What a 20-Something Has to Say About Biden’s Social Security Reform

this is an op-ed on Social Security Reform

Social Security is the largest and most successful government program. It affects every American. It is also in crisis. The Social Security trust fund is estimated to be depleted by 2035, resulting in an across-the-board 20% reduction in benefits regardless of age or income. Although the 20% reduction would be indiscriminate, a cut in benefits would disproportionately affect lower-wage earners who rely on social security more heavily than higher-income earners. 

Everyone agrees that it needs to be fixed and needs to be fixed now. Yet, there is no bipartisan solution. Republicans say that there’s a problem. Democrats say there’s a problem. Republicans say cut benefits. Democrats say increase benefits, increase taxes. We need a comprehensive, collective, and compelling vision of Social Security — one that both parties and all generations can agree with.

A modern vision of Social Security starts by defining the goal of the program. The purpose of Social Security is to provide economic security to the elderly, disabled, and survivors. It is a social insurance program and not an entitlement program or forced savings program, as some view it. Social Security is designed to prevent people in old age from poverty. Today, we’ve lost sight of who the program is for: the most vulnerable and the ones who without this vital income would be destitute.

Social Security has been extraordinarily successful at achieving its goal. Benefits calculations ensure the lowest earners have a higher portion of their contributions returned. Social Security is a great equalizer of the racial wealth gap. Geoffrey T. Sanzenbacher and Wenliang Hou at Boston College Retirement Research Center estimates that Social Security reduces the white-to-Black racial retirement wealth gap from 7.3:1 to 2.2:1 for late boomers in 2016. White families still have twice as much wealth as Black families, but this difference would be much more significant without Social Security. 

Fixing Social Security is a math problem. The good news is if Congress acts today, they can save the program. The immediate solution would involve raising the FICA tax to 15.4% or cutting benefits by 17% — two bookends of reform. No suggested proposal involves either of these drastic changes. More likely, a combination of provisions that reduce cost or increase revenue will get passed. Popular suggestions include adjusting the benefits formula, increasing the taxable cap on payroll taxes, increasing the payroll tax rate, or increasing the full retirement age. Congress can prevent the system from becoming insolvent, and the sooner policy is implemented, the less severe the required changes will be.

The best reform increases the progressivity of benefits and taxes without significantly shifting the burden to future generations. Social Security is the most important form of retirement income for minority and low-income households. Proposals such as raising the retirement age to account for increased life expectancy disproportionately negatively affect Black Americans who have shorter life expectancies and are more likely to collect benefits early for financial reasons. Urban Institue estimates that raising the FRA would increase racial wealth inequality by 1%.

So what does Biden propose? Biden’s reform suggests raising benefits for current and incoming retirees. Do you know who likes increases in benefits for older people? Older people. Because the benefits formula is progressive, this would also increase the progressivity of the program. He proposes to pay for this by increasing the tax base by raising the taxable maximum with a queue “donut hole” taxation. However, this action alone would only reduce the long-range OASDI actuarial deficit by 1.9% of taxable payroll — a modest improvement for what is needed to restore solvency to the program. 

Payroll taxes will need to increase to pay for the program. While benefits are progressive, the FICA taxes are not. So effectively, this will make the funding of the program more regressive. Not to mention, in combination with the tax increases from Biden’s tax plan for infrastructure projects, increasing benefits when the economy is in a recession and the system is already underfunding stress seems like a cruel joke on the American population. The joke reads, “Tax form: state your income. Send it in.” 

 This places an unfair burden on future generations to pay for the program. Social Security’s pay-as-you-go (PAYGO) system depends on a stable economy and a sizeable working-age population. Overextending benefits will only mean that future generations will experience higher taxes or reduced benefits in the future. This affects the whole economy; Biden’s proposal is estimated to reduce GDP by 0.6 in 2030. Reform shouldn’t involve increased benefits for everyone when the system is already under stress. Remember who the system is designed to protect. Benefits should target those who rely on social security the most. Don’t cut benefits for the poor. Increase the progressivity of the funding system. 

Biden’s ambitious plan is a step in the right direction, and critics — me included– should be wary of getting in the weeds of scrupulous details. Social Security is such a complex and massive system; any policy change will have a significant impact on GDP and the lives of American workers. It’s naive to predict the effects of a policy change entirely based on historical variables. For example, Biden proposes to index Cost of Living Adjustments (COLA) to the CPI-E instead of the CPI-W. The elderly spend more of their money on medicine, so he is effectively tying social security to health care inflation. Since CPI-E generally rises faster the CPI-W, it hurts the long-term actuarial deficit of the program. On the other hand, tie government costs to medical costs and watch the government reduce healthcare costs in the US. 

Biden is shooting the moon with his current proposal. With a Democratic majority in the House and Senate, there are no excuses to pass something in the next four years. To the Biden administration, I say, if you fix the untouchable Social Security program, you will have made your most critical impact on the American people for generations. Any reform should fulfill the goal of the program to ensure our most vulnerable elderly can retire with dignity. 

There is no shortage of solutions or opinions on Social Security reform, and there’s no one solution that will appease every group. Ultimately, the most critical step is to get something done. Reforming Social Security in a way that ensures actuarial balance, enhances benefits of the most vulnerable populations, reduces poverty among elderly Americans, improves late in life work incentives, and maintains the balance of tax burden on workers is entirely possible. It’s only a matter of time. To my generation, we can’t put off thinking about social security till we retire. Changes to Social Security will affect us now. 

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