Two of the nation’s most high-profile retirement plan policy experts, Andrew Biggs and Alicia Munnell, often disagree on issues related to fixing the nation’s retirement crisis—or that one even really exists (looking at you, Andrew!). But they agree on one thing when it comes to Democratic presidential candidate Joe Biden’s proposed plan for Social Security: It’s a start, but it’s not enough.
During a webinar this week focusing on how a Biden or Trump administration would approach savings and retirement in 2021, hosted by the Bipartisan Policy Center and Yahoo Finance, Biggs and Munnell talked about the nation’s “very fragmented retirement system” and the need to rethink how it works, but a definite focus of the half-hour event was a deeper dive into Biden’s proposal for Social Security reform.
“If you’re in this game like Alicia and I are, you’re happy to see anybody proposing anything,” said Biggs, the outspoken former deputy commissioner of the Social Security Administration and current resident scholar at the American Enterprise Institute (AEI). “I’m glad the conversation is started, but I certainly wouldn’t want the conversation on Social Security to end with this. Because I think it’s not a really sufficient plan.”
Munnell, Director of the Center for Retirement Research at Boston College (CRR), added during the webinar, “I agree with Andrew. It’s a step in the right direction, but it doesn’t take you at all where you need to be.”
Biden’s Social Security plan was analyzed recently by the progressive-leaning Urban Institute, which concluded that, if enacted, Biden’s plan close about a quarter of Social Security’s long-term financial shortfall and extend the life of the trust fund by five years, to 2040, before full benefits would be jeopardized. The analysis found enacting the Biden plan would boost Social Security revenue by 7% in 2021 and by 12% in 2040.
But the Biden plan makes no promise of intending solely to shore up the solvency of Social Security. Biden also wants to increase Social Security benefits for lower-income retirees, and would pay for it by imposing the 12.4% payroll tax on earnings above $400,000 while retaining the current $137,700 payroll-tax ceiling (set to rise to $142,800 in 2021). This would create a “doughnut hole” that would spare the upper middle class from higher taxes, but only temporarily because Biggs notes it will eventually disappear.
“With every passing year that donut hole shrinks. Eventually all earnings would be taxed by Social Security,” Biggs said, referring to the gap closing in about three decades because the plan does not index the second-contribution threshold to inflation.
“What you have is a plan that essentially taps out higher earners on the tax end and only adds about five years to the trust fund,” Biggs said, adding that remaining new revenues would be dedicated to raising benefits for lower-income retirees.
“I’m surprised that the increase in revenues are so absorbed by benefit enhancement,” Munnell chimed in. “They seem like very modest benefit enhancements to me.”
She said it would help alleviate retirement poverty, but added, “we need a proposal to really restore financial solvency to Social Security over the long run and that takes a significant increase on the revenue side. If you’re going to do it on the benefit side, which I would not want to do, it means big cuts in benefits.”
One difference between Biggs and Munnell on the topic of Social Security solvency, Munnell said, is that while Biggs prefers to fix it by raising revenues and cutting benefits, she wants to close the financing gap solely by raising revenues and not cutting benefits.
“First of all, something has to be done about Social Security. We can’t just let it go,” Munnell said. She reiterated that this is just the beginning of the conversation, and shows that at least the intent is there to try to restore solvency, even if this plan doesn’t get you all the way there.
Trump wants to abolish payroll tax
For his part, President Trump has not made specific proposals about shoring up Social Security. But has said he would like to eliminate the Social Security payroll tax altogether after his lightly adopted payroll tax holiday expires in 2021, and would instead fund Social Security with revenues from the general fund.
While Munnell didn’t dismiss the idea of using general revenues out of hand, she is clearly hoping for more of a plan if Trump wins four more years in the White House.
“In terms of the current President? He has no plan, Munnell said. “He has a silly idea that some people don’t have to pay their payroll tax in the last quarter, and they can make it up in the first quarter of next year, and then maybe if he’s reelected he’d get rid of the payroll tax totally. That’s not a plan.”
Like Munnell, Biggs said he has no prediction on who will win the election, but said she was right that Trump has not put forth a plan.
“President Trump doesn’t have a plan for Social Security; he has a certain idea,” Biggs said. “The idea to the degree that he’s actually fleshed it out at all is to essentially substitute income tax for the Social Security payroll tax. As an idea I think that’s actually a good conversation starter,” Biggs said, adding that some countries fund their retirement programs with income tax revenues, but they tend to fund more limited “safety net” retirement plans instead of something on the scale of Social Security. The concept could still be worth exploring, however.
Speaking from experience, Biggs added that Social Security in particular is “something where a President has to be fully committed to it. “I worked in the Bush White House. He was, and we still didn’t get anything done,” Biggs said. “Unless it is a top-tier priority for President Trump or for Vice President Biden, I don’t see anything happening soon.”
SEE ALSO:
- Biden Backs This Change for Social Security COLA
- Will Trump’s Payroll Tax Deferral Fly?
- How Would Joe Biden Reform Social Security and Supplemental Security Income?
Veteran financial services industry journalist Brian Anderson joined 401(k) Specialist as Managing Editor in January 2019. He has led editorial content for a variety of well-known properties including Insurance Forums, Life Insurance Selling, National Underwriter Life & Health, and Senior Market Advisor. He has always maintained a focus on providing readers with timely, useful information intended to help them build their business.
