For most Americans, Social Security is a necessary source of income that helps make ends meet. More than two decades of annual polling from Gallup have shown that between 80% and 90% of then-current retirees, along with 76% to 88% of future retirees, are or expect to be in some way reliant on their monthly Social Security check to cover their expenses.
To ensure the financial well-being of an aging workforce, the foundation of America's top retirement program needs to remain rock-solid. Unfortunately, cracks in this foundation have been apparent for nearly four decades.
More than 67 million current beneficiaries, along with well over 100 million workers in the labor force, are counting on elected lawmakers to strengthen Social Security and avoid a catastrophe. This includes President Joe Biden, who, prior to being elected as president in 2020, unveiled a multipoint plan to overhaul Social Security.
Joe Biden listening to former President Barack Obama. Image source: Official White House Photo by Pete Souza.
Here are the 10 things you absolutely must know about the trajectory of the Social Security program, the tenets of Joe Biden's plan, and whether or not the president's proposal would work.
1. Social Security has more than $22 trillion in unfunded obligations
Every year since 1985, the Social Security Board of Trustees Report has estimated that America's top retirement program wouldn't bring in sufficient revenue to cover long-term outlays. In this sense, the "long-term" is defined as the 75 years following the release of a report.
The size of Social Security's unfunded obligations has been steadily growing for nearly four decades. As of the 2023 Trustees Report, the estimate stood at a long-term cash shortfall of $22.4 trillion.
Although a couple of pervasive myths circulating online blame undocumented workers and/or Congress "stealing" the program's trust funds for this mess, the bulk of Social Security's shortcomings can be traced to major demographic changes, such as rising income inequality, historically low birth rates, and a more-than-halving in legal migration into the U.S. since 1998.
2. The current payout schedule is very much in question, with benefit cuts a real possibility by 2033
Despite Social Security's weakening financial foundation, it's in absolutely no danger of going bankrupt or becoming insolvent.
Two of the program's three sources of funding -- the payroll tax on earned income and the taxation of benefits -- account for virtually all of its revenue. As long as people keep working and paying their taxes, payouts will be disbursed to eligible beneficiaries.
What is at stake is the continuity of the existing payout schedule. If the Old-Age and Survivors Insurance Trust Fund (OASI) depletes its asset reserves by 2033, as the Trustees have forecast, sweeping benefit cuts of up to 23% may await retired workers and survivor beneficiaries.
3. Joe Biden has proposed increasing payroll taxation on high earners
While on the campaign trail in 2020, then-candidate Biden released a four-point plan designed to strengthen Social Security. The critical aspect of this proposal was increasing payroll taxation on high earners.
In 2024, all earned income (wages and salary, but not investment income) between $0.01 and $168,600 is subject to the 12.4% payroll tax. Close to 94% of workers will bring home less than $168,600 (the maximum taxable earnings cap) this year, and will therefore owe tax on every dollar they earn. Meanwhile, earned income north of $168,600 is exempted from the payroll tax.
Under Biden's plan, the payroll tax would be reinstated on earned income above $400,000, with a doughnut hole created between the maximum taxable earnings cap and $400,000 where the payroll tax exemption would remain in place. Since the maximum taxable earnings cap rises most years in lockstep with the National Average Wage Index, this doughnut hole would naturally close over time.
4. The president wants to shift the measure of inflation from the CPI-W to the CPI-E
Another critical component of Biden's plan is to move away from the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) as Social Security's inflationary measure.
The CPI-W has been Social Security's cost-of-living adjustment (COLA) determinant every year since 1975. The issue, as you can see in its full name, is that it focuses on the spending habits of "urban wage earners and clerical workers." These are usually working-age Americans who aren't currently receiving a Social Security check. Moreover, they spend their money very differently than the seniors who make up the overwhelming majority of program recipients.
Biden's proposal would see the CPI-W removed in favor of the Consumer Price Index for the Elderly (CPI-E). The CPI-E strictly focuses on the spending habits of households with persons aged 62 and above. More accurate inflation readings should lead to higher aggregate COLAs over time.
