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Senator Bernie Sanders

Retirement Planning > Social Security

Sanders’ Social Security Bill Would Extend Payroll Tax to Capital Gains for High Earners

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What You Need to Know

  • The Social Security Expansion Act would extend solvency by 75 years by applying the payroll tax to all income above $250,000.
  • It's uncertain whether the bill will gain any traction.
  • The Social Security 2100 bill, which applies the payroll tax to earnings above $400,000, could be debated soon, its sponsor says.

Sen. Bernie Sanders, I-Vt., and Rep. Peter DeFazio, D-Ore., introduced Thursday the Social Security Expansion Act (SSEA), which would, among other measures, boost benefits, adopt the Consumer Price Index for the Elderly, or CPI-E, for benefit increases, and subject all income above $250,000 — including capital gains — to the Social Security payroll tax.

Dan Adcock, Director of Government Relations and Policy at the National Committee to Preserve Social Security and Medicare, told ThinkAdvisor Friday in an email that the DeFazio-Sanders bill, like the Social Security 2100: A Sacred Trust, introduced by Rep. John Larson, D-Conn., “both extend solvency and improve benefits.”

The Larson bill, however, “is consistent with President Biden’s pledge not to raise taxes on Americans earning less than $400,000 per year,” Adcock said, while “the Sanders-DeFazio bill is not.”

A Sacred Trust adopts the consumer price index for the elderly as the basis of the annual cost-of-living adjustment (COLA) and applies the payroll tax to annual wages above $400,000.

Larson’s bill also “includes more benefit improvements than the DeFazio-Sanders bill. But DeFazio-Sanders extends solvency for significantly longer than the Larson bill — 75 years,” Adcock said. “Both bills would update Social Security to meet the needs of today’s workers and beneficiaries — without cutting benefits or privatizing the program.”

Larson, chairman of the House Ways and Means Social Security Subcommittee, told ThinkAdvisor on May 23 that his bill would be debated by the House Ways and Means Committee soon.

It is unclear whether the Senate Finance Committee would be willing to consider Sanders’ bill.

Mary Johnson, Social Security and Medicare policy analyst at The Senior Citizens League, said in an email to ThinkAdvisor that both bills “would tie the COLA to the CPI-E, in order to provide a more representative and hopefully more adequate COLA over time,” and both bills would “increase the minimum benefit to 125% of the annual poverty guidelines.”

The Social Security Expansion Act “goes much further than the Larson legislation in that it applies the 12.4% payroll tax to investment income (in the same way the 3.8% tax on investment income went into effect in 2013 under the Affordable Care Act),” Johnson said.

There’s also a provision in the DeFazio-Sanders bill “that would impose a 16.2% net investment income tax on active S-corporation holders and active limited partners.”

In a statement, Sanders said that “our job must be to expand Social Security so that every senior citizen in America can retire with the dignity they deserve and every person with a disability can live with the security they need. And we will do that by demanding that the wealthiest people in America pay the same amount of Social Security taxes as someone making $147,000 a year. It’s time to scrap the cap, expand benefits, and fully fund Social Security.”

The Social Security Administration, according to Sanders, has estimated that his bill, which would expand Social Security benefits by $2,400 a year, “will fully fund Social Security for the next 75 years by applying the payroll tax on all income — including capital gains — above $250,000 a year.”

DeFazio noted in the statement that “with the cost of living at an all-time high, Social Security has never been more important, yet Congressional Republicans continue to play games with its funding.”

Other provisions of the bill:

  • Improve the Special Minimum Benefit for Social Security recipients. The bill increases the Special Minimum Benefit and indexes the benefit level so that it is equal to 125% of the poverty line, currently about $17,000 for a single worker who had worked their full career.
  • Restore student benefits up to age 22 for children of disabled or deceased workers, if the child is a full-time student in a college or vocational school. These benefits were eliminated in 1983.
  • Combine the Disability Insurance Trust Fund with the Old Age and Survivors Trust fund to help older adults and people with disabilities.

More than 40 organizations have endorsed the DeFazio-Sanders bill including: AFL-CIO, Social Security Works, National Committee to Preserve Social Security and Medicare, The Senior Citizen’s League and the Alliance for Retired Americans.

Pictured: Sen. Bernie Sanders, I-Vt. (Photo: Graeme Jennings/Washington Examiner/Bloomberg)