For decades now, Social Security has been one of the most divisive topics in politics, which is certainly saying something when you consider just how divisive politics are these days.
But with the Old Age, Survivors, and Disability Insurance (OASDI) trust fund that helps provide money for Social Security benefits starting to decline and expected to be depleted by 2035, this is no longer an issue that lawmakers can afford to punt on. If something isn’t done in the next 12 years to shore up the program, then retirees could be looking at a significant cut to their benefits.
President Joe Biden is well aware of this and is working to make changes that will better fund the program and also improve current benefits, which many argue are not adequate enough to keep up with the high cost of living. Here are three Social Security changes Biden wants to enact in 2023. Will he succeed? Let’s take a look.
1. Shore up funding
As I mentioned above, the biggest problem facing Social Security right now is that the OASDI trust fund will soon be out of money. When that happens, the Social Security Administration (SSA) only expects to be able to cover 77% of scheduled benefits.
The main way the SSA funds Social Security is through payroll taxes. Individuals and employers each must pay a 6.2% Social Security tax on their earned wages. Self-employed individuals must pay a 12.4% Social Security tax. The idea is that you pay into the program while you are younger and working full time and then collect benefits once you retire or are close to retirement.
But there is a limit on how much of an individual’s earnings can be taxed for Social Security. In 2023, that limit will be $160,200. These payroll taxes, however, haven’t been enough to cover scheduled benefits, which is why the OASDI trust fund has been drained.
One idea by many Democratic politicians is to increase the amount of an individual’s earnings that can be taxed to $250,000 or more. Biden does seem to agree with the idea in general, noting in his plan that he wants high-earning Americans to pay the same taxes on their earnings as middle-class families do. But he hasn’t gone as far as some Democratic proposals and has also said that “nobody earning less than $400,000 a year will pay an additional penny in new taxes. Nobody.”
Former SSA Deputy Commissioner Andrew G. Biggs earlier this year stated in an op-ed that Biden’s position could actually lead to a bipartisan solution. However, big tax hikes are usually difficult to push through Congress, so if something like this is going to happen, I suspect it’s going to take a lot of political capital.
2. Changing the COLA calculation
Each year, the SSA incorporates a cost-of-living-adjustment (COLA) to Social Security benefits, which is based on inflation. The goal is to try to prevent retirees’ benefits from losing purchasing power as the cost of living increases.
Currently, the COLA is calculated by using price data from the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), which tracks a market basket of consumer goods and services. But many argue that this index is not really representative of common expenses that many older Americans claiming Social Security have.
Many would rather see the COLA calculation made using the Consumer Price Index for Americans 62 years of age and older (CPI-E) because most recipients can’t claim Social Security benefits until the age of 62. Biden also supports this plan. Using the CPI-E would have resulted in higher COLAs over the years.
While I’ve heard many politicians raise this idea in their proposed bills, higher COLAs mean higher benefits, which means you’ve got to find a way to fund them — the crux of the problem. This change wouldn’t likely pass on its own but would likely be part of a broader Social Security bill.
3. “Revolutionize” the special minimum benefit
The SSA offers a special minimum benefit that is essentially Social Security benefits for individuals who have earned low earnings over a long period of time. To qualify for these special minimum benefits, a retiree must have worked for at least 11 years, although you need to have worked 30 years to qualify for a full special minimum benefit that isn’t pro-rated. In 2023, people will need to have earned $17,820 to qualify for the special minimum benefit.
In 2022, the special minimum benefit started at $45.50 per month for a worker with at least 11 years of coverage. A worker with 30 years of coverage would get $950.80. But the qualifications and rules for the program and the way they’ve changed over the years have made the special benefit difficult to qualify for, and only 32,100 people received the special minimum benefit in 2019.
Biden will seek to revolutionize the special minimum benefit by giving workers with at least 30 years of coverage a benefit of at least 125% of the poverty level. The federal poverty level in 2022 for individuals was $13,590. So, 125% of this number is roughly $16,988, which means monthly payments of roughly $1,415, a hefty bump from the current level.
I’ve definitely seen bills incorporating the same provision as Biden, but again they are part of broader Social Security bills.