For many of the 66 million-plus Americans who receive a Social Security benefit each month, their payout is viewed as a necessity to make ends meet. Spanning two decades of annual surveys, national pollster Gallup has found that at least 80% of retired workers -- retired workers account for 49.1 million of the program's current beneficiaries -- need their Social Security income in some capacity to cover their expenses.
Considering how vital Social Security is to the financial well-being of our nation's seniors, ensuring the financial health of the program is paramount to current recipients and future generations of retired workers.
Unfortunately, America's top retirement program finds itself on shaky ground, and it's up to lawmakers on Capitol Hill to fix it. What you might be surprised to learn is that some of the solutions proposed by lawmakers, such as President Joe Biden, have changed pretty drastically over the years.
Joe Biden listens to former President Barack Obama. Official White House Photo by Pete Souza.
With a possible 23% benefit cut on the horizon, Social Security needs some TLC
For 83 years, the Social Security Board of Trustees has released an annual report detailing the financial outlook for the program over the short term (defined as the 10 years following the release of a report) and long term (the 75 years following the release of a report). This report lifts the proverbial hood, allowing anyone to closely examine how Social Security generates revenue and where those dollars ultimately end up.
It also takes into account adjustments to fiscal policy, the state of the U.S. economy, and various demographic change, to forecast their short- and-long-term impacts on Social Security's solvency.
Since 1985, the Trustees Report has warned that long-term revenue generation would be insufficient to cover the current payout trajectory, including cost-of-living adjustments. In plain English, the program has been facing a projected long-term funding shortfall, per the Trustees, for nearly four decades. In the recently released 2023 report, the Trustees estimate that Social Security is staring down a $22.4 trillion funding shortfall through 2097.
The short version for why this mammoth cash shortfall exists is a plethora of demographic changes. Factors such as increased longevity, a halving in net legal migration into the U.S. over the past 25 years, historically low U.S. birth rates, and rising income inequality have all adversely impacted the program.
The silver lining is that given the way Social Security is funded -- 90% of revenue derives from the payroll tax on earned income -- it can never go bankrupt or become insolvent.
On the flip side, the Trustees Report makes it abundantly clear that the existing payout schedule isn't sustainable. If lawmakers fail to address the program's shortcomings, the Old-Age and Survivors Insurance Trust Fund (OASI), which is responsible for doling out monthly payments to retired workers and survivors, could see benefits reduced by 23% in 2033.
Joe Biden once proposed a Social Security change that would be cheered by Republicans
Make no mistake about it: Proposals to strengthen Social Security aren't lacking on Capitol Hill. But what might surprise you is who proposed certain changes.
Back in 1987, then-Senator Joe Biden of Delaware took a firm stance on fixing Social Security that would, today, be cheered by virtually all Republicans in Washington. Biden argued at the time that the way to avoid a future solvency crisis would be to raise the full retirement age -- i.e., the age where a beneficiary becomes eligible to receive 100% of their retirement payout.
Here's what Biden had to say about raising the full retirement age back in 1987, courtesy of C-SPAN and CNN's KFile:
In the year 2010, we are going to change the retirement age for Social Security. You cannot retire at age 65. You have to be 65 years and three months old. And in the year 2012, 65 years and six months. Literally raise incrementally the retirement age, beginning around the year 2010... until you reach either between 68 and 70, depending on what the actuarial tables are at the time and what people's life expectancies are -- but at least 68. And early retirement now with reduced benefits can retire at 62; change that to 65.
Since 1940, which is the year retired worker benefits began, the full retirement age for Social Security has increased by just two years (from 65 to 67). By comparison, the average life expectancy in the U.S. has jumped from approximately 63 years to 76 years.
Gradually raising the full retirement age, which is a strategy widely supported by Republicans, would force future generations of retirees into a tough decision: either take their benefits early and accept an even larger permanent reduction to their monthly payout, or wait even longer to collect their full Social Security check. No matter their choice, the amount of lifetime benefits paid would be reduced, thereby lowering Social Security's long-term outlays.
Image source: Getty Images.
Biden's current four-point Social Security plan wants nothing to do with benefit cuts
Although there's no denying that Joe Biden once advocated increasing Social Security's full retirement age, which would have effectively reduced lifetime benefits paid for future generations, the president has made clear that Social Security benefit cuts aren't part of his current agenda.
Prior to winning the November 2020 election, then-candidate Biden laid out his four-point plan to strengthen Social Security. While you can read about this plan in greater detail, here are the key points:
- Payroll taxes would be increased on high earners.
- Social Security's measure of inflation would be changed to the Consumer Price Index for the Elderly (CPI-E).
- The primary insurance amount would be incrementally raised for aged beneficiaries.
- The special minimum benefit would be lifted above the federal poverty level.
While these are all sizable changes in their own right, increasing payroll taxation on high earners is the crown jewel of this proposal. In 2023, all earned income (we're talking wages and salary, not investment income) up to $160,200 is subject to the 12.4% payroll tax that funds Social Security. Meanwhile, all wages and salary above $160,200 is exempt from this tax.
Under Biden's proposal, a doughnut hole would be created between the maximum taxable earnings cap (the $160,200 figure in 2023) and $400,000, where earned income would be exempt from the payroll tax. For earned income above $400,000, the payroll tax would be reinstated. With well over $1 trillion in earned income escaping the payroll tax annually, this would be a quick way to boost revenue for the program.
However, Biden's other initiatives, which are designed to boost benefits for tens of millions of beneficiaries, would weigh on the progress made from collecting extra tax on high earners. When researchers at the Tax Policy Center analyzed Biden's Social Security plan in October 2020, they determined the four-point proposal would only extend the program's solvency by a modest five years.
Making matters equally tough is the fact that amending Social Security in the Senate will require 60 votes. It's been 44 years (and counting) since either party held a supermajority of 60 seats in the upper house of Congress. This means any changes to Social Security will require bipartisan support.
With Biden and Democrats unwilling to support an increase to the full retirement age, and Republicans opposed to any bill that specifically targets high earners, Washington lawmakers are at a stalemate.
