An amazing thing happened in this year’s presidential election. A major party candidate proposed raising Social Security payroll taxes. And won. More than that, it was never even an issue. What ever happened to Social Security being the third rail of American politics?
The candidate, of course, was Joe Biden. He proposed a quite detailed plan for reforming Social Security that included benefit increases for some surviving spouses and very poor and very old retirees, as well as giving credit for future benefits to family caregivers.
But that wasn’t all. He also said he’d impose payroll taxes on wages or salaries in excess of $400,000—an idea the Tax Policy Center estimates would increase Social Security revenue by $740 billion over 10 years.
Unless you are a serious retirement security policy wonk, you probably didn’t even notice that Biden promised to raise Social Security taxes by three quarters of a trillion dollars. And that’s the point.
Remarkably, President Trump, never shy about attacking an opponent, said almost nothing about Biden’s Social Security agenda. Indeed, if anyone was on the defensive over Social Security taxes, it was Trump himself who proposed cutting payroll taxes—though he never was clear about how.
About now, you are saying, “Of course Biden’s plan to tax wages over $400,000 wasn’t controversial. Hardly anyone makes that much.” And you’d be right. Less than 1 percent of the US population earns that much income, and for many, it comes in the form of dividends and capital gains that are not subject to Social Security payroll taxes.
Still, I will say it again: Unlike previous candidates, Biden didn’t make vague statements about how high- income people need to pay more in taxes to help maintain Social Security solvency. Joe Biden proposed a specific plan to raise Social Security payroll taxes by $740 billion over 10 years. And it was a non-issue.
That may suggest that voters are coming to understand that the Social Security system really is in financial distress. The program’s actuaries have estimated its retirement trust fund will be insolvent and unable to pay full promised benefits in 2035—just 15 years from now. And that was before a pandemic that further reduced payroll tax revenues.
There is no secret to fixing Social Security. There is a lack of political will, not an absence of ideas. When any social insurance program has a mismatch between revenues and benefits, well, it needs to either reduce promised benefits or raise revenues. Or both.
Biden said that part, or at least half of it, out loud. And still got elected president by more than 5.5 million votes. One reason: Public opinion seems to support Biden’s focus on raising the payroll tax as a key to fixing the system.
As policy, Biden’s plan is flawed. Today, only wages up to $137,700 are subject to the Social Security payroll tax. Biden would continue to exempt wages between $137,700 (indexed for inflation) and $400,000 (not indexed) from the levy, but then tax wages in excess of $400,000.
Why should someone making $50,000 pay the Social Security tax on all their wages, while someone making $450,000 pays on only about $188,000 of their wages (the first $137,700 plus the $50,000 in excess of $400,000). This design is especially odd since all wages are subject to the Medicare payroll tax.
Biden did this because he wanted to be able to say that he would not raise taxes on anyone making $400,000 or less. Presumably, he didn’t want to muddy that talking point with a tax increase that covered all wages above the current $137,700 cap. While the scheme may be politically appealing, it is poor policy.
It also is worth noting that the president-elect’s plan won’t make the Social Security system solvent, a standard promise of many past reform plans. The Urban Institute estimates that by increasing benefits even as he raises taxes, Biden would delay Social Security insolvency by only about five years. Thus, he’d only begin to address the program’s broken finances.
Given Biden’s more immediate priorities—battling the pandemic, reversing the economic slump it caused, addressing racial injustice, immigration, and overall health care—the new president probably isn’t going to make much progress on his Social Security reform plan any time soon.
But he’s taken a big step towards building political consensus for a solution by putting a tax hike on the table and paying no political price. Other politicians will notice. And as they do, the chances of a real fix to a broken Social Security system surely will improve.