Image source: Getty Images.
5. Biden has suggested increasing the special minimum benefit
The third key tenet of Joe Biden's Social Security plan is to meaningfully increase the special minimum benefit.
In 2024, a lifetime low-earning worker with 30 years of coverage can take home no more than $1,066.50 per month. By comparison, the federal poverty level for the 48 contiguous U.S. states in 2024 is $1,255 per month.
The president's offer is to lift the special minimum benefit to 125% of the federal poverty level and adjust it annually thereafter to account for inflation. If this proposal were law now, the special minimum benefit for a person with 30 years of coverage would be $1,568.75, or more than $500-per-month higher.
6. The president's proposal would gradually increase the PIA for aged beneficiaries
The fourth big change Joe Biden wants to make is to gradually lift the primary insurance amount (PIA) for aged beneficiaries. Specifically, Biden's plan calls for a 1% annual increase to their PIA, beginning at age 78 and continuing through age 82, which would result in an aggregate boost of 5%.
The purpose of this increase is to help partially offset some of the expenses that can grow as we age. This includes prescription medicine costs, as well as medical transportation expenses, to name a few.
7. Joe Biden's plan would extend the solvency of the program's asset reserves
The all-important question: Would Joe Biden's Social Security changes strengthen the program?
The cut-and-dried answer is yes, it would.
Researchers at Washington, D.C.-based think tank Urban Institute analyzed Biden's proposal in October 2020 and came to the conclusion that all of its components "would close about a quarter of the program's long-term funding deficit and extend the life of the trust funds by about five years."
8. Biden's four-point proposal falls well short of closing Social Security's long-term funding gap
On the other hand, Joe Biden's big changes wouldn't come within striking distance of closing the program's growing long-term funding gap.
Although increasing payroll taxation on high earners would immediately boost revenue for Social Security, the other aspects of Biden's plan would offset much of these gains. Lifting benefits for lifetime low-earning workers, increasing the PIA for aged beneficiaries, and shifting to the CPI-E, which results in a payout increase for all beneficiaries over time, neutralizes much of the extra revenue from taxing the rich.
What Biden's proposal demonstrates is that taxing the rich, by itself, isn't going to be enough to close Social Security's long-term funding shortfall.
Image source: Getty Images.
9. The president's Social Security plan would come with unintended economic consequences
Additionally, the president's four-point plan to overhaul Social Security would lead to a couple of unintended and adverse consequences for the U.S. economy.
An analysis conducted by the economists at the non-partisan Penn Wharton Budget Model (PWBM) in March 2020 suggests that switching to the CPI-E from the CPI-W would cause individuals with ample retirement savings to work less or retire earlier. This would have negative implications for U.S. productivity and lead to lower gross domestic product by 2030 and 2050.
Furthermore, increasing the payroll tax on high earners would "distort labor supply decisions by more than the current payroll tax," in the words of PWBM's economists. In plain English, targeting high-income individuals would encourage these workers to defer their income, work less, or generate income from sources that avoid the payroll tax. This, too, is a negative for the U.S. economy over the long run.
10. Biden's Social Security proposal has virtually no chance of becoming law
Perhaps the biggest problem of all is that President Biden doesn't have the votes on Capitol Hill to see his proposal become law. Amending Social Security laws will require 60 votes in the U.S. Senate, and it's been 45 years since either party had a supermajority of 60 seats. In short, bipartisan support would absolutely be needed.
The challenge is that Democrats and Republicans have approached "fixing" Social Security from opposite ends of the spectrum, and they both have a plan that strengthens the program. Since both parties' proposals work, neither is incented to work with their opposition to find common ground. Thus, the stalemate persists.
Although Congress has a history of coming to Social Security's rescue in the 11th hour, delaying is only going to make an eventual fix costlier on working Americans and/or the program's 67 million-plus beneficiaries.
