Will The Social Security 2100 Act Fix Social Security?

The 2100 Act is the first serious proposal we have seen that is projected, by the Social Security Trustees, to fix the system.

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A new bill, The Social Security 2100 Act, put forth by Congressman John B. Larson aims to fix the Social Security system. For years, at our Social Security workshops, we have been saying that the Social Security trust fund will be depleted by around 2033. At that point, there will only be enough revenue coming into the system to pay about 79% of promised benefits.

Over the past several years congress has proposed some ‘band-aid’ type fixes to the system and, in 2015, did make some minor changes to improve the health of the system. The 2100 Act is the first serious proposal we have seen that is projected, by the Social Security Trustees, to fix the system.

Like most legislation that we review, we call all find something in the bill to dislike. The Act does however, finally, provide a workable solution. Whether it passes remains to be seen but it is receiving serious consideration. For seniors at or near retirement, it is a positive because they will see only benefits, not costs. Obviously, this means that younger wage earners will bear the cost of the system. This continues a long history of changes to the system that require the younger generation to take care of the older generation.

The Act increases benefits as follows:

Benefit bump for current and new beneficiaries

Provides an increase for all beneficiaries that is the equivalent to about 2% of the average benefit. The US faces a retirement crisis and a modest boost in benefits strengthens the one leg of the retirement system that is universal and the most reliable. [Sec. 101]

Protection against inflation 

Improves the annual cost-of-living adjustment (COLA) formula to better reflect the costs incurred by seniors through adopting a CPI-E formula. This provision will help seniors who spend a greater portion of their income on health care and other necessities. Improved inflation protection will especially help older retirees and widows who are more likely to rely on Social Security benefits as they age. [Sec. 102]

Protect low income workers

No one who paid into the system over a lifetime should retire into poverty. The new minimum benefit will be set at 25% above the poverty line and would be tied to wage levels to ensure that the minimum benefit does not fall behind. [Sec. 103]

Cut taxes for beneficiaries

Almost 12 million Social Security recipients would see a tax cut. Presently, Social Security benefits are taxed if a person’s non-Social Security income exceeds $25,000 for an individual or $32,000 for couples. This would raise that threshold to $50,000 and $100,000 respectively. [Sec. 104]

Holding SSI, Medicaid, and CHIP Beneficiaries Harmless

Ensures that any increase in benefits from the bill does not result in a reduction in SSI benefits or loss of eligibility for Medicaid or CHIP. [Sec. 105]

The Act pays for the changes and strengthens the trust fund with the following changes:

Have millionaires and billionaires pay the same rate as everyone else

Presently, payroll taxes are not collected on wages over $132,900. This legislation would apply the payroll tax to wages above $400,000. This provision would only affect the top 0.4% of wage earners. [Sec. 201, 202]

50 cents per week to keep the system solvent

Gradually phase in an increase in the contribution rate beginning in 2020, so that by 2043 workers and employers would pay 7.4% instead of 6.2%. For the average worker this means paying an additional 50 cents per week every year to keep the system solvent. [Sec. 203]

Social Security Trust Fund Established

Social Security provides all-in-one retirement, survivor, and disability benefits funded through the dedicated FICA contribution paid by workers. There are technically two trust funds, Old-Age and Survivors (OASI) and Disability Insurance (DI), and that are usually referred to as the Social Security Trust Fund. This provision combines the OASI & DI trust funds into one Social Security Trust Fund, to ensure that all benefits will be paid. [Sec. 204]

As mentioned above, there is something not to like in just about every bill. At this point, personally, I’m willing to put up with the things I don’t like in the bill in hopes that congress will act in a bipartisan way to pass the bill. That may be too optimistic based on their recent performance. By the way, I took the text of the bullet points above directly from congress’s fact sheet – the editorializing is theirs – don’t shoot the messenger.

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