This excellent summary was published originally on November 19, 2020, from Eliane Floyd, Social Security expert at SavvySocialSecurity.com
President-Elect Joe Biden has a plan for Social Security. Under his plan the 12.4% Social Security tax would be collected on earnings up to the regular wage base ($142,800 in 2021) as well as on earnings over $400,000. These additional revenues would be used to expand benefits for specific groups of people.
The following groups would benefit under Biden’s plan:
Low wage earners. If a person works for 30 years in low-paying jobs and ends up with a very low benefit, the benefit would be increased to equal 125% of the federal poverty level. If this had applied to 2019, the minimum monthly benefit would be $1,301, up from about $886. Workers with more than ten, but less than 30 years of earnings would receive a prorated share of the minimum.
Widows. When a spouse dies and the lower of the two Social Security benefits drops off, Biden’s plan would ensure that the surviving spouse receives at least 75% of the amount the two of them were receiving as a couple.
Caregivers. Earnings credits would be granted to people who care for children under 12 and for family members with disabilities. For every month that caregivers provide at least 80 hours of care, SSA would credit them with earnings equal to half the average national monthly wage index in addition to whatever they earned in covered employment that month.
Long-term beneficiaries. Once a person has received Social Security benefits for 16 years, their benefit would increase by 1% a year to a maximum of 5% after receiving Social Security for 20 years. This is designed to cover some of the higher costs of health care and transportation older beneficiaries tend to incur.
WEP/GPO. People who work in non-covered jobs (such as public service or people with pensions) would no longer be subject to the WEP or GPO.
All beneficiaries. The Social Security COLA would be based on the CPI‑E, which would increase the COLA by about 0.2%.
What Biden’s plan wouldn’t do is solve the long-term solvency problem. Under his plan the trust fund would exhaust in 2040, five years later than the trustees’ current projection of 2035 and nine years later than the latest CBO projection of 2031. The plan is less aggressive than plans proposed by the other Democratic nominees, who wanted the 12.4% Social Security tax imposed on earnings above $250,000. Two of them (Warren and Sanders) proposed a new Social Security-dedicated tax on investment income for high-income investors. Warren would also tax distributions to active participants in S corporations, partnerships, and limited liability companies. Buttigieg would automatically boost the payroll tax rate for high-earning workers to ensure that Social Security could pay all scheduled benefits each year. None of these plans are likely to be implemented, but they give you an idea of some Democrats’ thinking around Social Security.
Meanwhile, Trump’s idea of eliminating the payroll tax—possibly floated to see what the reaction would be—is now off the table.
Presidents and presidential nominees all have their ideas about Social Security, but it’s really Congress that passes the laws. The person to look to here, is Congressman John Larson (D-CT), chairman of the Social Security subcommittee of the House Ways and Means Committee. His Social Security 2100 Act has some of the same provisions as Biden’s, namely taxing earnings over $400,000, raising the minimum benefit to 125% of the federal poverty level, and basing the COLA on the CPI-E. In addition it would raise all benefits by increasing the first bend point multiplier to .93 from .90 and increase the current income thresholds for taxation of benefits to one new threshold of $50,000 for individuals and $100,000 for married couples, above which 85% of Social Security benefits would be taxed. But unlike Biden’s plan it would restore full solvency to the system. This would be accomplished through a higher payroll tax rate which would be phased in over time as well as the new tax on earnings above $400,000.
It is not known when, or even if, the Larson bill will come up for a vote. If passed in the House, it would require 60 votes in the Senate. So far it has 208 co-sponsors, all Democrats. Republicans have mostly been silent on Social Security.
There’s a good chance nothing will be done until we are much closer to the trust fund exhaust date. That’s just how Congress works. Why alienate voters who might be worse off under new legislation to shore up Social Security (such as those who earn more than $400,000 a year in the case of the Larson bill), when you can just leave it for a later Congress to deal with?
In the meantime, Social Security will keep cranking out benefits. There is nearly three trillion dollars in the trust fund, which will cover benefit payments in full over the next ten years at least. Nobody’s benefits are going to be cut between now and 2031 at the earliest. As that date draws closer, the political calculus will likely flip to the other side: politicians who don’t promise to fix Social Security before depriving millions of beneficiaries their full scheduled benefits will be in danger of losing their seats. In fact, a recent poll found that preventing cuts to Social Security was one of the top priorities among voters in this latest election. The pressure on politicians to keep Social Security solvent will only increase in the years ahead.
If you could use even more insights, please reach out to us any time. We’d be delighted to help you understand the impact to your particular circumstances.
Be well!
