Will the Social Security Fairness Act bankrupt SSA trust funds?

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Shane Croucher

By Shane Croucher

Senior Editor

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President Joe Biden signed the Social Security Fairness Act on January 5, eliminating the Windfall Elimination Provision (WEP) and Government Pension Offset (GPO) and so opening up higher benefit payments to millions of Americans.

This major legislation restores full benefits to public sector retirees previously impacted by the WEP and GPO provisions. Biden stated the measure will raise Social Security benefits by an average of $360 monthly for 2.8 million recipients.

But despite bipartisan support, critics warn the $196 billion cost over 10 years could strain Social Security, already projected to face insolvency by 2038 without further reforms.

Jeffrey Liebman, Harvard Kennedy School Professor and Economist Who Worked on Social Security Policy for Presidents Clinton and Obama

It won't bankrupt Social Security, but it is a poorly crafted piece of legislation. There are better ways to spend $200 billion to support public sector employees and better ways to spend $200 billion to make Social Security more equitable.

Sylvester J. Schieber, Former Chairman, Social Security Advisory Board

The legislation will increase expenditures without increasing revenues. Thus, it will shorten the time until the trust fund is depleted. It is fairly small potatoes in the larger financing outlook.

The larger problem with the legislation is it gives workers who earn salaries not covered by Social Security disproportionately generous benefits compared to workers covered under the system for all their earnings.

It is an example of a well-organized special interest group claiming to be victims of unfair treatment in order to be treated more generously by public policy than 98 percent of other U.S. workers.

The retirees affected are receiving public pensions earned on government salaries not covered under Social Security. Separate from their public employment, many have short stints of covered employment.

A worker with only 10 years of their earnings covered by Social Security will pay about one-quarter of the value of the taxes if all their earnings were covered under the payroll tax. But because of the way benefits are calculated, they will receive about 50 percent of a benefit they would be paid if all their earnings were covered.

I was the deputy research director on the Universal Social Security Coverage Study that documented this originally in the late 1970s. I developed the analysis.

Olivia S. Mitchell, Executive Director, Pension Research Council; Director, Boettner Center for Pensions and Retirement Research, The Wharton School, University of Pennsylvania

Social Security is not facing bankruptcy, as it will continue to receive revenue to pay some of the scheduled benefits into the future.

Yet the system does face insolvency by 2035, meaning that too little revenue will be coming in for it to pay scheduled benefits, unless taxes are raised.

Roughly, projected benefits will have to be cut about 25 percent immediately and forever, or payroll taxes boosted by almost 40 percent immediately and forever, to restore solvency.

It is estimated that the recently-passed bill raising benefits for some public sector workers and their spouses will also advance the Social Security insolvency date by about half a year.

Unfortunately, Congress' willingness to boost benefits for some, without dealing with the system's inability to pay future benefits for all, foreshadows the continued inability of governing body to confront and solve the program's deep and ongoing red ink.

Charles Blahous, J. Fish and Lillian F. Smith Chair and Senior Research Strategist, Mercatus Center, George Mason University

The misnamed Social Security Fairness Act was grossly irresponsible legislation, even before considering its effect of weakening Social Security's finances.

Though the GPO and WEP were imperfect and widely misunderstood, some version of these mechanisms remains necessary.

Without the GPO, Social Security will mistake a spouse with their own state pension for a nonworking spouse, and mistakenly pay them a nonworking spouse benefit.

Without the WEP, Social Security will mistake someone with several years of higher-income state employment for a much-lower-income worker, and pay them an unintended benefit windfall.

The fact that this legislation will hasten Social Security's insolvency by giving a subset of workers additional benefits beyond those toward which they contributed payroll taxes only compounds the damage.

An exodus of responsible legislators from Congress enabled the passage of this law, and a re-emergence of responsible legislators will be needed to clean up the mess.

...

Richard Johnson, Senior Fellow, Urban Institute

The Social Security Fairness Act will not bankrupt Social Security. It will create some additional financial pressure on the program and accelerate the date when the program will be unable to pay full promised benefits. But the impact will be modest, moving up the date by only a few months.

A bigger problem is that the act doesn't promote fairness at all, but instead does the opposite. This act eliminates provisions in Social Security that prevented some former state and local government workers from receiving overly generous Social Security benefits.

Now those retirees will get more benefits than they deserve, and much of those windfalls will go to higher-income retirees.

Andrew G. Biggs, Senior Fellow, American Enterprise Institute

The short answer to your question is that, according to the Congressional Budget Office, the Social Security Fairness Act will cause the Social Security trust funds to be exhausted about six months earlier than they otherwise would have, and will increase the program's long-term funding gap by about 3 percent. No one disputes that.

Where there is dispute is over the question of whether the Social Security Fairness Act "addresses a long-running discrepancy." It does not. Rather, the Social Security Fairness Act restores windfall Social Security benefit payments to public sector employees who participate in a government pension plan as a substitute for Social Security.

For instance, the Social Security Fairness Act will allow a retired public employee to collect both their government pension AND a full Social Security spousal benefit. If that employee had participated in Social Security, they would receive EITHER their own Social Security benefit OR a spousal benefit, whichever is larger, but not both.

