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4 Social Security Changes Joe Biden Wants to Make | Smart Change: Personal Finance

(Sean Williams)

Whether you’re new to the job market or have been retired for years, chances are you’ll depend to varying degrees on Social Security income to make ends meet during your golden years.

Earlier this year, national pollster Gallup found that 89% of retirees currently rely on Social Security as a “big” or “minor” source of income. Meanwhile, 84% of non-retired workers expect to need their retired employee benefits to pay bills when they hang up their work coats for good. In other words, Social Security is vital to the financial well-being of most Americans.

Unfortunately, this crucial program is on shaky ground.

Image source: Getty Images.

Social Security faces a long-term cash shortfall of over $20 trillion

Social Security does not run any risk of going bankrupt or becoming insolvent. If you have earned the required 40 lifetime work credits to receive a retired employee benefit, you will receive a monthly payment when you qualify. Since Social Security is primarily funded by payroll taxes on earned income, it cannot go out of business as long as people continue to work and pay their taxes.

However, the most recent report from the Social Security Board of Trustees implies that significant benefits are not far off if shortcomings in the program are not remedied.

For example, the Trustees report pointed to a combined funding gap in the Old-Age and Survivors Insurance Trust (OASI) and the Disability Insurance Trust (DI) of $20.4 trillion over the next 75 years. This shortfall is due to a laundry list of factors, including boomer retirement, longer life spans, lower legal immigration, historically low US birth rates and a plethora of other macroeconomic shifts.

If lawmakers didn’t address these issues, the report predicts that cutting monthly payments to 23% would be necessary for the OASI by 2034 to maintain payouts through 2096 without additional spending cuts. The OASI is responsible for distributing benefits each month to 47.9 million retired workers.

And this is not the only problem. Since 2000, the purchasing power of Social Security income has fallen by as much as 40%, according to an analysis by an unbiased senior advocacy group, The Senior Citizens League. The problem is that Social Security’s annual cost-of-living adjustment (COLA), and ultimately the inflationary chain that dictates how much benefits should rise in the coming year, is bad at accounting for the inflation that seniors have to contend with.

Joe Biden listens to former President Barack Obama during a meeting. Image Source: Official White House photo by Pete Souza.

Reviewing the Four Changes Joe Biden Wants to Make to Social Security

Social Security needs urgent attention from lawmakers, and this was a promise President Joe Biden made during his campaign before he won the presidency. Before taking office, Biden presented four changes he wanted to see to Social Security that would generate additional revenue and direct larger payments to those who needed them most.

1. Increase payroll taxes for the wealthy

Perhaps the most popular change proposed now is that President Joe Biden makes the wealthy pay more into the system.

In 2022, all earned income (wages and salary but not investment income) between $0.01 and $147,000 is subject to the 12.4% payroll tax. About 94% of working Americans pay this tax on every dollar they earn. But for high earners, wages and salaries above $147,000 are exempt from payroll taxes. We’re talking over $1 trillion in earned income evading payroll taxes every year.

Biden’s plan is simple: make a gap between the current payroll tax cap ($147,000) and $400,000, where earned income would remain exempt. For wages and salaries above $400,000, the 12.4% payroll tax would go back into effect. This should enable Social Security to collect additional income each year. Additionally, as the payroll tax cap increases most years, this donut hole should eventually close over time.

2. Increase benefits for long-lived beneficiaries

The second change Biden proposed was to increase the primary insurance amount (PIA) awarded to elderly beneficiaries. The reason for this change is that, as people age, some of their expenses, such as medical transportation costs, may increase much faster than the COLA associated with their Social Security benefits.

Biden outlined a plan to increase the PIA by 1% annually from ages 78 to 82, until older beneficiaries receive a cumulative 5% increase.

3. Cancel the special minimum benefit

A third social security change that Biden offered during his campaign was to increase the special minimum benefit.

In 2022, a lifetime low-earner with 30 years of coverage could receive a monthly benefit of nearly $951. The problem is, this isn’t close to the federal poverty level (for one person) of $1,132.50 per month, as of 2022.

Biden’s proposal proposes to increase Social Security’s special minimum benefit to 125% of the federal poverty level. Instead of $951, a lifetime low-earning employee with 30 years of coverage could receive nearly $1,416 per month under Biden’s plan by 2022.

4. Change the inflationary chain from the CPI-W to the CPI-E

The fourth and final Social Security change Joe Biden wants to make is to transition the program from his ineffective inflationary chain, the Consumer Price Index for Urban Wage Earners and White-collar workers (CPI-W), to the Consumer Price Index for Older Persons (CPI -E). ).

As noted, the CPI-W has done poorly to account for the inflation faced by seniors, leading to a 40% loss in purchasing power this century. Since the vast majority of Social Security recipients are seniors, using an index that focuses solely on the expenditures important to elderly Americans (i.e., the CPI-E) should lead to more accurate COLAs on an annual basis.

Joe Biden’s Social Security proposals have little chance of becoming law

President Biden unveiled his Social Security proposals more than two years ago. Despite his party narrowly taking control of Congress, no progress has been made in addressing the numerous problems plaguing Social Security or furthering Biden’s approach.

The biggest hurdle Congress faces when it comes to “fixing” Social Security is that it’s been virtually impossible to find a middle ground. While Democrats and Republicans agree that the CPI-W misrepresents the inflation faced by seniors, both sides have approached their solutions from opposite ends of the spectrum. Since both proposals would get the job done, neither side feels the need to deviate even an inch and find a common solution with their opposition.

If there’s one bright spot, it’s that lawmakers have a habit of bailing out Social Security during the eleventh hour. In 1983, when the program was less than a year away from depleting its asset reserves (i.e., the excess revenue accumulated since its inception), President Ronald Reagan and Congress approved a two-pronged revision of Social Security. The 1983 amendments contain core proposals from both political parties.

The other issue President Biden would face is getting the required 60 votes needed in the US Senate to pass any Social Security reforms. Even if the Senate were controlled by Democrats, adopting Biden’s Social Security agenda would likely require some support from Republicans. It has been more than four decades since either party had a supermajority (60 votes or more) in the US Senate.

For now, the blunt reality is President Biden’s Social Security proposals, and any other proposals from either party, for that matter, are not getting traction in Congress.

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