Retirees' two most important federal programs are in trouble. Social Security's trust funds will run out of money as soon as 2034. Medicare faces an even earlier insolvency, with its trust fund likely to be depleted by 2028.
What does President Biden plan to do to preserve these programs? His proposed budget for fiscal year 2024 is largely mum on Social Security. But the president wants to make several huge changes to Medicare.
Not completely silent on Social Security
To be sure, Biden's proposed budget does reference Social Security several times. For example, the White House wants an increase of $1.4 billion to the program. This additional money would be used to improve customer service and add staff to handle more disability claims.
The president also proposed creating a national paid family and medical leave program that would be administered by the Social Security Administration. This program would help employees take paid time off for family and medical reasons.
However, Biden's proposed budget doesn't provide any details on preventing Social Security from going insolvent within the next 10 years. Instead, it only states that the Biden administration “is committed to protecting and strengthening Social Security, and opposes any attempt to cut Social Security benefits.” It also echoes language in the president's State of the Union address earlier this year that “high-income individuals pay their fair share.”
Big proposed changes to Medicare
The president seems to be punting the Social Security football to Congress. However, his proposed budget does tackle Medicare's solvency issues.
Biden's primary way to preserve Medicare benefits is to tax the rich. He proposes increasing the Medicare tax rate from 3.8% to 5% for “the wealthiest Americans.” The president includes anyone earning over $400,000 per year in this group.
He also wants to close some tax loopholes. In particular, Biden would like to prevent business owners from avoiding paying Medicare taxes on profits generated from pass-through businesses. With pass-through businesses, taxes aren't paid by the business itself. Instead, the owners of the business pay taxes at individual income tax rates.
The president's proposed budget isn't totally focused on shoring up Medicare; it also would expand benefits in some ways. For example, Biden wants to limit the Medicare Part D out-of-pocket costs for some expensive generic drugs to a maximum of $2. He also seeks to allow Medicare to negotiate prices for even more drugs than were included in the Inflation Reduction Act and permit negotiations sooner after the drugs launch.
Would these changes fix Medicare forever? No. However, the White House says that they would extend the program's solvency by at least 25 years. And the reforms wouldn't reduce any retirees' benefits.
Any presidential budget is essentially just a wish list. The U.S. Constitution gives the power to authorize federal spending to Congress.
It's possible that both congressional chambers could go along with President Biden's proposed budget for fiscal 2024. It's also possible that the Mississippi River will reverse direction and flow from south to north. However, both scenarios are very unlikely. Instead, Biden's proposed budget will probably be dead on arrival in the GOP-controlled House of Representatives.
Sooner or later, major changes will be necessary to prevent benefit cuts to both Social Security and Medicare. The best bet at this point is that they will come later rather than sooner.
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