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Biden’s plan to boost Social Security and Medicare already looks wobbly

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President-elect Joe Biden won’t take office for another 10 weeks, but it looks like one of his biggest ideas to help retirees is already in trouble.

Biden and his fellow Democrats were sure that if he won the White House, that Democrats would also flip the Senate. They also assumed that the Democrats would gain seats in the House of Representatives, adding to the majority they’ve held since January 2019.

But while the first part worked out—Biden won—his coattails weren’t very long. Not only did Democrats lose House seats, it looks like they’ll be in the Senate minority again. This could change, but it’s a tall order: Democrats must win not one, but two, Senate runoffs in Georgia in January. If they do, then the Senate would be 50-50, with Vice President Kamala Harris breaking any ties. All Republicans have to do is win one, and Mitch McConnell will remain Majority Leader.

The problem for Biden, of course, is that he was counting on a stronger hand in Congress. He wants to boost Social Security benefits, particularly for low-income households, by raising taxes on corporations and individuals earning $400,000 a year. But it’s hardly likely that McConnell and his fellow Republicans will go along with a tax hike of any kind.

Read: I have a seven-figure nest egg — am I saving too much for retirement?

That’s too bad, says economist and retiree advocate Teresa Ghilarducci, director of the Schwartz Center for Economic Policy Analysis at The New School for Social Research. “Perhaps Republican Senators will feel the heat to eliminate elder poverty and enough will join with Democrats to expand Social Security benefits,” she says.

It’s also important to remember that Biden’s proposal to tax more but also spend more does nothing to solve Social Security’s underlying problem: That the Trust Fund is on track to be exhausted by 2035, at which point retirees could be looking at cuts of about 25%.

“He hasn’t addressed the cliff this thing (Social Security) is driving toward,” says Chad Parks, founder & CEO of Ubiquity Retirement & Savings. “It’s a hot potato and no one has had the backbone to seriously address it,” he adds.

But Biden’s election does mean one positive for Social Security (and Medicare): Talk of eliminating the payroll tax—which is the principal source of funding for these gargantuan federal programs—will go away. President Trump spoke often of wanting to eliminate this tax, and pay for entitlement programs from the general fund. This would have treated Social Security and Medicare like any other federal program—making it vulnerable each year to the whims of lawmakers and the president.

Read: Should I take a $1,913-a-month pension or a $445,000 lump sum?

Such a scheme—which no less an authority than the Social Security Administration’s chief actuary estimated could have exhausted the trust fund early as 2023—was a flat-out “death threat” against seniors, Nancy Altman, president of the advocacy group Social Security Works, told me recently. “Not just against current beneficiaries, but future ones as well.”

So at least that’s off the table.

Meantime, is there anything Biden could do on his own to help Social Security and Medicare? Executive orders, perhaps? The answer is no. While the new president will use EOs for things like rejoining the Paris Climate Accord and World Health Organization, he can’t do anything for entitlements. He can’t raise taxes on corporations or high-earners without both the House and Senate approving, for example. Just think what presidents could do if they had that kind of power.

There may be one thing that Biden and his fellow Democrats can do with Republicans, however, and that is to change the way Social Security benefits are calculated.

Read: How effective will a COVID-19 vaccine be for adults?

Right now, Social Security’s annual cost-of-living adjustment (COLA) is based on a gauge called the “CPI-W”—the Consumer Price Index for Urban Wage Earners and Clerical Workers. This measures prices paid by working adults under the age of 62 (before the minimum Social Security eligibility age). The problem with this: CPI-W places greater weight on things that seniors need less of—like electronics and, again, gasoline—but less weight on things seniors do spend big on, like medical expenses.

Read: This is what your Social Security check will look like next year — and why

For this reason, Social Security benefits have been creeping up at a snail’s pace in recent years. In 2021, for example, beneficiaries will get just 1.3% more, or an average $1,522 a month. But drug prices have gone up a lot faster than that—3.3% through mid-October for 43 key meds, says GoodRx, which tracks such things.

Meantime, Medicare premiums and deductibles are up a lot faster than that: about 7% this year alone.

There may be political consensus to change the way this annual COLA is calculated. Instead of using spending habits of Americans under the age of 62 to determine what kind of an increase seniors should get, legislation has been introduced in Congress to use an “elderly-specific price index” often referred to as the Consumer Price Index for the Elderly (CPI-E). Here’s a good (though somewhat technical) explanation of all this.

Of course, changing the way the Social Security COLA is calculated this way would bring us back full circle to the problem we’ve been talking about: The cash crunch that is coming and isn’t being addressed.

All these Washington politicians are doing what they always do, Ubiquity’s Parks charges: “They continue to just kick the can down the road.”



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