Now that President Joe Biden has been in office for more than two months and has signed the $1.9 trillion COVID-19 relief package analysts wonder where Biden’s attention will be directed once the pandemic subsides as there are numerous issues facing the country. One issue Biden should focus attention on after not too long is Social Security.
Even though Social Security might not be on the minds of most Americans with other pressing issues facing the country, it should not take a backseat. In less than 15 years Social Security will be unable to meet 100 percent of benefit obligations. Near the end of 2020 Reuters published a story about what actions need to be taken to solve the Social Security solvency issue and what the Biden Administration should focus on. There are other issues that need to be dealt with to correct Social Security mistakes, like eliminating the tightening of disability rules that make it more difficult to qualify for benefits, but the solvency issue is a top priority. If Social Security does not have the funds to meet 100 percent of benefit obligations it would be a crisis like we have not seen in the United States. Protecting these benefits that millions of Americans rely on to survive is and should remain a top priority for the president and for members of Congress. Below is an explanation of the solvency issue Social Security is facing as identified by the Reuters story.
The Solvency Issue
Social Security’s long-term solvency already was eroding before the pandemic, and that has accelerated a bit due to the economic downturn and accompanying slump in revenue from the Federal Insurance Contributions Act (FICA) – better known as the payroll tax. Social Security’s actuary now projects that the combined retirement and disability trust funds will be “exhausted” in 2034 – a term referencing the point when reserve funds will be gone. That is one year earlier than the last projection by Social Security’s trustees, before the pandemic began.
At the point of exhaustion, Social Security would have sufficient income from current tax payments to meet roughly 80% of promised benefits. And the exhaustion date could come sooner, depending on the length and depth of the recession.
As a candidate, Biden issued a detailed plan for Social Security that addresses the solvency problem by adding a new tier of FICA contributions for high earners. Currently, workers and employers split a 12.4% FICA tax, levied on income up to $137,700 (In 2021, the cap will be adjusted for inflation to $142,800). Biden would add a new tax at the same rate on incomes over $400,000.
Biden stayed away from any broad-based FICA tax hike, which would allow lawmakers to avoid political flak for raising taxes on people with less-than-stratospheric incomes – but his plan extends solvency only until 2040. It would be good to go further, but that would probably need a new source of revenue – for example, a tax on Wall Street or fossil fuels.
