4 social security changes Joe Biden wants to make

It has been a crazy year. The 2019 coronavirus pandemic (COVID-19) has upended societal norms, pushed the unemployment rate to levels not seen since the 1930s, and tragically claimed the lives of more than 160,000 Americans.

But we are not finished yet, because it is also an election year. In just 79 days, people from across the country will be walking to their local voting booths or mailing their ballots to determine which path this country will take. At stake are the 435 seats in the House of Representatives, roughly a third of all Senate seats, and the grand president of the White House.

While much remains undecided more than 11 weeks before election day, polls have still shown Democratic Party challenger Joe Biden leading incumbent Republican Donald Trump in the presidential race. It puts more emphasis than ever on Joe Biden’s policies.

Social Security faces nearly $ 17 trillion in funding gap

If Biden wins in November, he will have a host of issues to address immediately, including the ongoing response to the coronavirus pandemic, job creation and growing the U.S. economy. But perhaps don’t overlook the biggest long-term challenge facing the President: Social Security’s growing cash flow deficit.

Each year, the Social Security Administrative Council publishes a report that examines the short-term (10 years) and long-term (75 years) prospects of the program. In each of the past 35 years, the Trustees have warned that long-term revenue collection will not be enough to cover expenses. It’s a fancy way of saying that the existing payment schedule, including cost of living adjustments (COLA), is not sustainable. Social Security faces an estimated funding gap of $ 16.8 trillion between 2035 – when trustees predict the program will deplete its $ 2.9 trillion in asset reserves – and 2094. Benefit cuts of up to ‘to 24% could expect retired workers as a result.

Something must be done soon to strengthen social security; otherwise, our country’s retired workforce could be in serious financial difficulty in less than 15 years.

However, Biden has a plan.

Joe Biden wants to make big changes to Social Security

Here are the four main social security changes proposed by the Democratic Party challenger to strengthen the program.

1. Increase the taxation of salaries on high incomes

In line with the Democrats’ basic Social Security proposal, Biden would like to see higher-income earners pay more into the program.

Currently, Social Security payroll tax of 12.4% on earned income (i.e. wages and salaries, but not investment income) applies to earnings between $ 0.01 and $ 137,700. The vast majority – 94% – of all workers fall into this range in 2020, which means these workers pay Social Security with every dollar they earn. Meanwhile, high-income earners will see every dollar earned above $ 137,700 exempt from payroll tax. The amount of income exempt from payroll tax is estimated to have almost quadrupled from just over $ 300 billion in 1983 to $ 1.2 trillion in 2016.

Under Biden’s plan, a donut hole would be created between the maximum taxable cap of $ 137,700 and $ 400,000, where earned income would remain exempt from payroll tax. Note, however, that the maximum payroll tax cap increases almost every year as does the national average wage index. So, over time, that donut hole would shrink. As for people generating more than $ 400,000 in earned income, the payroll tax of 12.4% would apply to income above this threshold.

2. Offer an improved special minimum benefit

Another important change proposed by Biden would be to strengthen the special minimum social security benefit.

As of 2019, the special minimum benefit for people with low incomes for life was $ 886.40 per month, while monthly benefits would have to be considerably higher just to be above federal poverty levels.

While this wouldn’t affect too many retired workers, Biden’s proposal involves setting the special ceiling for minimum benefits at 125 percent of the federal poverty line. In 2019, 125% of the federal poverty line for one person was $ 1,301 per month – so we are talking about a significant increase in the monthly payment for low earners for life with between 10 and 30 years of work history.

As a result of this initial adjustment to increase benefits for low wages, payments would increase at the same rate as the national average wage index in subsequent years.

3. Increase benefits for long-term beneficiaries

A third change Biden wants to implement is an increase in benefits for retirees who have been receiving Social Security benefits for a long time.

As people age, some of their expenses can skyrocket, including health costs, transportation costs, and personal assistance services. Unfortunately, social security benefits are not increasing quickly enough to cover this increase in end-of-life expenses.

As part of Biden’s Social Security proposal, beneficiaries aged 78 to 82 would receive a 1% increase in their primary insurance amount each year until it reaches a full 5% increase in amount. primary insurance. This would offer a slightly higher payment to older beneficiaries, which would help prevent a drop in living standards.

4. Switch the inflationary tie of the program to the CPI-E

Fourth and finally, Biden suggested that the inflationary link for social security be changed from the consumer price index for urban and office workers (CPI-W) to the consumer price index for the elderly (IPC-E).

The CPI-W has been the program’s inflationary measure since 1975, and although it has resulted in a positive COLA in 42 of the past 45 years, the purchasing power of Social Security dollars has been reduced by 30% since. 2000. This is because the CPI-W does not do a very good job of accurately measuring the costs faced by seniors. Even though over 80% of social security beneficiaries are elderly, the CPI-W tracks the spending habits of urban and office workers, who are often not elderly or who receive social security benefits. .

Under Biden’s plan, the CPI-E would become the new inflationary link. The CPI-E specifically tracks the spending patterns of households with people aged 62 and over. In theory, this should result in a more accurate COLA each year.

Biden’s social security plan faces significant hurdles

While there is no doubt that taxing high incomes would provide an immediate increase in income for Social Security, and Biden’s other tactics would support recipients of lower benefits, it is not known whether he would succeed in getting signed. one of those amendments.

The biggest obstacle for Biden would be convincing 60 senators to vote in favor of the proposals. Since there has not been a true supermajority for a single party (besides independents) for over 40 years, any amendments to the Social Security law would require bipartisan support. Republicans have been quite adamant that they do not support raising taxes on the rich, nor are they fans of the CPI-E. Without the support of the GOP, Biden’s social security plan would not pass the Senate.

There are also other nuances that should probably be addressed. For example, the CPI-E is an experimental inflationary measure that needs to be further refined. That means it couldn’t be plugged in as a replacement for the IPC-W overnight.

Another concern is that increasing taxes on high incomes will not by itself save social security. This would absolutely postpone the depletion date of the program’s asset reserves, but it would not solve other outstanding issues, such as a steady decline in net legal immigration, record birth rates, and increasing longevity.

Again, a lot could happen by election day. But if Biden got the nod as commander-in-chief, he would intend to implement a direct, in-depth overhaul of the Social Security program – and face many obstacles in the process.