The recent passage of the Social Security Fairness Act has been hailed by government workers and other constituencies as a major victory after years of significant advocacy work on Capitol Hill, one that will provide higher retirement benefits to first responders, former government workers and their spouses.
But there are also some tough critics of the law, which repealed both the Government Pension Offset and the Windfall Elimination Provision without creating new frameworks to address the imbalances that led to the creation of these admittedly flawed rules in the first place.
Among them is Romina Boccia, the director of budget and entitlement policy at the Cato Institute. In a new analysis, Boccia argues that passing “the so-called Social Security Fairness Act” sends a clear message about how Washington approaches Social Security reform. In her view, it’s a disturbing one.
“Congress and [former President] Joe Biden have chosen to ignore all expert advice, cater to organized special interest groups, and burden younger taxpayers with increasingly unaffordable costs,” Boccia wrote. “This decision foreshadows likely future actions as Social Security’s trust-fund-related borrowing authority will run out around 2032.”
That is, rather than pursuing policy reforms that better align Social Security benefits with the ability of workers to pay for them, Boccia believes Congress will want to take the path of least resistance.
“Without significant public pressure to do the right thing, expect a multi-trillion-dollar general revenue transfer (meaning added borrowing) come trust fund depletion, and perhaps superficial fixes like the federal government borrowing money today to ‘invest’ to generate revenue from speculative gains tomorrow,” Boccia suggested.
She called on the public to send a clear message to Washington: “Stop the superficial quick fixes and solve the real entitlement spending challenge.”
The Problem With Axing GPO and WEP
According to Boccia’s analysis, it is important for the public to know that the Social Security Fairness Act increases the Social Security program’s financing gap.
“Funding this policy with additional payroll taxes would burden 180 million workers with an additional $68 in annual taxes to fund higher benefits for 3 million public sector workers and their spouses by unfairly manipulating the Social Security benefit formula to their advantage,” she wrote.
Further, Boccia noted, the repeal of the Windfall Elimination Provision and Government Pension Offset creates outsize benefits for some workers who had significant earnings that were exempt from payroll taxes compared to those who paid Social Security taxes over their entire careers.
“For example, economist Larry Kotlikoff highlights a schoolteacher whose lifetime benefits will soar by $830,625 under this law, with her annual retirement benefit more than doubling and her widow’s benefit nearly tripling,” Boccia wrote.
Similarly, actuary Elizabeth Bauer calculates that public-sector workers with only brief private-sector employment will receive benefits that are 45% higher than those with identical earnings histories who paid into Social Security throughout their careers.
How the Law Got Through a Divided Congress
Democratic lawmakers’ support for the Social Security Fairness Act stemmed from their support of unions and government workers. More surprising, according to Boccia, was the degree of support that came from the right side of the aisle.
“Congressional Republicans’ support for this expensive change likely stems from a political calculation,” she argued. “For a long time, backing the bill seemed like a low-cost way to curry favor with police and firefighter unions, key constituents in many members’ voter base without serious worry that the bill would pass.”
Indeed, Boccia pointed out, it took 24 years from when a version of the Social Security Fairness Act was first introduced in 2001 to it being signed by an outgoing President Biden on Jan. 5.
“The Wall Street Journal suggests the timing — a post-election passage — points to a political payoff for groups like the International Association of Fire Fighters, which lobbied heavily for the measure and declined to endorse Kamala Harris for president after endorsing Joe Biden in 2020,” she pointed out.
It also didn’t help that the windfall elimination and government pension offset provisions were complex policy adjustments applied to an even more complex Social Security benefit formula that few people understand in great depth.
“The typical member of Congress doesn’t understand very well how Social Security works,” Boccia wrote. “If they did, the Social Security Fairness Act wouldn’t have come close to passing.”
What Congress Could Do Next
According to Boccia, the hard truth is that Social Security’s formulas and finances “are a mess.”
“Fixing them means making tough choices — like raising taxes or reducing benefits,” she wrote. “Those are unpopular changes, and politicians don’t want to make them. Voters do not wish to be confronted with trade-offs. Everyone likes a free lunch, even if those do not exist.”
Instead, Boccia said, politicians have demonstrated that the surest way to gain bipartisan support for a measure is to bestow immediate benefits on current constituents while passing the buck to the next generation in the form of higher debt.
“The Social Security Fairness Act shows how hard real, comprehensive reform will be,” Boccia wrote. “If Congress can’t say no to popular and shortsighted benefit increases, how will it tackle the tougher job of making Social Security long-term solvent? The sad truth is that politicians probably won’t even try — at least not until the crisis is too close to ignore.”
In Boccia’s view, a general revenue transfer means that Congress might decide to no longer limit Social Security’s funding to its dedicated revenue sources but to open the government spending and borrowing spigot.
“A general revenue transfer is a way of kicking the can down the road, with future taxpayers left to pick up the can, and then some,” she warned. “Basically, Congress would simply tell the Treasury to keep selling bonds to finance Social Security benefits, even after the so-called trust fund is depleted.”
Ultimately, Boccia argued, Social Security needs comprehensive reform, “not more kicking the can.”
Credit: Shutterstock
© Arc, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to TMSalesOperations@arc-network.com. For more information visit Asset & Logo Licensing.