Allison Shelley | Getty Images News | Getty Images
A congressional debate on a bill to reform Social Security has turned to a key question: whether changes made to the system today will upend millennials’ retirement in the future.
A committee hearing of the House Ways and Means Committee on Thursday focused on the potential impact of the Social Security 2100 Act. That bill, put forward by Rep. John Larson, D-Conn., earlier this year, is aimed at expanding the solvency of the program for the rest of this century while expanding benefits for retirees and other beneficiaries.
Social Security’s trust funds are currently projected to be depleted in 2035, at which point only 80% of estimated benefits will be payable. Today’s retirees receive an average of $17,000 per year in benefits.
The Social Security 2100 Act aims to shore up the system by raising payroll taxes on wages over $400,000. Only wages up to $132,900 are currently taxed.
The plan also proposes increasing payroll contributions from both workers and employers. That rate would increase to 7.4% from 6.2% and would be gradually phased in from 2020 to 2043.
Those changes would help pay for the plan’s benefit increases, including give those who are or will be receiving benefits a raise equal to 2% of the average benefit.
But Congressional Democrats and Republicans are divided as to whether this latest proposal will help or hurt Americans’ future retirement.
“I often hear from constituents who wonder if Social Security will still be there for them when they need it,” said Rep. Richard Neal, D-Mass., chairman of the House Ways and Means Committee. “And our constituents want us to strengthen it, not cut it.
“And that’s what the Social Security 2100 Act does,” he added.
But ranking committee member Rep. Kevin Brady, R-Texas, said he disagrees with the proposal, in part because of the financial burden it could place on younger workers.
“Republicans on this committee are eager to work with Democrats to save Social Security once and for all for every generation,” Brady said. “But this has to be done without forcing young people, America’s future, to struggle with smaller paychecks their entire working lives.”
The Social Security 2100 Act, which would amount to a $19 trillion tax increase, would harm young workers and hurt others including small businesses, Brady said.
“Millennials get ripped off in this bill,” Brady said, because they might not get as much back as they put in.
“To give your grandma a mere $32 more a month in her Social Security, a lower-earning grandchild would pay over $53,000 in higher payroll taxes,” Brady said. “Middle-class young people will pay even more.”
Experts who testified at the hearing were also divided as to whether the plan would help or hurt younger workers.
Kelly Brozyna, founder and president of the Colorado Business Development Foundation, said she is concerned how the bill would affect small businesses and individuals like her daughter, Katherine, a recent college graduate who lives in Boston.
Her daughter earns about $45,000 per year. With the bill’s proposed tax changes, her taxes would eventually go from $540 per year to $3,330 per year. That could affect her daughter’s ability to live where she does and work at her dream job at a travel company, Brozyna said.
“What the committee must understand is that tens of millions of Americans like my daughter live on a fixed income and cannot afford a new tax expense, even if it is only a few hundred dollars a year and is phased in slowly,” Brozyna said.
More from Personal Finance:
Bill could extend Social Security’s solvency for rest of century
How to shave your tax bill — and your Medicare costs in retirement
Retirees miss out on $3.4 trillion by claiming Social Security early
But Abigail Zapote, executive director of Latinos for a Secure Retirement, said the Social Security 2100 Act will help Latino families and their younger generations who are often tasked with caring for older disabled relatives.
“As a millennial, I am willing to pay the additional tax to ensure that my generation and future generations also have the same, or dare I say better, benefits and equity than generations do today,” Zapote said.
Nancy Altman, president of Social Security Works, said in an interview that she thinks Americans, particularly millennials, erroneously believe the system won’t be there when they need it.
“There’s been a campaign to undermine confidence in Social Security as a step to cutting benefits,” Altman said. “Although they haven’t cut benefits, they’ve really been successful in undermining confidence.”