In case you haven't noticed, we've got a battle brewing on Capitol Hill. In less than 18 months, Americans will head to the polls to decide who should lead this country for the next four years. There are seemingly new Democrats throwing their hats into the ring for the presidency each week, and the "punches" between President Trump and many of these Democratic candidates are already being thrown.
But there's actually a more important battle that needs to be fought in Washington. Namely, the battle against Social Security's projected insolvency by 2035.
Continue Reading Below
Forget political banter: Social Security's problems are a bigger story
According to the latest report from the Social Security Board of Trustees, the program's $2.89 trillion in asset reserves -- i.e., the aggregate net cash surpluses saved up since inception -- are forecast to be exhausted by 2035 as the result of numerous ongoing demographic changes. While this won't bankrupt the Social Security program, it demonstrates that the existing payout schedule, inclusive of annual cost-of-living adjustments, isn't sustainable. In order for the program to remain solvent over the long term (which is defined as the next 75 years), the Trustees report predicts that up to a 23% cut in benefits may await retired workers, with an average 20% reduction for payouts as a whole for all beneficiaries.
The idea of Social Security cuts generally doesn't sit well with the public, and for good reason. Data from the Social Security Administration shows that 62% of retired workers are generating at least half of their monthly income from Social Security, with 34% receiving virtually all of their income (90%-plus) from America's top social program. Furthermore, it's responsible for lifting more than 15 million retired workers out of poverty each month, based on an analysis by the Center on Budget and Policy Priorities.
When surveys have been conducted of the public -- a public that can arguably be confused at times when it comes to Social Security -- the most popular solution to this mess has been to tax the rich. Whether it's raising or eliminating the earnings tax cap associated with the program's payroll tax on earned income, or simply choosing some form of tax over a benefit reduction, the public has made clear that they don't care to see Social Security benefits reduced anytime soon.
Surprise! Presidential candidate Joe Biden has previously put Social Security cuts on the table
Yet, what you might find surprising is that early Democratic presidential front-runner Joe Biden, who you'd expect to fight for core Democratic principles in resolving Social Security's imminent cash crunch, including raising or eliminating the earnings cap, has called for Social Security cuts on three separate occasions over the past 12 years.
1. Raising the full retirement age
For those of you who may not recall, this isn't Joe Biden's first go-around as a presidential hopeful for the Democratic ticket. Prior to Barack Obama winning the Democratic nomination in 2008, Biden was one of Obama's competitors for that nomination. Of the many proposals Biden brought to the table in 2007, arguably none was viewed with greater scrutiny than his ideas on buoying retirement savings plans, including Social Security.
While not focusing strictly on cutting benefits, Biden's noted approach, according to NBC News, was to work on a bipartisan solution that would include discussing options such as raising the full retirement age and increasing the earnings cap associated with the payroll tax.
Your full retirement age is the age at which the Social Security Administration deems you eligible to receive 100% of your payout, as determined by your birth year. It's currently set to peak at age 67 in 2022 for those folks born in 1960 or later, and Republicans have proposed gradually increasing this figure to as high as age 70. Raising the full retirement age would require that future generations of working Americans wait longer to collect 100% of their monthly benefit, or that they accept a steeper permanent reduction to their payout if claiming early. Either way, the idea is to combat increasing longevity over many decades and reduce outlays for the program over the long run. Keep in mind that raising the full retirement age is designed to protect existing and near-term retirees from any cuts to their Social Security benefits.
To be clear, Yours Truly favors the bipartisan approach when addressing Social Security's cash shortfall. But to see a prominent Democrat put raising the full retirement age on the table is pretty rare.
2. Orchestrating a $112 billion payroll-tax holiday
Although it was a cut that beneficiaries wouldn't tangibly see in their benefit checks, Biden was a key figure behind $112 billion worth of Social Security cuts during the early part of this decade.
As detailed by Bob Woodward, an investigative journalist who's worked for the Washington Post for the past 48 years, in his 2012 book The Price of Politics, then-President Obama leaned on Vice President Biden to be his key negotiator at the congressional level between Democrats and Republicans regarding Social Security and other revenue-generating and expenditure-cutting initiatives. The final tax deal that reached Obama's desk in 2010 extended the George W. Bush-era tax cuts and, most notably, created a payroll-tax holiday that cut payroll tax collection by $112 billion.
In 2017, payroll taxes accounted for more than 88% of the just over $1 trillion collected by the Social Security program. By providing a partial payroll-tax holiday, lawmakers hindered the revenue collection potential of the Social Security program's workhorse.
It's also worth noting that when Biden helped to orchestrate this tax deal, it was well known that Social Security was in deep trouble. In 2010, the Trustees had been forecasting an eventual depletion of Social Security's asset reserves by 2037, and the report has been alluding to a long-term cash shortfall since 1985. Thus, even with Social Security short on long-term revenue, Biden led the creation of a tax plan that further reduced the program's income for a short amount of time.
3. Means-testing for benefits
Lastly, as recently as May 2018, Biden has argued for the idea of means-testing for both Social Security and Medicare benefits, which is actually something that President Trump casually suggested while on the campaign trail for the presidency.
While speaking at a Brookings event last May, Biden had this to say:
Means-testing would involve partially reducing monthly Social Security benefits when an individual or couple crosses a predefined annual income threshold, and perhaps eliminating benefit payouts entirely if these upper-income individuals and couples earn too much. Essentially, it's a call for reducing or removing benefits on the well-to-do. And while this would somewhat fit with the broader Democratic platform of tackling rising income inequality, calling for benefit cuts as part of any reform plan is still outside the norm for a Democratic presidential candidate.
Now, understand that highlighting Biden's record on Social Security reform isn't meant to shame him or put him on a pedestal. Rather, it highlights Biden as perhaps one of the few candidates in Washington who may be willing to look at resolutions from both sides of the aisle when fixing Social Security. Since each party brings something to the table that the other lacks, a centrist wouldn't be such a bad thing for America's most important social program.
The $16,728 Social Security bonus most retirees completely overlook If you're like most Americans, you're a few years (or more) behind on your retirement savings. But a handful of little-known "Social Security secrets" could help ensure a boost in your retirement income. For example: one easy trick could pay you as much as $16,728 more... each year! Once you learn how to maximize your Social Security benefits, we think you could retire confidently with the peace of mind we're all after. Simply click here to discover how to learn more about these strategies.
The Motley Fool has a disclosure policy.