4 Social Security changes Joe Biden wants: Is 2024 the year it becomes reality?

For most Americans, Social Security income is, and will continue to be, critical to their financial well-being in retirement. An annual survey conducted by national pollster Gallup for more than 20 years found that 80 to 90 percent of retirees at the time relied on monthly Social Security checks to make ends meet.

America’s leading retirement programs are also responsible for lifting more than 21 million people out of poverty each year, including approximately 15.4 million adults age 65 and older. It is truly an indispensable source of income.

But this important program is beginning to show cracks in its foundation. Lawmakers must act to strengthen Social Security for existing beneficiaries and future generations of Americans, and it all starts at the top with President Joe Biden.

Joe Biden listening to former President Barack Obama’s speech. Image credit: Official White House photo by Pete Souza.

Social Security is a $22 trillion (and growing) problem.

Every year since Social Security retired worker payments began in January 1940, the program’s board of directors has issued a lengthy report detailing the program’s current financial situation. The Trustees’ report also estimates Social Security’s future financial health, taking into account a variety of variables, including fiscal and monetary policy, along with demographic changes.

Since 1985, the Board of Trustees has argued that the nation’s best retirement programs are not sufficiently funded to cover their long-term obligations (i.e., all payments, including benefits and administrative costs). “Long-term” means 75 years after the Trustees publish their report. As of the 2023 report, the Trustees pegged Social Security’s unfunded long-term obligations at $22.4 trillion.

To be clear, Social Security is not at risk of going bankrupt or becoming insolvent. The program generates approximately 90% of its annual revenue from payroll taxes on earned income (wages and salaries). As long as Americans continue to work and pay taxes, Social Security will have revenue to pay out to eligible beneficiaries.

What matters is the amount that current and/or future beneficiaries will receive. The Old-Age and Survivors Insurance Trust Fund (OASI), which pays benefits to nearly 50 million retired workers and 5.8 million surviving beneficiaries each month, could exhaust its asset reserves by 2033, according to the trustees. Reserves are depleted and across-the-board benefit cuts of up to 23% may be needed to sustain payments through 2097.

Ongoing demographic changes are largely to blame for Social Security’s $22 trillion (and growing) deficit. These include a decline in legal immigration to the United States by more than half over the past 25 years, rising income inequality, and historically low birth rates.

To strengthen the program, lawmakers must address at least one of Social Security’s flaws, and President Biden believes he has a solution.

Biden has four proposals to strengthen Social Security.

Before being elected president in November 2020, then-candidate Joe Biden released a proposal detailing four ways to strengthen Social Security.

1. Increase payroll tax liability for high earners.

Key changes proposed by Biden include increasing the payroll tax liability of high-income workers.

In 2024, all earned income between $0.01 and $168,600 will be subject to a 12.4% payroll tax. About 94% of American workers will bring home less than $168,600 next year. This means that every penny they earn will be paid into Social Security. Meanwhile, wages exceeding $168,600 are exempt from payroll tax.

Biden’s plan would reintroduce the 12.4% payroll tax on earned income at $400,000, while creating a donut hole between the maximum taxable income limit (the $168,600 figure) and the $400,000 at which earned income is exempt. This donut hole will eventually close over time, as the maximum taxable earnings cap increases to equal the national average wage index in most years. This means that all your wages and salaries will be exposed to payroll taxes decades later.

2. Convert the program’s inflation measure from CPI-W to CPI-E.

The second big change proposed by President Biden is moving from the Consumer Price Index for Urban Wage and White Collar Workers (CPI-W) to the Consumer Price Index for Senior Citizens (CPI-E).

Since 1975, CPI-W has served as Social Security’s inflation link. This means that the readings are used to calculate the program’s annual cost of living adjustment (COLA).

The problem is that, as the full name suggests, CPI-W is an inflation index focused on primarily working-age Americans, who spend their money differently than older people. Critical costs for older Americans, such as health care and care, do not receive appropriate weighting in the CPI-W, which has led to a 36% decline in purchasing power since January 2000.

CPI-E is an inflation rate index targeting households aged 62 or older. Since 86% of Social Security beneficiaries are over age 62, CPI-E should be more accurate and produce higher annual COLAs.

3. Increase the basic insurance amount for elderly beneficiaries.

Joe Biden has also proposed gradually increasing the primary insurance amount (PIA) for elderly beneficiaries. Specifically, under Biden’s plan, retired workers’ PIA would increase by 1% per year starting at age 78 until age 82, for a total increase of 5%.

Increasing PIA for older Americans would be a way to offset some of the higher costs they often face as they age, including prescription drugs and medical transportation.

4. Strengthen special minimum benefits above the poverty level.

The fourth and final change proposed by President Biden is to increase special minimum benefits.

In 2023, lifetime low earners who have signed up for 30 years will be able to receive less than $1,033.50 per month. This is significantly lower than the $1,215 per month defined federal poverty level for single filers.

Under Biden’s plan, the special minimum benefit for eligible workers would increase to 125% of the federal poverty level, with annual adjustments thereafter. If Biden’s four-point plan were the current law of the land, this year’s special minimum benefit would have increased to $1,518.75.

Image source: Getty Images.

Will 2024 be the year when Biden’s four-point social security plan becomes law?

But the most important question is whether 2024 will be the year when Joe Biden and Congress come together to turn the president’s proposals into law. The answer is no, for several reasons.

To start with the obvious, President Biden does not have the votes needed to have his proposals become law in Congress. Republicans currently hold a slim majority in the House of Representatives, and Republicans have made it clear they will not support legislation targeting higher-income Americans.

Additionally, it takes 60 votes in the Senate to change the Social Security Act. It has been 44 years since the two parties won an overwhelming majority of 60 seats in the Senate. That means any bill to change Social Security will need bipartisan support. There aren’t many issues on which Democrats and Republicans are more on opposite sides of the spectrum than how they deal with Social Security.

I would be remiss if I didn’t also mention that 2024 is a major election year. Neither side will address sensitive topics 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, the Urban Institute, a nonpartisan think tank, published an analysis of then-candidate Biden’s Social Security proposal and found it would “reduce the program’s long-term funding deficit by about a quarter and extend the life of the trust fund by about five years.” “I decided.” .”

Taxing the rich would quickly raise additional revenue for Social Security, but Biden’s other proposals: an increase in PIA for elderly beneficiaries, an increase in special minimum benefits to 125% of the federal poverty level, and COLA along with CPI-E. There is a gradual increase overall. – will offset a significant portion of these additional revenues.

So there are too many headwinds to suggest that Joe Biden’s four-point Social Security plan has any chance of being enacted in 2024.