Social Security

What you need to know about the Social Security 2100 Act

The Social Security 2100 Act

Following is a summary of the changes included under the above act. There are modest benefit increases, especially for the lower-income, a modest change in the COLA calculation and relatively modest higher taxes for most Americans.

Most important, the Social Security Chief Actuary estimates over time these changes will make the Trust solvent and sustainable.

The problem, of course, is that under Republican control Congress is unlikely to do much with this Democratic proposal. That’s a shame because in my opinion this is a good starting point. It addresses the solvency issue, it raises benefits for lower-income and it spreads the cost among workers, benefit recipients and higher income Americans. And the tax increases are spread over many years.

Here is a summary of the proposed changes as prepared by the Chief Actuary. I have added some comparisons with current law. YOU MIGHT WANT TO BECOME FAMILIAR WITH THIS PROPOSAL because this or something like it is required to make Social Security sustainable. 

Section 101. Increase the first PIA formula factor from 90 percent to 93 percent for all benefits payable for months of eligibility January 2018 and later, including benefits for those becoming newly eligible both before and after January 2018.
PIA formula

Current law:

For an individual who first becomes eligible for old-age insurance benefits or disability insurance benefits in 2017, or who dies in 2017 before becoming eligible for benefits, his/her PIA will be the sum of:

(a) 90 percent of the first $885 of his/her average indexed monthly earnings, plus

(b) 32 percent of his/her average indexed monthly earnings over $885 and through $5,336, plus

(c) 15 percent of his/her average indexed monthly earnings over $5,336.

Section 102.
Use the Consumer Price Index for the Elderly (CPI-E) increase rather than the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) increase to calculate the cost-of-living adjustment (COLA), effective for December 2017 and later COLAs. We assume this change would increase the COLA by an average of 0.2 percentage point per year.

Note this is a minor change in the COLA and it is possible that in some years it could be a lower increase. 

Section 103. Increase the special minimum PIA, beginning for workers who become newly eligible for retirement or disability benefits or die in 2018 or later. For workers becoming newly eligible or dying in 2018, the minimum initial PIA for workers with 30 or more years of coverage (YOCs) is 125 percent of the annual poverty guideline for a single individual published by the Department of Health and Human Services for 2017, divided by 12. For workers becoming newly eligible or dying after 2018, the minimum initial PIA increases by the growth in the national average wage index (AWI).

Current law:

2018 is projected as the last year a new beneficiary could theoretically be awarded a special minimum PIA that is higher than his or her regular PIA, but 1998 is the last year it actually happened. 

Section 104. Replace the current-law thresholds for federal income taxation of OASDI benefits with a single set of thresholds at $50,000 for single filers and $100,000 for joint filers for taxation of up to 85 percent of OASDI benefits, effective for tax year 2018. These thresholds would be fixed and not indexed to price inflation or average wage increase. The portion of revenue from taxation of OASDI benefits that would be allocated to the HI Trust Fund will be at the same level as if the current-law computation (in the absence of this provision) were applied. The net amount of revenue from taxing OASDI benefits, after the allocation to HI, would be allocated to the combined Social Security Trust Fund.

Current law:

Under legislation enacted in 1983, the Social Security Trust Funds receive income based on Federal income taxation of benefits. The funds receive taxes on up to 50 percent of benefits from single taxpayers with incomes over $25,000 and from taxpayers filing jointly with incomes over $32,000.

Legislation enacted in 1993 extended taxation of benefits. The legislation increased the limitation on the amount of benefits subject to taxation from 50 percent to 85 percent for single taxpayers with incomes over $34,000 and for taxpayers filing jointly with incomes over $44,000. All additional tax income resulting from the 1993 legislation is deposited in Medicare’s Hospital Insurance Trust Fund.

Section 201 and Section 202. Apply the combined OASDI payroll tax rate on covered earnings above $400,000 paid in 2018 and later. Tax all covered earnings once the current-law taxable maximum exceeds $400,000. Credit the additional earnings that are taxed for benefit purposes by: (a) calculating a second average indexed monthly earnings (“AIME+”) reflecting only additional earnings taxed above the current-law taxable maximum, (b) applying a 2-percent factor on this newly computed “AIME+” to develop a second component of the PIA, and (c) adding this second component to the current-law PIA.

