Joe Biden's Proposed Social Security Changes Come With Unintended Consequences for the U.S. Economy
By: Sean Williams (The Motley Fool)
Another typical neoliberal screed built upon lies, skims, scams, swindles, and flimflams. Neoliberals firmly believe they own the US economy and have a God given right to cheat people every way possible. Neoliberals would poison the sky just to sell clean air. Isn't that what John Kerry is doing after he got his?
Joe Biden is not going to fix Social Security. Biden is planning to expand Social Security using public debt. Democrats' reckless spending is driving inflation which shrinks the buying power of savings and Social Security checks. Neoliberal Democrats are deliberately rigging the future to ensure the rich become richer. Democrats want to make sure that skimmers, scammers, swindlers, and flimflam artists get all the money in retirement accounts and Social Security, too.
Today's financial opinions, analyses, and warnings have become nothing more than liars lying about liars. The only truth in financial gambling is that 'heads neoliberals win, tails we lose'. So, when neoliberals begin making predictions and forecasts then we can be certain ordinary people are screwed.
S E E D E D C O N T E N T
Key Points
- America's top retirement program is facing a $22.4 trillion funding-obligation shortfall through 2097.
- Joe Biden wants to make four key changes to Social Security, but a group of economists believe these changes would hamper U.S. economic growth.
- There's a far bigger problem with Biden's Social Security proposal than what it might do to the U.S. economy.
For most Americans, Social Security benefits provide a much-needed financial foundation during retirement. More than two decades of surveys from national pollster Gallup show that anywhere from 80% to 90% of current retirees rely on their monthly Social Security check to cover some portion of their expenses.
Maintaining the health of America's top retirement program is paramount to the financial well-being of our nation's seniors. However, nearly four decades of annually released reports from the Social Security Board of Trustees shows that the program's foundation has begun to crack in a big way.
President Joe Biden believes he has a fix for what ails Social Security, but a deeper dive into his proposals yields some unexpected consequences for the U.S. economy.
Joe Biden wants to make four big changes to Social Security
Since 1985, the annually published Trustees Report has cautioned that Social Security is facing a long-term funding-obligation shortfall. In other words, the program's projected revenue collection in the 75 years following the release of the report isn't expected to cover forecast outlays (i.e., benefits and administrative expenses). In 2023, this long-term cash shortfall stood at a jaw-dropping $22.4 trillion, and it continues to grow.
This long-term funding-obligation shortfall is the result of multiple demographic shifts, including a more-than halving in legal immigration into the U.S. over the past 25 years, historically low U.S. birth rates, and rising income inequality.
With Social Security already spending more than it's bringing in, the latest Trustees Report opines that the Old-Age and Survivors Insurance Trust Fund (OASI), which is responsible for parsing out payments to nearly 50 million retired workers each month, could exhaust its asset reserves (i.e., excess cash built up since inception) by 2033. Depleting the OASI's asset reserves may result in the need for sweeping benefit cuts of up to 23% a decade from now.
President Biden has made clear he doesn't want to see that happen. Prior to being elected president in November 2020, then-candidate Biden released a sweeping proposal that called for four major changes to Social Security:
- Reinstate the payroll tax on earned income above $400,000: In 2023, all earned income (wages and salary but not investment income) between $0.01 and $160,200 is subject to the 12.4% payroll tax, which is the primary funding mechanism for Social Security. Earned income above $160,200 is currently exempt from the payroll tax. Under Biden's proposal, the payroll tax would be reinstated on earned income above $400,000, and a doughnut hole would be created between the maximum taxable earnings cap (the $160,200 figure) and $400,000 where earned income would remain exempt.
- Switch the inflationary tether from the CPI-W to the CPI-E: Since 1975, the Consumer Price Index for Urban Wages Earners and Clerical Workers (CPI-W) has been Social Security's measure of inflation and cost-of-living adjustment (COLA) determinant. Unfortunately, it's been doing a poor job and costing seniors their purchasing power. Biden has proposed swapping it out for the Consumer Price Index for the Elderly (CPI-E), which focuses on senior household spending and would, presumably, result in higher annual COLAs.
- Increase the special minimum benefit: For lifetime low-earning workers with at least 30 years of coverage, the maximum benefit in 2023 is a mere $1,033.50 per month. That's well below the federal poverty rate for a single individual of $1,215 per month. President Biden proposes raising the special minimum benefit to 125% of the federal poverty level.
- Beef up the primary insurance amount for aged beneficiaries: Lastly, Joe Biden has suggested gradually increasing the primary insurance amount (PIA) by 1% annually, beginning at age 78 and continuing through age 82. This cumulative 5% boost to the PIA for aged beneficiaries is designed to offset certain costs that can increase later in life, such as prescription-drug or medical-transportation expenses.
