Congress Misses Opportunity To Strengthen Social Security Funding
By Jessie Gibbons, Legislative Director
Lawmakers in the House and Senate wrote and passed sweeping legislation to overhaul the entire tax code in just under two months last year. Their bill, the Tax Cuts and Jobs Act, adds $1.5 trillion to the federal deficit over ten years, it permanently reduces the tax rate for corporations, and it temporarily reduces tax rates for individuals.
TSCL advocated against its adoption because several of its provisions jeopardize the health and financial security of older Americans. For instance, the bill repeals the Affordable Care Act’s individual mandate that requires working individuals to have insurance or pay a tax penalty. Experts predict that move will result in a loss of health insurance coverage for 4 million individuals, including many who are older Americans and not yet eligible for Medicare. Those who remain insured through the individual market will likely see premium increases of 10 percent or more, which will make health insurance unaffordable for many.
The bill also indexes the individual tax brackets and the standard deduction to the slowly-growing “chained” CPI, which means Americans will hit higher tax brackets faster than they would under current law because a greater share of their income would be taxable. The change will result in tax increases for most individuals over time, and it increases the likelihood that lawmakers will apply the inadequate “chained” CPI to other government indexes that grow with inflation, like the Social Security cost-of-living adjustment (COLA).
In addition, because lawmakers did not offset the $1.5 trillion cost of the tax bill, it triggers automatic spending cuts this year due to a 2010 law that prevents legislation from adding too much to the deficit. The Medicare program could see $25 billion in cuts, and other critical programs for older Americans, like Meals on Wheels, could see their budgets slashed. To rein in the deficit created by the tax bill, lawmakers are considering massive reforms of Medicare and Medicaid at a time when beneficiaries are already facing higher out-of-pocket medical costs than ever before.
TSCL’s legislative team was also disappointed that Congress failed to address the solvency challenges facing the Social Security program through tax reform last year. The following simple, tax-related changes would extend the life of the program for decades to come while providing middle-class seniors with a critical tax break:
- Increasing the Social Security payroll tax rate. Social Security is currently financed by a 12.4% payroll tax, split evenly between employers and employees. Increasing the rate very gradually to 14.4% – just 1% more for both workers and employers – would dramatically improve the financing of the program while costing the average worker just 50 cents per week.
- Increasing the amount of wages subject to Social Security taxes. Under current law, the Social Security payroll tax is applied only to the first $128,400 in annual income. People who earn more than that pay zero Social Security taxes on the rest of their earnings. Increasing or eliminating this “payroll tax cap” would significantly improve the program’s solvency without cutting benefits.
- Eliminating income taxes on Social Security benefits. Millions of middle-income retirees currently pay income taxes on a portion of their Social Security benefits. Adjusting the income threshold for taxation – which currently sits at just $25,000 for individual filers – or repealing the tax on Social Security benefits altogether would provide millions of middle-income seniors with much-needed financial relief.
TSCL advocates tirelessly for these three policy solutions and did so during last year’s tax reform debate. We will continue to support them in the months ahead, until they are signed into law. For more information about legislation that would strengthen and improve the Social Security program responsibly, without cutting benefits for older Americans, visit our website at www.SeniorsLeague.org.