Medicare beneficiaries, but it offers no solution for the problems facing Social Security.
Earlier this month, President Joe Biden submitted to Congress his budget request for fiscal 2024, which runs from Oct. 1, 2023 through Sept. 30, 2024. The administration plans to spend roughly $6.9 trillion next year, up from $6.4 trillion this year. The budget outlines large funding increases in education, healthcare, and defense, and more modest increases in areas like clean energy, manufacturing, and federal law enforcement. But many retired workers are particularly interested in Biden’s plan for Social Security and Medicare.
The budget explicitly rejects any cuts to the Social Security and Medicare programs. It also extends the solvency of the Medicare Hospital Insurance (HI) Trust Fund by at least 25 years, and it boosts the discretionary budget of the Social Security Administration (SSA) by 10% (or $1.4 billion) to $15.5 billion to improve customer service at SSA field offices. But it fails to outline a specific solution for the funding problems that plague the Social Security program.
Here’s what retired workers should know.
President Biden’s budget proposal is silent on specifics for fixing Social Security
The Medicare HI Trust Fund could be depleted by 2028, according to the latest report from the trustees. At that point, non-interest income would cover just 90% of estimated expenditures, which could limit access to medical care for Part A beneficiaries. But Biden’s budget would extend HI Trust Fund solvency for at least 25 years, primarily by increasing the Medicare payroll tax rate from 3.8% to 5% on income above $400,000. It would also direct savings from proposed drug reforms to the HI Trust Fund.
That is good news for the millions of Americans who depend on Medicare Part A. However, many of those people also depend on Social Security, and Biden’s budget offered very little on that front. The Social Security trust funds are facing depletion by 2035, at which point the trustees believe revenue from payroll taxes would cover just 80% of scheduled benefits. In other words, Social Security benefits would need to be cut by 20% if no solution is found by the time the trust fund becomes insolvent.
President Biden’s budget proposal noted that the administration will work with Congress to strengthen Social Security by “ensuring high-income individuals pay their fair share,” but it stopped short of providing actual solutions. That prompted criticism from Maya MacGuineas, the president of the Committee for a Responsible Federal Budget: “By failing to suggest increases in Social Security revenues or adjustments and reforms to future benefits in his budget, the President is implicitly endorsing the 20% benefit cut plan.”
Frustration regarding the budget is understandable, but retirees should be aware of a few facts before ascribing Biden’s vague language to an implicit endorsement of benefit cuts. First, the Medicare trust fund is in more immediate danger of depletion, so it makes sense to tackle that funding problem first.
Second, Social Security is facing a much steeper funding shortfall, meaning the solution will likely be more complicated. Third, President Biden has proposed several changes to Social Security in the past, and his failure to mention those changes in the 2024 budget does not mean his opinions have changed.
Also noteworthy: President Biden reiterated his pledge to avoid Social Security cuts during his State of the Union address in February, saying he would not cut a single benefit. He also promised to veto any benefit cuts put forth by anyone else.
Social Security benefit cuts may be unavoidable
President Biden’s budget is merely a starting point for discussions between Democratic and Republican lawmakers. It outlines his priorities, but Congress ultimately has final say on any decisions related to federal spending and taxation. And because Republicans control the House, Congress is unlikely to approve all (or even most) of the funding requests put forth in the budget. In that context, President Biden may have simply decided to press his agenda on Social Security at a later time.
Retirees on Social Security may be disappointed with the budget proposal, but the Social Security trust fund is still several years from insolvency, meaning Congress still has time to find a fix. That said, the long-term solution will likely involve a combination of benefit cuts and revenue increases. Social Security spending was equivalent to 4.8% of U.S. gross domestic product (GDP) in 2022, and that figure is expected to reach 6% by 2033. In other words, Social Security is consuming a growing portion of economic output in the U.S., and that trend is ultimately unsustainable.