President Biden signed legislation over the weekend that expands Social Security benefits for many Americans.
The bill, called the Social Security Fairness Act, would repeal two tax systems that proponents say unfairly cut benefits for many Americans who also receive government pensions. But experts are sounding alarm at the expected price and questioning the fairness of the bill.
Here are some things you should know.
How does this work?
The bill would eliminate decades-old tax measures known as the Windfall Elimination Provision (WEP) and Government Pension Offset (GPO) that have reduced Social Security benefits for pensionable workers and their spouses.
Experts say the provision is intended to prevent some beneficiaries from receiving more Social Security benefits than they earned. But critics of the rule say the measure is flawed and leads to unfair pay cuts for many people.
Although most jobs are covered by Social Security, many Americans are able to take state and local government jobs that are not covered by Social Security and receive a pension in return. This includes people who are teachers, police officers, firefighters, and other public servants.
Social Security operates on a progressive benefit formula, so people at the lower end of the income range who spent most of their careers working jobs that pay into the program receive higher benefits relative to their income.
But experts say problems arise when calculating Social Security benefits for people who have spent most of their lives in employment that is not covered by the program.
“If you have state or local employees, some of those jobs are not covered by Social Security,” Rich Johnson, director of the Urban Institute's Retirement Policy Program, said in an interview. “So when you work in these jobs, you don't pay into Social Security, you don't pay Social Security taxes. Your employer doesn't pay Social Security taxes.”
“Then this person leaves that state or local job and goes to work in the private sector. For example, they've only been in the private sector for 10 years, and Social Security doesn't know what their earnings were for those 10 years. “But when you calculate your lifetime income, you divide it by 35 years,” he said. “That's why it looks so small. As a result, we have a 90% replacement rate.”
Supporter's voice
Supporters have hailed the bill as the first in a long time, hailing it as a victory for public servants while criticizing the rules as outdated.
“In 2003, I held the first Senate hearings on WEP and GPO, and today, with the signing of the Social Security Fairness Act, these inequitable provisions in our nation's Social Security system are finally repealed. ” Speaker Susan Collins (R-Maine), who authored the Senate version of the appropriations bill, said in a statement over the weekend.
Collins' office said the legislation would ensure that 25,000 Mainers will receive their “earned” benefits, and he attended the recent bill signing ceremony at the White House and President Biden also said: He praised the bill.
“The bill I'm signing today is about a simple proposal,” Biden said. “Americans who have worked hard all their lives to earn an honest living should be able to retire with financial security and dignity.”
According to the Congressional Research Service, more than 2 million beneficiaries are currently affected by WEP.December 2023. That same month, nearly 746,000 people also received reduced benefits under the GPO.
Behind these numbers, reports of improper payments have helped fuel calls for reform.
Social Security Administration Office of Inspector General (SSA)saidThe agency revealed in August 2022 that it had “made more than $457 million in improper payments related to WEP and GPO.”
The watchdog also found that in 2011, the SSA “approximately 24,900 recipients received uncompensated pension benefits from state and local governments, but the SSA did not reduce their benefits. It said it discovered that it had overpaid approximately $623.8 million.
price tag
Fiscal hawks have sharply criticized the bill in recent months, citing Congressional Budget Office projections that it would cost more than $190 billion over 10 years.
CBO also predicted in a letter late last year that if the measure became law, Social Security's trust funds could be “depleted approximately six months sooner than under current law.”
“First of all, $200 billion over 10 years is a lot of money, right?” Chris Towner, policy director at the Committee for a Responsible Federal Budget, said in an interview that the estimate was “significant.” . He also expressed concern about the bill's impact on Social Security funding.
The program's fiscal stewardship committee announced last year that the Old Age and Survivors Insurance (OASI) Trust Fund, which pays Social Security benefits to retirees, and the program's smaller Disability Insurance (DI) Trust Fund will expire at the end of the year. Announced. It will be 2035.
“Twenty years ago six months might not have mattered, but the fact that we're only nine years apart now, I mean, that's a pretty big deal,” Towner said. “In fact, we're already close. Because of this bill, we'll be eight and a half years away.”
“That means the closer you get to Social Security, the harder it will be to prevent deep cuts to benefits or large tax increases right away.”
When will people see higher dividends?
Biden also said Sunday that more than 2 million Americans “will receive a one-time payment of thousands of dollars to make up for the shortfall in benefits they would have received in 2024.”
“We're going to start receiving these payments this year,” Biden announced at the ceremony.
He also said those affected by the change would see their benefits increase by an estimated $360 per month on average.
“This is a big problem for middle-class families,” Biden said.
