Senator Biden Voted for Reagan’s 1981 Spending and Tax Cuts

As President Biden gears up for his re-election effort, his team is emphasizing his strong opposition to changing Social Security and Medicare. The White House is eager to contrast the president’s current unyielding position with the budget plan written by the Republican Study Committee in the House, which includes reforms that would extend the solvency of the trust funds from which the benefits of these popular programs are paid.

What the administration does not mention in its attacks is that the president was not always so opposed to every kind of benefit adjustment. During his long tenure in the Senate, he voted at key moments in favor of imposing restraint on Social Security and Medicare, which he now implies would be a betrayal.

It has already been noted that Biden voted in favor of the 1983 bipartisan plan to prevent Social Security from running through its reserves. Among that legislation’s many changes was a gradual increase in the “normal” age for full retirement benefits from 65 to 67.

Two years earlier, Senator Biden also voted for the 1981 Omnibus Budget Reconciliation Act, one of the two pillars of the Reagan economic program (the other was the 1981 tax cuts, which Biden also supported).

The 1981 spending plan was a groundbreaking measure. It used the congressional budget process established by the 1974 Congressional Budget Act to pull together into one bill a comprehensive set of spending reduction provisions. The final vote in the Senate was 80 to 14, with many Democratic Senators voting with the Republican majority.

Congress used the reconciliation process for these spending cuts because they were directed at programs not touched by the annual appropriation process; in other words, these were the government’s largest “mandatory,” or entitlement, programs with appropriations written into permanent law. The 1981 reconciliation legislation included changes targeting a wide array of accounts, including agricultural subsidies, education grants, welfare payments, and Medicaid. Among its most controversial provisions were those amending Social Security and Medicare.

The Social Security provisions in the final version of the bill delivered significant savings, even if they were less far-reaching than what the administration had sought. The law:

• Phased out student benefits beyond high school,
• Eliminated minimum payments,
• Eliminated death benefits when there were no eligible survivors,
• Strengthened coordination between workers’ compensation and disability insurance, and
• Eliminated certain parental benefits when children reached age 16.

The Social Security actuaries estimated at the time of enactment that the combined five-year savings from the law’s retirement and disability provisions was $24 billion (or the equivalent of about $70 billion today). Over the long term, the changes eliminated nearly 10 percent of the program’s actuarial deficit.

The Medicare amendments were notable too. The law:

• Increased the deductibles for both parts of the program—Hospital Insurance (HI) and Supplementary Medicare Insurance (SMI);
• Eliminated coordination of the SMI deductible across calendar years;
• Increased the HI coinsurance rate; and
• Implemented more restrictive eligibility rules for home health services.

Beyond these benefit changes, the measure also cut Medicare’s reimbursement rates for hospitals, drugs covered by SMI, home health agencies, and many other providers of services.

The Reagan administration also prioritized significant changes to Medicaid with a focus on giving the states more authority to implement reforms. The law created two new options for state waivers that remain relevant today, including one which allows states to contract with privately-administered managed care insurance plans to provide Medicaid coverage. It also gave states the authority to set reimbursement rates for nursing homes with less federal interference.

While the 1981 law was significant, it did not resolve the nation’s budgetary challenges. Spending on Social Security and Medicare today is 3.0 percentage points of GDP above what it was in 1981. Both are now underfunded and at risk of insolvency in the coming decade.

President Biden wants to use the public’s fears of losing benefits in retirement to gain an edge in the election. As a political tactic, it probably will work (as it has in the past). What it won’t do is improve the security of benefits for future retirees.