Biden wants to change Social Security: Will a new Congress help with reform efforts?

Joe Biden

Joe Biden wants to change Social Security: Will a new Congress help with reform efforts?

Social Security faces a funding shortfall of $20.4 trillion through 2096, which, if left unaddressed, could lead to significant benefit cuts.

Before being elected president, Joe Biden unveiled a four-point plan to reform Social Security.

Although a new Congress was formed just days ago, a change to Social Security is highly unlikely.

Social Security is in trouble, and President Biden thinks he has the perfect plan to fix it.

In November, nearly 66 million Americans, many of whom are 62 or older, received Social Security benefits. For the 48.5 million retired workers, these payments are widely seen as necessary to make ends meet.

But despite providing the financial foundation for our nation's retirees, America's top retirement program needs help. President Joe Biden thinks he has the solution to fix Social Security's problems, but he'll need the help of newly elected lawmakers.

Retired workers could be less than 12 years away from having their benefits reduced

In the past 83 years, the Social Security Board of Trustees has issued a report examining the program's financial health in the short term (the next ten years) and the long time (75 years after the information was released). The trustee's report effectively acts as a Social Security balance sheet and allows anyone to see how revenue is collected and where those dollars end up.

In addition to lagging financial data, the trustees report factors in changing macroeconomic and demographic factors to determine the financial health of Social Security.

The 2022 Trustees Report showed that Social Security had drilled its biggest hole yet: an estimated $20.4 trillion funding shortfall through 2096. Every Trustee report since 1985 has projected a long-term funding shortfall.

The deteriorating financial basis of Social Security is primarily the result of demographic shifts. Examples include historically low birth rates in the United States, net immigration to the country nearly halving over two decades, and growing income inequality, among other factors. With the impact of these changes on the ratio of workers to beneficiaries, the financial foundation of the program will only get worse.

Based on last year's projections, the OASI Trust Fund is expected to run out of assets in 2034. Approximately 5.9 million survivors are deceased workers. If these excess funds are depleted over the next 12 years, the trustees believe an overall benefit cut of 23% will be necessary to maintain payments through 2096. For context, a 23% benefit cut would reduce the average security check social by about $420 per month. (in January 2023 dollars), or $5,000 annually.

While Social Security is not in danger of bankruptcy, the amount of Social Security checks paid to retired workers 12 years from now is highly questionable.

Joe Biden has proposed sweeping reforms to Social Security

In 2020, before he was elected president, candidate Joe Biden released a plan he believed would boost Social Security for decades to come. Although there are four changes to Social Security that Biden is seeking, two stand out as key to supporting the program.

This larger Social Security change proposed by Biden would tackle income inequality head-on and generate a lot of extra revenue.

In 2023, the Social Security payroll tax of 12.4% applies to income earned between $0.01 and $160,200. "Earned income" means wages and salaries but not investment income. Approximately 94% of all working Americans earn less than the maximum taxable earnings ($160,200 figure). For the other 6% of workers, income above that $160,200 level is exempt from payroll tax.

Joe Biden's proposal would create a gap between the maximum taxable earnings and $400,000 where earned income would remain exempt and reinstate payroll tax on earned income over $400,000. Since the maximum taxable earnings tend to rise over time with inflation, that donut hole will eventually close a decade.

Biden would like to see the Consumer Price Index for Seniors (CPI-E) used to calculate COLA instead of the CPI-W. The CPI-E specifically tracks the spending habits of older Americans, which likely provides a larger annual cost-of-living adjustment.

Is a new Congress the recipe Biden needs for Social Security reform?

The challenge facing Joe Biden — and, frankly, every other president for more than three decades — is that he needs the support of lawmakers in Congress to amend the Social Security Act. Just a few days ago, the 118th Congress was officially formed.

The big question is: Will this new Congress work with the president to enact Social Security reform? If I were to rock a Magic 8 ball, the "all signs point to no" answer would appear almost certainly.

Whereas the previous Congress featured a very narrow majority in the US Senate for Democrats and a modest majority in the House of Representatives, the new Congress is marked by a shift to a slight majority in the House of Representatives for Republicans.

Both Democrats and Republicans agree that Social Security needs attention. However, they approached their reforms from completely different points of view. Whereas Biden's proposal seeks to increase additional revenue from higher earners and boost benefits for lower-income workers, the Republican solution aims to increase the full retirement age and shift the measure of inflation to a sequential consumer price index. Without getting too deep in the weeds, the GOP plan focuses on reducing long-term expenses to save Social Security money. In short, both sides have viable solutions, albeit on very different timelines and with ideologically opposite approaches.

Another challenge for Biden is getting the votes in the Senate to amend Social Security. In the Senate, 60 votes are needed to amend America's top retirement program. Since neither party has controlled at least 60 votes in the Senate since 1979, all legislation proposing to change Social Security requires bipartisan support. Obtaining this support has proven nearly impossible for every president since Ronald Reagan.

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