increase taxes of workers earning less than $400,000. 

Workers earning more than $400,000 will be subject to an additional 12.4% tax (6.2% paid by the employer). The gap between the existing threshold and the $400,000 limit creates a Social Security “donut hole” that would sharply increase marginal tax rates for higher earners.

What the Policy Wonks Say

Andrew G. Biggs, a senior fellow at the American Enterprise Institute and a former principal deputy commissioner of the Social Security Administration, sees the bill as an opening salvo in the inevitable political clash over how to address funding Social Security to avoid a significant drop in benefits in 2034.

He sees the proposed changes as a mix of relatively inexpensive improvements with largely bipartisan support with a benefit increase that lasts only five years and a funding increase that only delays benefit cuts by four years to 2038.

“The proposal has been around since 2014,” he says. “The original version of it fixed Social Security finances for 75 years. They don’t have enough tax revenues to fix the system. The cost of the new benefits is so high that he only includes it for a few years and then assumes the benefits go away. It’s an increasingly implausible approach to addressing the funding gap.”

Because the Social Security income threshold is adjusted each year for inflation, the donut hole between the original and the new $400,000 income payroll tax threshold will shrink over time. Raising payroll taxes from higher-income workers won’t raise enough revenue to keep Social Security solvent beyond 2038. While 12 of the 13 provisions only last for five years, the tax increase is permanent.

Jason Fichtner, chief economist at the Bipartisan Policy Center and former deputy commissioner at the Social Security Administration, agrees that the proposal doesn’t fix the program’s long-term funding problems.

“Proposals to improve Social Security should first focus on paying for the benefits currently promised, before proposing expanding benefits,” he says. “Congress needs to focus on making the program solvent for the long term.”