ANALYSIS: The Good and Bad in Biden’s 4-Point Plan to Save Social Security

Many people wait until 70 to draw their first Social Security check. Lane V. Erickson/Shutterstock

News Analysis

As Americans reach the age of retirement, the majority of them will come to depend on the Social Security trust fund benefits they’ve been investing in from the first day the taxes were taken out of their first paycheck.

However, the $22.4 trillion funding plunge predicted in the 2023 Trustees Report could result in benefit cuts of up to 23 percent for America’s retirees beginning in 2033.

Unlike Medicare, Social Security Old Age and Survivors Insurance Trust (OASI) is not heading toward bankruptcy or insolvency. As long as there are Americans working there will be money flowing into the trust fund coffers to cover the benefits of current retirees. What is at stake are the benefits of future recipients.

In an effort to circumvent the future risk to these benefits, President Joe Biden has put forth a four-point proposal to bolster the trust fund’s current assets and help replenish the projected deficit.

Those proposed changes are:

1. Taxing wages above $400,000 while leaving all earned income between $160,200 and $400,000 untaxed. As it is currently, any wages above $160,200 are exempt from Social Security tax.
2. Shifting the measure for Social Security’s cost-of-living adjustments (COLAs) from the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) to the Consumer Price Index for the Elderly (CPI-E).
3. Raising the Primary Insurance Amount (PIA) received by retired workers annually by 1 percent between the ages of 78 and 82, which would eventually amount to a 5 percent increase.
4. Increasing the special minimum benefit for lifetime lower-wage Social Security beneficiaries to 125 percent of the federal poverty level.

Rachel Greszler sees both good and bad in the list of proposals.

Ms. Greszler, a senior research fellow at the Roe Institute, has extensive expertise in the areas of retirement and labor policies in programs such as Social Security, pensions, disability insurance, and worker compensation.

Before joining The Heritage Foundation in 2013, she served for seven years as a senior economist on the staff of the Congressional Joint Economic Committee.

So what does Ms. Greszler see as the good and bad points in Mr. Biden’s proposal?

Taxing wages above $400,000

Of all the proposals, Ms. Greszler believes this would cause the most harm.

“I get the appeal of this,” she told The Epoch Times.

It plays into the “pay their fair share” mantra often proposed by Democrats—like President Joe Biden and his former boss, former President Barack Obama—and favored by many Americans, particularly in the Democratic base.

However, while “it sounds like they’re just going to raise taxes on wealthier earners,” Ms. Greszler notes that the effort “is not going to cover the shortfall or even that much of the increased costs and benefits.”

“The problem here is it creates a donut hole in the interim so earnings between $160,200 and $400,000 will not be taxed,” she explained, adding that “the earnings over $400,000 will be taxed the full 12.4 percent.”

Papers with title social security tax. Vitalii Vodolazskyi/Shutterstock

“That is a huge tax increase,” she warned. “You’re going to have total marginal tax rates close to 70 percent in the U.S., if you look at a state like California that has the highest tax rate. That’s going to have significant implications for small business earnings that are not consistent. They may be high one year and not the next, and a lot of that income goes toward investments, which give us all the technologies we benefit from.”

A 2020 analysis of this proposal by Penn Wharton concluded that this revision would “reduce the program’s conventional 75-year imbalance by 1.5 percent of current law taxable payroll, leaving a remaining imbalance equal to 2.0 percent of current law taxable payroll.” It also predicts “it would lower GDP by 0.6 percent in 2030 and 0.8 percent in 2050.”

“That’s a really big difference,” said Ms. Greszler of the 2020 data. “That translates to about $450 to $600 less per year per household in America. Add that up over time and that’s a lot of lost income.”

With the current rate of inflation, the income losses would increase exponentially.

Shifting the measure for Social Security’s COLAs from CPI-W to CPI-E

Given a choice between the CPI-W and the CPI-E, Ms. Greszler sees problems with both.

She describes the CPI-W as “a flawed index,” because “it is very narrow and only looks at a subset of workers.”

