4 Social Security changes Joe Biden wants to enact: Will the midterm elections help his cause?

In September, 65.8 million people received a social security benefit, including more than 48 million pensioners. The vast majority of those retirees — 89%, to be exact — need their Social Security income to varying degrees to make ends meet.

But after more than eight decades of success in lifting seniors out of poverty, what can arguably be considered America’s most successful retirement program is in deep trouble.

President Biden delivers a speech. Image source: Official White House photo by Adam Schultz.

America’s best retirement program has a $20 trillion cash shortfall

Every year since 1940 — the year when benefits for retired workers began — the Social Security Board of Directors publishes a report that provides an in-depth review of the financial status of the program. This 200+ page report takes into account many variables, including new legislation, economic growth, and a variety of demographic shifts, to effectively determine the strength of this program’s foundation. The latest report, as well as the previous 36 reports, pointed to problems.

Since 1985, the Trustees’ Report has highlighted a projected shortfall in revenue collection to maintain existing payment levels, including annual cost-of-living adjustments (COLAs), over the next 75 years ( what the administrators define as the “long term”). The 2022 report estimates a long-term cash shortfall of $20.4 trillion through 2096.

The silver lining of this data is that Social Security is not in danger of insolvency. Since 90% of the program’s revenue comes from the 12.4% payroll tax on labor income, the money will continue to be collected as long as Americans continue to work.

The bad news is that existing payment levels will no longer be sustainable unless lawmakers on Capitol Hill do something to strengthen Social Security. The Trustees’ Report estimates that the Old Age and Survivors Trust Fund (AVS), which is responsible for benefits for retired workers and survivors, will completely exhaust its asset reserves by 2034. If this happens, a reduction of benefits of 23% would become necessary for the AVS to be able to maintain the payment of benefits until 2096.

Social Security has big problems; but President Joe Biden thinks he has the solution.

Four big changes Joe Biden wants to make to Social Security

While on the campaign trail ahead of the November 2020 election, Biden released a four-point plan that outlined the changes he believes are needed to strengthen Social Security for decades to come. In no particular order, these changes include:

1. Make high earners pay more

This year, all earned income (wages and salaries) between $0.01 and $147,000 is subject to the 12.4% payroll tax. However, income earned above the maximum taxable earnings cap (the $147,000 level in 2022) is exempt from payroll tax.

Biden wants to close most of this loophole by subjecting all earned income over $400,000 to payroll tax again. A donut hole would be created between the maximum taxable earnings cap and $400,000 where earned income would remain exempt. But thanks to annual cost-of-living adjustments and wage growth, that donut hole would shrink over time.

2. Transition from COLA measurement to CPI-E

For the past 47 years, the Consumer Price Index for Urban and Clerical Workers (CPI-W) has been the inflationary measure used to determine the COLA each year. Unfortunately, it has done a very poor job of taking into account the inflation that the elderly have had to deal with and which has cost them 40% of their purchasing power since the turn of the century.

Biden’s solution is to replace the CPI-W with the Consumer Price Index for the Elderly (CPI-E). As its name suggests, the CPI-E would focus strictly on the spending habits of senior citizens, who make up the bulk of Social Security recipients. This should result in more accurate annual COLAs.

3. Increase in benefits for long-term beneficiaries

Increasing expenses as they age is one of the biggest challenges facing retirees. Medical care and transportation costs (eg, medical transportation) are two examples of expenses that can increase as Americans reach their late 70s, 80s, and beyond.

President Biden has proposed increasing the Primary Insurance Amount (PIA) by 1% per year from age 78 to age 82. So an 82-year-old Social Security recipient would see an overall 5% increase in their PIA, which could be used to somewhat (or entirely) offset the higher expenses.

4. Reinforcement of the special minimum benefit

This year, a worker with low lifetime earnings and 30 years of coverage can take home a maximum Social Security benefit of $951/month. That’s $181/month below the federal poverty level for a single filer.

Biden’s solution is to adjust the special minimum benefit to a rate of 125% of the federal poverty level. Social Security already lifts more than 16 million elderly beneficiaries (65 and over) out of poverty every year. With Biden’s proposal, that number would definitely be higher.A row of partitioned voting booths with election pamphlets attached.

Image source: Getty Images.

Will the midterm elections give Biden the momentum needed to push through Social Security reforms?

The proposals are great on paper, but what the tens of millions of current and future Social Security recipients want to know is whether Joe Biden’s plan succeeds on Capitol Hill. For some Americans, that means looking to the midterm elections as a possible catalyst.

In just over a week, on November 8, 2022, midterm elections will take place and the balance of power in both houses of Congress will be up for grabs. However, there are two main reasons why the midterm elections are virtually certain not to allow Joe Biden’s Social Security proposal to become law.

First, there are far-reaching ideological differences between the Democratic and Republican parties as to how Social Security should be set. Without going into too much detail, Democrats favor raising incomes by raising taxes on high earners, while Republicans favor cutting long-term spending by gradually raising the full retirement age. Both solutions work to strengthen social security, albeit on very different timescales.

But therein lies the problem. Because both sides have a core proposition that makes Social Security stronger, neither has been willing to work with their opposition to find anything resembling common ground.

This leads to the second reason why Biden’s Social Security plan has no legs in Washington, DC: there aren’t enough votes in the Senate. Whichever party controls the US Senate after the midterm elections, neither will have nearly 60 seats. I mention this figure because 60 “yes” votes are necessary to modify the Social Security program. That means President Biden would need the bipartisan support of at least a handful of Republicans in the Senate to pass his plan; and to date, no member of the GOP has signaled support for Biden’s proposal.

Despite the promise of a new Congress taking shape in the coming months, Social Security legislation looks set to stagnate for at least two more years.

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