The Social Security Honesty Act: Giving Money Away

AP Photo/Mark Lennihan

(The opinions expressed in guest op-eds are those of the writer and do not necessarily represent the views of RedState.com.)

Believe it or not, Congress is actively working on legislation that would reward people financially for opting out of Social Security.

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The legislation, called H.R. 82 Social Security Fairness Act of 2021, would repeal the Windfall Elimination Provision (WEP) and the Government Pension Offset (GPO) provisions of Social Security. These rules attempt to level the playing field for people, who have earned pensions from uncovered employment.

Repealing these provisions would set up a hand-out to people who opted out of Social Security. Worse, it would encourage people to abandon Social Security in the future. Given the questions about the long-term stability of the program, this change is incredibly ill-considered policy.

The underlying issue dates back nearly 100 years ago, when Congress exempted state and local governments from participating in Social Security. Instead of paying into the national program, there are employers that provide a pension to workers that by law is required to be as generous as Social Security. In other words, everyone pays into a “Social Security” system – the only difference is who runs the program.

Unfortunately, this separation of pensions in this manner means that some retirees collect from more than one version of “Social Security.” These dually entitled retirees (about 2 million and counting) have an unfair advantage over the rest of us because the benefit formula mistakenly treats them as a lower-income worker with a spotty work history – even when they had a good job over a long career.

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In short, the WEP/GPO rules protect future retirees – i.e. the rest of us — from the quirks of the benefits formula that would reward people who chose to work in a job not covered by Social Security. Let’s be honest, this legislation might as well be called the “How Congress Can Push Social Security into Insolvency Even Faster Act.”

Insolvency Isn’t ‘Fair’

Keep in mind, only about 25 percent of the civil servants in the country participate in an alternative pension scheme. As a result, this law really pits the interests of one teacher versus those of another; a policeman in one state versus the policemen who live in a different locale; and so forth.

The chart below compares annual benefits for identical workers earning $50,000 over a 40-year career, where the only difference is the choice to work for an employer who doesn’t participate in Social Security.

  1. Without the WEP applied, the teacher who happens to work a full career in Social Security would likely pay twice as much for benefits as the teacher who chooses to opt out of the national pension. That isn’t fair.
  1. Even with the WEP applied, the teacher, who splits the 40-year career between pension systems, would collect more than the one who remained in Social Security for that period of time. That isn’t fair, too.

Social Security and WEP Rules Applied

Annual

Income

Years Worked In Social Security Annual Benefit Check Cost To Buy

$1 of  Benefits

WEP Adjustment Adjusted Cost For Benefits
$50,000 40 $23,127 $ 9.17 0 $ 9.17
30 $20,841 $6.54 0 $6.54
10 $11,698 $4.53 $6,144 $ 10.90
Source : AARP Benefit Calculator
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In a similar manner, the GPO adjusts the benefit level of spouses, widows, and widowers that come with Social Security for everyone. According to Andrew Biggs, a policy expert in the area of retirement with the American Enterprise Institute, “the GPO is designed to treat state and local government employees, approximately how they would be treated under Social Security.”

To illustrate, the average teacher in the United States makes $64,524. Given that salary over a 35-year career, teachers who work a full career in Social Security on average aren’t eligible for spousal benefits because they make too much under their own record – even if their spouse earned 100 percent of the taxable wages, and deferred claiming benefits until he or she reaches the age of 70 (see here.)

Without GPO, the teacher who opts out of Social Security would be eligible for spousal benefits that the teacher who remained in Social Security for a full career couldn’t receive. That isn’t fair.

Social Security with GPO Rules Repealed

Teacher With A 40 Year Career

In Social Security

Teacher With A 40 Year Career In Non-Covered Work
Average Wage/

Retiree Benefit

Spouse’s

Average Earnings

Eligible

Spousal Annual Benefit

Annual Benefits Spousal

Annual Benefit

Without GPO

Combined Annual  Benefits
$50,000/

$23,127

$50,000 $0 $23,127 $11,725 $34,852
$75,000 $0 $23,127 $15,484 $38,611
$100,000 $0 $23,127 $17,359 $40,486
Worker earns $50,000 on average with a spouse that earns the $50,000, $75,000, or $100,000
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Antiquated Rules

No one can seriously defend these rules as currently written. These rules represent a 50-year-old, makeshift solution to a 100-year-old problem. Any measure of “fairness” that comes out of the adjustments today is a matter of dumb luck rather than thoughtful planning.

That said, Congress is not trying to promote fairness with this legislation. It is hoping that a little money now will buy many votes in November.

Bribing voters with benefits on the cheap isn’t the answer – it is the problem.

Brenton Smith ([email protected]) is a policy advisor at The Heartland Institute, with work appearing in nationally recognized publications including Barron’s, Forbes, MarketWatch, The Hill, USA today, and more.

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