Joe Biden's Social Security plan has some unintended consequences for the U.S. economy
A number of statistical analyses were conducted on Joe Biden's policy proposals during his 2020 presidential campaign. Among them is the Penn Wharton Budget Model (PWBM), a non-partisan, research-driven initiative that examines the fiscal impacts of policy proposals.
In March 2020, just shy of eight months prior to Election Day, PWBM released its detailed analysis of the Social Security changes Joe Biden called for. Whereas the long-range (2020 to 2094) actuarial deficit was calculated at 3.55% of taxable payroll for the Old-Age, Survivors, and Disability Insurance Trust Funds (OASDI) under the current law, Biden's proposal would reduce this long-term actuarial deficit for the OASDI to 2.01% of taxable payroll. In plain English, it reduces the magnitude of Social Security's expected 75-year funding shortfall.
However, Joe Biden's proposed Social Security changes would also be expected to have unintended consequences for the U.S. economy. According to the economists behind PWBM, two factors would be responsible for reducing U.S. gross domestic product (GDP) by 0.6% in 2030 and 0.8% by 2050.
The first problem noted by PWBM is that Biden's Social Security overhaul provides a boost to all beneficiaries. Though the focus on lifting the special minimum benefit and gradually increasing the PIA would predominantly help individuals with little or no retirement savings, switching to the CPI-E from the CPI-W increases benefits for everyone. This cumulative increase in expected Social Security benefits over time would result in fewer work hours or earlier retirement, especially for households with ample retirement savings. Fewer work hours and/or early retirement would negatively impact the country's productivity.
The second issue pointed out by PWBM economists with Biden's Social Security plan is that it would "distort labor supply decisions by more than the current payroll tax."
As things stand right now, the more a worker earns on an inflation-adjusted basis over their 35 highest-earning years, up to the maximum taxable earnings cap, the higher their Social Security benefit will be at full retirement age. Though workers don't get back from Social Security the same dollar they paid in via the payroll tax, PWBM notes there is something of a "contribution-benefit" linkage that exists.
Meanwhile, the creation of a doughnut hole and the reinstatement of the payroll tax on high-earning workers doesn't add any additional benefits. Without any added benefits, these high-earning workers would be expected to potentially work less, defer their income, or perhaps derive their income from small businesses where their earnings could be untouched by the payroll tax. That's also a net-negative for the U.S. economy.
Economic consequences aside, this is the biggest problem with Biden's Social Security proposal
Any proposal on Capitol Hill, be it for Social Security or not, is going to have a tough hill to climb if well-respected economists are forecasting a long-term decline in U.S. GDP as a result. But when push comes to shove, the economic consequences of Biden's Social Security plan are a distant second to another problem. Namely, it doesn't resolve the program's long-term funding-obligation shortfall.
A separate analysis conducted by Washington, D.C.-based think tank Urban Institute in October 2020 found that Biden's Social Security overhaul would only extend the solvency of the program's asset reserves by roughly five years. If we assume the same analysis holds true in 2023, the OASI would be exhausted by 2038 instead of 2033. Note: Social Security is in no danger of going bankrupt or becoming insolvent. But the "solvency" of its asset reserves is very much in question.
Although increasing taxation on the well-to-do would provide an immediate and sizable increase in annual revenue for Social Security, the other tenets of Biden's proposal redirect this capital to boost the special minimum benefit, increase PIAs, and lift annual COLAs for all beneficiaries. In short, much of the revenue boost Social Security would receive from taxing the rich would be offset by benefit increases elsewhere. Very little progress would be made in reducing the program's long-term funding-obligation shortfall.
Multiple analyses have shown that simply taxing the rich or removing the maximum taxable earnings cap altogether simply isn't enough to cover Social Security's long-term cash shortfall. To truly fix Social Security, lawmakers will have to consider additional solutions, which may include raising the payroll tax above 12.4%, gradually increasing the full retirement age, or perhaps means-testing for benefits.
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For neoliberals, cheating is a business model.
This 'article' by the (motley fool) is not entirely accurate as it leaves everything out and puts nothing in.
The greatest faux of all is the simple fact that the uber wealthy--that apparently carry the total load of every American and American business on their shoulders--are financially unable to do any more with their wealth.
And when I think of 'neoliberals', the first names that come to my mind is the remaining Koch brother, the Mercer family from NY and their little handmaidens of the like such as Steve Bannon, Roger Stone, Tucker Carlson, Sebastion Gorka and the remainder of the fearful to lay their hand on the bible and swear under oath. You know, those people?
"But when push comes to shove, the economic consequences of Biden's Social Security plan are a distant second to another problem. Namely, it doesn't resolve the program's long-term funding-obligation shortfall."
