Revise Social Security Taxes and Benefits

Summary#

This bill makes several changes to how Social Security taxes and benefits are calculated. It (1) changes how wages and self-employment income above the Social Security wage cap are counted for tax purposes for a few years after 2027, (2) raises the share of early earnings used to compute benefits and adds a small benefit credit for earnings above the wage cap, (3) directs the Bureau of Labor Statistics to publish a Consumer Price Index for elderly consumers and uses that index to compute Social Security cost-of-living adjustments (COLAs), (4) raises survivor benefits for many spouses in two‑income households, and (5) prevents higher Social Security benefits from reducing SSI payments.

Key changes:

• For calendar years after 2027, a defined “applicable percentage” of wages and self-employment income above the contribution and benefit base (the annual wage cap) is included in Social Security taxable earnings; that percentage is 80% in 2028, then falls by 20 percentage points each year through 2031, and is 0% in 2032 and later.
• The primary insurance amount (PIA) formula is changed to raise the first percentage applied to lower levels of earnings (from 90% toward 95%) on a phased schedule and to increase the first bend-point dollar amount gradually through 2047.
• A new “surplus AIME” (average indexed monthly earnings above the wage cap) is created, and 5% of that surplus AIME is added into the PIA computation for people who first become eligible after 2032.
• The BLS must publish a Consumer Price Index for Elderly Consumers (CPI-E), and Social Security COLAs will be computed using that CPI-E for cost-of-living quarters ending on or after Sept. 30, 2027.
• Survivor (widow/widower) benefits are revised so many surviving spouses in two-income households receive a higher benefit (including a rule to cap benefits using a hypothetical PIA in some cases).
• For SSI income and eligibility rules, any Social Security benefit amount used in SSI calculations is “held harmless” to the amount that would have been used on the day before this bill becomes law.

What it means for you#

• Workers and self-employed people

  • If you earn above the annual Social Security wage cap, a portion of the excess may be counted as taxable earnings for Social Security in 2028–2031 (80% in 2028, then 60%, 40%, 20% in subsequent years); after 2031 the bill sets that portion to 0% for 2032 and later.
  • The bill does not clearly say how these temporary inclusions interact with total payroll tax rates or Medicare taxes.

• Future retirees and disability beneficiaries

  • People who first become eligible for benefits after 2032 would generally see higher benefit calculations because the law raises the percentage applied to the lowest band of earnings and adds 5% of surplus earnings (earnings above the wage cap) into the benefit formula.
  • The first part of the PIA formula is phased up over several years and the dollar amount it applies to is gradually increased through 2047; this tends to raise benefits for many recipients who become eligible in those years.

• Survivors (widows and widowers), including divorced survivors

  • Survivor benefits payable after December 2027 could be larger in many two-income households. The bill changes the formula so a surviving spouse’s benefit may be the greater of the deceased’s PIA or a 75% combination amount that counts the survivor’s own benefit plus the deceased’s PIA, subject to certain caps described in the bill.

• Supplemental Security Income (SSI) recipients

  • When the Social Security benefit amount (title II) is used to determine SSI eligibility or payment amounts, that title II amount will be treated as if it did not exceed the pre-enactment title II amount. This prevents increases in Social Security benefits caused by this bill from automatically reducing SSI payments or eligibility.

• Bureau of Labor Statistics and Social Security Administration

  • BLS must publish a monthly CPI-E starting for months ending on or after June 30 of the year of enactment.
  • The SSA must use CPI-E to compute COLAs for cost-of-living quarters ending on or after Sept. 30, 2027.
  • SSA is required to recompute primary insurance amounts for people who become entitled in calendar years 2032–2047, which adds an administrative task.

Expenses#

No clear overall cost estimates are included in the bill text or the materials you provided.

• Immediate information: No publicly available information on total fiscal cost, savings, or revenue changes was provided with the bill text.
• Likely budget items implied by the bill:
  • Increased benefit outlays in future years from higher PIA percentages, inclusion of surplus AIME, larger survivor benefits, and using CPI-E for COLAs.
  • Administrative costs for SSA to recompute PIA amounts for affected cohorts (annual recomputations 2032–2047) and to implement rule changes.
  • Costs for BLS to develop, produce, and publish the CPI-E (the bill authorizes appropriations “as necessary”).
  • Possible changes in payroll tax receipts from the temporary inclusion of some earnings above the wage cap for 2028–2031; the direction and size of these revenue changes are not specified and are unclear from the bill text.

Proponents' View#

A possible argument for the bill, based on what the text changes:

• The bill appears intended to increase retirement income security by raising benefit formulas and by counting a small share of very high earnings toward benefits, which would increase future Social Security payments for many beneficiaries.
• Creating and using a Consumer Price Index for Elderly Consumers could make COLAs better match the spending patterns of older Americans, so benefit increases reflect the costs older people actually face.
• The survivor-benefit changes are designed to help surviving spouses in two-income households receive higher survivor benefits.
• The SSI “hold harmless” rule protects low-income SSI recipients from losing SSI when Social Security benefits go up.

Opponents' View#

Based on the bill’s design and what the text does not explain, reasonable concerns include:

• The temporary inclusion of wages above the wage cap uses an unusual schedule (80% in 2028, then ramping down to 0% in 2032). It is unclear why the inclusion is phased out rather than phased in to a permanent level. This makes the revenue effect uncertain.
• The bill does not include a fiscal note or official cost estimate in the material provided, so the effect on Social Security’s trust funds, federal budget deficits, or payroll revenues is not clear.
• Using CPI-E for COLAs may increase benefit costs compared with the current index (this follows from replacing the current index with one targeted at older consumers), but the bill text does not include projections or thresholds to limit costs.
• The required annual recomputations of PIA for 2032–2047 and the new calculations for surplus AIME add administrative complexity for SSA.
• Some rules (for example, how the temporary taxable-excess rules interact with withholding, employer reporting, and tax-year bookkeeping) are not spelled out and could raise implementation questions.