How Would Joe Biden Reform Social Security and Supplemental Security Income?

How Would Joe Biden Reform Social Security and Supplemental Security Income?

By Karen E. Smith, Richard W. Johnson and Melissa M. Favreault of the Urban Institute

October 8, 2020

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Abstract

Joe Biden has proposed increasing Social Security revenue, enhancing Social Security benefits, and expanding Supplemental Security Income, a program that provides cash benefits to low-income older adults and people with disabilities. Our projections show that his proposals would lift more than 1 million people out of poverty in 2021 and cut the poverty rate for adult Social Security beneficiaries over the coming decades by more than half. We project that by extending the Social Security payroll tax to earnings above $400,000, his plan would close about a quarter of the program’s long-term funding deficit and extend the life of the trust funds by about five years.

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Tomorrow! The Savings and Retirement Foundation, featuring Andrew Biggs

The Savings and Retirement Foundation

Join us Wednesday, 9 September

For a Zoom Talk by

Andrew Biggs

Senior Fellow at AEI

When he will speak about his new paper

How do Children Affect the Need to Save for Retirement?
Via Zoom

12:00 pm

RSVP

via

Zoom

Andrew G. Biggs is a resident scholar at the American Enterprise Institute, where he studies Social Security reform, state and local government pensions, and public sector pay and benefits. Biggs was previously the principal deputy commissioner of the Social Security Administration.

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Weaver: SSI awards for the disabled lowest in 20 years

My former SSA colleague David Weaver writes in The Hill that benefit awards for Supplemental Security Income (SSI), a means-tested benefit for the blind, disabled and aged, have dropped significantly during the Covid recession

In May, June, and July of this year, SSA awarded 5,038, 4,572, and 5,122 elderly individuals SSI benefits, respectively. The June award figure is the smallest number of monthly awards for the elderly in the last 20 years. The May and July figures are the second and third smallest in the last 20 years. Further, the total number of awards in these three months is 42 percent lower than the number of awards to the elderly for the comparable 3-month period in 2019.

You can check out his whole column here.

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New issue of the Journal of Pension Economics & Finance

Journal of Pension Economics & Finance
Volume 19 / Issue 3, July 2020
Published Online June 2020

Employment and substitution effects of raising the statutory retirement age in France
Simon Rabaté, Julie Rochut

Public pension wealth and household asset holdings: new evidence from Belgium
Mathieu Lefebvre, Sergio Perelman

Supporting decision-making in retirement planning: Do diagrams on Pension Benefit Statements help?
Féidhlim P. McGowan, Peter D. Lunn

On the effect of financial education on financial literacy: evidence from a sample of college students
Agar Brugiavini, Danilo Cavapozzi, Mario Padula, Yuri Pettinicchi

What determines financial literacy in Japan?
Yoshihiko Kadoya, Mostafa Saidur Rahim Khan

The implication of the hyperbolic discount model for the annuitisation decisions
Anran Chen, Steven Haberman, Stephen Thomas

Determinants of second pillar pension reforms: economic crisis and globalization
Joelle H. Fong, Markus Leibrecht

Systematic longevity risk: to bear or to insure?
Ling-Ni Boon, Marie Brière, Bas J. M. Werker

Policy Paper/Brief

Why are US men retiring later?
Wenliang Hou, Alicia Munnell, Geoffrey Todd Sanzenbacher, Yinji Li

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Brenton Smith: “Is the Social Security Trust Fund Real"?”

Writing for FedSmith: check it out here.

The Social Security Trust Fund has been around for 80 years. Over that time, its role within the program has changed, but the argument has remained the same. Is the Trust Fund real or simply an accounting ledger where wonks play with imaginary cash?

It has lingered for decades because there is no right or wrong answer to the question of whether the Trust Fund is real. It is a theoretical question where different assumptions lead to opposite conclusions.

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New paper from the NBER: “Social Security Wealth, Inequality, and Lifecycle Saving”

Social Security Wealth, Inequality, and Lifecycle Saving
John Sabelhaus and Alice Henriques Volz #27110
  
Abstract:

Wealth inequality in the US is high and rising, but Social Security is generally not considered in those wealth measures. Social Security Wealth (SSW) is the present value of future benefits that an individual will receive less the present value of future taxes they will pay. When an individual enters the labor force, they generally face a lifetime of taxes to pay before they will receive any benefits, and thus their initial SSW is generally low or negative. As an individual works and pays into the system their SSW grows and generally peaks somewhere around typical Social Security benefit claim ages. The accrual of SSW over the working life is most important for lower-income workers because the progressive Social Security benefit formula means that taxes paid while working are associated with proportionally higher benefits in retirement. We estimate SSW for individuals in the Survey of Consumer Finances (SCF) for 1995 through 2016 and use a pseudo-panel approach to empirically demonstrate those lifecycle patterns. We also show that including SSW in a comprehensive wealth measure generally reduces estimated levels of wealth inequality but does not reverse the upward trend in top wealth shares.

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Social Security’s Financial Outlook: The 2020 Update in Perspective

by Alicia H. Munnell, Center for Retirement Research at Boston College

IB#20-7

The brief’s key findings are:

• The 2020 Trustees Report, which was prepared before the pandemic, shows:
  • Social Security’s 75-year deficit increased from 2.78 percent to 3.21 percent of payroll.
  • Trust fund depletion remains at 2035, after which payroll taxes still cover about three quarters of promised benefits.
• This shortfall is manageable, and the pandemic is unlikely to fundamentally alter the long-term financial status of the program.
• Today’s crisis has also underscored the importance of Social Security, which continues to provide a steady source of income to millions of Americans.
• Therefore, once the crisis subsides, stabilizing Social Security’s long-term finances should be a high priority to ensure that Americans have full confidence in its future

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2020 Social Security Trustees Report Released

The Social Security Trustees released their 2020 annual report on the program’s current and future financial health.

