Why do all of Biden’s policies make things worse? That has to be intentional, right?
In March 2020, the research-driven Penn Wharton Budget Model (PWBM) analyzed the fiscal impacts of Biden’s Social Security proposals and came to the conclusion that it would, ultimately, hurt economic activity. The economists behind PWBM estimate a 0.6% decline in U.S. gross domestic product (GDP) by 2030 and an even greater 0.8% drop in U.S. GDP by 2050. With a separate report from PwC in 2017 estimating the U.S. will reach $34.1 trillion in GDP by 2050, the implication would be for a $273 billion future cost to America.
PWBM’s economists note two prominent issues with Joe Biden’s plan that would lead to this estimated reduction in U.S. GDP by 2050.
To begin with, switching to the CPI-E would increase COLAs across the board. Though it would offer a lift to low earners and those with little retirement savings who need it most, it would also encourage high earners and those with a lot of retirement savings to retire sooner or work fewer hours. The end result would be lower productivity for the U.S. economy.
The other problem noted by PWBM’s economists is that Biden’s plan would “distort labor supply decisions by more than the current payroll tax.”
In plainer English, there’s the perception of a contribution-benefit link when it comes to Social Security. Even though workers aren’t getting back the same dollar they’re contributing to the program via the payroll tax, there’s the belief that if you pay more into Social Security, you’ll get more out of it.
If Biden’s proposal to reinstate the payroll tax at $400,000 were to become law, high earners, who’d receive no extra benefit yet would suddenly owe a lot more in taxes, would opt to work less, defer their income, or potentially generate their income from alternative sources that aren’t taxable by Social Security.