Social Security Tinkering: No, It's Not Been Made Fairer (or More Solvent)
....but I have an idea that will help everybody a little! Won't that be fun!
I shouldn’t have warned the year 2025 last week, as it immediately hit me with a nasty cold/cough and knocked me out til yesterday afternoon. Whee.
But here I am again, ready to take on the year and the most recent crap:
5 Jan 2025, ABC News: Biden signs Social Security Fairness Act into law
President Joe Biden signed the Social Security Fairness Act into law Sunday afternoon, marking what is expected to be one of the last major pieces of legislation of his presidency.
Prior to signing the bill, Biden touted the importance of Social Security benefits for working class Americans and said he was "proud to have played a small part in this fight and get to sign it."
"The bill I'm signing today is about a simple proposition: Americans who have worked hard all their lives to earn an honest living should be able to retire with economic security and dignity," he said.
Oh, I’m going to interject here. I want you to remember that phrase, because only a very specific group of people are affected by this law. I want you to wonder why that group, before this law, were not able to retire with economic security and dignity.
(Ok, yes, I know this is a political lie. But let us pretend that there was something wrong somewhere.)
The act repeals provisions that limit the ability of some retirees who also collect pensions from claiming Social Security benefits. Among those impacted are retirees who at one time worked as firefighters, teachers, postal workers, police officers, or in other public sector jobs. A provision that limits the benefits allotted to those workers' surviving spouses is also eliminated.
This is misleading.
There is a huge part missing from the above paragraph.
The details mentioned are:
“some retirees who also collect pensions” (whoa, that’s a lot of people!)
“limit the ability… from claiming Social Security benefits” (wait, they can’t even file for benefits?)
"Among those impacted are retirees who at one time worked… in … public sector jobs” (all public sector jobs? some? which ones?)
“limits the benefits allotted to those workers’ surviving spouses” (what is the connection?)
The biggest part omitted is why any of these “limitations” were put in place: because these people all worked in public sector jobs where they and their employers exempted themselves from Social Security.
Oh, just a small detail.
It’s NOT all public sector jobs that disqualify you (many are covered by Social Security).
And even of those public employees who worked at one of those systems, many didn’t work enough years in Social Security-qualifying positions somewhere else where Social Security even comes into play.
The bill was passed in the Senate in December after passing the House in November with overwhelming bipartisan support.
Ahead of the bill signing on Sunday, a White House official called Biden "the first President in more than twenty years to expand Social Security benefits."
"The bill he is signing today will expand benefits by hundreds of dollars per month for more than 2.5 million Americans," the official said.
2.5 million Americans? That’s less than 1% of the country, to boost the benefits for people who didn’t pay for the privilege.
As Biden looks to shore up his legacy during his final weeks in office, the official also pointed to other moves that Biden has made to strengthen Social Security and other programs as "reckless" Republicans have worked to make cuts.
I do not see how this makes Social Security stronger. This is an immediate increase to the liability for a very targeted group of people… who were working for governmental employers who exempted themselves from paying Social Security taxes…. and in return, the two adjustments were made for actual fairness with other Social Security participants.
All that said, it’s already been signed into law, so let me just point to a few explainers for those who actually care about the provisions, who knew what when, and my own proposal: nobody should be exempt from Social Security.
So no adjustments need to be made for anybody! We’re all in the same system together!
Some Explainers
First, how much is this new bill costing Social Security? And was it truly bipartisan?
As for bipartisan: you betcha.
22 Dec 2024, WSJ Editorial: Whistling Past Social Security’s Insolvency
Neither political party is serious about spending restraint, and the latest evidence is the Social Security Fairness Act that the Senate whopped into law late last week. This is a giveaway to public unions that whistles past the program’s looming insolvency.
The Senate voted 76-20 Friday that supposedly fix provisions that stop public employees from collecting disproportionate Social Security checks. One change would restore a bonus to government workers who spent part of their careers in private industry, giving them more generous benefits than retirees who earned the same amount in nongovernment work. A separate change would boost benefits for public workers who are spouses of private workers.
….
The GOP-led House passed the changes last month, 327-75, with Republicans in favor by nearly two to one. Twenty-seven GOP Senators voted in favor. Nearby is a list of the 24 Republican Senators who voted for “cloture” to send the measure to the floor for a vote. Donald Trump endorsed it even as he tried to sabotage a budget resolution that Elon Musk said had too much pork.
