Investing

What Biden Would Do To Social Security

Austin Smith

Published: July 1, 2024 7:00 am

President Biden opposes cuts to Social Security benefits and supports expanding Supplemental Security Income (SSI) benefits for seniors and people with disabilities. He aims to fix the Social Security system by ensuring higher-income Americans pay their fair share, likely by lifting the current salary cap on Social Security taxes from $168,000 to around $200,000, adjusted annually for inflation. Biden’s approach to solving the Social Security funding shortfall focuses on increasing revenue through taxes rather than cutting benefits or raising the retirement age.

Transcript:

The Social Security program is the largest single item in the annual federal government budget, accounting for roughly one-fifth of every dollar spent.

With an imminent election and a potential Social Security shortfall as quickly as a decade away, Austin, everyone wants to know what a second Biden term would mean for the program.

So if you’re pulling out your crystal ball and looking ahead, what do retirees have to look forward to?

Yeah, you know, it’s hard to say exactly, of course, but we do know that Biden opposes cuts to Social Security benefits and he’s been very public and vocal about that.

And Biden supports efforts to expand the Supplemental Security Income or SSI benefits for seniors and people with disabilities.

So, of the candidates on the stage today, it doesn’t appear that Biden’s, you know, eager to cut Social Security benefits, despite what appear to be looming funding shortfalls.

And there was a direct quote from Biden here, which in his most recent State of the Union address, he said, if anyone here tries to cut Social Security or Medicare or raise the retirement age, I will stop them.

So that’s pretty clear and decisive.

So instead of trying to cut benefits, it looks like Biden wants to fix the system by making sure the highest income Americans pay their fair share.

So in practice, that could mean raising more revenue from payroll taxes, which are the primary source of income for Social Security.

So what does that mean?

Functionally, it probably means lifting that $168,000 salary cap on Social Security now.

That’s almost certainly going to increase in Biden’s second term if he’s elected.

And our bet is on a $200,000 ceiling with some annual adjustment for inflation going there.

You can’t keep these ceilings static in an environment where there is so much inflation and there is so much volatility and wage growth.

So I would expect that that $168,000 salary tap goes to $200,000, which gives them another roughly $30,000 of income to tax on individuals at that level each year.

And then also dynamically adjusted for inflation in the same way COLA adjusts each year.

So there may also very well be a billionaire or a net worth tax.

Now, unlikely in solving a Social Security funding shortfall is an increase in age.

The last time it happened was in 1983, where the age was only raised two years, and Biden hasn’t indicated any willingness to raise the age.

So if Biden is going to solve a Social Security funding shortfall, it’s almost certainly going to come from an increase in taxes as opposed to cutting benefits or reducing benefits by increasing the age.

Yeah, and Austin, I know some people are watching and there’s been a lot of chatter post debate whether or not Biden could even be replaced.

I would say it’s probably across a Democratic platform that you’d see similar measures.

It’s also worth noting, as you said at the start, that a lot of the shortfalls don’t take effect until 2033 to 2035, depending on your estimate.

So the most likely scenarios we will probably see is just continuing to kick the can down the road for the largest changes.

Because there is about 9 to 11 years that this begins being an actual shortfall.

Yeah, and regrettably, in the terms of Social Security, 9 to 11 years is a relatively short amount of time, but relative to political terms, it’s a long time, and it would fall outside almost any elected official’s term today.

So unfortunately, there’s not a lot of urgency that we’re seeing from Washington to solve this problem.

And as we’ve talked about in the past, if anybody is going to solve it, it’s going to have to be a multifaceted problem.

Maybe by modestly increasing the age, modestly increasing the income thresholds, modestly raising more taxes and taking a little bit from a lot of places to solve that funding shortfall as opposed to just doing it all through one method, which is going to be legislatively much more difficult.