Washington – Connecticut lawmakers are promoting a plan they say would shore up the solvency of the Social Security system for 75 years – and give about 11 million seniors a tax break.
Rep. John Larson, D-1st District, and Sen. Richard Blumenthal, D-Conn., introduced bills in the House and Senate Tuesday they say would eliminate a projected shortfall in the Social Security program by raising the amount of earnings, now capped at $118,500 a year, that are subject to Social Security taxes.
Under the Larson-Blumenthal plan, earnings over $400,000 would be subject to Social Security taxes.
The lawmakers also propose raising the Social Security tax rate, now set at 6.2 percent for employers and 6.2 percent on employees, by another 1 percent in total. But that increase would be phased in over 25 years, “so it has a diminishing effect,” Larson said.
Larson has introduced similar bills aimed at reforming the Social Security system for years.
This year, Blumenthal said, he is “proud to champion the Senate companion to Congressman Larson’s Social Security 2100 Act.”
“The Social Security 2100 Act will not only keep Social Security solvent for the next 75 years — it will allow for an expansion in benefits,” Blumenthal said.
The Social Security trustees say reserves in the Social Security Trust Fund will be depleted between 2033 and 2037. Unless Congress acts, Social Security tax revenues collected after that will be sufficient to pay only about three fourths of the scheduled benefits.
But there’s been little political will on Capitol Hill to seek consensus on a solution. Besides Blumenthal, Larson has support from fellow Democrats on the Ways and Means Committee.
But most House Republicans have taken a pledge to vote against any and all tax hikes. Many Republicans also oppose lifting the Social Security payroll cap.
There is pressure on Congress to act this year on Social Security reform because the Social Security Disability Insurance Trust Fund, which is separate from the retirees’ fund, will be depleted by late 2016. That’s because the share of the Social Security tax devoted to the disability fund has not been enough to cover payouts.
Larson said the impending insolvency of the disability trust fund will put pressure on GOP lawmakers to support his legislation.
“We feel there’s a sense of urgency,” he said.
There are other ideas out there. Some Republicans have proposed allowing younger Americans to invest on their own the money they would pay in Social Security taxes.
David Walker, a Republican and former U.S. comptroller general who is considering a run for Blumenthal’s seat, told CNBC this week that he supports increasing the retirement age for younger workers, based on increases in life expectancy. He also suggested raising the payroll cap to $200,000 and changing the benefit formula to provide more money for lower-income retirees but less for higher-income individuals. But Walker, like most Republicans, said raising the Social Security tax rate would be “regressive.”
To win Republican support, the Connecticut lawmakers are dangling a tax cut.
Their legislation would raise the limit on the amount of money an individual or couple could earn before they have to pay taxes on Social Security benefits. Right now, individuals who earn between $25,000 and $34,000 must pay income tax on up to 50 percent of their benefits, and those who earn more than $34,000 must pay tax on 85 percent of their benefits.
The Larson-Blumenthal bill would allow individuals to earn up to $50,000 and couples up to $100,000 before their Social Security benefits would be taxed.
Larson said raising the income limit would give about 11 million seniors a tax cut.
“This bill will ensure that Social Security remains the bedrock social insurance program that Americans can count on no matter what — and it does so without privatization, cutting benefits, or weakening the system,” Blumenthal said.
Larson said he timed the introduction of the legislation for St. Patrick’s Day because “there’s the luck of the Irish, you know.”