Joe Biden on Social Security: 6 Things You Should Know
In just over 16 months, Americans aged 18 and over get to exercise their greatest right as free citizens: The right to vote. The 2020 presidential election may still be more than a year away, but the chess match between the Democrats and Republicans and among members of the same political party is well underway.
Although there's plenty left to be decided, including which candidate will definitively represent each party on the presidential ticket, one thing is for certain: There are no shortage of hot-button issues.
Everything you need to know about Joe Biden's past and present views on Social Security
For example, one issue that gets far too little press is Social Security. Despite covering roughly 90% of working Americans between the ages of 21 and 64 against a long-term disability and providing more than 63 million benefit checks each month, our nation's most successful social program is in a bind.
According to the April-released Social Security Board of Trustees Report, Social Security's $2.9 trillion in asset reserves will begin to dwindle in 2020 as a result of ongoing demographic changes. By 2035, this excess capital will be gone, essentially making Social Security a cash-neutral program. Without sufficient revenue projected to cover expenditures through 2093, a benefit cut of up to 23% could await retired workers. That's a problem when more than 3 out of 5 currently retired workers lean on their monthly stipends to account for at least half of their income.
With most Americans (retired or working) reliant or expected to be reliant, in some capacity, on Social Security during their golden years, it pays to understand how the leading political candidates from either party would address and have addressed the program's problems. Today, we'll take a look at six things you should know about former Vice President and Democratic presidential ticket frontrunner (for the moment) Joe Biden.
1. He's more of a centrist, and his views have changed considerably over time
The first thing you should understand about Joe Biden is that even though he's a member of the Democratic Party, unlike most candidates (from either party), he's been willing to consider bipartisan Social Security proposals. In other words, he's more of a centrist than pretty much any other candidate out there on the Democratic or Republican ticket.
For those of you who might be unfamiliar with the core positions of our two major parties, here's a quick refresher. Democrats prefer raising additional revenue through higher taxation of the wealthy in order to close the funding shortfall Social Security is set to face between now and 2093. Meanwhile, Republicans' primary solution is to gradually raise the full retirement age, or the age at which a worker becomes eligible to receive their full retirement benefit, thereby reducing long-term outlays from the program.
What you'll also note about Biden, as you read further, is that his views on Social Security have evolved over time.
2. Biden is starkly opposed to privatization
If there's one line in the sand that former VP Biden would draw, it's that the idea of partially or fully privatizing Social Security isn't an acceptable solution.
Privatizing Social Security, which would involve setting aside a portion of a workers' payroll tax into a separate account that the worker would have investment control over, was a popular idea pushed by former President George W. Bush in the mid-2000s. The proposal, however, fell flat, with Bush's own party failing to support the idea.
Biden's distaste for privatization is probably well grounded given that financial literacy among the broader American public is lacking. This lack of investing knowledge is compounded by not understanding the risks involved and could lead to low-income workers taking undue risks with their retirement money.
Furthermore, privatizing Social Security doesn't help narrow the program's funding gap and could even make it worse in the near term by diverting payroll tax funds away from current beneficiaries in favor of workers who might be decades away from being eligible for a benefit.
3. He sides with his party on increasing the taxable earnings cap
Biden is a fan of the core Democratic proposal of raising revenue to deal with Social Security's imminent cash shortfall. This would be done by raising the payroll tax earnings cap and effectively requiring the rich to pay more into the system.
In 2019, all earned income (i.e., wages and salary, but not investment income) between $0.01 and $132,900 is subject to Social Security's 12.4% payroll tax. This encompasses more than 90% of all workers, since most don't earn more than $132,900 a year. All earned income above this amount is exempt from the payroll tax, which is why $1.2 trillion in earnings escaped taxation in 2016.
Although this earnings tax cap does move higher in step with the National Average Wage Index nearly every year (the exception being when cost-of-living adjustments are 0%), Democrats have proposed a much larger jump as a means to collect more revenue now. Doing so wouldn't impact over 9 out of 10 workers, but it would require the wealthy to pay more.
Biden is on record as supporting raising the tax cap during a September 2007 Democratic presidential debate at Dartmouth College.
4. The former VP favors means testing for benefits
In addition to raising revenue, Biden has called for various means of reducing Social Security's long-term costs. Some of these suggestions came a long time ago, while the proposal for means testing is barely a year old. Means testing involves partially reducing monthly Social Security benefits over a certain income threshold, then removing them completely above another earnings threshold, with the idea being to limit or halt payouts to the wealthy who don't need them.
While speaking at a Brookings event in May 2018, the former VP had this to say about means testing:
5. Raising the full retirement age has been on the table before (again, he's a centrist)
Even though raising the full retirement age is primarily a Republican proposal, it's an idea that Biden has been willing to entertain in the past. According to NBC News, Biden's 2007 presidential campaign featured more of a centrist view on fixing Social Security, whereby increasing the earnings tax cap and raising the full retirement age would both be given serious consideration.
Why raise the full retirement age, you ask? The idea here is that longevity has increased substantially since Social Security was signed into law in 1935 and made its first retired-worker payout in 1940. But between 1940 and 2022, the full retirement age will have risen by just two years, from age 65 to 67. This means that more people than ever who reach age 65 are receiving payouts for decades. However, the program was only designed to support seniors for years, rather than multiple decades.
Raising the full retirement age would require future generations of retired workers to make a choice. They could: 1) wait longer to receive their full retirement benefit, or 2) accept an even steeper permanent monthly reduction if claiming early. No matter the choice, it reduces program outlays, thereby saving Social Security money over the long run. Doing so would protect current and near-term retired workers but reduce the lifetime benefits of Generation Z, millennials, and maybe some Gen-Xers.
6. A quarter-century ago he called for freezing Social Security benefits
Last but not least, it's important to understand how far Biden has (presumably) come in his Social Security thinking. In 1995, then-Delaware Sen. Biden fought hard for serious federal deficit reductions and even pushed toward a balanced budget. Among the cuts Biden proposed was the idea of freezing Social Security's outlays -- i.e., no longer passing along cost-of-living adjustments.
Although you can watch the C-Span clip, here's what Biden had to say about the Balanced Budget Amendment while speaking to members of Congress in 1995:
It's relatively safe to assume that Biden isn't looking to freeze benefits on Social Security today, but it does suggest that the former Vice President's game plan to fix the program is a relatively open book.
And that, folks, is what you need to know about presidential candidate Joe Biden and his past and present views on Social Security.
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.