The Senate is reportedly set to vote on a bill boosting Social Security payouts to public sector workers who receive pensions and did not pay taxes to support Social Security while working in the public sector*.
If it passes, the proposal will cost nearly $200 billion and will hasten the insolvency of Social Security for all beneficiaries—the vast majority of which do not have a taxpayer-funded pension to rely upon.
A final vote on the Social Security Fairness Act is expected this week, and possibly as soon as Monday. Senate Majority Leader Chuck Schumer (D–N.Y.) told reporters last week that he is urging senators to back the proposal. With 62 cosponsors in the Senate, the bill has a good chance at passing. The House's version of the bill passed by a wide margin earlier this year, so a Senate vote could send it to President Joe Biden's desk.
The Social Security Fairness Act would eliminate two existing provisions that reduce Social Security benefits for some workers (and their spouses) who do not pay Social Security taxes as a condition of their public sector jobs*: the Windfall Elimination Provision (WEP) and the Government Pension Offset (GPO).
The WEP was implemented as part of the 1983 overhaul of Social Security, and for good reason. Before that, some public workers who paid little into Social Security during their careers would end up collecting relatively large Social Security benefits. The GPO applies to the spouses of those same public workers.
Eliminating the WEP and the GPO will cost $195 billion over the next 10 years, according to a Congressional Budget Office (CBO) review of the bill. That's because this change will obligate the payment of more Social Security benefits to people who are not paying into the system.
The CBO also projects that Social Security will be insolvent—that is, unable to pay full promised benefits—within just nine years. So using the typical 10-year budget window to assess the cost of this maneuver is a bit overly optimistic.
"It is truly astonishing that at a time when we are just nine years away from the trust fund for the nation's largest program being completely exhausted, lawmakers are about to consider speeding that up by six months," Maya MacGuineas, president of the Committee for a Responsible Federal Budget, said in a press release. "Even worse is that repealing WEP and GPO does nothing to address the windfalls they are intended to eliminate—instead, it just restores windfalls for folks who have other government pensions. What an incredulous set of events."
MacGuineas' group estimates that repealing the WEP and GPO would end up costing the average couple more than $25,000 in lifetime Social Security benefits. That's because it will accelerate the mandatory across-the-board benefit cuts that will be implemented when the program hits insolvency.
In short: By allowing public workers to double-dip into retirement benefits they did not contribute towards, this bill will make everyone who did pay for Social Security worse off.
In broad strokes, this is a fundamental flaw with any retirement system where individuals do not have control over their own accounts—which is true for both Social Security and most pension systems. In such an arrangement, certain groups will always have incentives to snatch a larger slice of the collective pie.
There are few entities better organized to manipulate the political system in that way than public sector unions. Groups representing retired teachers and other public employees have been lobbying Congress for the change.
Even if you think there's something fundamentally unfair about the existing WEP and GPO rules, the proper time for Congress to address those shortcomings would be as part of a complete overhaul of Social Security aimed at solving the looming insolvency issue and providing retirement security for all Americans—including those who would prefer to opt out of Social Security entirely.
Instead, Congress is set to pass a special handout to a politically connected group while leaving Social Security on even shakier ground.
*CLARIFICATION: This piece has been updated to clarify that the WEP rules only apply to public sector work. Workers who also earned income through private sector jobs paid Social Security taxes and may qualify for Social Security benefits.
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