After years of warnings about the financial challenges facing Social Security, the coronavirus pandemic and its economic effects mean that the time to get serious about ensuring that full benefits keep flowing is now, writes Tara Siegel Bernard in The New York Times: “If nothing is done to shore up the program, all benefit checks would need to be cut by roughly one-quarter in perhaps 11 years — or, if the recession is protracted and severe, maybe even sooner.”
Siegel Bernard notes that President Trump has talked about terminating the payroll tax the funds Social Security and having the program funded through the general budget, though the White House says that he only meant he wants to forgive payroll taxes deferred under an executive action he announced in August.
Experts warn that, while eliminating the payroll tax is unlikely, any such change would represent a monumental shift that could undermine Social Security. “We have a very crowded budget as it is,” Shai Akabas, economic policy director at the Bipartisan Policy Center, tells the Times. “And having Social Security in the mix with everything else puts the program at risk in the future.”
Joe Biden, meanwhile, has proposed expanding both the payroll tax and benefits. The 12.4% tax, split between employers and employees, currently applies to the first $137,700 in earnings. Biden would have it also apply to earnings above $400,000 a year — and, as Siegel Bernard notes, because the $137,700 cap is set to rise with inflation, the tax would eventually apply to all income up to $400,000.
“What is commendable about Biden’s plan is that he actually has one, taking the financial challenges facing Social Security seriously,” Richard Johnson, director of the program on retirement policy at Urban Institute, a nonprofit think tank, told MarketWatch recently.
An analysis published this month by Johnson and his colleagues at the Urban Institute found that Biden’s proposals would close about a quarter of Social Security’s long-term funding shortfall and add about five years to the expected life of the trust funds. The analysis also projected that Biden’s proposals would cut the poverty rate for adult Social Security beneficiaries by more than half over the coming decades.
Critics note that Biden’s proposals don’t factor in the impact of the pandemic — and don’t do much to solve Social Security’s long-term problems. “Social Security would become insolvent in 2040 instead of 2035,” Andrew Biggs of the American Enterprise Institute wrote in The Wall Street Journal earlier this month. “Further tax increases would surely be demanded down the road.”
Akabas of the Bipartisan Policy Center told the Times that action is needed now to avoid more painful changes — bigger tax increases or cuts — down the line. “The longer we wait to fix the problem,” he said, “the fewer people who can play a role in the solution.”