1 Social Security Change Joe Biden Wants That Most Retirees Should Want, Too
Joe Biden wants to change Social Security. He hasn’t tried to keep this a secret. In fact, Biden campaigned for president with a plan to shake up the federal program in several ways.
Some of the president’s proposals could stir up controversy. But not all of them. Here’s one Social Security change Biden wants that most retirees should want, too.
Raising the cap
Biden pledged as a presidential candidate to “put Social Security on a path to long-run solvency.” One component of his plan would accomplish the most in achieving this goal.
The president put forward the idea of requiring Americans with high incomes to pay more in payroll taxes. In particular, he wants all income above $400,000 per year to be subject to the Federal Insurance Contributions Act (FICA) tax. FICA is a payroll tax that generates funds for Social Security.
Currently, all income up to $147,000 per year is taxed at a rate of 12.4%. Employees pay half of this payroll tax while employers pay the other half. (Self-employed individuals must pay the full amount since they’re both employees and employers.)
Biden’s plan would create a “doughnut hole” where any income between $147,000 and $400,000 wouldn’t be subject to the FICA tax. However, the current maximum amount taxed won’t stay at $147,000; it would increase regularly. As a result, this “doughnut hole” would decrease over time and would probably eventually disappear altogether.
Why retirees should like this change
Tax increases often aren’t very popular. This proposal is an exception, though, that most retirees should like for two key reasons.
First, Social Security absolutely must bring in more money or benefits will have to be cut significantly in the future. As of now, the program is projected to become insolvent by 2034. No retiree who depends on their Social Security check as a major source of income wants that to happen.
Raising the cap for income subject to the FICA tax would help avoid huge benefit cuts. The University of Maryland has estimated that taxing annual income of $400,000 or more would eliminate 61% of the projected Social Security shortfall.
Second, the tax increase proposed by Biden wouldn’t impact most Americans. Only 1.8% of U.S. households made over $400,000 in 2019, according to the IRS. However, the positive impact of preserving Social Security benefits would be felt by most retirees.
Unsurprisingly, the idea of increasing the threshold for FICA taxes receives strong bipartisan support among Americans. A June 2022 survey conducted by the University of Maryland’s Program for Public Consultation found that 88% of Democrats and 79% of Republicans favor making all income over $400,000 subject to the Social Security payroll tax.
Will it happen?
There’s a strong case to be made that raising the FICA cap is the Social Security change Biden wants that’s most likely to happen. It would strengthen the program financially. It negatively impacts a relatively small group of Americans while helping a large number of retirees. It’s popular with both Democrats and Republicans.
Rep. John Larson (D-Conn.) has introduced a bill to the U.S. House of Representatives that includes applying the Social Security payroll tax to income above $400,000. Is it a slam dunk? Not really. Its chances of ultimately becoming law appear to be slim. The bill hasn’t attracted any GOP co-sponsors.
The plan to increase the FICA threshold to bolster Social Security likely will happen at some point, though, whether the cut-off is $400,000 or another amount. There simply aren’t many other good options for avoiding major benefit cuts. Even extending the full retirement age a few years wouldn’t be enough on its own.
However, the political reality is that the change to increase payroll taxes probably won’t be enacted soon. And it potentially won’t even happen under Joe Biden’s watch.
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