Just in case 2020 wasn't giving folks enough to worry about, this is your reminder that our nation's most-successful social program, Social Security, is expected to face serious financial troubles in the very near future.
Every year, the Social Security Board of Trustees releases an annual report highlighting the short-term (10-year) and long-term (75-year) outlook for the program. In each of the past 35 years, the Trustees report has cautioned that there wouldn't be enough revenue coming in over the long term to sustain the current payout schedule, inclusive of cost-of-living adjustments. As of the 2020 report, Social Security's unfunded obligations had ballooned to $16.8 trillion.
According to the Trustees' projections, if lawmakers fail to act by raising additional revenue and/or cutting expenditures, Social Security will completely exhaust its $2.9 trillion in asset reserves (i.e., net cash surpluses built up since inception) by 2035, at which point across-the-board benefit cuts of up to 24% may be necessary to sustain payouts for retired workers.
There's no question that Social Security needs the attention of lawmakers, and with this being an election year, the future of the program may hinge on who is elected as president.
Although it's still very early and polls have proved wrong before, Democratic Party nominee Joe Biden looks to have opened up a sizable lead over incumbent Republican Donald Trump. Again, a lot can happen over the next four-plus months before America heads to the voting booths.
But if these polls prove accurate and Joe Biden is elected as the 46th President of the United States, what might that mean for the 64 million-plus beneficiaries currently receiving Social Security benefits, as well as the program's long-term outlook? Let's have a closer look.
Biden might be Social Security's best hope for a bipartisan solution
If there's one thing you're going to want to understand about Joe Biden, it's that he's predominantly a centrist when it comes to Social Security. While he would likely lean on Democratic Party ideology in fixing Social Security, he's favored Social Security proposals in the past that included a bipartisan solution.
As an example, Biden has come out in support of increasing the maximum taxable earnings cap associated with the 12.4% payroll tax on earned income (i.e., wages and salary, but not investment income). In 2020, all earned income between $0.01 and $137,700 is subject to the payroll tax, while earned income above $137,700 is exempt.
Put in another context, 94% of working Americans pay into Social Security on every cent they earn, while a well-to-do 6% of workers get a reprieve on some or most of their income. Most Democrats favor increasing the tax cap to lessen the loophole that allows the well-to-do to avoid the payroll tax on some of their income -- and so does Biden.
Yet when Biden was running for the Democratic Party ticket nomination in 2007, NBC News reported that Biden favored a bipartisan approach that might also include raising the full retirement age -- i.e., the age at which a worker becomes eligible for 100% of their monthly payout, as determined by their birth year. Gradually increasing the full retirement age is a strategy favored by Republican lawmakers to reduce Social Security's long-term outlays, and it suggests that Biden is willing to break with his party to potentially find a middle-ground solution. The fact is, Biden has broken with his party on more than one occasion over Social Security.
Whether you realize it or not, a bipartisan solution is the smartest way to resolve Social Security's $16.8 trillion funding shortfall. The Democrats' plan to raise additional revenue via taxation would resolve the program's short-term funding concerns, while raising the full retirement age would reduce long-term outlays. Each party's core solution resolves the shortcoming of their opposition's plan.
In effect, Biden might be Social Security's best hope for a bipartisan solution.
Here's why the status quo is likelier
However, it's also important to understand that resolving Social Security's cash shortfall is going to take more than just the support of the president. Both chambers of Congress need to be on board, and that's rarely been the case of late.
Right now, Democrats control the House and Republicans hold a slim majority in the Senate. This could obviously change once the November election results are tallied. But the fact remains that in order to amend the Social Security program, 60 "yes" votes are required in the Senate. It's been more than 40 years since a single party (not including lawmakers who identify as Independents) held a supermajority of 60 seats in the Senate. In other words, it means that bipartisan support would be needed to pass any Social Security legislation in the Senate.
If history is any indication of what might happen, lawmakers are going to kick the can further down the road on Social Security if Biden is president, even though they're well aware that the longer they wait, the costlier the fix will be on working Americans.
The problem is that no matter what solution lawmakers choose to implement, some group of workers will be worse off than they were initially. For instance, if Democrats raise the payroll tax cap, wealthier Americans will be paying more into the system without seeing an increase in benefits come retirement. Meanwhile, the GOP's plan to gradually raise the full retirement age would mean less in the way of lifetime benefits received for future generations of workers, such as millennials and Generation Z.
Because some group of workers will always be worse off than they were initially, it's feared that the party implementing this "fix" will lose votes in a subsequent election. This is what makes the status quo likely, even if a centrist like Joe Biden is elected as president.