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White House aides have discussed Social Security tax, eyeing shortfall

During an hour-long meeting in the Oval Office, before they went to film a video together about student debt, Sen. Bernie Sanders (I-Vt.) pitched President Biden on his vision for hammering the Republican Party over one of the most potent issues in American politics.

Biden has for weeks leaned into the simple message that he is determined to block GOP efforts to cut Social Security and Medicare for millions of seniors. Left unanswered in these attacks is what Biden, himself, wants to do to address the massive funding shortfalls facing the programs, which face catastrophic benefit reductions within a decade if lawmakers take no action.

In that Jan. 25 meeting, Sanders pushed the president to fully fund Social Security for more than seven decades by expanding payroll taxes on affluent Americans, rather than just on workers’ first $160,000 in earnings, as is the case under current law. Sanders also asked the president to back his proposal — highly unlikely to pass Congress — to not only defend existing benefits but also increase them. He wants to provide another $2,400 per year for every Social Security beneficiary.

This previously unreported discussion between Biden and his onetime presidential primary rival reflects a broader behind-the-scenes effort inside the White House to decide how, or if, the party’s message on entitlements should go beyond criticizing the GOP. Biden aides have in recent weeks discussed proposing raising payroll taxes on the rich to fund Social Security, but it is unclear if the president will ultimately endorse that measure when he releases his budget in March, according to three people familiar with international deliberations, who spoke on the condition of anonymity to describe private talks. One of those people cautioned the talks were preliminary and it is still likely the White House opts not to advance the plan.

Sanders said Biden was noncommittal in response to his pitch.

“It is not enough to point out the reactionary, anti-worker vision of the Republican Party. We have to present a positive, pro-worker alternative,” Sanders said. “The truth is that Social Security does have a solvency problem, and we have got to address that.”

White House spokesman Robyn Patterson declined to comment on internal deliberations but pointed to the reductions in health-care costs in both Obamacare and the Inflation Reduction Act that were designed to constrain growth in Medicare spending.

“The biggest threats to Social Security and Medicare are House and Senate Republican efforts to gut a program millions of Americans have been paying into since their first jobs as teenagers,” Patterson said in a statement. She added that Biden “has promised more to keep Medicare solvent in his budget, but he won’t budge on paying every penny of the benefits to Americans that have earned them.”

Not all Democrats believe the White House should soon offer a counterproposal on Social Security. Sanders’s plan, backed by nine Senate Democrats, calls for applying the payroll tax on Americans’ earnings above $250,000 per year and changing the tax so it also applies to investment income as well, which the Social Security actuary has found would extend the program’s life span by 75 years. Biden has been adamant that he will not violate his campaign pledge to block tax hikes on Americans earning under $400,000 per year, limiting how much revenue could be raised from an expansion in the tax. A majority of House Democrats have backed legislation that is similar to Sanders’s plan but would apply to earnings above this $400,000 threshold.

Additionally, some senior Democrats privately say the president has no reason to change course when his existing lines of attack have already proved so effective against the GOP. Biden has relentlessly pummeled Republican officials for pushing cuts to benefits, visiting Florida earlier this month to blast Sen. Rick Scott (Fla.) for a plan to sunset all federal legislation within five years. High-profile Republicans, including former president Donald Trump and House Speaker Kevin McCarthy (Calif.), have been adamant that they are not proposing cuts to the programs, but pollsters say the blows are landing.

“There’s a faction inside the White House that feels some need to offer a plan, though I personally feel that’s misplaced,” one senior Democratic pollster said, speaking on the condition of anonymity to discuss private conversations with senior administration officials. “Stick to our basic message: Hands off our seniors. That’s working.”

Regardless of the politics, the aging of the baby boomer generation poses a real challenge for federal lawmakers.

Congress has until 2032 to avert major cuts to Social Security and until 2033 to avert major cuts to Medicare, according to the latest projections by the nonpartisan Congressional Budget Office.