The Social Security bill will cost taxpayers an estimated $196 billion over 10 years, and much more than that in the years beyond. Affected public workers will gain an average $360 a month, according to the Congressional Budget Office, and spousal-benefit recipients will gain about $700 in each check.
Meanwhile, Social Security is already running a $4 trillion 10-year deficit, and it’s on pace for an automatic 21% benefit cut by 2033. The coming changes for unions could move the crash up by six months. Something has to give eventually, and future seniors and taxpayers will pay for this union boondoggle.
Frankly, about $200 billion over ten years or $0.2 trillion in the same units as the $4 trillion 10-year deficit mentioned. But it is a 5% boost.
And increasing the costs of the system is not going to help, without increasing the revenue. But more on that in a moment.
If you want a detailed explainer:
16 Dec 2024, Andrew Biggs: How Public Employees Can Double-Dip in Social Security
New reports indicate that Senate Majority Leader Chuck Shumer (NY) has promised a vote by December 20 on the Social Security Fairness Act, legislation that would repeal anti-double-dipping rules that prevent certain public sector employees from receiving an unduly sweet deal from Social Security.
Don’t like how I framed that? That’s fine. I’ve tried being reasonable, explaining the rationale behind Social Security’s Government Pension Offset (GPO) and the Windfall Elimination Provision (WEP) in more value-neutral terms. Many public employees really do believe they’re being cheated. But that’s because they really don’t understand Social Security.
The reality is that, lacking the GPO and WEP rules, certain state and local government employees would be offered the opportunity to double-dip on Social Security. That’s not fair to everyone, and it’s costly — nearly $200 billion over 10 years. Passing the Social Security Fairness Act would be nuts.
Go to the link to go through Biggs’s detailed explanation of both GPO and WEP rules, but the simplified version is this:
Baseline Social Security benefit calculations (for self and for surviving spouses) are predicated on assumptions of having paid Social Security old age taxes throughout one’s working life
Some state/local government employers were allowed to exempt themselves by promising to provide better-than-Social-Security benefits to their employees
That means people who worked a few years in private sector but most of their career in one of these exempt public jobs (and got their pension through that) would have too-high Social Security benefits if they hadn’t been adjusted.
Sorry, Andrew, it didn’t work. The politicians were full of eggnog and ready to spend other people’s money.
After all, many of them are expecting to be dead by 2033, I’m sure.
Oh, and the Social Security Administration has (had) a convenient form for state/local government employers who decided to be exempted from Social Security coverage, SSA-1945. This is to be given to new employees, and the form starts:
Your earnings from this job are not covered under Social Security. When you retire, or if you become disabled, you may receive a pension based on earnings from this job. If you do, and you are also entitled to a benefit from Social Security based on either your own work or the work of your husband or wife, or former husband or wife, your pension may affect the amount of the Social Security benefit you receive. Your Medicare benefits, however, will not be affected. Under the Social Security law, there are two ways your Social Security benefit amount may be affected.
Windfall Elimination Provision
Under the Windfall Elimination Provision, your Social Security retirement or disability benefit is figured using a modified formula when you are also entitled to a pension from a job where you did not pay Social Security tax. As a result, you will receive a lower Social Security benefit than if you were not entitled to a pension from this job. For example, if you are age 62 in 2013, the maximum monthly reduction in your Social Security benefit as a result of this provision is $395.50. This amount is updated annually. This provision reduces, but does not totally eliminate, your Social Security benefit. For additional information, please refer to Social Security Publication, “Windfall Elimination Provision.”
Government Pension Offset Provision
Under the Government Pension Offset Provision, any Social Security spouse or widow(er) benefit to which you become entitled will be offset if you also receive a Federal, State or local government pension based on work where you did not pay Social Security tax. The offset reduces the amount of your Social Security spouse or widow(er) benefit by two-thirds of the amount of your pension.
The employee is to sign this, acknowledging receipt. That has been true for the past 20 years.
My Simple Proposal
I already mentioned it, but if the complaint is that nobody should have their Social Security benefits adjusted simply because they didn’t pay Social Security payroll taxes all those years, the solution is nobody should be exempted from the system.
