The social security system isn't keeping up with the increasing life expectancy of Americans. As the number of retiree beneficiaries increases and fewer active workers fund the Social Security program, the Social Security Trust Fund may run empty by 2034.
For the program to survive beyond 2034, benefits will have to be reduced by 20%. There’s an alternative tabled in the House of Representatives early in 2024 that promises to keep your benefits.
What Is the You Earned It, You Keep It Act?
The You Earned It, You Keep It Act is a new bill tabled by Rep. Angie Craig in the House of Representatives on January 25, 2024. It’s a new attempt by lawmakers to extend the viability of social security.
The You Earned It, You Keep It Act makes two proposals: get rid of all federal taxes on social security benefits starting in 2025 and increase the Social Security wage base.
Getting rid of federal taxes could have huge tax savings for social security benefits.
Currently, when your combined income exceeds $34,000 as a single filer, you could pay federal taxes on up to 85% of your social security benefits.
Eliminating federal taxes on social security benefits would benefit anyone eligible to pay these taxes, especially higher-earning beneficiaries. Now, wouldn’t cutting federal taxes on social security increase the federal budget deficit—government debt?
Who Pays for This?
The second provision of the You Earned It, You Keep It bill answers this critical question. This provision proposes an increase in the Social Security wage base—the maximum amount of income subject to Social Security taxes.
In 2024, the cap on earned wages that can be taxed for social security will be $168,600. The You Earned It, You Keep It Act suggests raising this limit to more than $250,000. This means that federal tax income loss due to eliminating social security federal taxes would be covered by taxes from high-income earners.
Implementing this proposed bill would have two major impacts: It would prolong the solvency of social security in its current state to 2054, an extra 20 years, and it would also reduce the federal budget deficit.
The good news is that Social Security beneficiaries would continue to receive their full benefits through 2054. According to the Social Security Office of the Actuary, federal debt would go down by as much as $9 trillion.
The You Earned It, Keep It Act, if passed into law, would eliminate only the social security federal income tax. This means some beneficiaries in states such as Utah, Minnesota, and Colorado would still pay state social security taxes.
Remember that the You Earned It, You Keep It bill is still a work in progress and has yet to be enacted.
Conclusion
Would you like to know what the possible implications of this bill are for your finances? Contact JDH Wealth for a personalized assessment of your retirement finances.
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