By Ben Ritz
On Wednesday, outgoing Senate Majority Chuck Schumer announced his intention to bring the House-passed “Social Security Fairness Act” up for a vote before the end of the year. While the bill may sound good and have some admirable goals, passing it now as written would undermine the future of Social Security. It would be both political malpractice and bad governance for Democrats to rush this bill into law as their final act before handing control of the White House and U.S. Senate to the GOP in January.
Social Security is currently built around two core principles. The first is that workers should receive benefits based on what they paid into the program. Although this principle is heavily strained today, as workers have not paid enough in Social Security payroll taxes to cover the cost of benefits for many years now, benefits are calculated based on the average wages upon which workers paid payroll taxes over their careers. The second principle is that the benefit formula is progressive, meaning workers with lower lifetime incomes receive a greater benefit relative to the money they earned (and paid into the program) compared to higher earners.
At issue are two provisions, known as the windfall elimination provisions (WEP) and government pension offset (GPO), that attempt to enforce these principles fairly for people who spend part of their career working for state and local governments in jobs that offer pension benefits in lieu of Social Security. Earnings from these jobs are considered “uncovered,” which means workers don’t have to pay payroll taxes on the income, but those earnings also aren’t taken into account for Social Security’s benefit formula. WEP and GPO are intended to prevent someone who consistently earned a $100,000 annual salary over a career that was split evenly between covered and uncovered jobs — and thus would be treated by the benefit formula as if they received a $50,000 over their whole career — from getting a higher return on their payroll-tax contributions than someone who consistently earned $60,000 in covered employment.