Note: This is a significant change in the philosophy of funding Social Security by putting a temporary additional tax on higher incomes, but it is somewhat mitigated by also considering the higher income amounts in a new benefit formula. Note also that over many years all earnings become subject to the payroll tax. 

Section 203. Increase the combined OASDI payroll tax rate to 14.8 percent, fully effective for 2042 and later. The combined rate is increased by 0.1 percentage point each year starting in 2019, reaching the ultimate 14.8 percent rate for 2042 and later.

The increase in the OASDI payroll tax rate is phased in by increasing the payroll tax rate by 0.05 percentage point for employers and 0.05 percentage point for employees (0.10 percentage point total), every year from 2019 through 2042. For years 2042 and later, the OASDI payroll tax rate is 7.4 percent for employers and 7.4 percent for employees (14.8 percent total), up from 6.2 percent each (12.4 percent total) under current law.

This is a total increase in payroll taxes of 2.4%, but over a twenty-three year period, and ultimately on all covered earnings. 

Section 204. Beginning in 2018, establish a new Social Security Trust Fund by combining the reserves of the separate OASI and DI Trust Funds and managing all future financial operations of the program on a combined basis.

Assuming enactment of the proposal, we estimate that the combined Social Security Trust Fund would be fully solvent (able to pay all scheduled benefits in full on a timely basis) throughout the 75-year projection period, under the intermediate assumptions of the 2016 Trustees Report. (Note that section 204 of this proposal would combine the currently separate operations and reserves of the OASI and DI Trust Funds into a single Social Security Trust Fund.) In addition, under this proposal the OASDI program would meet the further conditions for sustainable solvency, because projected combined trust fund reserves would be growing as a percentage of the annual cost of the program at the end of the long-range period.

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5 replies »

  1. Actually, the reductions from SSNRA uctions – when it was 80% (SSNRA 65), it was a significant subsidy. Now that it is 70% (SSNRA 66, 67), the subsidy is reduced, but not fully eliminated in light of changes in life expectancy.

    The basic rules on when to commence still apply – for the most part, unchanged since 1983 when the last substantial changes were made:
    (1) If you arrive at age 62 and you need the money (because you are no longer working, etc.), take the benefit.
    (2) If you arrive at age 62 and you are still working full time, you should probably lean towards deferral because of the wage offset provisions, as well as the taxation provisions. .
    (3) However, if you arrive at age 62 and you are not working for wages (or only have a minimal level of wages) and you don’t need the money to make ends meet (and you fully expect to remain unemployed through age 65 and commence Medicare at that time), it may make more sense to commence the benefit than to defer if you expect an “average” life expectancy. Remember to think of “average” life expectancy including both yourself and, if you are married, your spouse – think joint life expectancy with regard to the survivor benefit. Finally, consider taking the Social Security benefit, invest it, and include those earnings in your calculation of cost/benefit from electing commencement or deferring to a later date.

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  2. Overall, this proposed bill looks pretty good. I would add one more thing if it works out mathematically: eliminate the Social Security tax for the employee who is between the ages of 62 and 70. This would give those who are eligible to collect benefits an incentive to stay in the work force. Yes, it would eliminate income into the system but eliminate also what is being paid out from the system.

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    • People who start their SS benefit before FRA saves the system thousands of dollars. I will be starting my SS benefits at age 62 next Feb, because I want the money, $110,000 between age 62 and 70. I know by doing this if I live to be 85, I will receive $65,000 less than if I would of waited until age 70 to start benefits. I would like to have the money early so I can travel and live better on a 66% increase of my monthly income in retirement.
      I do not care to have a bigger SS check in my 80’s for the nursing home to get a bigger payment when my health goes down hill. I have seen this happen to my older aunts and uncles, they waited and lived a lower standard of living in their 60’s and did not see many of the years with the bigger checks.

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      • Actually they don’t save the system money. The reductions in the benefit if taken early are technically actuarial reductions which means overall the cost of paying an early benefit is neutral. They sell the idea of delaying the start date as adding to your benefit, but in reality the correct way to look at it is that you are lowering the reduction caused by starting it early.

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      • RD – I stand by my comment. I have done the math, if I wait for the bigger check it will cost the government $65,000 more than if I start at 62. Also the COLA increases will be on a smaller amount = additional savings to the program.

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