The "uber wealthy" as you scornfully call them, are not all that numerous, and are not bottomless money pits for the progressives to steal from. They already pay their fair share, and more.
Why don't the Dems want to do some common sense fixes to the upcoming shortages of Social Security and Medicare.
Alright. What are common sense fixes you would suggest?
The problem is that the Social Security trust fund (which was created through tax increases as the ultimate fix) has been losing buying power because of inflation. FICA taxes and interest paid to the trust fund have not kept pace with inflation.
The common sense fix is to deflate the economy and increase the buying power of the dollar. That requires giving the financial sector a haircut. That requires turning off the spigot of free public money for financial middlemen. Yes, that would require reducing or eliminating deficits. But, more than that, it would require government to directly provide services rather than utilizing contractors. Government efficiency in spending cannot be improved by adding layer upon layer of middlemen who only skim public money without doing anything productive.
I'm afraid it's a lot more than that. Back in 1940 there were 159.4 people paying into Social Security for each person drawing on it, today that ratio is down to 2.8 people paying in for every person drawing out.
Social Security History (ssa.gov)
I had listed several ideas on it that I though were common sense, and as typical the nay-sayers were abundant with the criticism about touching what they are owed. Hogwash.. but that's life.
I'm confident there will be people who are against any of these changes but unless something is done to shore up the system, everybody who is drawing on SS now will have an automatic cut in benefits in 10 years when the trust fund is out of money. And unless the working public grows, these cuts will continue as tax received reduces.
Your common sense proposal has already been done. The fix for Social Security was to increase FICA taxes and raise retirement age. That fix was intended to build a lump of cash in a trust fund. But the freeloader private financiers fucked the fix. Proposing the same fix today will only allow freeloader private financiers to fuck that fix, too.
The fix for Social Security even included tax deferred 401k investments to provide supplemental income in retirement. That deferred income would also provide tax revenue to shore up Social Security. Those 401k investments work the same way as Social Security. There isn't a pile of cash backing up that 401k. Pulling cash out of a 401k also requires someone else to put money into the market.
Retirement was fixed. Finance has demanded too much free public money and that has broken the fix by devaluing the dollar. In 1940 the Federal budget was $9.5 billion and the GDP was $98.2 billion (yes, with a B). The dollar has lost 95 pct of its value since 1940. The average inflation rate since 1940 has been 3.78 pct.
Repeating the cycle of increasing taxes, raising retirement age, and devaluing the dollar with inflation won't fix anything. We're not holding private finance's feet to the fire. The only common sense fix for Social Security, at this point, is to deflate the economy and increase the value of the dollar. We need to claw back some of the exorbitant inflation caused by the financial sector.
Demographic changes are going to cause a lot of pain. Fewer workers to support the elderly isn't a situation you can demagogue your way out of.
The SoSec trust fund was supposed to address that demographic change. But the dollar has lost 73 pct of its value since 1980.
SoSec paid out $152 billion in old age benefits in 1980. Inflation alone would make that amount $563 billion today. And that doesn't include demographic changes. The fix that was applied to Social Security was made in 1980 dollars. Today's SoSec trust fund of $3 trillion would have a value of $11.1 trillion in 1980 dollars. Inflation undercut the value of the Social Security trust fund, not demographic changes.
Old story. Been that way for decades. Got anything new?
Bill Clinton approved the repeal of Glass-Steagall. Bill Clinton negotiated NAFTA. Bill Clinton granted China Most Favored Nation status, negotiated a free trade agreement with China, and promoted China's membership in the World Trade Organization. Bill Clinton also reinvented the Federal government to utilize private contractors to provide government services and manage government operations. Joe Biden, Chuck Schumer, and Nancy Pelosi were members of Congress that supported Bill Clinton's neoliberal policy agenda.
The economic aspects of neoliberalism was the focus in the 19th century when the idea of free trade was being avidly promoted. (That's the imperialism of banana republics.) But the resurgence of neoliberalism following WWII was really more about sustaining the government graft and easy access to public money that emerged to fight the war. Post-WWII neoliberalism has its roots in the military-industrial complex Eisenhower warned about. Ronnie Raygun gave hope to financial shysters and middlemen wanting access to free public money. Bill Clinton turned that hope into a reality. Reagan and Clinton transformed the US economy into a service economy that rewarded middlemen more than producers.
Democrats social agenda is all about private finance accessing free public money; the new neoliberalism. Democrats have intertwined neoliberal economics and social progress which has transformed neoliberalism into a socio-economic policy framework. Obamacare is about private financial middlemen having access to free public money to perform a social function. Obamacare shares many socio-economic attributes and characteristics with the imperial neoliberalism of banana republics during the 19th century. Even today's welfare programs depend upon private banks and financial middlemen to manage distribution of public funds. That's how Democrats have transformed neoliberalism into more than just the economics of trade.
