Why do Members of Congress support the Social Security "Fairness" Act?

...When so few public employees in most states are even affected

The Social Security Fairness Act – sorry, the Social Security “Fairness” Act – is, as I’ve said before, a $200 billion giveaway to people who neither paid for these benefits nor need them. Public employees who don’t participate in Social Security aren’t being cheated when their Social Security benefits – received either from a job outside of the public sector or as the spouse or survivor or someone receiving Social Security – are reduced. This makes perfect sense once you understand how the ordinary Social Security benefit formula works and why that ordinary formula doesn’t work in the case of people who had jobs where they didn’t pay into Social Security.

What I was wondering is why so many Members of Congress — from both parties, and from across the country — support the Social Security “Fairness” Act when so few workers in most states are affected.

The short story, for those who haven’t read up on the Social Security “Fairness” Act, is that Social Security combines an earned benefit based on contributions and a welfare benefit based on need. To receive Social Security retirement benefits, a person must have paid into the system for 10 years. Moreover, the more they paid in, the higher their benefit is in dollar terms. This is the earned benefit part.

However, Social Security replaces a larger portion of pre-retirement earnings for low earners than for high earners. For instance, the Congressional Budget Office reports that a person in the bottom fifth (or “quintile”) of lifetime earnings receives a Social Security benefit equal to 78% of their career-average earnings, while a person in the top fifth receives a replacement rate of just 31%. In other words, while everyone has to pay into Social Security to get Social Security benefits, a low-earning person receives over twice as many benefits per dollar paid in than a high earner. That’s the welfare component of Social Security.

The issue with certain public employees is that, to Social Security’s benefit formula, they look poor even though they’re not. That is, they might work for 30 years for the government, earning a decent wage but not paying into Social Security, and another 10 years in the private sector earning the same wage. But Social Security’s benefit formula only “sees” earnings that are taxed by Social Security. If you have only 10 years of paying into Social Security, the benefit formula treats you as if you had low lifetime earnings.

Why? Because the benefit formula assumes you worked for 35 years, and so takes the total of your 10 years of earnings and divides them by 35. Instantly, a middle-income person is changed to a “poor” person, who then is a beneficiary of Social Security’s progressive benefit formula.

As a result, public employees would receive a better return on their Social Security contributions than people with similar lifetime earnings who paid into Social Security throughout their lives. That’s unfair – duh – and the WEP and GPO rules exist to prevent this unfairness from happening. The Windfall Elimination Provision and the Government Pension Offset reduce the retirement benefits or spousal benefits paid to a retiree who worked part or all of their career in a government job where they didn’t pay into Social Security.

Eliminating the WEP and GPO rules, as the Social Security Fairness Act would do, reinstates that unfairness. Thanks to a quirk in the Social Security benefit formula, public employees would receive a much better deal on their Social Security taxes than would a private sector worker who earned the same amount over their career. That’s indisputable, and that’s why the WEP and GPO provisions exist in the first place.

All of these points have been made before, including by me.

But here’s one twist I found interesting: Even though the Social Security “Fairness” Act has broad support, across both parties and across the country, it’s only in a relative few states where many public employees would be affected. The reality is the vast majority of state and local government employees do pay into Social Security – 73%, according to the Social Security Administration – and so the WEP/GPO provisions don’t even apply to them. As a percentage of the total workforce, the figures are smaller still.

As my neat map shows, in only 15 states are public employees who don’t participate in Social Security more than 3% of the total labor force. In a larger number of states – 16 in total – non Social Security-covered public employees make up less than 1% of the total labor force. This is a tiny number of people we’re talking about in a national context.

When I originally wrote about the Social Security “Fairness” Act, I framed it as an election-year giveaway. And it still might be that. Public employees are a powerful force in many states, even with Republican lawmakers.

But in most states, the WEP GPO issue really isn’t an issue. There are very few public employees who are even affected by the provisions.

Which for better worse, makes me think that Members of Congress from both political parties just don’t understand the issue on the technical level. They don’t understand how the Social Security benefit formula works and why the formula would unfairly advantage non-covered government employees in the absence of the WEP/GPO provisions.

And this ignorance makes them actually think that state and local government employees are being treated unfairly by Social Security.

I admire a dedication to fairness. But I’d also admire if it Members of Congress paid greater attention to the details.