The Social Security system, which provides retirement income for millions of Americans, is facing significant challenges that require urgent attention. Recent surveys have consistently shown that between 80% and 90% of retirees rely on their monthly Social Security checks to cover at least some of their expenses. However, the program is grappling with a long-term funding deficit of $22.4 trillion, according to the 2023 Social Security Board of Trustees Report.
The report reveals that the Old-Age and Survivors Insurance Trust Fund (OASI), which funds the program, is projected to exhaust its asset reserves by 2033. If this happens, substantial benefit cuts of up to 23% may be necessary to sustain Social Security until 2097. Multiple factors, such as the retirement of baby boomers, increased longevity, income inequality, declining birth rates, and reduced legal immigration, have contributed to this looming crisis.
In response, President Joe Biden has proposed a four-point plan aimed at reforming Social Security. His plan aims to increase revenue for the program and enhance benefits for every beneficiary. Biden’s plan calls for the following:
Increase payroll tax for high-earners
Biden suggests reinstating the 12.4% payroll tax on high earners. This tax would be applicable to earnings above $400,000, while a “doughnut hole” would exempt earnings between the maximum taxable cap and $400,000.
Change inflationary source
Biden proposes switching the program’s inflationary tether from the CPI-W (Consumer Price Index for Urban Wage Earners and Clerical Workers) to the CPI-E (Consumer Price Index for the Elderly). This change would provide higher annual cost-of-living adjustments for beneficiaries, addressing the purchasing power decline that has occurred over the years.
Raise the special minimum benefit
The President seeks to raise the special minimum benefit for low-wage workers above the poverty level. Currently, these workers receive a maximum monthly Social Security check of $1,033.50, which is below the federal poverty level for a single filer. Biden’s plan would increase this benefit to 125% of the federal poverty level.
Increase the PIA
The President proposes gradually increasing the primary insurance amount (PIA) for aged beneficiaries. This increase of 1% annually, starting at age 78 and continuing through age 82, would offset certain expenses that tend to rise with age, such as prescription drug costs and medical transportation.
The problem with Biden’s plan
While President Biden’s plan aims to address key issues in Social Security, it also faces significant flaws and challenges. One major concern is that taxing the rich could have unintended consequences, such as reduced work hours or altered income strategies to avoid higher payroll taxes. Additionally, experts argue that the proposed changes would only partially address the long-term funding shortfall, extending the program’s solvency by about five years but falling short of a comprehensive solution.
Moreover, Biden lacks the necessary support in Congress to pass meaningful reform. Changes to Social Security require a supermajority of 60 votes in the Senate, a feat neither party has achieved since 1979. Republicans oppose taxing high-earning Americans, while Democrats plan to oppose any reforms that might reduce benefits.
The future of Social Security reform remains uncertain as lawmakers navigate these complexities. While President Biden’s four-point plan highlights critical issues, its flaws and the lack of bipartisan support pose significant obstacles. As a result, Americans should not expect to see any significant changes to Social Security anytime soon.