What Will Happen to Social Security after the Election?

“Never let the facts get in the way of a good story.”  This adage may be a good rule of thumb for entertaining guests at a dinner party, but when employed by candidates for public office, it can lead to frustration and confusion.  This fall, for example, many Americans have been trying to make sense of the presidential candidates’ proposals for Social Security and have been wondering whether the next president might enact policies that would jeopardize their expected benefits. 

Both candidates have told “good stories,” promising not only to sustain the current Social Security system but to facilitate additional benefits, in the form of increased Social Security payments (Biden) or reduced taxes (Trump) for certain segments of the population.  What are the facts about the candidates’ plans, the changes that are likely to be made, and whether Americans should be concerned about the future of Social Security?  We attempt to sift through the rhetoric and provide some answers, concluding that while the Social Security system remains in need of significant attention, Americans have reason to feel optimistic that they will be spared of any drastic changes to benefits— not because of, but rather in spite of, the candidates’ campaign promises.

Campaign Promises.  In typical campaign fashion, Joe Biden has proposed changes to Social Security that could best be described as… overly optimistic. In addition to shoring up the Social Security trusts, he has pledged to pursue increased benefits for:

• Widows and widowers,
• Unpaid caregivers,
• Former public sector workers now collecting pensions from work not covered by Social Security,
• Elderly persons who have been collecting retirement benefits for 20+ years, and
• Low income retirees who worked for 30+ years (instituting a minimum benefit at 125% of the poverty level).

To pay for these changes, Biden has proposed collecting Social Security payroll taxes on all wages over $400k.  (Currently, the amount of wages subject to Social Security payroll taxes is $137,700.)  While this would have a positive impact on cash flow for the Social Security retirement trust, it certainly would not cover both the current shortfall as well as Biden’s proposed changes.

Based on the Republican party platform, Donald Trump also claims a strong commitment to shoring up the current Social Security system.  However, recent policy actions have called that commitment into question.  In August, he announced that payroll taxes could be deferred from September through December of this year, and he called on Congress to forgive those payroll taxes in the interest of stimulating the economy.  He has also suggested that payroll taxes could potentially be eliminated in the future with funding for Social Security coming from the “general fund” (i.e. income taxes) instead.  Fortunately—from the standpoint of Social Security funding—Congress did not enact the payroll tax holiday that Trump had requested.  While the federal government ceased collecting payroll taxes from its workers starting in September, few other employers did, since it seems likely those taxes will have to be repaid by April of next year (according to the IRS).  Like Biden’s proposals to expand Social Security benefits, Trump’s payroll tax holiday idea stands in stark contrast with the stated commitment to ensure adequate funding for Social Security benefits under the current system, especially given that the Social Security trust funds have already taken a significant hit this year with increased unemployment (and thus decreased payroll taxes) since March.

Likely Changes to Social Security.  As evidenced by Biden’s campaign promises and Trump’s efforts to eliminate payroll taxes, there appears to be relatively little political will for the type of Social Security reform that would extend the life of the Social Security trust funds in a meaningful way.  However, the refusal by Congress to grant Trump the payroll tax holiday this fall suggests that at least Congress has recognized the impossibility of having it both ways— winning short-term popularity with increased benefits and ensuring the long-term stability of the Social Security system.  What changes to Social Security are we likely to see, therefore, in the next four years?  Relatively few.  Even considering the impact of COVID-related unemployment on the Social Security trust funds, we still have several years, possibly still more than a decade, before the trust funds are scheduled to run out.  In 1983—the last time Congress enacted major Social Security reform—the trust funds were scheduled to be exhausted in a matter of months.

Concerns about the Future of Social Security.  We have often told our clients that compared to other policy concerns, Social Security is a relatively easy problem.  It’s simply a math problem, which the president and Congress can solve if and when they have the political will to solve it.  And it may take an imminent crisis, as was the case in 1983, to generate that political will.  However, the major reform in 1983—and the minor reforms in 2015—should give retirees some peace of mind in considering who is likely to be impacted by potential changes to the system.  Those most impacted by the reforms were 1) those still working, and 2) those in a high-income tax bracket in retirement.  Changes in 1983 included:  accelerating scheduled payroll tax increases for those still working, increasing the retirement age (gradually over the subsequent decades), and imposing a tax on Social Security benefits for those with income over a certain threshold.  The changes in 2015 eliminated two Social Security claiming strategies but grandfathered in those who were already retired or close to retirement.  In both cases, the government generally aimed to avoid hurting retirees that were already collecting Social Security benefits and could not afford to have the value of those benefits diminished in any way.  We would expect the same to hold true for Social Security reforms in the future.