Joe Biden’s plans for Social Security and Supplemental Security Income would lift 1.4 million Americans out of poverty in its first year, a new analysis found, along with guaranteeing the payout of full benefits for another five years.
The former vice president’s plan hinges on imposing the 6.2% Social Security tax on earnings above $400,000. Employees and their employers are taxed on earnings up to $137,000 under current guidelines.
If enacted next year, Social Security would collect 7% more in revenue in 2021, 12% more in 2040, and 16% more in 2065 than under current law, according to the analysis. That would allow Biden to move forward on a seven-pronged plan to increase benefits for Social Security and SSI recipients.
“Social Security faces a serious financial problem and the next president is going to have to deal with this,” said Richard Johnson senior fellow at the Program on Retirement Policy at the Urban Institute, a think tank, “It’s getting to the point now where they’re going to have to act sooner through tax increases or cuts to Social Security.”
Here’s what Biden’s plans would do.
Increase minimum benefits
Biden plans to increase the minimum Social Security benefits to 125% of the federal poverty level, translating to $15,950 annually in 2020. As of now, 12.8% percent of adults over 65 have income below the federal poverty level.
Beneficiaries will still have had to complete 30 years of covered employment to qualify for the full minimum, but those who worked at least 10 years could qualify for a prorated share. This would only cover beneficiaries who begin collecting benefits after 2020.
Replace cost-of-living adjustment measure
Biden’s plan also includes changing the inflation measure used to calculate cost-of-living adjustments.
Instead of using the CPI-W, the consumer price index that tracks households with at least 50% of their household income coming from clerical or wage paying jobs, Social Security would use the CPI-E that is based on spending by adults 62 and older. That measure weights health care spending more and usually increases quicker than the CPI-W.
“Since healthcare prices tend to increase faster than overall prices in the economy, the CPI-E will increase more,” Johnson said.
Other key changes
Other changes in Biden’s proposal include providing earning credits to caregivers who care for children younger than 12 years old and/or family members with disabilities. Every month a caregiver worked 80 hours or more, Social Security would credit them with earnings equal to half the average national monthly wage.
Under Biden’s plan, widowed beneficiaries would receive 75% of the total benefit received by the household before their deceased spouse died as long as it isn’t higher than the benefit an average earning career couple receives. Now, that limit is 100% of the deceased spouse’s benefit replacing the widows’ benefits.
Biden’s plan would give a bonus equal to 5% of the average benefit to beneficiaries who have collected payments for 20 years. That bonus would phase in, starting with a 1% increase for those who have collected benefits for 16 years.
Last, Biden’s plan would repeal certain provisions that prevent retirees collecting significant government pensions and their spouses and survivors from receiving full Social Security benefits.
Biden’s plan for Supplemental Security Income
Biden has also included changes to Social Security Income, which is designed to help aged, blind, and disabled people, who have little or no income and is funded by general tax revenues.
Single adults would receive benefits equal to 100% of the federal poverty level and also increase benefits for those married. He would also erase rules related to reducing benefits for those receiving non-cash help from relatives.
Both Biden’s Social Security and SSI changes would lift 1.4 million people out of poverty in 2021, if enacted immediately and 2.7 million people out of poverty in 2065, the study found.
Future of Social Security
While Biden’s plan doesn’t solve the long-term funding issues for Social Security, it does delay them. The analysis found that by taxing earnings above $400,000, the surplus in the Social Security trust fund wouldn’t deplete until 2040, five years longer than estimated. After that, the system would collect enough money to pay out four-fifths of scheduled benefits.
His plan could have preserved the surplus longer — closing 70% of the funding gap — if it didn’t include these new enhancements, especially the change in the way cost-of-living adjustments were calculated, the study found.
“While the intentions are to raise revenue to preserve the program, to prevent the surplus from running out too soon, and to have enough income to cover the expenses, the report indicates that spending of the program will significantly increase under Biden’s proposal,” said Chad Parks, Founder and CEO of Ubiquity Retirement + Savings. “It is a step in the right direction, but frankly, kicks the can down the road again.”