Similarly, when that employee's spouse died, they would receive their spouse's full Social Security benefit as a survivors benefit, alongside their full government pension. Had that person participated in Social Security throughout their career, upon being widowed they would receive only the higher of their own Social Security benefit OR their spouse's benefit, but not both.

In 1977 the federal government established the Government Pension Offset to prevent this double-dipping, which can provide a retirement public sector employee with a quarter million dollars of Social Security benefits that they neither paid for nor need.

The Social Security Fairness Act restores these windfall payments, at the cost of accelerating Social Security's insolvency and increasing the program's long-term funding gap. As public policy, the Social Security Fairness Act is a massive disappointment.

Emerson Sprick, Economist and Associate Director, Economic Policy Program, Bipartisan Policy Center

Important context here is that Social Security is in no danger of bankruptcy, with or without the Social Security Fairness Act.

Under current law, the primary Social Security trust fund will run out of reserves in the early 2030s (SSA's most recent projection is 2033), but that doesn't mean the program will disappear!

Rather, payroll taxes will continue funding 75-80 percent of scheduled benefit amounts for the foreseeable future, leaving beneficiaries with a 20-25 percent benefit cut absent Congressional action.

The Social Security Fairness Act will certainly exacerbate Social Security's funding challenges, draining an additional $196 billion from the trust fund over the next 10 years.

It's a significant expense, and an irresponsible one not to offset. It has a real, though minor, effect on the program, hastening trust fund depletion by about six months.

The bigger problem with the new law is that it will make Social Security much less fair by providing an undue windfall to just 4 percent of beneficiaries (who receive an additional public pension that is, on average, substantially more generous than Social Security) at the expense of the other 96 percent of beneficiaries.

The Social Security Fairness Act misinterprets Social Security as a pension program rather than an insurance program, but it does so only for public servants who have separate public pensions.

This disparity weakens the foundation of the program at a time when it needs stronger support than ever to overcome political aversion to desperately needed reforms.

Fair, responsible replacements for the Windfall Elimination Provision are still available, and Congress should continue to consider them as part of a comprehensive Social Security reform package that ensures the program can continue to support hard working Americans for decades to come.

Romina Boccia, Director of Budget and Entitlement Policy, Cato Institute

The Social Security (Un)Fairness Act would not directly bankrupt the Social Security Trust Fund, but it would worsen Social Security's already precarious financial condition.

The Act repeals the Windfall Elimination Provision (WEP) and the Government Pension Offset (GPO), which are designed to adjust Social Security benefits for individuals who spent most of their careers in jobs that are exempt from Social Security and from which they earned public pensions.

Repealing these provisions increases Social Security's costs by $200 billion, before interest, over the coming decade.

The Trust Funds themselves are not real savings accounts but rather accounting mechanisms that track surpluses and deficits between Social Security and the U.S. Treasury.

Social Security is already running cash-flow deficits and will contribute $4.1 trillion to the publicly held debt, before its fictional trust fund is projected to be depleted by 2033. If that happens, benefits would automatically be cut by about 21 percent to match incoming payroll taxes.

The Social Security (Un)Fairness Act would accelerate this depletion by increasing benefits without commensurate revenue additions.

Ultimately, while the Fairness Act aims to address perceived inequities, it perpetuates unfairness and does so at the expense of worsening Social Security's deficits, accelerating trust fund exhaustion, and harming all beneficiaries in the long run.

Alex Lawson, Executive Director, Social Security Works

Social Security cannot run out of money. Full stop. As long as there are Americans working, Social Security will be there for them. But, it is true that if Congress does nothing, current projections say there will be an automatic benefit cut in 2035 of 17 percent.

But the solution is simple: Just have billionaires and the ultra-wealthy pay the same rate into Social Security as everyone else and we prevent the automatic cuts and can in fact expand benefits.

The Social Security Fairness Act was a bipartisan bill. Democrats had multiple proposals to end the reduction in Social Security benefits for police officers, teachers and fire fighters that Ronald Reagan put in place four decades ago.

All of those proposals by Democrats were paid for by asking the ultra-wealthy to pay same rate as the rest of us. But Republicans will not vote to raise taxes on their billionaire pay masters.

So the bipartisan path to get the bill across the finish line was to pay for it out of future solvency.

This just means that the big fight about whether to cut Social Security's modest benefits or tax the ultra-wealthy will happen a little sooner.

The Republicans should have voted to pay for the repeal of WEP/GPO but they are cowards who are terrified of their billionaire paymasters.

Kent Smetters, Boettner Professor of Business Economics and Public Policy, The Wharton School, University of Pennsylvania

The Act will move up the depletion date of the Social Security trust fund by about six months due to about $200 billion in extra costs over a decade.

After depletion around 2034, Congress will need to find another source of revenue to finance about 25 percent of benefits no longer covered by the trust fund, with the other 75 percent covered by remaining payroll taxes.

Updated, 1/8/25, 4:25 a.m. ET: This article was updated with comments from Emerson Sprick, Alex Lawson, Richard Johnson, and Romina Boccia.

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