In nine years or less, Social Security will be insolvent. This would force a 23% benefit cut on retirees, according to Brian Riedl of the Manhattan Institute.
Joe Biden promised to "fix" Social Security by making the rich "pay their fair share" in Social Security taxes. Currently, taxes are capped on the first $168,600in income. Although he wasn't specific in his State of the Union speech, Biden may try to address Social Security's deficit by lifting that cap or eliminating it.
The Congressional Budget Office (CBO) estimates that applying payroll taxes to higher income could raise $1 trillion in revenues over a 10-year period — as long as benefits weren't raised. And it would depend on how the cap was changed.
It's a grand plan except for one, tiny, detail: Social Security is expected to run a $2.7 trillion deficit over the same period.
The trade-off is in raising taxes on those earning less than $400,000. These are among the most productive members of society and raising taxes on them to fund a transfer of wealth to retirees doesn't make any sense.
Plus, raising or eliminating the cap on earnings is like putting a Band-Aid on a gaping wound.
"Eliminating the tax cap would either raise benefits as well (reducing the proposals' savings) or—if the accompanying benefits are canceled—turn Social Security into a true welfare program by delinking contributions and benefits," writes Brian Riedl. "Moreover, eliminating the cap would not bring permanent solvency or avert the need for benefit changes….The system would return to deficits by 2029. Lawmakers would still need to reform benefit levels and the eligibility age."
Kicking the can down the road is something Congress excels at. And what does Biden care? He won't be around when Social Security goes bust.
Biden made the typical presidential threat to any Congress that tries too actually deal with the Social Security crisis head-on.
"If anyone here tries to cut Social Security or Medicare or raise the retirement age," he vowed, "I will stop them."
So rather than deal with Social Security's problems to prevent a cut in benefits, Biden will strike a pose and posture while the program goes down the tubes.
It's nice to see the president at least acknowledge one of the difficult choices that lie ahead for policymakers grappling with the coming insolvency of America's entitlement programs. On that count, he's at least marginally ahead of his prospective electoral opponent, former President Donald Trump, who maintains that Social Security needs no reforms.
Still, Biden's a long, long way from anything that sounds like a workable proposal—and the lack of details in Thursday's speech suggests the White House would prefer to stay away from this topic during an election year.
Between 1983 and 2009, Social Security ran $3 trillion surplus. It's a good thing because beginning in 2009, Social Security was running a deficit every year. Eventually, all those surpluses will be matched by fund deficits and... poof! Insolvency follows shortly afterward.
The myth that Social Security is just a "scare tactic" used by Republicans to send old people to the poor house is a popular one when Congress takes up any kind of reform. It's a total crock, of course, and Democrats have been using this lie for decades.
Brian Riedl writing in The Dispatch.
Current law mandates that when the trust fund balance hits zero—which is when the $3 trillion in earlier surpluses has been repaid—the system will be legally forbidden from borrowing or receiving any more general revenues. Program spending must then fall to match the system’s revenues, and that will mean an automatic across-the-board 23 percent benefit cut. This is not some hypothetical scare tactic, but rather the law that will be implemented if lawmakers continue to refuse reform. Skeptics counter that they were warned about Social Security insolvency 30 years ago and nothing happened. This misinterprets the earlier warnings. In 1999, the Social Security trustees warned that Social Security’s old-age benefits trust fund would reach insolvency in 2036. In 2023, they warned it would be insolvent by 2033. In other words, the projected insolvency date has moved forward, not backward.
Neither party wants to deal with this nation-destroying problem. It's likely nothing will get done until Social Security is on the brink. At that point, the finger-pointing and blame game will begin.
