For many of the more than 66 million social security beneficiaries (49.1 million of whom are retired workers), the monthly income they receive is crucial to their economic well-being. Over the past two decades, 80% to 90% of retirees surveyed annually by the national pollster Gallup said they need some form of Social Security benefits to cover their living expenses.
But this much-trusted program is at a crossroads. It won’t go bankrupt or become insolvent, but its financial base is starting to crumble. Tens of millions of Americans, who rely on their monthly paychecks as a necessary source of income, are counting on lawmakers in Washington, D.C., to bolster America’s top retirement programs — and that’s all. It starts with President Joe Biden at the top.
America’s Top Retirement Programs Face a $22.4 Trillion Shortfall
Before delving into Biden’s plan to “fix” Social Security, it might help to first understand why the plan faces an uncertain future.
Since the first Retirement Workers Benefits Check was mailed in 1940, the Social Security Board has issued annual reports detailing the program’s short-term (10 years) and long-term (75 years) prospects. The report also provides an inside look at how Social Security generates income and where that money ends up being spent.
Each year since 1985, a Trustees report has warned that the long-term collection of Social Security revenues is inadequate to cover payments, including the annual cost of living adjustment (COLA). In other words, the projected revenues collected over the 75 years since the release of the report are not sufficient to cover the expected benefit expenditures. The size of this funding shortfall has grown over nearly four decades, reaching a staggering $22.4 trillion in the 2023 Board Report.
What’s interesting is that there isn’t a single problem with Social Security that you can point to, “This is why Social Security is struggling financially.” Rather, it is multiple factors working together that have dented his $22 trillion-plus financing obligation.
You can read more about the problems facing Social Security, but the short answer is that many demographic changes are to blame. These include the retirement of baby boomers, longer life expectancy since 1940, rising income inequality, record low birth rates in the United States, and a more than halving of the legal net immigration rate to the United States over the past 25 years. and so on.
The problem is simple. The economic well-being of our nation’s retired workers. The Old Age and Survivors Insurance Trust (OASI), which is responsible for paying monthly retirement and survivor benefits, is expected to deplete its asset reserves by 2033, based on estimates in the latest Trustees report. there is If that happens, there will be a significant reduction in benefits. Benefits of up to 23% could be needed to prevent further benefit cuts until 2097.
Joe Biden has a sweeping four-point plan to boost Social Security
Ahead of the November 2020 presidential election, then-candidate Biden launched a four-point plan aimed at overhauling Social Security and strengthening the program. Mr. Biden’s plan called for higher taxes on the wealthy, as well as more benefits for older beneficiaries and those on lower incomes for the rest of their lives.
1. Strengthen payroll taxation on high incomes
A core proposal in Biden’s four-point plan is to increase the amount of payroll taxes paid by our nation’s top earners.
In 2023, all earned income (meaning wages and salaries, but excluding investment income) between $0.01 and $160,200 will be subject to a payroll tax of 12.4%. About 94% of working Americans earn below the taxable income cap (a figure of $160,200), so they pay Social Security for every dollar they earn. On the other hand, earned income over $160,200 is exempt from Social Security payroll tax.
Biden’s plan is simple. It wants to reintroduce a 12.4% payroll tax on earned income over $400,000 to boost Social Security income. Wages and salaries between the taxable income cap and $400,000 will have a donut hole, where income will remain exempt from payroll taxes. However, this donut hole will close over time as the taxable income ceiling naturally increases.
2. Switch the program’s inflation measure from CPI-W to CPI-E
Another major change proposed by President Biden is the change from the program’s current measure of inflation, the Urban Wage-Worker and Office Workers Consumer Price Index (CPI-W) to the Elderly Consumer Price Index (CPI-W). E) is to switch to
The CPI-W, which has been the link to annual Social Security inflation since 1975, does a poor job of explaining the inflation faced by the elderly. The CPI-W tracks the spending habits of “urban wage earners and clerical workers” who are generally of working age and do not collect social security benefits. As a result, Social Security’s annual COLA does not reflect the inflation facing older people.
In contrast, the CPI-E is an inflation index that focuses only on the elderly. Cost of living adjustments are expected to be slightly higher once CPI-E is implemented.
3. Gradual increase of principal insurance amount for elderly beneficiaries
As you get older, certain expenses can increase, such as shelter, prescription drugs, and medical transport costs. To combat the potential financial insecurity of older Americans in later life, Mr. Biden has proposed a gradual increase in the primary insurance amount (PIA).
According to the proposal, PIA would start at age 78 and increase by 1% each year until age 82. This would result in a total 5% increase in his PIA for the elderly beneficiary, which would help offset the increase in spending.
4. Increased special minimum benefits
The fourth and final social security reform proposed by Joe Biden is to increase the special minimum benefits paid to low-income workers for life.
In 2023, a lifetime low-income worker benefit check with a 30-year coverage period will top out at $1,033.50 per month, or $12,402 per year. For comparison, the 2023 single filer federal poverty level is $14,580. Biden’s plan would raise the special minimum benefit to 125% of the federal poverty level. For single filers in 2023, the maximum monthly payment will increase from $1,033.50 to $1,518.75.
Joe Biden’s Social Security reform is deeply flawed
On the surface, Biden’s proposed reforms for 2020 accomplish two goals. One is to generate additional income from high-income workers; will increase through Instead of CPI-W he is CPI-E.
Unfortunately, the president’s plan is glaringly flawed and would make passage through the Capitol virtually impossible.
In October 2020, shortly after then-candidate Biden unveiled a four-point social security reform plan, the Urban Institute, a Washington, D.C.-based think tank, analyzed the impact of the plan on the program’s trust funds. . While taxing high-income earners would extend the life of trust funds before they needed to cut benefits, Biden’s three additional proposals would most likely negate this boost in revenue, the Urban Institute found. bottom. Biden’s four-point plan is estimated to only delay the date of Social Security’s ruling by five years.
The insurmountable problem with Joe Biden’s proposal is that taxing the wealthy alone will not fill the estimated long-term funding shortfall of Social Security.
For this program to truly strengthen over the decades to come, we need bipartisan proposals to increase additional income. and You need to make a conscious effort to cut your long-term expenses.
But another problem lies here. Ideologically, Democrats and Republicans are quite different when it comes to “fixing” Social Security. It will take 60 Senate votes to change the Social Security Act, but it will be the first time in 44 years that either party won a majority in the Senate. This means that no bill will pass without bipartisan support.
At this point, Republicans are reluctant to vote in favor of bills that would specifically raise payroll taxes on high-income earners, while Democrats have declared they cannot undertake any reforms that cut benefits. Until lawmakers work together to find common ground, the long-term funding shortfall for Social Security could continue to grow.