One of the most popular and enduring government programs in U.S. history, Social Security has funded the lives of senior citizens for more than 80 years. As a result, today the senior poverty rate clocks in at a mere 9%. Yet research indicates that the trust funds providing Social Security benefits will deplete their reserves by 2034. In an effort to extend the program’s solvency, Democrats have recently introduced a new bill aiming to expand Social Security – at a cost.
A financial advisor could help you save for retirement and select investments that align with your financial goals. Find a qualified advisor today.
Democrats Introduce New Bill to Fund Social Security for 75 More Years
Senator Bernie Sanders (I-VT), along with more than 15 Democratic co-sponsors, recently introduced the Social Security Expansion Act to the Senate floor. Aiming to enhance benefits and ensure the long-term solvency of the Social Security program, the bill proposes an increase in taxes to further support the aging U.S. population.
Under this new bill, sponsors would like to see Social Security benefits rise by $200 across the board for both new and current beneficiaries. The bill would also change the existing Social Security Cost of Living Adjustment (COLA) formula to more heavily weight the costs of healthcare and prescription drugs, given the disproportionate and rising share of this category’s expenses for the elderly. Additionally, the bill would update the Special Minimum Benefit to help low-income workers, such that the benefit level would equal 125% of the poverty level or roughly $17,000 a year for a single worker who worked a full career, and it would restore student benefits up to age 22 for the children of disabled recipients.
What Retirement Savers Need to Know
Important to note, however, is how the legislation would fund this expansion: increasing taxes.
The Social Security program limits the amount of earnings subject to taxation in a given year, currently set at a taxable maximum of $147,000 in 2022. The tax rate for wages is set at 6.2%, or 12.4% split evenly between employers and employees. The Social Security Expansion Act would amend this payroll tax and subject all income over $250,000 to the tax. The bill sponsors estimate that 93% of American households would see no increase, but high-earners could see a substantial impact in their net pay.
Furthermore the new bill would target the self-employed, business owners and investors. The self-employed would see the same tax increase as the salaried, with a new payroll tax on those earning more than $250,000. Net investment income taxes would jump from 3.8% to 16.4% in order to include additional taxes in lieu of Social Security and Medicare payroll taxes. Business owners, too, would be hit with a new 12.4% Social Security tax on business income not already covered by payroll taxes.
A new bill aiming to expand the quickly-depleting Social Security fund could potentially increase taxes for high-earners. Taxable Social Security earnings are currently capped at $147,000 for the year, but this new legislation could tap individuals earning more than $250,000 and subject them to a further 6.2% in payroll taxes. The bill additionally proposes increased taxes on investors and businesses. While these changes could support millions more elderly Americans in their retirement, the impact on high-earners is significant.
Not sure how to lower your effective tax rate and save more to achieve your long-term goals? For a solid financial plan, consider speaking with a qualified financial advisor. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
Don’t miss out on news that could impact your finances. Get news and tips to make smarter financial decisions with SmartAsset’s semi-weekly email. It’s 100% free and you can unsubscribe at any time. Sign up today.
For important disclosures regarding SmartAsset, please click here.
Photo credit: ©iStock.com/mphillips007, ©iStock.com/Eoneren, ©iStock.com/Nicola Katie
The post Your Taxes Could Skyrocket Under This New Social Security Bill appeared first on SmartAsset Blog.