For most Americans, Social Security income is, or will be, critical to their financial well-being during retirement. More than two decades of annual surveys from national pollster Gallup have shown that between 80% and 90% of then-current retirees lean on their monthly Social Security check to make ends meet.
America's top retirement program is also responsible for pulling more than 21 million people out of poverty each year, including nearly 15.4 million adults aged 65 and above. It's truly an indispensable source of income.
However, this vital program has begun to show cracks in its foundation. To shore up Social Security for existing beneficiaries and future generations of Americans, lawmakers are going to need to act -- and that all starts at the top with President Joe Biden.
Social Security has a $22 trillion (and growing) problem
Every year since Social Security retired-worker payouts began in January 1940, the program's Board of Trustees has released a lengthy report detailing the program's current financial situation. The Trustees Report also estimates the future financial health of Social Security, given a number of variables that include fiscal and monetary policy, along with demographic changes.
Since 1985, the Trustees have opined that America's top retirement program isn't sufficiently funded to cover its long-term obligations (i.e., all payouts, including benefits and administrative expenses). By "long term," the Trustees mean the 75 years following the release of a report. As of the 2023 report, the Trustees pegged Social Security's unfunded long-term obligation at $22.4 trillion.
To be clear, Social Security is in no danger of going bankrupt or becoming insolvent. The program generates around 90% of its annual revenue from payroll taxes on earned income (wages and salary). As long as Americans continue to work and pay their taxes, Social Security will have revenue flowing in that can be disbursed to eligible beneficiaries.
What is at stake is how much current and/or future beneficiaries will receive. According to the Trustees, the Old-Age and Survivors Insurance Trust Fund (OASI), which is responsible for paying benefits to nearly 50 million retired workers and 5.8 million survivor beneficiaries each month, could exhaust its asset reserves by 2033. If the OASI asset reserves are bled dry, sweeping benefit cuts of up to 23% may be needed to sustain payouts through 2097.
The bulk of the blame for Social Security's $22 trillion (and growing) deficit is ongoing demographic changes. This includes a more than halving in legal immigration into the U.S. over the past quarter of a century, rising income inequality, and historically low birth rates.
At least one or more of Social Security's deficiencies need to be addressed by lawmakers to strengthen the program, and President Biden believes he has the solution.
Biden has a four-point proposal to shore up Social Security
Prior to being elected president in November 2020, then-candidate Joe Biden released a proposal detailing four ways he'd shore up Social Security.
1. Increase payroll tax liability on high earners
The flagship change offered by Biden would involve increasing the payroll tax liability of high-earning workers.
In 2024, all earned income between $0.01 and $168,600 is subject to the 12.4% payroll tax. Approximately 94% of all working Americans will bring home less than $168,600 next year, which means they're paying into Social Security with every dollar they earn. Meanwhile, wages and salary above $168,600 are exempted from the payroll tax.
Biden's plan would reintroduce the 12.4% payroll tax on earned income at $400,000, while also creating a doughnut hole between the maximum taxable earnings cap (the $168,600 figure) and $400,000 where earned income would remain exempt. Since the maximum taxable earnings cap rises most years on par with the National Average Wage Index, this doughnut hole would eventually close over time. In other words, all wages and salary would be exposed to the payroll tax decades down the road.
2. Shift the program's inflationary measure from the CPI-W to the CPI-E
The second big change President Biden proposed is moving away from the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) in favor of the Consumer Price Index for the Elderly (CPI-E).
Since 1975, the CPI-W has been Social Security's inflationary tether. This means its readings are used to calculate the program's annual cost-of-living adjustment (COLA).
The problem, as its full name shows, is the CPI-W is an inflationary index focused on predominantly working-age Americans who spend their money differently than seniors. Important expenses for older Americans, such as medical care and shelter, aren't receiving adequate weighting in the CPI-W, which has resulted in a 36% loss of purchasing power since January 2000.
The CPI-E is an inflationary index focused on households with persons aged 62 and above. Since 86% of Social Security beneficiaries are aged 62 and older, the CPI-E should result in more accurate (and higher) annual COLAs.
3. Lift the primary insurance amount for aged beneficiaries
Joe Biden has also proposed a gradual increase to the primary insurance amount (PIA) of aged beneficiaries. Specifically, Biden's plan would see the PIA of retired workers rise by 1% annually, beginning at age 78 and continuing through age 82, which equates to a total boost of 5%.
Increasing the PIA for older Americans would be a way for them to offset some of the higher costs they often contend with later in life, including prescription medicine and medical transportation.
4. Boost the special minimum benefit above the poverty level
The fourth and final change proposed by President Biden is to increase the special minimum benefit.
In 2023, a lifetime low earner with 30 years of coverage can receive no more than $1,033.50 per month. That's well below the $1,215 per month defined as the federal poverty level for a single filer.
Under Biden's plan, the special minimum benefit for qualifying workers would be raised to 125% of the federal poverty level, with adjustments done thereafter on an annual basis. If Biden's four-point plan were the law of the land right now, it would have increased the special minimum benefit to $1,518.75 this year.
Is 2024 the year Biden's four-point Social Security plan becomes law?
However, the all-important question is: Will 2024 be the year that Joe Biden and Congress come together to turn the president's proposal into law? The answer is a resounding no, for a variety of reasons.
To start with the obvious, President Biden doesn't have the votes necessary to see his proposal become law in Congress. Republicans currently have a slim majority in the House of Representatives, and GOP lawmakers have made it clear that they won't support legislation that targets high-earning Americans.
To add, amending Social Security laws requires 60 votes in the Senate. It's been 44 years since either party held a supermajority of 60 seats in the upper house of Congress. This means any legislation to alter Social Security would need some form of bipartisan support. There aren't too many issues where Democrats and Republicans find themselves at opposite ends of the spectrum more than fixing Social Security.
I'd be remiss if I didn't also mention that 2024 is a major election year. It's unlikely that either party would tackle a sensitive topic like Social Security for fear of upsetting undecided voters.
Another big problem with Joe Biden's Social Security plan is that the math doesn't add up. In October 2020, nonpartisan think tank Urban Institute released an analysis of then-candidate Biden's Social Security proposal and determined it would only close "about a quarter of the program's long-term funding deficit and extend the life of the trust funds by about five years."
Although taxing the rich would quickly raise additional revenue for Social Security, Biden's other proposals -- PIA's rise for older beneficiaries, special minimum benefits increase to 125% of the federal poverty level, and COLAs gradually rise across the board with the CPI-E -- would offset much of this additional revenue.
Therefore, there are simply too many headwinds to suggest there's any real chance of Joe Biden's four-point Social Security plan being enacted in 2024.
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