Close to 65 million Americans receive a Social Security benefit each month, 71% of whom are retired workers. For many of these retirees, their monthly payout accounts for at least half of their income.
Social Security has become increasingly important in its more than eight decades of doling out payments, yet the program is in a precarious position. According to the 2020 Social Security Board of Trustees report, the program is staring down a $16.8 trillion funding shortfall between 2035 and 2094. If this widening gap of unfunded obligations isn’t resolved, retired workers might see their monthly benefits slashed by up to 24% in 2035 simply to maintain program solvency.
Americans recently elected Democratic Party challenger Joe Biden as the 46th President of the United States. Seniors really want to know what’s going to happen with Social Security and their monthly benefit under Biden’s leadership.
The President-elect has laid out a very clear proposal to strengthen Social Security that doesn’t call for a benefit cut. That doesn’t mean a cut is entirely out of the question.
Biden’s proposals call for bigger retirement benefits
Let’s first take a closer look at the major overhaul Biden unveiled on his election campaign website.
To counteract Social Security’s failing financial situation, President-elect Biden proposed four key changes to the program:
- Boost taxation on the top 1%: Social Security’s 12.4% payroll tax is the program’s workhorse; it was responsible for collecting $944.5 billion of $1.06 trillion in 2019. Next year, this tax will be applicable to all earned income between $0.01 and $142,800. For the 6% of working Americans who earn more than $142,800 in wages or salary, any income above that threshold is exempt from the payroll tax. Biden wants to partially close this loophole by creating a doughnut hole between the maximum taxable cap of $142,800 and $400,000 in which earnings would remain exempt. The 12.4% payroll tax would apply for earned income above $400,000.
- Raise the special minimum benefit: For lifetime low-income workers who have between 10 and 30 years of eligible work history, Social Security provides a special minimum monthly benefit. Unfortunately, this payout is well below the federal poverty line. Biden wants this special minimum monthly benefit set at 125% of the federal poverty line going forward.
- Provide a higher payout to aged beneficiaries: As retirees age, they’re liable to encounter higher medical care and transportation costs. Social Security’s cost-of-living adjustment (COLA) simply doesn’t do enough to true up benefits to account for these higher expenses. Under Biden’s proposal, beneficiaries would see a 1% boost to their primary insurance amount (PIA) between ages 78 and 82, leading to a maximum possible increase in their PIA of 5%. This would result in higher monthly benefits for the programs’ aged beneficiaries.
- Switch to the CPI-E: Biden’s final big proposal involves switching the program’s inflationary tether from the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) to the Consumer Price Index for the Elderly (CPI-E). The CPI-W does a poor job of tracking seniors’ expenditures and thus provides underwhelming COLAs. Since the CPI-E specifically tracks the spending habits of households with persons aged 62 and over, its usage should lead to higher annual COLAs.
If implemented, none of these proposals would reduce Social Security benefits. However, applying major changes to the Social Security program isn’t simple. Biden might have to consider alternative options to strengthen Social Security.
The chance of Biden cutting Social Security benefits isn’t zero
I believe there’s a small chance Biden will reduce Social Security benefits in some way.
First of all, no amendments can be made to the Social Security Act without a supermajority — i.e., 60 votes of approval — in the Senate. It’s been more than 40 years since a single party had a supermajority of Senate seats. Bipartisan support will be needed to pass any big-picture program changes. Depending on the results of two Senate runoff races in Georgia, Republicans will hold between 50 and 52 Senate seats over the next two years.
While Democrats prefer to raise additional revenue, the core Republican proposal for strengthening Social Security involves gradually raising the full retirement age from 67 to as high as 70. Increasing the full retirement age would require future generations of retirees to either wait longer to collect their full monthly payout or accept a steeper permanent reduction for claiming early. Either way, it would reduce lifetime benefits paid by the program.
If Biden wants to oversee real Social Security change, he’s going to need to play the centrist and incorporate some GOP proposals to win passage in the Senate.
Biden has played the middle ground before and might be willing to do so again. When running for the Democratic Party presidential nomination in 2007, Biden’s approach to fixing Social Security was bipartisan and put all ideas on the table. Possibilities included raising the payroll tax cap on the wealthy to collect more revenue, as well as raising the full retirement age to reduce long-term program outlays.
Back in 2018, Biden also casually suggested that he might favor means testing for benefits. Means testing involves withholding some or all benefits for persons or couples who earn above preset income thresholds. In other words, it would ensure that people who don’t need Social Security to make ends meet wouldn’t receive it.
Biden’s history of centrist approaches to resolving the Social Security crisis makes him far likelier than his recent predecessors to consider a bipartisan solution that would increase revenue collection on the top 1% — while also gradually raising the full retirement age and cutting long-term benefits.
It’s still very unlikely that Joe Biden will cut Social Security benefits, but the chance of it happening isn’t zero.
