As the coronavirus health crisis, and high unemployment drag on, Social Security’s financial situation is becoming increasingly urgent. According to the Social Security Trustees, Social Security’s annual revenues are expected to fall short of benefits paid in 2021, and never recover without action from Congress. High numbers of people out of work due to business closures, and people working part time or at reduced wages has significantly reduced Social Security payroll tax revenue needed to pay the benefits of today’s retirees.
President Biden campaigned on a Social Security plan that would boost Social Security benefits and pay for the higher benefits by increasing Social Security payroll tax revenues. But even so, a recent analysis of his plan by the nonprofit Urban Institute, a policy research organization, says that the Biden plan would not completely fix Social Security’s long-term solvency.
While President Biden has not yet released a plan for Social Security, here are several major proposals drawn from the 2020 Democratic platform plan for Social Security:
- Increase Social Security’s revenue by applying the 12.4% payroll tax to earnings above $400,000. This new threshold would be fixed while the current wage base continues to increase. Eventually, all covered earnings would be taxed. Currently, the wage base taxed for Social Security purposes in 2021 is all wages up to $142,800. This amount is adjusted upward annually based on the growth in wages.
- Use the Consumer Price Index for the Elderly (CPI-E) to increase the annual COLA, increasing COLAs by about 0.2 percentage point more per year. Under current law the annual inflation boost is based on the costs experienced by younger worker adults, the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) which does not survey the costs of retired adults age 62 and older.
- Boost the benefits of people who have collected Social Security for at least 20 years by about $77 per month. Research by TSCL has found that Social Security benefits have lost 30% of their buying power over the past twenty years. A boost of $77 per month would help make up for low COLAs over the past 12 years and provide higher benefits at a time of life when retirees may have spent down most of their savings.
- Give caregiver credits for workers with children under 12, or family members with disabilities to offset the wages given up while caregiving. Individuals who care for other family members often wind up with lower, or even no wages on their earnings record. Because Social Security benefits are based on an individual’s 35 highest years of earnings, this results in lower Social Security retirement benefits. The credits would provide higher initial retirement benefits for new retirees who have spent time out of the workforce providing care for family members.
- Boost surviving spouse benefits up to 75% of the combined household benefit. Under current law, Social Security offers survivor benefits that are the same amount of the deceased spouse’s benefit, if higher than the survivor’s own retirement benefit. However, the surviving spouse must give up their own benefit. Thus, the death of a spouse can reduce household Social Security payments by as much as 50% of the total benefit prior to the spouse’s death, assuming both received the same amount in benefits.
- Eliminate the Windfall Elimination Provision and the Government Pension Offset, both of which reduce Social Security benefits of individuals and/or their spouse who have worked in both a government job and one covered by Social Security.
- Increase minimum benefit payments for new retirees up to 125% of the single person poverty level, which was $1,329 per month, $15,950 per year in 2020.
An analysis by the nonpartisan Urban Institute found that, although President Biden’s plan would boost payroll tax revenues, most of the new revenues would be devoted to expanding benefits. The analysis found that the new revenues would offset part of the new costs, but it would not raise enough revenue to cover all scheduled costs. The analysis further found that the plan would extend the life of the Social Security Trust Fund, but only by about five years.
Social Security solvency legislation that boosts benefits would be required to also provide 75 years of solvency to achieve passage. TSCL’s surveys indicate that a large majority of you think that the Social Security payroll tax should apply to all earnings, not just the first $142,800. This one change is estimated to reduce the Social Security shortfall by as much as 73%.
Sources: “Updated Baseline for Actuarial Status of the OASI and DI Trust Funds, Reflecting Pandemic and Recession Effects,” Stephen C. Gross, Chief Actuary, Karen P. Glenn, Deputy Chief Actuary, Social Security Administration, November 24, 2020.