As the Social Security Old Age and Survivors Insurance Trust (OASI) nears depletion by 2033, President Joe Biden has proposed a “sweeping four-point plan” to restock trust funds and assist address the $22.4 trillion financing gap identified in the 2023 Trustees Report. If the federal government fails to address the issue, retiree benefits might be reduced by up to 24% beginning in 2033.
While some of Biden’s proposed changes will primarily affect high-income earners and corporate executives, who have retirement savings plans that are exponentially larger than the average American, others will affect middle- and lower-income wage earners, particularly those who may rely on social security benefits in the future.
Implement Payroll Tax for Income Over $400,000
At the moment, any earned income less than $160,200 is subject to a 12.4% payroll tax. Earnings in excess of that amount are exempt from OASI taxes. Biden intends to tax earned income beyond $400,000 but will exempt earnings above $160,200 up to $400,000 from tax.
Change the Way COLA Increases Are Calculated
Each year, Social Security benefits are adjusted for inflation using the Cost of Living Allowance (COLA). Currently, the government calculates COLA using the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). However, this figure does not necessarily reflect retired people’s lifestyle and spending. Shifting COLA calculations for the elderly to figures connected to the Consumer Price Index will not solve the problem of Social Security running out of funds.
Increase the Primary Insurance Amount
The Primary Insurance Amount (PIA) is the amount of money you’ll get in Social Security benefits based on your age when you begin claiming benefits and your Average Indexed Monthly Earnings (AIME). Increasing the PIA for Americans aged 78 to 82 will benefit people who face growing costs later in life, such as healthcare.
Increase the Special Minimum Benefit for Lifetime Lower-Wage Workers
Low-wage people are eligible for a particular minimum benefit regardless of how much they earn while working. A lifelong low-wage worker would get just $12,402 in Social Security payments per year in 2023 or $1,033.50 per month. Biden plans to raise the minimum benefit for an individual to 125% of the federal poverty level. For example, someone receiving the special minimum benefit in 2023 would earn $1,518.75 per month with the increase.
Unfortunately, the concept is unlikely to be approved by Congress, according to MSN. Any Social Security reform package would require bipartisan backing in Washington, and Democrats and Republicans have yet to reach an agreement on how to simultaneously strengthen Social Security finances and raise payments for those who need them the most.