This has been a crazy year. The coronavirus pandemic has upended societal norms, pushed the unemployment rate to levels not seen since the 1930s, and tragically cost the lives of more than 160,000 Americans.
Continue Reading Below
But we're not done yet, because it's also an election year. In just 79 days, people across the country will be heading to their local voting booth or mailing in their ballots to determine the path this country will take. At stake are all 435 seats in the House of Representatives, about a third of all Senate seats, and the big chair in the White House.
While a lot remains undecided with more than 11 weeks to go until Election Day, polling has consistently shown Democratic Party challenger Joe Biden leading incumbent Republican Donald Trump in the presidential race. This puts Biden's policies in focus now more than ever before.
Social Security is facing a nearly $17 trillion funding gap
If Biden wins in November, he'll have a host of issues to immediately tackle, including the ongoing response to the coronavirus pandemic, job creation, and growing the U.S. economy. But don't overlook perhaps the biggest long-term challenge facing the president: Social Security's widening cash shortfall.
Every year, the Social Security Board of Trustees releases a report that examines the short-term (10-year) and long-term (75-year) outlook for the program. In each of the past 35 years, the Trustees have cautioned that long-term revenue collection won't be sufficient to cover outlays. This is a fancy way of saying that the existing payout schedule, inclusive of cost-of-living adjustments (COLA), isn't sustainable. Social Security is facing an estimated $16.8 trillion funding shortfall between 2035 -- when the Trustees anticipate the program will exhaust its $2.9 trillion in asset reserves -- and 2094. Benefit cuts of up to 24% may await retired workers as a result.
Something needs to be done soon to shore up Social Security; otherwise, our nation's retired workforce could be in big financial trouble in less than 15 years.
However, Biden has a plan.
Joe Biden wants to make some big changes to Social Security
Here are the four main Social Security changes the Democratic Party challenger has proposed to strengthen the program.
1. Increase payroll taxation on high earners
Consistent with the Democrats' core Social Security proposal, Biden would like to see high income earners pay more into the program.
Currently, Social Security's 12.4% payroll tax on earned income (i.e., wages and salary, but not investment income) applies to earnings between $0.01 and $137,700. The vast majority -- 94% -- of all workers fall into this range in 2020, meaning these workers are paying into Social Security with every dollar they earn. Meanwhile, high income earners will see every earned dollar above $137,700 exempted from the payroll tax. It's estimated that the amount of earnings exempted from the payroll tax nearly quadrupled from a little over $300 billion in 1983 to $1.2 trillion by 2016.
Under Biden's plan, a doughnut hole would be created between the maximum taxable cap of $137,700 and $400,000, where earned income would remain exempt from the payroll tax. Note, though, that the maximum payroll tax cap increases almost every year on par with the National Average Wage Index. Thus, over time, this doughnut hole would shrink. As for folks generating more than $400,000 in earned income, the 12.4% payroll tax would kick back in on earnings above this threshold.
2. Provide an enhanced special minimum benefit
Another significant change proposed by Biden would be to beef up Social Security's special minimum benefit.
As of 2019, the full special minimum benefit for lifetime low earners was $886.40 a month.By comparison, monthly benefits would need to be considerably higher just to be above federal poverty levels.
Although it wouldn't affect too many retired workers, Biden's proposal entails setting the special minimum benefit limit at 125% of the federal poverty line. In 2019, 125% of the federal poverty line for an individual was $1,301 a month -- so we're talking about a significant bump in monthly payout for lifetime low wage earners with between 10 and 30 years of work history.
Following this initial adjustment to bring up benefits for low wage earners, payouts would increase on par with the National Average Wage Index in subsequent years.
3. Boost benefits for long-lived beneficiaries
A third change Biden wishes to implement is an increase in benefits for retired workers who receive Social Security benefits for a long time.
As people age, some of their expenses can soar, including out-of-pocket healthcare costs, transportation expenses, and personal assistance services. Unfortunately, Social Security benefits aren't growing quickly enough to cover this uptick in late-in-life expenses.
Under Biden's Social Security proposal, beneficiaries between the ages of 78 and 82 would receive a 1% bump up in their primary insurance amount each year until it reached a full 5% increase in the primary insurance amount. This would provide a modestly larger payout for older beneficiaries that would help to stave off a decline in living standards.
4. Switch the program's inflationary tether to the CPI-E
Fourth and finally, Biden has suggested that the inflationary tether for Social Security be changed from the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) to the Consumer Price Index for the Elderly (CPI-E).
The CPI-W has been the program's inflationary measure since 1975, and while it's resulted in a positive COLA in 42 of the past 45 years, the purchasing power of Social Security dollars has been slashed by 30% since 2000. That's because the CPI-W doesn't do a very good job of accurately measuring the costs that seniors are contending with. Even though more than 80% of Social Security beneficiaries are seniors, the CPI-W tracks the spending habits of urban and clerical workers, who often aren't seniors or receiving Social Security benefits.
Under Biden's plan, the CPI-E would become the new inflationary tether. The CPI-E specifically tracks the spending habits of households with persons aged 62 and up. In theory, this should result in a more accurate COLA each year.
Biden's Social Security plan faces significant hurdles
While there's little doubt that taxing high earners would provide an immediate revenue bump for Social Security, and Biden's other tactics would support lower benefit recipients, it's unclear if he'd be successful in getting any of these amendments signed into law.
The biggest hurdle for Biden would be convincing 60 senators to vote in favor of these proposals. Since there hasn't been a true supermajority for a single party (not counting independents) in over 40 years, all amendments to the Social Security Act would require bipartisan support. Republicans have been pretty adamant that they don't support increasing taxes on the well-to-do, nor are they fans of the CPI-E. Without GOP support, Biden's Social Security plan wouldn't pass muster in the Senate.
There are other nuances, too, that would likely need to be addressed. For example, the CPI-E is an experimental inflationary measure that still needs refining. This means it couldn't be plugged in as a CPI-W replacement overnight.
Another concern is that raising taxes on high earners won't, by itself, save Social Security. It would absolutely push the program's asset reserve depletion date further out, but it wouldn't resolve other outstanding issues, such as a steady decline in net legal immigration, record-low birth rates, and increasing longevity.
Once again, a lot could happen between now and Election Day. But if Biden were to get the nod as Commander in Chief, he'd be angling to implement a sweeping direct overhaul of the Social Security program -- and would face numerous hurdles in the process.