Social security has reached an important turning point: it will soon be paying out more benefits than employees are paying in. This means that the next president faces big decisions on how to fix his funding bottlenecks – but he is barely mentioned in the presidential debates.
About half of older Americans depend on it Social security benefits for 50% of their income, making it a major issue for the most reliable electorate in the country. Here’s what you should know about where President Donald Trump and his challenger, former Vice President Joe Biden, stand on Social Security.
Trump’s Social Security Plans: 3 Things We Know
Trump hasn’t released a formal Social Security plan, but here’s what we know from his previous statements and actions in the Oval Office.
1. Trump wants a permanent wage tax cut.
Trump ordered one in August Income tax vacationThis allows workers who earn less than $ 104,000 a year to keep the 6.2% of their paychecks normally used for Social Security in the last four months of 2020. However, the president needed Congress’ approval to cut taxes, and Congress did not approve the cut. It is generally expected that workers who have not been withheld social security taxes will do so owe these wage taxes Early 2021.
When Trump announced the payroll tax break, he said that if he wins the election, he will extend the cut beyond the end of the year and “end the tax.” (Again, he would need Congress approval.)
2. … but he did not propose to change the social security pension benefits.
While that promise made headlines that Trump had vowed to cancel social security benefits, PolitiFact was evaluating the claim mostly wrong. While Trump has not proposed an alternative way to fund social security without wage tax, he does not want to cut benefits. Indeed, he said the AARP that “we will never cut our social security. We will guard it with everything we have. “
One way that has been suggested is that Congress could replace income tax revenue with money from its general fund. This is what lawmakers did when President Obama cut wages tax by 2 percentage points for two years after the Great Recession. It is unclear whether budget cuts, increases in other taxes, increases in the deficit, or a combination of these would make up for the lack of general funding.
3. Trump does I want to reduce the SSDI and SSI benefits.
While Trump doesn’t want to cut Social Security retirement benefits, he has included cuts in Social Security Disability Insurance (SSDI) and Supplementary Security Insurance (SSI) totaling around $ 45 billion in his 2021 budget proposal.
Trump has proposed cutting disability benefits by reducing the amount of retrospective benefits an employee can receive from 12 to six months and narrowing the definition of disability. Currently, age can be used as a factor to qualify an employee for disability benefits if they are at least 50 years old. The administration has proposed increasing the age requirement to 55 years. Trump has also proposed various changes that would make it more difficult to get SSI benefits that go to low-income families.
Biden’s Social Security Plans: 3 Things We Know
Biden has proposed the following changes to social security benefits.
1. Biden would raise social security taxes for high earners.
Biden would continue to levy wage taxes at the same rate for workers earning less than $ 400,000. But people who earn beyond that amount could see their taxes go up. Currently, workers only pay Social Security taxes for the first $ 137,700 of income. (It will rise to $ 142,800 in 2021.)
Biden plans to impose 6.2% income tax on income over $ 400,000. Income between $ 142,800 and $ 400,000 is still not subject to tax. However, it would not increase benefits for high-income workers. The maximum income used to calculate future benefits is still $ 142,800 regardless of how much you are taxed.
2. Biden would offer higher benefits to some recipients.
Biden suggests increasing the benefit for more groups of people. He demands:
- A minimum benefit of 125% of the federal poverty line for people who have worked for at least 30 years.
- Increase in payments for surviving spouses to a maximum of 75% of the couple’s total benefit.
- Increased payments to those who have had benefits for at least 20 years to help those who may have run out of benefits retirement provision.
3. He wants to change how COLAs are calculated.
Social security cost of living adjustments are calculated using the Consumer Price Index for Urban Wage earners and Office Workers (CPI-W). However, because the CPI-W only measures costs for households where at least one person works, it does not reflect the increases in costs that retirees actually face. For example, seniors spend a higher percentage of their income on medical expenses than people of working age, so rising health costs affect them more.
Biden suggests determining COLAs of social security Using another measurement, the Consumer Price Index for the Elderly, or CPI-E, which is designed to measure changes in the cost of living specifically for those aged 62 and over. Switching to the CPI-E, however, would not drastically increase the COLAs. Using the CPI-E versus the CPI-W would result in COLAs that are about 0.25 percentage points higher on average. Social security recipients will get a 1.3% increase in 2021; Using the CPI-E would have resulted in a COLA of about 1.55%.
Why social security is important to you
It is tempting not to think about your future social security, especially if you are a younger voter. But despite the frightening predictions that Social Security will run out of resources, you can be confident that you will be offered benefits.
If social security burns up its reserves, it will still draw enough to pay about three-quarters of the benefits it promised through wage taxes. Even if the president wants to abolish payroll taxes, it is highly unlikely that Congress will opt out. However, there are some key decisions that need to be made that can determine how much tax you will pay and how long you will have to work before you retire.
Whichever stance you prefer, make sure to put your ballot on November 3rd or sooner. Your retirement depends on it.
Robin Hartill is a certified financial planner and senior editor at The Penny Hoarder. She writes the Dear Penny personal financial advisory column. Send your tricky money questions to [email protected]
This article originally appeared on www.thepennyhoarder.com