Both programs are primarily funded by payroll taxes, which are collected from both employees and employers. Roughly 40 percent of the entire federal budget already goes to funding Social Security and Medicare. But because health-care costs keep going up and the number of American seniors keeps increasing, the budgets for these programs is beginning to run dry.

Medicare’s trust fund is projected to be exhausted by 2033, which would trigger reductions or delays to payments to doctors and hospitals under the federal insurance program relied on by more than 60 million people. Similarly, should lawmakers fail to act, Social Security benefits for a roughly equal numbers of American seniors will also be cut by 20 percent starting in 2032. If lawmakers fail to act, the government will reduce the benefit for a traditional retiring couple by between $12,000 and $17,000, according to projections by the Committee for a Responsible Federal Budget, a nonpartisan think tank.

As these dates draw nearer, policymakers have become increasingly less interested in advancing solutions that would cut seniors’ benefits. During his State of the Union address, Biden said his forthcoming budget would extend the Medicare trust fund by about two decades while fully protecting existing benefits. Prior Democratic efforts to fund Medicare have relied in part on taxing the income of affluent business owners, and the White House is widely seen as likely to take a similar approach.

Social Security may represent a harder puzzle. As a presidential candidate, Biden proposed tax increases to shore up Social Security, but only for earnings over $400,000 per year. But that plan, which also included new benefits, would only extend the solvency of Social Security by five years, according to a prior analysis by the Urban Institute, a D.C.-based think tank, raising questions about how Biden would fix the entitlement beyond that relatively short time frame.

Biden’s campaign also faced skepticism from some tax experts. Currently, Americans only pay payroll taxes on approximately their first $160,000 of income. This cap prevents the richest 2 percent of Americans from paying more in taxes, and its repeal has long been eyed as a mechanism for increasing funding for Social Security.

However, Biden has also pledged not to raise taxes on Americans earning less than $400,000. His campaign plan would only increase payroll taxes on those earning above that threshold. Such a proposal would create a “doughnut hole” — so-called because of the gap in taxation in the middle of the income distribution. Such a move is largely frowned upon by tax experts, because it disproportionately taxes lower-income Americans.

“You’re saying to someone making $150,000: You have to pay payroll tax on all your wages, but telling someone making $350,000: You have to pay payroll taxes on only the first $150,000 and the rest is exempt,” said Howard Gleckman, a policy expert at the Tax Policy Center, a nonpartisan think tank. “It does not make any policy sense.”

The administration’s first two budgets, in 2021 and 2022, ducked the question altogether as the administration was focused on passage of its domestic spending priorities. Conservatives say that the White House is irresponsibly refusing to address the funding crisis to score cheap political points against its opponents, and that there is no way to preserve existing benefits while also rejecting tax hikes for all but the richest Americans.

“The president’s do-nothing position is an endorsement of the 20 percent benefit cut that is scheduled in a decade under current law,” said Brian Riedl, a policy analyst at the Manhattan Institute, a conservative-leaning think tank. “It is an increasingly untenable position.”

By contrast, Social Security Works, an advocacy group for protecting the program, sent a letter to the White House urging a slew of changes to boost benefits, from across-the-board increases in checks to eliminating waiting periods for recipients of Social Security disability benefits. “Polling reveals that painting the contrast — Democrats want to expand Social Security, Republicans want to cut it — is a much more powerful message than simply attacking Republicans,” stated the memo, circulated in January and previously unreported.

So far, however, voices like these have been insufficiently powerful to force Biden to release a Social Security plan of his own. When asked by reporters on Jan. 20 if Biden would propose a fix to the funding shortfalls for the programs, White House spokeswoman Karine Jean-Pierre responded: “The president’s plan is that he’s going to protect Social Security. He is going to protect Medicare.”

Asked the same question a second time, Jean-Pierre said: “What we’re saying is, and I just said this: These are programs that the American people pay into. These are programs that our veterans, that our seniors — right? — Americans across the country really value and need.”

This post appeared first on The Washington Post

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