President Joe Biden recently delivered his highly anticipated State of the Union address, which is always a big event for a sitting President. Biden discussed a number of topics, including the contentious debt ceiling debate, which has also included a conversation on government-run programs such as Social Security.
The mention of Social Security during his speech resulted in a strange interaction between Biden and Republicans that may end up pushing any kind of potential cuts to Social Security even further off the table than they already were. However, even if this is true, it doesn't solve the larger problem the program is facing. Let me explain.
What happened
Earlier this year, the U.S. government hit the debt ceiling, which is the total amount of money the government can borrow to fund obligations that lawmakers have already approved. Normally, as has been done many times in the past, lawmakers would move to raise the debt ceiling so it can continue to borrow and fund obligations such as Social Security.
Image source: Getty Images.
This year, however, while most necessary programs and obligations are still being funded, there has been a more contentious debate about raising the debt ceiling. Republicans, who now control a majority of the U.S. House of Representatives, have spoken about tying the debt ceiling debate to broader spending cuts that they believe are necessary to improve the financial health of the U.S. government, which is more than $31.4 trillion in debt. Previously, some Republicans have talked about cuts to Social Security and Medicare.
But as the debate has ramped up, many key Republicans, such as House Speaker Kevin McCarthy, have significantly backed away from tying programs like Social Security and Medicare to the debt ceiling debate. "No. Let's take those off the table," McCarthy said on CBS's Face the Nation recently.
When Biden raised the issue during his State of the Union address and inferred how some Republicans were interested in cuts to Social Security and Medicare, he was met with cries from Republicans implying that this was not how they felt.
Now, given that this is politics, a lot of this has turned into a "he-said-she-said" matter. But the Republican Study Committee did author a blueprint for the fiscal 2023 U.S. budget that calls for increasing the age at which retirees and seniors can claim certain Social Security and Medicare benefits.
Following the pushback from Republicans at the State of the Union address, Biden said, "So folks, as we all apparently agree, Social Security and Medicare is off the books now, right?" The comment was met with cheers from both sides of the aisle.
Social Security still has a big problem
Politics aside, Social Security is still glaring at a huge funding shortage that is going to result in cuts anyway if lawmakers don't act.
Social Security benefits are largely funded through a payroll tax: 6.2% for individuals and employers and 12.4% for self-employed individuals. But these taxes have not been enough in recent years to fund all of the scheduled benefits for the 66 million retirees that collect Social Security.
The Social Security Administration has had to dip into the Old Age, Survivors, and Disability Insurance trust funds to fill the hole. But these trust funds will be depleted by 2035, at which time projected Social Security payroll tax income will only be enough to pay out 77% of scheduled benefits. A sudden cut in benefits would be problematic because a large majority of retirees rely on Social Security to cover the bulk of their expenses, so even a small disruption could dislocate millions of Americans.
As one might suspect, to solve the funding gap, the Democrats are largely in favor of raising taxes, while the Republicans would like to cut benefits. Given that this is a hot-button issue, there may need to be a compromise that involves both higher taxes and benefit cuts unless other creative solutions can be found.
Either way, while Biden may have avoided spending cuts to Social Security this year, it doesn't solve the bigger issue at hand.
