With Social Security needing to reduce benefits 20% by 2035 to remain solvent, a group of Democratic lawmakers has proposed an aggressive tax plan on the wealthy they say will fully fund the program for decades while also increasing benefits.
The Social Security Expansion Act introduced by Sens. Bernie Sanders (I-Vt.) and Elizabeth Warren (D-Mass.) would for the first time levy Social Security taxes on both higher income earners and those with unearned investment income above $250,000 to expand benefits by $200 a month, or $2,400 per year. The senators say the change would extend the solvency of the fund for 75 years.
Right now, Americans are taxed 12.4% on their first $147,000 in income to pay for Social Security—a tax bill usually split between employee and employer. Earnings beyond that are tax-free for Social Security purposes.
The proposal by Sanders and Warren "would lift this cap and subject all income above $250,000 to the Social Security payroll tax," according to a fact sheet released by the senators.
“Today, because of the earnings cap on Social Security taxes, a CEO making $20 million a year pays the same amount of money into Social Security as someone who makes $147,000 a year. This legislation would lift this cap and subject all income above $250,000 to the Social Security payroll tax,” Sanders said.
The bill would also for the first time require the wealthy to pay a Social Security tax on their investment and business income, increasing the net investment income tax to 12.4% and applying it to certain business income not already covered by payroll taxes, Sanders said.
“We like the bill. It fits our criteria of what we want in Social Security reform with regard to requirements to pay more revenue into the program to pay for benefits and extend solvency,” said Dan Adcock, director of government relations and policy for the National Committee to Preserve Social Security and Medicare (NCPSSM), who lobbies Congressional lawmakers for the group’s 1 million, mostly retired members nationwide.
Adcock said he can see a similar bill introduced by John B. Larson (D-Conn.), chairman of the House Ways and Means Social Security Subcommittee, approved for a House floor vote before Congress adjourns for August recess.
But that is likely to be as far as Social Security reform legislation gets in 2022, even in a mid-term election year where appealing to seniors—the most dependable voting block—is important, Adcock acknowledged.
“They’d need to get 218 votes in the House and 60 votes in the Senate, where that’s a much heavier lift, given they’ll have to peel off 10 Republicans who have been adverse to payroll tax increases, even on the wealthy,” he said.