With the Social Security Old Age and Survivors Insurance Trust (OASI) facing depletion by 2033, President Joe Biden has put forth a comprehensive four-point plan aimed at strengthening the trust’s funds and addressing the $22.4 trillion funding shortfall identified in the 2024 Trustees Report. Failure to address this shortfall could result in a reduction of retirement benefits by up to 24% starting in 2033.
While some of Biden’s proposed adjustments primarily target high earners and company executives with significantly higher retirement savings compared to the average American, others may affect middle- and lower-income earners, particularly those who rely on social security benefits in the future.
Here are some of the changes on the table:
1. Implementation of Payroll Tax for Income Over $400,000
Presently, a payroll tax of 12.4% applies to earned income below $160,200, while earnings exceeding this threshold are not subject to OASI taxes. Biden intends to introduce a tax on earned income above $400,000, leaving wages between $160,200 and $400,000 untaxed.
2. Modification of Cost of Living Allowance (COLA) Calculation Method
Social Security benefits are modified annually to account for inflation using the Cost of Living Allowance (COLA). Current COLA calculations are based on the CPI-Wm, the Consumer Price Index for Urban Wage Earners and Clerical Workers, which may not accurately reflect retirees’ expenses and lifestyles. Shifting to the Consumer Price Index for the Elderly in COLA calculations may not solve the issue of Social Security’s financial strain. Still, it could potentially provide more significant financial support to retired Americans who require it the most.
3. Increase in the Primary Insurance Amount (PIA)
The Primary Insurance Amount (PIA) determines the amount of Social Security benefits an individual will receive based on their claimed age and Average Indexed Monthly Earnings (AIME). Increasing the PIA for Americans between the ages of 78 and 82 would provide extra assistance to those who are dealing with increasing expenses, such as healthcare, in their later years.
4. Enhancement of the Special Minimum Benefit for Lifetime Lower-Wage Workers
Low-wage workers currently receive a special minimum benefit regardless of their earnings during their working years. In 2024, a lifetime low-earning worker would receive only $12,402 in annual Social Security benefits, equivalent to $1,033.50 per month. Biden aims to increase the minimum benefit to 125% of the federal poverty level for individuals. As an illustration, with the proposed boost, someone receiving the special minimum benefit in 2024 would receive $1,518.75 per month.
Unfortunately, as reported by MSN, the likelihood of this plan passing Congress is low. Any significant changes to Social Security necessitate bipartisan support in Washington, and thus far, Democrats and Republicans have struggled to find common ground on simultaneously strengthening the Social Security fund and increasing benefits for those most in need.