Clinton did not veto the Financial System Modernization Act (which contained a partial repeal of Glass-Steagall). But the facts are that FSMA was passed by Rs; House: Republicans 205–16, Democrats 138–69, Senate: 53 Republicans and 1 Democrat in favor.
NAFTA originally enjoyed bipartisan backing; it was negotiated by President George H.W. Bush, passed by a Democratic-controlled Congress, and was implemented under Democratic President Bill Clinton.
Most Favored Nation status is granted by the WTO. WTO Members, like the US, vote to grant this status to other members. The Senate voted (83 to 15 for: 83 = 46 Rs + 37 Ds) to give China permanent most-favored-nation status on September 19, 2000. The Rs dominated the vote, but this move did enjoy bipartisan support.
You obfuscate so severely that it's not really worth the effort to read your post because I'd have to research every sentence.
You've confirmed what I wrote and then you accuse me of obfuscation? Or was that screed written by Hillary Clinton's campaign staff?
You are attempting to excuse Clinton by claiming he only rubber stamped Republican neoliberal proposals and legislation. So, why doesn't that make Bill Clinton more Republican than Democrat? Clinton was a neoliberal and supported Congressional neoliberal proposals and legislation regardless of party. Third Way Democrats really were in bed with neoliberal Republicans.
Clinton claimed credit for the Financial Systems Modernization Act. Clinton claimed credit for NAFTA. Clinton claimed credit for liberalizing trade relations with China. Rewriting history because Clinton's neoliberalism damaged the United States is as dishonest as claims I'm obfuscating. Once a Clinton Democrat, always a Clinton Democrat. Neoliberal Democrats don't change their spots.
So CLEARLY it was a piece of bipartisan legislation.
Never would have advanced to the Senate otherwise.
Claiming it was passed by the GOP is disingenuous and flat out wrong.
I pointed out that the positions you blame solely on Clinton were majority bipartisan . A Republican president negotiated NAFTA, it was a pretty much solely the Republicans in the Senate that made Most Favored Nation status possible for China. You left out information to support your narrative, your presentation was purposely unclear; definitionally obfuscation.
I am not excusing anyone. I am pointing out that these decisions were what both Republicans and Democrats wanted. I don't care who tried to take credit for things. Maybe you haven't noticed, but Republicans are taking credit for funding provided by Biden's infrastructure bill & CHIPS Act even though they voted against these bills.
We can expand neoliberal economics to mean market-oriented reform policies such as eliminating price controls, deregulating capital markets, lowering trade barriers and reducing, especially through privatization and austerity, state influence in the economy. Pretty much Republican Party positions, and what liberals tried to restrict after the Great Recession.
Your original 2.2 post is littered with 'neoliberal[ism]'. Your use of it doesn't seem appropriate in many cases. It really looks like you like the word because it contains 'liberal'. The policies are much more to Republican liking than Democratic. In the early to mid aughts, while banks were giving out loans that could never be paid back, GWB told the SEC to back off, because the banks would 'self-regulate' -- I remember think at the time: yeah, that's gonna happen...
I don't think so. Sugar coat Supply Side all you want, its still Supply Side.
About what?
Where in 2.2 is Supply Side sugar coated?
some folks seem to have the ability to decipher what an author really, really meant, despite their written words
Bill Clinton adopted supply side economics ostensibly for social good. The only real difference between economic neoliberals and social neoliberals was on the role of government. The economic neoliberals idea of 'trickle down' benefit to society was fully endorsed by social neoliberals as redistribution. But social neoliberal trickle down, under the guise of redistribution, hasn't worked, either. That's why social neoliberals bear the most responsibility for exploding the national debt in an effort to fool the public into believing redistribution works.
At the most basic level, supply side economics is based upon communist theories. That's why neoliberalism has little in common with capitalism. That's also why neoliberalism won't work. Central planners on Wall Street won't manage the economy any better than central planners in government.
Unintended consequences seems to be a Democratic hallmark.
Unfortunately, in many cases, all those unintended consequences have been deliberately imposed onto the country. Free public money always makes the rich richer. The TEA Party can pee down their legs about welfare but the facts are all that welfare money rises to the top of the economy. The government has spent a lot of money on the poor but poverty persists. So, there's no where for that welfare money to go but up.
In 1983, Allan Greenspan and Tip O’Neil and others negotiated a Social Security benefit reduction plan that served the country’s interests. 26 Dem senators including Joe Biden voted for it.
Joe was for it before he was against it.
Okay, who is gullible enough to think that the federal government can handle this problem competently?
Better question is who thinks the federal government, especially the current one, can hand all e any problem.