Conversely, she said “the CPI-E for the elderly doesn’t really make sense” either because “the largest expense for senior retirees is medical costs, which are already covered by Medicare, and Social Security beneficiaries are already protected from inflation the way average Americans are not.”

“The Social Security benefit went up 8.7 percent last year whereas the average American’s paycheck went down around two to three percent in 2022. So we’re paying twice,” she explained.

Not only are people who are not retired receiving smaller paychecks, she said they will ultimately be the ones who bear the burden of the increased costs that would come from Social Security paying higher benefits.

“If the goal is to provide higher benefits it should just be done outright,” she proposed. “Not by trying to hide it by saying they’re using a different inflation index.”

Rather than the CPI-W or the CPI-E, Ms. Greszler suggests the inflation index should be changed to what she believes is a more accurate inflation index, the Chained CPI, or “Chained Consumer Price Index For All Urban Consumers” (C-CPI-U).

Rachel Greszler, a Senior Research Fellow in the Roe Institute (courtesy of The Heritage Foundation).

“Designated the C-CPI-U,” the BLS explains, “the index supplements the existing indexes already produced by the BLS: the CPI for All Urban Consumers (CPI-U) and the CPI for Urban Wage Earners and Clerical Workers (CPI-W).”

“It makes sense,” she said, noting that it was something proposed by both Democratic President Obama and Republican President George W. Bush.

“It tracks the basket of goods that most people are actually buying,” she said.

“It should be a bipartisan thing,” she said, “but it has, unfortunately, become a more partisan issue.”

Raising the PIA

Then there’s the proposal to increase Social Security benefits based on someone reaching the age of 78 and 82.

The argument, she explained, is that as you get older your costs are increasing.

However, while there is some correlation, particularly for healthcare costs, she noted that the odds are also better that those in this age demographic have paid off their mortgage and eliminated other big-ticket expenses.

“Any changes made to the program should be based on need, not age, because you’re going to end up paying millionaires higher benefits under those proposals and they do not need those higher benefits and this system needs to keep as many financial resources as it can,” Ms. Greszler explicated. “I don’t think that proposal makes sense. It’s not targeted. It’s just providing a windfall benefit to everybody regardless of whether or not they actually have an increased financial need during those ages.”

Increasing the Special Minimum Benefit

In some respects, Ms. Greszler ranks this as a good idea.

“I do think there is a good case to be made that benefits for lower-income earners in Social Security should be increased because it was supposed to be an anti-poverty program and nevertheless there are millions of seniors receiving Social Security and still living in poverty,” she told The Epoch Times.

She also noted how these poverty-level retirees are also “tapping into programs like supplemental security income and other welfare assistance programs.”

“So I think there should be bipartisan support for increasing the minimum benefit,” she suggested.

The idea, she said, is similar to something The Heritage Foundation proposed “as part of a much broader shift to get toward a more universal benefit structure based on the number of years you work rather than the income you earned.”

“Our proposal would increase the minimum benefit at least to the poverty level for someone who had a full career,” she said.

However, the problem she sees with President Biden’s proposal is that “he wants to make this change rather quickly.”

“Frankly, the program does not have the financial resources to do that,” she said. “Benefits are on tap to be cut 25 percent across the board within 10 years and that’s with Congress doing nothing. So we’re already talking about across-the-board average benefit cuts of $5,000 in 10 years.”

If you start hiking benefits so significantly over the next 10 years, she predicts that not only is the projected 10-year insolvency day “going to come sooner” but the across-the-board cuts are going to be larger for everyone. Those who would have received a larger benefit in the next couple of years will end up receiving less.

Social Security, she explained, was initially intended to be “an old age, anti-poverty program” to supplement rather than to be the only source of income in retirement. Therefore, she believes the reforms should reflect that original intent.

“The fact that the program delivers the highest benefits to those who have the highest income doesn’t make sense in terms of a social insurance program and certainly not in terms of a welfare program.” she proposed. “If there’s going to be an increase in the minimum benefit, that needs to be coupled with a reduction in the benefits for higher income earners but not with an increase in the tax rate.”