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3 Ways Joe Biden's Social Security Plan Comes Up Short

By Sean Williams – Aug 28, 2020 at 6:06AM

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The former vice president's four-pronged plan to fix Social Security may not have all the answers.

Even with an ongoing unprecedented pandemic, it's important not to lose sight of the fact that in 67 days, Americans across the country will head to the polls (or perhaps mail in their ballots) to decide who'll lead the country forward the next four years. Although a lot can happen in 67 days, virtually all surveys show Democratic Party challenger for the presidency Joe Biden holding a commanding lead over incumbent Republican Donald Trump. This means Joe Biden's plans to improve the lives of all Americans are under scrutiny now more than ever.

While Biden's proposals to get the upper hand on the coronavirus pandemic and reignite jobs growth are obvious issues expected to weigh on voters this election season, it's Biden's Social Security plan that could really be put under the microscope.

Joe Biden listening to Barack Obama speak during a meeting.

Joe Biden listening to former President Barack Obama. Image source: Official White House Photo by Pete Souza.

Joe Biden wants to make some big changes to Social Security

As some of you may know, the Social Security Board of Trustees releases a report annually 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 report has warned that expected revenue collection wouldn't cover outlays -- or in simpler terms, the current payout schedule, inclusive of cost-of-living adjustments (COLA), isn't sustainable over the long term. The program is facing an estimated $16.8 trillion funding-obligation shortfall that seems to widen with each passing year.

Knowing full well how reliant seniors are on Social Security to make ends meet during retirement, Biden laid out a Social Security plan with four key components:

  • Increase payroll taxation on high earners: Currently, all earned income (e.g., wages and salary) between $0.01 and $137,700 is subject to Social Security's 12.4% payroll tax, with any earned income above this level exempt. Biden's plan creates a doughnut hole between $137,700 and $400,000 where earnings would remain exempt from the payroll tax, but  would reinstitute this tax above $400,000, thus requiring the top 1% to pay more into the program.
  • Beef up the special minimum benefit: In 2019, low-wage earners with 10 to 30 years of work history could earn up to $886.40 a month (the full special minimum benefit). Biden's plan provides a substantive increase of the special minimum benefit to 125% of the federal poverty line (which would be $1,301 a month in 2019), with annual adjustments thereafter that are on par with the National Average Wage Index.
  • Boost benefits for long-lived beneficiaries: Biden's Social Security plan calls for beneficiaries between the ages of 78 and 82 to receive a 1% bump up in their primary insurance amount (PIA) annually until a full 5% increase is realized in their PIA. This is to help long-lived beneficiaries cover rising expenses (e.g., medical care and/or transport costs) later in life.
  • Utilize the CPI-E as the program's inflationary tether: Since 1975, the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) has been Social Security's determinant of COLA. However, it has serious shortcomings. Biden's Social Security proposal replaces the CPI-W with the Consumer Price Index for the Elderly (CPI-E), which would, presumably, result in more accurate COLAs for seniors.
Red dice and casino chips lying atop multiple Social Security cards.

Image source: Getty Images.

Three ways Biden's Social Security proposal would miss the mark

There's little question that Biden's proposal to "fix" Social Security would make the program stronger than it is today. But the former vice president's plan comes up short in other ways.

1. Taxing the rich doesn't resolve the funding shortfall in its entirety

Arguably, the biggest issue with Biden's four-part plan is that taxing the rich, by itself, doesn't provide enough of a benefit boost to completely resolve Social Security's long-term funding shortfall. Though reapplying the payroll tax on income above $400,000 would increase revenue collection and push the program's expected exhaustion of its $2.9 trillion in asset reserves decades down the road, other ongoing demographic changes will probably continue to weigh on Social Security and coerce additional changes out of Washington, D.C.

For example, U.S. birth rates have hit an all-time low. Millennials are waiting longer to get married and have children, they have easier access to contraceptives than ever before, and the poor state of the economy isn't exactly encouraging couples to have kids. A persistent lull in baby births would mean not enough new workers to replace future retirees.

The two-decade decline in legal net immigration is also a serious concern. Social Security counts on a steady stream of legal net migrants into the U.S. each year who'll contribute via the payroll tax. Since legal immigrants tend to be young, they're liable to spend decades in the labor force. Without enough new migrants, the worker-to-beneficiary ratio will come under further pressure.

The point is, Biden's plan doesn't address these demographic changes, which means another eventual funding shortfall in the program.

A stethoscope lying atop a neatly fanned pile of one hundred dollar bills.

Image source: Getty Images.

2. The CPI-E has its drawbacks

Another flaw with Biden's Social Security plan is that the CPI-E doesn't provide as seamless a fix to the program's COLA shortcomings as you might think.

Though the CPI-E focuses on households with persons aged 62 and over and would therefore provide a more accurate snapshot of what seniors are spending their money on, it's still not perfect. The CPI-E doesn't factor in certain aspects of Medicare expenses, which, for seniors, can be substantial. As a result, the CPI-E can still underweight the medical-care costs that seniors are facing, much in the same way that the CPI-W has been doing for over four decades. This suggests there will still be a steady loss of purchasing power for Social Security income over time -- perhaps just not as severe as it's been with the CPI-W.

Furthermore, the CPI-E is viewed by the U.S. Bureau of Labor Statistics as an experimental measure. This isn't to say the CPI-E couldn't eventually become Social Security's inflationary tether, but rather that it would need some refining and improved methodology before it became the deciding factor for Social Security's COLA.

A Democrat donkey and Republican elephant squaring off atop an American flag.

Image source: Getty Images.

3. Biden doesn't have the necessary votes to amend Social Security

Lastly, but maybe most importantly, Biden lacks the requisite support to pass such a sweeping overhaul of Social Security in Congress.

Though things could change considerably after the November election, the fact remains (for now) that there hasn't been a supermajority in the Senate in over 40 years. A supermajority is where one of the major parties holds at least 60 seats in the Senate, which is the number of yes votes that will be required to amend the Social Security Act. This means that without bipartisan support, Biden's Social Security plan would fall flat.

The issue is that Republicans have been clear that they won't raise payroll taxes on the well-to-do. The payroll tax earnings cap at $137,700 (as of 2020) might not seem "fair" to those who pay into the system with every dollar they earn, but the fact is that the Social Security Administration also caps monthly payouts at full retirement age. The payroll tax cap exists because the retirement benefit cap exists.

Capitol Hill certainly isn't hurting for proposals to fix Social Security. But gathering the needed support to make changes has proved a daunting task that Joe Biden may not have an answer to.

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