It’s no secret that the Social Security trust fund is expected to run out in 2035. Yet during his blustery term,President Donald Trump has failed topresent a formal plan to fix, aka reform,the system. Enter: Joe Biden, presumptive Democratic presidential nominee,sounding an alarm for “urgent action” to“preserve and strengthen” this criticalprogram. He has proposed the framework for a plan to meet those twin goals.
However, Social Security authority William Reichenstein argues Biden’sideas are unrealistic in promising addedbenefits when the government won’teven be able to meet existing ones.
The Baylor University professoremeritus contends that Biden’s planwould convert the retirement-incomeportion of the Social Security systemto an “income-distribution plan” thatwould negatively impact the wealthy.
In contrast, the moves he favors are“in the spirit of a required-savings program,” which, he says, is the system’soriginal design.
The main thrust of his proposal is toraise all employees’ Social Security payroll tax. That’s the “fairest” way for thegovernment to make good on promisedbenefits, he insists.
Reichenstein has published morethan 190 articles and authored a numberof books, of which “Income Strategies”(2019) is the most recent. It’s a how-to on creating tax-efficient withdrawalstrategies for retirement.
He is a principal of both Social Security
Solutions, which creates software that
turns his strategies into tools for making
optimal claiming decisions, and Retiree
Income, which produces “Income Solver”
software to help advisors counsel clients
on combining smart claiming decisions
with tax-efficient withdrawal strategies.
We recently interviewed Reichenstein,who spoke from Waco, Texas. Here arethe highlights:
Investment Advisor: PresumptiveDemocratic presidential nominee JoeBiden aims to put the Social Securitysystem “on a path to long-run solvency”and “strengthen benefits for the mostvulnerable older Americans. He woulddo away with the earnings cap on SocialSecurity taxes; that is, ask “Americanswith especially high wages to pay thesame taxes on those earnings that middle-class families pay.” Your thoughts?
William Reichenstein: He doesn’t givespecifics. But two recent proposals byother [politicians] that say let’s get rid ofthe income cap and tax earnings abovea certain level essentially wouldn’t provide additional benefits for doing that.This would be fundamentally transforming the retirement-income portionof Social Security into basically a strongincome-redistribution plan.
Why do you oppose that idea?
The goal of Social Security is to providea minimal income to career workers.It’s individuals’ responsibility to saveadditional amounts if they want morethan this basic income in retirement.That’s why we’ve always had an incomelimit on the amount of earnings subjectto Social Security tax. Biden’s proposal,like [recent similar ones], violates theprinciple of Social Security’s being arequired-savings program.
What specifically do those other plans
[Senator] Bernie Sanders’ plan proposedapplying the 12.4% [Social Security combined tax paid by employer and employee]on earned income that exceeds $250,000and basically paying no additional benefits for that. He also proposed applyingthe tax on unearned income — interest, dividends, capital gains — exceedinga certain amount but, again, paying no[meaningful] additional benefits.
Biden says his plan would “revolutionizeSocial Security’s minimum benefit, whichhas deteriorated over time to the point ofbeing entirely ineffective.” He proposesthat those who “spent 30 years workingwill get a benefit of at least 125% of thepoverty level.” What’s your take on that?The government can’t meet the benefits ithas already promised. Therefore, it wouldbe irresponsible to promise additionalbenefits. Looking at those other plans,the only way to do that is to have massive taxes on income above the currentincome limit — the income cap — withbasically no additional benefits provided.
Should All Payroll Income Taxes Be Raised to
Save Social Security Benefits?
Retirement specialist William Reichenstein discusses current issuesaround Social Security, including Joe Biden’s policy recommendations.
RETIREMENT PLANNINGBy Jane Wollman Rusoff