President Joe Biden has proposed a plan to assist close the $22.4 trillion financing gap indicated in the 2023 Trustees Report as the Social Security Old Age and Survivors Insurance Trust (OASI) is projected to run out of money by 2033. If the national government is unable to address the shortage, retiree benefits might be reduced by up to 24% starting in 2033. While some of Biden’s suggested changes will primarily impact high earners and business executives, who have savings plans for retirement that are many times larger than those of the average American, others will have an impact on middle- as well as lower-income wage earners, particularly those who may eventually rely on benefits from social security.
Social Security COLA; Source- MARCA
President Joe Biden’s Proposal For Social Security COLA
The COLA which is calculated annually based on inflation, is used to alter Social Security benefits. The administration now determines COLA using the CPI-W. However, this figure may not accurately represent the costs and way of life of retirees. The issue of Social Security running out of money will not be resolved by switching COLA calculations to numbers based on the CPI for the Elderly. However, it might put additional funds in the hands of American retirees who most need it. Currently, a 12.4% payroll tax is applied to any earned income that is less than $160,200. OASI taxes are not applied to earnings that are higher than that threshold. Biden wants to tax income earned over $400,000 while exempting wages over $160,200 up to $400,000.
Social Security Benefits Determined By AIME
The amount of Social Security benefits you will get is determined by your AIME when you start claiming benefits, and the PIA. For Americans around 78 to 82, raising the PIA would benefit individuals who face increased costs in later life, such as healthcare. Despite how much money they made while working, low-wage individuals are entitled to a particular minimum benefit. A lifetime low-earner’s yearly Social Security payments in 2023 would be just $12,402, or $1,033.50 per month. Biden wants to raise the bare minimum compensation to 125% of the individual federal poverty threshold. For instance, a person obtaining the special minimum pension in 2023 would receive $1,518.75 monthly with the increase.
Flaws In Joe Biden’s Proposal For Social Security COLA
The obvious problem with Joe Biden’s Social Security plan is the fact that he will use a significant portion of the extra money taken in by high earners for other purposes, such as raising the special minimum benefit, increasing the PIA for elderly beneficiaries, and switching to the CPI-E, which will result in higher COLAs for everyone. The Social Security Administration’s Office of the Chief Actuary predicts that if the president did nothing else except tax all earned income, the trust funds’ solvency would be increased by about 35 years.
The main point is that there does not seem to be a way to prevent potential advantage cuts without first taking other alternatives into account, no matter what President Biden suggests in terms of raising payroll taxes on the wealthy. The president’s plan also runs the risk of receiving inadequate backing from the upper house of Congress. It takes 60 votes to change Social Security statutes, and neither party has held a majority of votes in the U.S. Senate for 44 years (and counting). As a result, bipartisan support will be necessary for any Social Security measures, and Republican senators have made it clear that they will not support any reforms that simply benefit the wealthy.
Regrettably, the approach has little chance of passing Congress. Any overhaul of Social Security would need bipartisan backing in Washington, but Republicans and Democrats have not been able to agree on how to simultaneously enhance payouts for individuals who need them most and strengthen Social Security’s finances.
