The big day is now just 11 days away. On Tuesday, Nov. 3, tens of millions of Americans from across the country will make their way to local voting booths or mail in their ballots to decide who'll lead America for the next four years.
While there's no shortage of hot-button issues garnering attention this election season, including the coronavirus response and social-justice reforms, it's Social Security that could prove to be a deciding factor.
The election winner will be tasked with fixing a nearly $17 trillion problem
Social Security is the leading social program in this country, providing nearly 65 million people with a benefit and pulling more than 22 million folks out of poverty each month. It's vital to the financial well-being of our nation's retired workers and the long-term disabled.
It's also in some pretty big trouble.
Every year since 1940, the Social Security Board of Trustees has released a report analyzing the short-term (10-year) and long-term (75-year) outlook for the program. Since 1985, the Trustees have cautioned that long-term revenue collection wouldn't be enough to cover outlays. As of 2020, the 75-year funding-obligation shortfall for Social Security had reached $16.8 trillion. Without some very direct changes to the program, retired workers could see across-the-board benefit cuts of as much as 24% by 2035 in order to keep Social Security solvent.
The American public will be looking for the winner of the upcoming presidential election -- Democratic Party challenger Joe Biden or incumbent Republican Donald Trump -- to tackle Social Security's shortcomings head on. This means it pays to know exactly where both candidates stand on Social Security, as well as what strengths and weaknesses they bring to the table.
Joe Biden on Social Security
Joe Biden's plan to shore up Social Security pretty much follows core Democratic Party ideology. Here are the four key changes Biden has proposed making to the program:
- Increase the payroll tax on the top 1%: To raise additional revenue, Biden wants to reinstate the 12.4% payroll tax on earned income above $400,000. A doughnut hole would remain in place between the maximum taxable earnings cap ($142,800 in 2021) and $400,000, where earned income would remain exempt from the payroll tax.
- Provide aged beneficiaries a beefed-up payout: As people age, their medical-care and transportation expenses can soar. In response, Biden wants to increase the primary insurance amount to long-lived beneficiaries by 1% annually between ages 78 and 82, leading to an aggregate increase of 5%. This should lift monthly payouts for elderly recipients.
- Increase the special minimum benefit: Qualifying low-income workers with 10 to 30 years of work history under their belts would see their minimum monthly benefit climb to 125% of the federal poverty line under Biden's plan.
- Utilize the CPI-E in place of the CPI-W: The Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) has done a poor job of measuring the inflation seniors are contending with. As a result, the purchasing power of Social Security income has declined by 30% since 2000. Biden's proposal is to replace the CPI-W with the Consumer Price Index for the Elderly (CPI-E), which would specifically focus on tracking costs important to seniors and result in more accurate annual cost-of-living adjustments (COLAs).
The best aspect of Biden's plan is that taxing the rich would provide an immediate cash infusion for Social Security. With benefit cuts possible in 15 years or less, the added income collected from high earners could push back the need to consider benefit cuts by decades.
Additionally, using the CPI-E in place of the CPI-W would provide for modestly higher COLAs over time. This would lead to a reduced loss of purchasing power for seniors.
What doesn't work?
The biggest issue with Biden's plan is that it's not a cure-all. It resolves Social Security's short-term cash issues by punting the exhaustion of its asset reserves decades down the road. However, it fails to account for other ongoing demographic shifts, such as record-low birth rates, a halving in net legal immigration, and increased longevity. These demographic changes mean that taxing the rich won't, by itself, be enough to resolve Social Security's long-term cash shortfall.
Furthermore, the CPI-E is considered by the Bureau of Labor Statistics to be an experimental inflationary measure. Even if it were to replace the CPI-W, it still fails to account for certain Medicare expenses. This means a continued loss of purchasing power for seniors (albeit reduced).
Donald Trump on Social Security
President Trump, on the other hand, has mostly kept his distance from taking a direct stance on Social Security. The president understands that all direct changes to the program will result in some group(s) ending up worse off than they were before, which could cost the party in power votes come election time.
Though Trump doesn't have a concrete proposal on Social Security, here are a handful of ideas he's proposed between his time on the campaign trail prior to winning in 2016 and his current term as president:
- Reduce wasteful spending at SSDI: Each of the four federal fiscal-budget proposals put forth by President Trump called for modest cutbacks in spending for the Social Security Disability Insurance (SSDI) Trust. In particular, Trump called for reducing retroactive SSDI benefits to six months from the current 12 months for eligible individuals. Over a 10-year period, aggregate cutbacks to Social Security outlays ranged from a high of $72 billion in the fiscal 2018 budget proposal to a low of $24 billion in the fiscal 2021 proposal.
- Means test for benefits: While not a concrete proposal, Trump has tossed around the idea of the well-to-do (like himself) not taking Social Security benefits. With means testing, income thresholds would be set where benefits would begin to phase out or be halted completely for high earners.
- Create a partial or permanent payroll-tax holiday: As part of Trump's coronavirus response, he's signed executive orders deferring payroll tax collection for the final four months of 2019 in an effort to pad workers' paychecks now. However, he's also opined that he'd like to see the payroll tax eliminated on a permanent basis to boost workers' take-home pay. Keep in mind that his staff has denied that eliminating the payroll tax permanently is a measure that's on the table for serious discussion.
The biggest benefit from Trump's rough collection of ideas and proposals is that it would recognize a hard Social Security truth: Cost reductions eventually need to be made. Though tackling inefficiencies at SSDI and means testing would make some headway in reducing long-term outlays, the amount of cost savings from both ideas would likely prove small.
Also, putting extra cash into the pockets of workers in the short term could provide an economic lift to the U.S. economy as it navigates its way through the coronavirus recession. Since 89% of the $1.06 trillion collected by Social Security in 2019 was derived from the payroll tax, a rebounding economy would be great news for the program.
What doesn't work?
On the other hand, Social Security fixes that aim to cut costs often take decades before significant savings are realized. That does nothing for a program that's facing a complete exhaustion of its $2.9 trillion in asset reserves by 2035. In other words, sweeping benefit cuts of up to 24% would remain a strong possibility.
Further, partially or permanently eliminating the payroll tax could prove devastating to Social Security. One analysis suggested that, without its primary source of funding, Social Security could be insolvent by 2023. Neither Democrats nor Trump's own party would support eliminating the payroll tax.