That seems a lot simpler than allowing state and local systems “promising” they can do better.
After all, those state and local systems can’t actually promise much, can they, once the money runs out? It is very difficult for these funds to run pay-as-you-go — it is very easy to flee a city, and many states are finding that even when they are large and with relatively nice weather, people leave. But it is much more difficult to flee the taxing power of the United States.
NASRA: Social Security Coverage
Approximately one-fourth of employees of state and local government participate in a public retirement system in lieu of Social Security. This includes approximately 40 percent of public school teachers and over two-thirds of firefighters, police officers, and other first responders. Every state has groups of public employees that do not participate in Social Security. Most to substantially all of the public employees in Alaska, Colorado, Louisiana, Maine, Massachusetts, Nevada, and Ohio are not in Social Security.
Employers and employees who do not participate in Social Security do not pay the Social Security portion of the FICA tax, (6.2 percent of payroll each). Thus, public pension benefits for non-Social Security-eligible employees usually are higher than those of other public employees, to compensate for the absence of Social Security benefits.
….The Omnibus Budget Reconciliation Act of 1990 generally extended Social Security coverage to include state or local government employees unless they are covered by a retirement system that provides certain minimum retirement benefits (aka a FICA Replacement Plan).
Let me start at the end first and callback to the very beginning: the only state/local government employers who get to exempt employees are the ones guaranteeing benefits better than Social Security. Often, they are much higher than Social Security.
So why is Biden claiming that they don’t have economic security or dignity in retirement? Did those employers lie about their pension programs?
Most recent map via the Congressional Research Service:
Social Security Coverage of State and Local Government Employees, updated March 2024
Second, what I find interesting is that the groups mentioned as likely to be exempted from Social Security — schoolteachers and safety officers — tend to have pension funds that are underfunded.
By a lot.
UPDATE: Percentage of public employees exempt from Social Security, 2020, 13 specific states
I’ve written about the problems of both, and teachers pensions tend to be in most acute situation, because they’re the most numerous of all public employees as well as long-lived. States and localities really have difficulties meeting funding requirements.
For safety officers, the funds suffer because employees often retire early and/or disabled, and often win enhanced benefits for themselves.
(Note: Dallas Police & Fire is an extreme case.)
All these make for rather large liabilities, and the contributions tend not to keep up with that benefit appetite.
I don’t expect a new Congress to force state and local governments into Social Security. Not right now.
But after boosting the liabilities by about 5%, maybe they would consider: [from most recent update from Congressional Research Service, March 2024]
Proposals to make Social Security coverage mandatory for newly hired state and local government employees have been part of the policy debate for years. These proposals have drawn strong support and opposition for a variety of reasons. Supporters argue that mandatory coverage for newly hired state and local government employees would have a net positive effect on the Social Security trust funds and on federal revenues. Estimates show that the policy change would close 4% of the Social Security system’s projected long-range funding shortfall.
Amusingly, the next bit goes on to say that then the two provisions just eliminated (WEP/GPO) would no longer be needed in the case of such a policy.
Well, those two provisions have been eliminated first… maybe we’ll do things in reverse order. (HA HA HA HA)
More seriously, though, if and when the public pensions (again) try going hat in hand to the feds saying they need a bailout, and poor widdle us, we’re not covered by Social Security… guess what the first fix that will be recommended?
Oh look, from that same document:
Benefit protections provided by Social Security could be particularly important for noncovered workers in states and localities with underfunded pension plans and whose future pensions may be at risk.
Maybe we should cut to the chase. Social Security for all, right now!
(And yes, that means a bunch of new taxes; you’re welcome.)
The progressive nature of the Social Security formula treats a Boston police officer like a person just above the poverty level (looking only at this FICA wages) and truly gives him a "windfall." The WEP dealt with that, but it is gone as of Sunday. But the worst misstatement of any, repeated recently by a union leader, is that the worst impact was on the spouses of public retirees. Not true. Nothing in either provision hurt a spouse. The only person whose SS benefits could be impacted by a non-covered pension was the employee.
Thank you for this! I have been arguing with my sister (retired teacher) who thinks WEP was “unfair”. I told her maybe she should ask people who didn’t get pensions and had to rely only on SS if they thought it was fair. This is such a costly bill when SS is already in the hole.