Joe Biden has laid out his plans to overhaul Social Security should he win the election in November. It shouldn’t come as a surprise that Biden wants the wealthy to chip in more money, the biggest boost in benefits will go to the lowest earners, and when it’s all said and done, his plan doesn’t save the program from insolvency.
Here are the four main Social Security changes proposed by Joe Biden:
1. Increase Taxes On High Earners
Currently, there is a 12.4% payroll tax on earned income (wages and salaries, not investment income) that goes towards Social Security. It applies to earned income between $0.01 and $137,700 per year. A full 94% of workers fall into this income range, meaning all of their earned income is subject to the payroll tax. For high earners, income above $137,700 per year exempts one from contributing towards the payroll tax. The change proposed by Biden would add a second threshold at $400,000 per year in earned income. Any earned income above $400,000 would again be subject to the 12.4% payroll tax.
Biden’s plan would create a “donut hole” between the $137,700 threshold and the $400,000 threshold, where earned income between these two amounts is still exempt from the payroll tax. But as the payroll tax cap amount increases every year in step with the National Average Wage Index, eventually that donut hole will shrink.
2. Tie The Special Minimum Benefit To The Federal Poverty Line
Currently, the special minimum benefit for lifetime low earners was $886.40 a month. While it won’t affect too many retirees, Biden’s plan would set the special minimum benefit at 125% of the federal poverty line. Last year, 125% of the federal poverty line for an individual was $1,301 a month. So readjusting the benefit to Biden’s proposal would increase the payment by xx%.
3. Increase Benefits For Long-Lived Recipients
Also included in Biden’s plan is an increase in benefits for long-lived Americans.
For the most part, certain expenses like healthcare increase dramatically as we age. Social Security benefits don’t often increase at the same rate. So seniors who are fortunate enough to enjoy a long life often see their increased expenses outstrip their monthly benefits. Biden has proposed that recipients between ages 78 and 82 get a 1% increase in their primary insurance amount every year until it reaches a 5% overall increase.
4. Change The Inflation Measurement To The CPI-E
Biden’s final change to Social Security would adjust the inflation measurement used to calculate the yearly cost-of-living adjustment from the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) to the Consumer Price Index for the Elderly (CPI-E).
While 80% of Social Security beneficiaries are seniors, the CPI-W tracks the spending habits of urban and clerical workers.
Biden’s plan would use the CPI-E as the new inflationary tether. The CPI-E specifically tracks the spending habits of households with persons aged 62 and up, allowing the program to make more accurate cost-of-living adjustments each year.
Biden’s proposals would face a significant challenge as it would require 60 senators voting in favor to get legislation passed. It’s not exactly easy to get bipartisan support for the changes when Republicans have no interest in raising taxes on wealthy individuals. Additionally, increasing taxes on high earners won’t save the Social Security program from insolvency, it will just delay it a few years.