What’s Biden’s 4-Point Plan? How the Proposal on Social Security Changes Impacts You

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Like many U.S. lawmakers, President Joe Biden wants to fix Social Security before the program’s Old Age and Survivors Insurance Trust runs out of money. That could happen within the next decade, leaving Social Security solely dependent on payroll taxes — which currently cover only about 77% of benefits.

Biden has proposed a 4-point plan to boost the program that would mostly impact high earners and company executives, who tend to have much bigger retirement savings accounts than the typical American. Among other things, the Biden plan would raise the income threshold on wages subject to Social Security payroll taxes.

Although these ideas have gained the support of many Democrats and seniors advocates, doubts have been raised about how effective they will be in fixing Social Security’s long-term funding problems.

As previously reported by GOBankingRates, Biden’s 4-point plan would do the following:

  • Tax earned income above $400,000, leaving wages between $160,200 and $400,000 untaxed. Currently, any wages above $160,200 are not taxed.
  • Change the calculation for determining annual Social Security cost-of-living adjustments (COLAs) so they are no longer based on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). Biden favors basing the COLA on the Consumer Price Index for the Elderly (CPI-E).
  • Raise the Primary Insurance Amount (PIA) age that determines how much money you’ll receive in Social Security benefits.
  • Raise the special minimum benefit for lifetime lower-wage workers to 125% of the federal poverty level for Social Security beneficiaries.
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The Republican-led U.S. House is unlikely to support the plan in its current form, experts say. Even if it does pass, some observers question how effective it will be in fixing Social Security.

As The Motley Fool recently reported, the plan “sounds great on paper,” partly because Social Security would bring in extra revenue, and that revenue could help fuel higher annual COLAs. An analysis from the Social Security Administration’s Office of the Chief Actuary estimates that exposing all earned income to the payroll tax would extend the solvency of the trust fund by “about 35 years.” 

However, Biden’s additional proposals to bolster COLA payouts, increase the special minimum benefit and raise the PIA for aged beneficiaries “negates the bulk of the revenue boost from reinstating the payroll tax on the rich,” The Motley Fool reported.

A separate analysis by the Urban Institute — conducted in 2020, when Biden presented his Social Security proposals as a presidential candidate — also found holes in the plan. As that analysis pointed out, projected revenue increases “would outstrip” scheduled cost increases under Biden’s plan, improving Social Security’s finances.

However, the Urban Institute projected that the plan “would not raise enough revenue to cover all scheduled benefits. Social Security would still run a deficit every year under his plan, but not as much as it would under current law.”

The Urban Institute estimated that Social Security’s 75-year actuarial balance, which measures the program’s long-term financial stability, equals about 2.59% of taxable payroll. Biden’s payroll tax expansion would reduce the long-range deficit by 1.84% of taxable payroll, which closes about 70% of the shortfall.

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But benefit enhancements “would offset part of that gain,” according to the Urban Institute. For example, increasing annual COLAs by changing the index used to track inflation would cost “nearly twice as much as expanding the minimum benefit or increasing payments to long-term beneficiaries,” the organization said.

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