Reports suggest that President Joe Biden is going to make significant changes to Social Security. He is trying to address the upcoming financial challenges of the Social Security Old Age and Survivors Insurance Trust (OASI). According to the 2023 Trustees Report, OASI is set to be out of funds by 2033.
The Background Behind Biden’s Social Security Initiatives
Biden has proposed several measures to improve Social Security’s financial health. The Trustees Report claims there will be a $22.4 trillion funding gap by 2033. If this happens, it would cause significant problems for many Americans, from high earners to those on the lower end of the income scale.
Implementing Payroll Taxes on Higher Incomes
One of Biden’s key proposals involves applying a 12.4% payroll tax to incomes over $400,000 annually. This would target high earners to close the current tax gap. At the moment, any earnings between $160,200 and $400,000 are untaxed in terms of the OASI. This change aims to create additional revenue for the Social Security Trust.
Fixing the Doughnut Hole
This plan would close the current “doughnut hole” of untaxed income. It would increase the program’s revenue without forcing additional taxes on middle-income families. Supporters claim this plan would address the program’s financial problems by making high earners contribute more so that Social Security can work for longer.
Adjusting Cost-of-Living Increases
There are also questions over how to calculate annual cost-of-living adjustments (COLA) for Social Security benefits. The current system is based on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). Critics argue this may not accurately reflect how retirees spend their money. Biden suggests shifting to the Consumer Price Index for the Elderly (CPI-E) to meet the needs of retired Americans.
Reasons for Changing
Social Security beneficiaries have already seen a 3.2% COLA, which started in January. This is an approximate average increase of over $50 per month for each recipient’s Social Security checks. This change is based on the inflation rate and is designed to help beneficiaries keep pace with the rising cost of living.
Improving Primary Insurance Amounts
Biden’s apparent proposals will also try to specifically address the financial needs of older Americans aged between 78 and 82 years old. Reports suggest he will increase the Primary Insurance Amount (PIA). This could help those facing rising expenses in later life, such as healthcare costs. It would give them a more substantial financial safety net.
Better Support for Older Beneficiaries
Currently, the PIA does not increase with age. This proposed 5% would acknowledge the financial realities many people face in later life. Supporters claim that offering this targeted increase would help these older people by offsetting these common expenses that they may not be able to pay.
Boosting Benefits for Low-Wage Workers
Any older people who have had a lifetime of low wages face their own set of problems. Biden is apparently going to address these by increasing the special minimum benefit to 125% of the federal poverty level. This change would raise the monthly Social Security benefits for individuals in this category so they can live a more dignified life.
Survivable Income
At the moment, any retirees who have spent their careers in low-wage jobs can only get a maximum benefit that is lower than the federal individual poverty rate. This proposed change would allow even the most vulnerable retirees to get enough of an income to survive. Biden’s supporters claim this shows he wants to improve all Americans’ well-being in retirement.
Increase in Social Security Tax Wage Base
The Social Security tax wage base will rise to $168,600 in 2024, up from $160,200. Any earnings up to the new threshold face Social Security payroll taxes. This will cause a slight increase in taxes for those earning above the threshold. It is designed to support funding for Social Security benefits, including retirement, disability, and survivor benefits.
Adjustments to Qualification Criteria
There will also be changes to Social Security’s qualification criteria. This includes updates to the earnings test and full retirement age requirements. These changes are meant to go along with current economic realities and demographic trends so that the program remains sustainable and relevant for new retirees.
Bipartisan Support
The success of these proposals will depend on if Biden can get bipartisan cooperation in Washington. Despite the importance of improving Social Security’s finances and benefits for those in need, finding common ground has been challenging. Supporters argue that Biden’s proposals will help to secure Social Security’s future for all Americans.
More Burdens
However, not everyone agrees with these changes. Critics argue that these changes will create more administrative challenges for both the government and beneficiaries. They argue this could lead to delays and errors. They also claim that these changes may stop high earners from saving for retirement, as they would get fewer Social Security benefits with higher income.
Uncertain Economic Impact
Economists are also unsure of the broader economic impact of the proposals. Some argue it could stop economic growth and investment, as high earners greatly affect financial markets and business decisions. Others argue that the long-term benefits of Social Security outweigh these concerns because it promotes economic stability and consumer spending.
Potential for Increased Poverty
Some critics argue that the changes could actually negatively affect low-income and minority groups. These groups rely heavily on Social Security. They argue the changes could actually cause higher poverty rates, particularly among vulnerable populations who already face economic challenges.
Intergenerational Fairness Concerns
These critics claim that focusing solely on short-term solutions like taxing high earners ignores the bigger challenges for Social Security. With an aging population and declining birth rates, solving the revenue problem might require different, more permanent solutions. Some people support broader reforms, such as gradually increasing the retirement age.
Another Solution?
There are criticisms that Biden’s proposals do not explore other potential solutions. These alternatives could include encouraging private retirement savings through tax incentives. Supports of this theory argue it would promote economic growth to create higher tax revenue organically.
Other Models
Other critics have suggested exploring different funding models that use technology and financial markets. Critics suggest that a comprehensive approach that uses a variety of solutions might be more effective in securing Social Security’s long-term sustainability. They claim that Biden’s proposals are too single-minded.
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