401(k) Specialist Issue 2 - 2023 - 34

401(k) SOCIAL SECURITY
which was released Feb. 13 in a letter from
Chief Actuary Stephen Goss.
The premise behind raising the income tax,
Sanders argues, is that the burden of funding
Social Security needs to be shifted away from
the middle class and more toward the wealthy
by raising the OASDI payroll tax to covered
earnings above $250,000 for 2024 and later.
Under current circumstances, the Sanders proposal
claims those earning over the cap pay an
effective Social Security payroll tax rate of 1%
or less, while those earning under the cap get
stuck footing a bill that's six times higher.
Under the Sanders proposal, all earnings
taxed above $250,000 would not be credited
for benefit computation purposes-meaning
the wealthy who would pay additional Social
Security taxes would not receive higher benefits
for doing so down the road.
The Social Security Expansion Act was first
introduced on June 9, 2022 by Sanders and
U.S. Rep. Peter DeFazio (D-OR). This time,
Sanders has a new coalition of supporters in
fellow Senator Elizabeth Warren (D-MA) and
Reps. Jan Schakowsky (D-IL) and Val Hoyle
(D-OR), who are showing renewed interest in
Social Security reform amid Republican talk
of proposed cuts to Social Security as the U.S.
faces its latest debt ceiling crisis.
Eight other senators and 25 Democrats
from the House of Representatives signed on
as cosponsors of the bill.
Raising the Earnings Cap to
$400,000
Besides the Sanders proposal, there have
been a number of other proposals to increase,
eliminate, or otherwise adjust the payroll tax
cap as a way to shore up Social Security's
finances.
President Joe Biden has floated the idea
of applying the Social Security payroll tax
to earnings over $400,000 instead of the
$250,000 proposed in the Sanders bill. This
echoes his campaign stance not to raise taxes
on anyone making less than $400,000 per year,
which he reiterated during his State of the
Union address in February.
Biden's campaign proposal to increase the
payroll tax cap to $400,000 would only delay
Social Security's insolvency until 2044. After
that point, Social Security recipients would
Other Ideas Being Floated
In addition to previously mentioned proposals, there are almost
countless other ideas for avoiding steep benefit cuts-but many
would involve cutting benefits in some form.
Among the most commonly cited:
* Raising the retirement age from 67 to 70. Currently Americans
can take early benefits at 62, but the full retirement age is 66 or
67, depending on the month and year of birth. The Republican
Study Committee budget, put forward by House leaders, has
called for Social Security's full retirement age to gradually go up
until it is increased by three years. Based on their proposal, people
born in 1978 or later would have a full retirement age of 70.
* Raising the payroll tax percentage. Currently, employers and
employees each pay a tax of 6.2% of wages, and raising those
rates could have a big impact on the program's solvency. One
proposal mentions raising the tax by 0.1% over the course of 20
years to 7.2% of wages.
* Means-test benefits. The concept is to protect people below a
certain annual income or wage level so they get full benefits while
those who are financially healthier would sacrifice some or all of
their Social Security payments.
34
face the prospect of an 11% benefit reduction.
While Biden called for " protecting and
strengthening " Social Security when introducing
his fiscal 2024 budget in March, he
stopped short of proposing a specific plan to
address the trust fund shortfalls. He did hint at
plans to work with Congress to strengthen the
program, but without making any benefit cuts.
Another proposal aimed at raising the cap
to $400,000 is the Social Security 2100 Act,
first introduced by Rep. John Larson (D-CT)
in October of 2021.
The Democrat-supported bill, which has
not yet been reintroduced in Congress in
2023 and has no Republican support, would
apply the Social Security payroll tax to earnings
over $400,000 in addition to earnings
below the current maximum taxable amount
($160,200). The gap-or " donut hole " -between
the two would narrow over time as the
maximum taxable amount increases and the
$400,000 threshold remains unchanged.
A Fact Sheet from Larson's website says the
bill would mean " the wealthy pay the same
rate as a waitress earning $30,000 a year. This
provision would only affect the top 0.4% of
wage earners. "
Per a blog from the Peter G. Peterson
Foundation, since 1975, the taxable maximum
has generally been increased each year based
on an index of national average wages. About
6% of the working population earns more
than the taxable maximum.
Low- and moderate-income individuals
pay a higher proportion of their income in
payroll taxes than do higher-income taxpayers.
In part, that situation stems from the existence
of the tax cap for Social Security. For example,
someone with wage income of $67,000 per
year would owe $4,154 for their share of
Social Security taxes. However, someone with
triple that income-or $201,000-would owe
$8,854, which is just more than double the
amount of tax.
The previous version of the bill includes 13
provisions that would increase Social Security
benefits, 12 of which would be temporary,
applying for only five years. Larson's fact sheet
says the bill would reduce Social Security's
75-year shortfall by about half and extend " the
date at which benefits would be cut by 20%
by nine more years from 2035 to 2044. "
ISSUE 2 2023 | 401kSpecialist.com

https://www.sanders.senate.gov/wp-content/uploads/SandersLetter-2023-0213.pdf https://401kspecialistmag.com/new-social-security-2100-bill-will-change-cola-formula/ https://401kspecialistmag.com/bernie-sanders-expand-social-security-lindsey-graham-take-less-pay-more/ https://401kspecialistmag.com/bernie-sanders-expand-social-security-lindsey-graham-take-less-pay-more/ https://401kspecialistmag.com/biden-state-of-the-union-moment-bipartisan-agreement-on-no-cuts-to-social-security-and-medicare/ https://401kspecialistmag.com/biden-state-of-the-union-moment-bipartisan-agreement-on-no-cuts-to-social-security-and-medicare/ https://larson.house.gov/issues/social-security-2100-sacred-trust https://www.pgpf.org/blog/2023/02/should-we-eliminate-the-social-security-tax-cap-here-are-the-pros-and-cons https://www.pgpf.org/blog/2023/02/should-we-eliminate-the-social-security-tax-cap-here-are-the-pros-and-cons https://taxfoundation.org/payroll-income-tax-burden/ https://taxfoundation.org/payroll-income-tax-burden/ http://www.401kSpecialist.com

401(k) Specialist Issue 2 - 2023

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