In September, 65.8 million people received a Social Security Assistance, including more than 48 million pensioners. The vast majority of these retirees — 89% to be exact — need Social Security income to varying degrees to make ends meet.

But after more than eight decades of successfully lifting seniors out of poverty, what may be considered America’s most successful retirement program gets into big trouble.

President Biden delivers a speech. Image Source: Official White House Photo by Adam Shultz.

America’s main pension program has a $20 trillion cash deficit

Every year since 1940, when benefits began to be paid to retirees, the Social Security Board of Trustees has issued a report that provides a thorough examination of the program’s financial health. This more than 200-page report takes into account many variables, including new legislation, economic growth and various demographic changes, to effectively determine how strong the foundation is for this program. The latest report, along with 36 previous reports, signaled trouble.

Since 1985, the trustees’ report has highlighted the projected shortfall in revenue collection to maintain existing benefit levels, including the annual cost-of-living adjustment (COLA), for the next 75 years (what the trustees define as the “long-term outlook”). The 2022 report estimates a long-term cash deficit of $20.4 trillion by 2096.

The silver lining of this data is that Social Security not in danger of insolvency. Since 90% of the program’s revenue comes from the 12.4% payroll tax, the money will be collected as long as Americans continue to work.

The bad news is that existing benefit levels won’t be sustainable much longer unless lawmakers on Capitol Hill do something to strengthen Social Security. The trustees’ report estimates that the Trust Fund for Aged and Survivors (OASI), which is responsible for pensioners and survivor benefits, will completely exhaust its asset reserves by 2034. When that happens, 23% overall payout reduction will be necessary for OASI to maintain benefit payments through 2096.

Social Security has big problems; but President Joe Biden believes he has a solution.

Four big changes Joe Biden wants to make to Social Security

During the campaign before the November 2020 elections. Biden released a four-point plan which outlined the changes he believes are necessary to strengthen Social Security for decades to come. In no particular order, these changes include:

1. Forcing high earners to pay more

This year, all income received (wages) from $0.01 to $147,000 subject to a payroll tax of 12.4%. However, income above the taxable income limit ($147,000 in 2022) is exempt from payroll tax.

Biden wants to close much of that loophole by making all earned income above $400,000 subject to the payroll tax again. There is a gap between the maximum taxable amount of income and $400,000 where earned income remains exempt. But thanks to annual cost-of-living adjustments and wage growth, that donut hole will shrink over time.

2. Switching the COLA measure to CPI-E

For the past 47 years, the Consumer Price Index for Urban Wage Workers and Employees (CPI-W) has been the inflation measure used to determine the COLA each year. unfortunately it did a terrible job taking into account inflation, the elderly had to deal with and have cost the elderly 40% of their purchasing power only since the beginning of the century.

Biden’s solution is to ditch the CPI-W for the Consumer Price Index for Seniors (CPI-E). As the name suggests, the CPI-E will focus strictly on the spending habits of the elderly, who make up the bulk of Social Security recipients. This should result in more accurate annual COLAs.

3. Increase in payments to long-term residents

One of the biggest challenges that retirees face is rising costs as they age. Health care and transportation costs (such as medical transport) are two examples of costs that can increase as Americans reach their 70s, 80s, and beyond.

President Biden proposed an increase primary sum insured (PIA) by 1% annually between the ages of 78 and 82. Therefore, an 82-year-old Social Security recipient would see a cumulative 5% increase in PIA, which could be used to offset some (or all) of the higher costs.

4. Increasing the special minimum benefit

This year, a lifetime low-wage worker with 30 years of experience can take home the maximum Social Security benefit of $951 a month. That’s $181 a month below the federal poverty level for a single taxpayer.

Biden’s fix would adjust the Special Minimum Benefit to 125% of the federal poverty level. Social Security already lifts more than 16 million beneficiaries (ages 65 and older) out of poverty each year. With Biden’s proposal, that number is sure to grow.

Image source: Getty Images.

Will the midterm elections give Biden the momentum he needs to push through Social Security reforms?

The proposals are great on paper, but what tens of millions of current and future Social Security recipients want to know is whether Joe Biden’s plan has traction on Capitol Hill. For some Americans, that means looking ahead to the midterm elections as a possible catalyst.

In just over a week, on November 8, 2022, the midterm elections will be held and the balance of power in both houses of Congress will be decided. However, there are two key reasons why the midterm elections will do little to provide a path for Joe Biden’s Social Security proposal to become law.

First, there are broad ideological differences between the Democratic and Republican parties about how Social Security should be fixed. Without getting into the nitty-gritty, Democrats favor raising revenue by raising taxes on high-income earners, while Republicans favor long-term spending cuts through gradual increases full retirement age. Both solutions work to strengthen social security, albeit at very different times.

But here is the problem. Because both sides have a core proposal that makes Social Security stronger, neither has been willing to work with their opposition to find anything resembling common ground.

This leads to the second reason Biden’s Social Security plan lacks support in Washington, D.C.: It doesn’t have enough votes in the Senate. Regardless of which party controls the US Senate after the midterm elections, neither party will have anywhere near 60 seats. I mention this number because it takes 60 yes votes to change the Social Security program. That means President Biden will need bipartisan support from at least a handful of Senate Republicans to pass his plan; and to date, no member of the Republican Party has supported Biden’s proposal.

Despite the promise of the new Congress, which will be formed in the coming months, the legislation on social security seems destined to stop at least two more years.

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