The projected date of trust fund insolvency remains unchanged at 2035. However, the long-term 75-year actuarial deficit rose significantly, from 2.78 to 3.21 percent of taxable wages. The reason for this 15 percent increase in the long-term funding shortfall is legislative changes related to the Affordable Care Act’s “Cadillac tax” on generous health care plans along with changes to both economic and demographic assumptions.

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Weaver: “Congress should refurbish an old Social Security benefit in next stimulus”

My former Social Security Administration colleague and co-author David Weaver has an interesting op-ed in The Hill that looks at expanding Social Security’s death benefit.

In a typical year, about 2.8 million Americans die. The ultimate effect on mortality of the current public health emergency is unknown, with estimates of 60,000 deaths ultimately occurring. Death is certainly an unpleasant topic, but the country can take some comfort in its well-developed social insurance programs which provide income to survivors. Most Americans likely know that Social Security pays monthly benefits to aged widows and widowers — but many people may be unaware the Social Security program also supports minor and disabled children, widowed mothers and fathers, disabled widows and widowers, and even some elderly parents upon the death of a worker.

Almost all Social Security benefits are monthly benefits, but there is an exception: the lump sum death benefit (LSDB).

This is an old feature of Social Security, having been put into place with the original Social Security Act in 1935. Over time, the one-time benefit came to be viewed by many policymakers as a way of acknowledging the higher expenses a widow faced due to a spouse’s final illness and funeral. This little-known benefit from the Social Security program may be due for some refurbishing. The reason? The benefit is only $255.

You can check out the whole piece here.

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New paper: “Does Student Loan Forgiveness Drive Disability Application?”

Does Student Loan Forgiveness Drive Disability Application?

Philip Armour, Melanie A. Zaber

NBER Working Paper No. 26787
Issued in February 2020
NBER Program(s):Public Economics

Student loan debt in the US exceeds $1.3 trillion, and unlike credit card and medical debt, typically cannot be discharged through bankruptcy. Moreover, this debt has been increasing: the share of borrowers leaving school with more than $50,000 of federal student debt increased from 2 percent in 1992 to 17 percent in 2014. However, federal student loan debt discharge is available for disabled individuals through the Department of Education's Total and Permanent Disability Discharge (TPDD) mechanism through certification of a total and permanent disability. In July 2013, the TPDD expanded to include receipt of Social Security Disability Insurance (SSDI) or Supplemental Security Income (SSI) as an eligible category for discharge, provided medical improvement was not expected. Using data from the Survey of Income and Program Participation (SIPP) matched to SSI and SSDI applications, we find that SSDI and SSI application rates increased among respondents with student loans relative to rates among those without student loans. Our estimates suggest the policy change raised the probability of applying for SSDI or SSI in a given quarter among student loan-holders by 50% (baseline rate per quarter is approximately 0.3%), generally increasing SSI and SSDI awards. However, these induced award recipients were unlikely to receive the disability designation necessary to obtain student loan discharge. Given that the geographic distributions of student loan indebtedness and historical SSDI/SSI program participation differ, there are strong implications for both the size and location of SSDI and SSI beneficiaries. Furthermore, these findings highlight the importance of learning from policy changes in programs that interact with SSDI and SSI to better understand the drivers of disability program participation.

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New paper: “The Employment Effects of the Social Security Earnings Test”

The Employment Effects of the Social Security Earnings Test

Alexander M. Gelber, Damon Jones, Daniel W. Sacks, Jae Song

NBER Working Paper No. 26696
Issued in January 2020
NBER Program(s):Program on the Economics of Aging, Labor Studies Program, Public Economics Program

We investigate the impact of the Social Security Annual Earnings Test (AET) on the employment decisions of older Americans. The AET reduces Social Security benefits by one dollar for every two dollars earned above the exempt amount. Using a differences-in-differences design, we find that the employment rate of those predicted to become subject to the AET decreases substantially relative to those not predicted to become subject to it. The point estimates suggest that the AET reduces the employment rate of Americans aged 63-64 by at least 1.2 percentage points.

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Savings and Retirement Forum February 4 with the CBO’s Nadia Karamcheva

Join us the afternoon of February 4

For a Lunch Meeting with Guest Speaker:

Nadia Karamcheva

Economist

Congressional Budget Office

Who will discuss her paper:

The Relationship Between
Household Debt and Retirement Timing

Noon-1:00 p.m.
Tuesday, February 4th, 2020

Click to RSVP

Location: Tax Foundation
1325 G St NW

(Lunch will be provided)

Nadia Karamcheva is an economist at the Congressional Budget Office (CBO) in Washington DC. Prior to joining CBO, she worked as a research associate at the Urban Institute. She has a Ph.D. in Economics from Boston College and a B.A. in Economics and Business Administration from the American University in Bulgaria.

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CBO’s Long-Term Social Security Projections: Changes Since 2018 and Comparisons With the Social Security Trustees’ Projections

In June 2019, CBO updated its long-term budget projections, including projections of the Social Security system’s finances. CBO compares those projections with its 2018 projections and with the Social Security trustees’ latest projections.

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