President Joe Biden has unveiled a comprehensive four-point plan to address the impending depletion of the Social Security Old Age and Survivors Insurance Trust (OASI) by 2033. This trust is on the brink of running out of funds, with a staggering $22.4 trillion shortfall predicted in the 2023 Trustees Report. If this issue isn’t resolved, it could result in a disheartening scenario of up to a 24% reduction in benefits for retirees, starting in 2033.
Biden’s proposed changes are multifaceted and aim to not only secure the financial stability of Social Security but also ensure fairness across income groups. While some of these changes are targeted at high earners and company executives, who possess retirement savings well above the national average, others will have a more direct impact on middle- and lower-income wage earners—individuals who may heavily rely on Social Security benefits in their retirement years.
One of the significant changes proposed by President Biden is the implementation of a payroll tax for income exceeding $400,000. Currently, individuals are subject to a 12.4% payroll tax on income up to $160,200, but earnings beyond that threshold are not taxed for OASI. Under Biden’s plan, income above $400,000 would be subject to this tax, with the range from $160,200 to $400,000 remaining untaxed. This adjustment aims to distribute the tax burden more fairly and generate additional revenue for the OASI trust.
Another key proposal focuses on altering the way Cost of Living Allowance (COLA) increases are calculated for Social Security benefits. Currently, COLA adjustments are based on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), which may not accurately represent the expenses and lifestyles of retired individuals. Biden’s plan suggests switching to figures tied to the Consumer Price Index for the Elderly, which could better reflect the needs of retired Americans and potentially increase their benefits.
In addition to these changes, President Biden aims to increase the Primary Insurance Amount (PIA) for Americans aged 78 to 82. The PIA determines the amount of Social Security benefits individuals receive, considering factors such as the age they start claiming benefits and their Average Indexed Monthly Earnings (AIME). This adjustment is particularly beneficial for retirees facing rising expenses, particularly in areas like healthcare, later in life.
Furthermore, Biden’s plan seeks to enhance the Special Minimum Benefit provided to lifetime lower-wage workers. Currently, these individuals receive a special minimum benefit regardless of their lifetime earnings. In 2023, a lifetime low-earning worker would receive just $12,402 in Social Security benefits annually, or $1,033.50 per month. Biden intends to raise this minimum benefit to 125% of the federal poverty level for individuals. For instance, in 2023, someone eligible for the special minimum benefit would receive $1,518.75 per month with this boost, potentially improving their financial security in retirement.
However, it’s important to note that the fate of President Biden’s plan is uncertain. MSN reports that the plan faces challenges in passing through Congress. Any significant overhaul of the Social Security system requires bipartisan support in Washington, and thus far, Democrats and Republicans have not reached a consensus on how to simultaneously strengthen the financial health of Social Security and improve benefits for those who rely on them the most. The future of Social Security reform remains a topic of debate and negotiation within the halls of government.