When President Joe Biden put his signature on the Social Security Fairness Act on January 5, it marked a triumph for those who’ve been campaigning for more favorable benefits for public sector workers with pensions. However, for many within the policy community, this change came as a significant letdown despite having strong bipartisan backing from both the House and Senate.
“Almost no one in the field of Social Security believes the Social Security Fairness Act was a wise move,” remarked Andrew Biggs, a senior fellow at the American Enterprise Institute.
The newly enacted law dismantles two provisions that previously adjusted Social Security payments for individuals who also received a public sector pension, where Social Security payroll taxes weren’t applied.
Previously, the Windfall Elimination Provision (WEP) reduced Social Security payments for around 2 million people who had pensions or disability benefits from work where they hadn’t paid into Social Security. Introduced in 1983, the WEP is now abolished. Similarly, the Government Pension Offset (GPO), which was established in 1977, slashed Social Security benefits for close to 750,000 spouses, widows, and widowers with their pensions from other public service jobs.
The initial intentions behind these provisions were to ensure all Social Security recipients received a fair payout. This was because Social Security is designed to be progressive, favoring low-income workers with a higher replacement rate. WEP and GPO aimed to prevent public workers from being wrongly categorized as low-income workers and benefiting unfairly.
Following the bill’s passage, groups championing this change celebrated what they saw as a long-overdue correction, allowing public workers to fully benefit from the Social Security payments they were entitled to. For the National Committee to Preserve Social Security and Medicare, this law is the pinnacle of a long struggle to amend or overturn the existing regulations.
According to Maria Freese, a senior legislative representative at the committee, the WEP and GPO seemed to penalize those in public service. “They were unfairly targeted and found themselves receiving less from Social Security than someone who opted out of public service,” she explained.
The phasing in of the new law could mean monthly benefits increase by an average of $360 to $1,190, as estimated by the Congressional Budget Office. Beneficiaries will also receive lump-sum payments covering the extra benefits they missed throughout 2024.
John Hatton from the National Active and Retired Federal Employees Association commented that the system is now more equitable, as it no longer penalizes earnings not covered by Social Security. Income from things like capital gains or inheritances didn’t impact Social Security benefits before, and similar logic has been applied here.
Despite the seeming benefits, many policy experts argue this change was never a sound decision. “This was major lobbying by special interests for a poorly designed policy, leading to unearned gains for many beneficiaries,” stated Maya MacGuineas, president of the Committee for a Responsible Federal Budget.
The Congressional Budget Office warns this shift could cost nearly $200 billion over a decade, all while Social Security’s trust funds are dwindling. Last year’s projections show the combined funds could see depletion by 2035, offering just 83% of the promised benefits unless something changes. Removing the WEP and GPO might hasten that deadline by six months.
Experts on both sides of this debate agree that immediate steps are necessary to tackle Social Security’s financial shortfalls.
The complexity and impact of WEP and GPO have always baffled beneficiaries. “Although the provisions weren’t flawless, they attempted to address a disparity,” said Alicia Munnell from the Center for Retirement Research at Boston College. Unfortunately, explaining the intricacies to lawmakers fell short, leaving what Munnell calls “poor policy.”
Without WEP, individuals who only spend brief periods in Social Security-paying jobs might appear as low-income earners, getting extra benefits accordingly. The removal of GPO means even those with non-working spousal benefits can claim Social Security despite having full-time jobs and their pensions, something Charles Blahous from George Mason University’s Mercatus Center sees as indefensible.
In Blahous’s view, while WEP and GPO weren’t perfect, they stopped unwarranted benefits from going to those with minimal Social Security contributions. The recent policy changes, he argues, offer dim prospects for Social Security’s future.
Passing the Social Security Fairness Act saw 76 votes in favor in the Senate. Any attempts to amend or fund these changes during the final legislative rush in December didn’t succeed. With WEP and GPO repeals now law, bringing the remaining 25% of state and local workers into Social Security might make the reformations more balanced, as suggested by Munnell. But reversing a fresh law is rare, despite the likelihood experts find slim.
The significant challenge for lawmakers is when and how they will address the long-term financial stability of Social Security. Emerson Sprick of the Bipartisan Policy Center notes a political hesitance, “Congress members struggle to support meaningful solutions for the program’s fiscal viability.”
A decisive move will necessitate presidential leadership and a commitment to these pressing issues, Sprick concluded.
Yet, for now, President-elect Donald Trump has committed to maintaining the current state of Social Security without alterations. Trump also proposed eliminating taxes on Social Security benefit income. However, with the elimination carrying a high-cost burden of over $100 billion annually, Andrew Biggs posits that such a change might not hold the fairness to warrant passage.
Trump’s vow against benefit cuts presents a quandary for Republicans, typically supporters of low-tax measures. In the end, restoring Social Security’s financial health might require a balancing act involving benefit reductions and tax hikes.
“We realize the pressing need to address the impending insolvency of both Social Security and Medicare within the next decade,” MacGuineas warned. She expressed frustration at the absence of political will or integrity to tackle this issue head-on from any party leaders.
