President Biden has a number of legislative priorities that he will push for during the next two years, and Social Security reform is one of them. People on one side of the spectrum will look at the proposed changes favorably, but those at the top may not share their opinion.
Minimum Benefit Increase
Your Social Security benefit is based on the 35 years during which you earned the most amount of money. There is a maximum amount that can be taxed for Social Security purposes, and in 2021, the figure stands at $142,800.
Because there is a ceiling on the taxable earnings, there is also a maximum Social Security benefit for people that made max contributions over the years. This year, the highest benefit for a person that did not earn delayed retirement credits is $3148 a month.
There is a minimum benefit as well, and in 2020 it was $886.40 for someone that made 30 years of contributions. To put this into perspective, the federal poverty level for a one person household in 2021 is $12,880.
Under Biden’s proposal, the minimum benefit for someone that is fully vested would be 125 percent of the federal poverty level. People that have been receiving their benefits for a minimum of 20 years would get a five percent increase, and widows and widowers would get a 20 percent bump.
At the present time, the Social Security administration can provide annual cost of living adjustments. The increases are based on the Department of Labor’s Consumer Price Index for Urban Wage Earners and Clerical Workers.
The new plan would utilize the Consumer Price Index for the Elderly, and this would seem to be more appropriate, because it tracks the costs that older seniors typically incur.
In general, making life better for people is never going to be a bad thing, but there is the proverbial $10,000 question: who pays for it? This proposal calls for a Social Security tax on people that earn $400,000 and up.
At first, people that claim between $142,800 and $400,000 would not pay the additional tax, but the gap would close incrementally over time.
If everything stays the same as it is right now, the Social Security trust fund will be able to handle payment responsibilities through 2037. After that, the reserves would be gone, and ongoing taxes would be enough to fund benefits at a 76 percent level.
Presumably, this proposed tax on the highest earners would provide enough additional revenue to adequately fund the Social Security program beyond 2037.
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