Controversial Social Security Benefit Increase Would Cost Taxpayers $196 Billion

Romina Boccia

Congress will soon consider the repeal of the Windfall Elimination Provision (WEP) and Government Pension Offset (GPO), which would unfairly increase benefits for individuals with earnings that weren’t subject to Social Security taxation and end up costing taxpayers an additional $196 billion over ten years.

Reps. Garret Graves (R‑LA) and Abigail Spanberger (D‑VA) have secured enough support to file a discharge petition in the House of Representatives. This forces the bill onto the House floor for a vote this fall, bypassing House leadership’s agenda-setting power. This is rubbing many GOP leaders the wrong way, with some calling for changes to discharge petition rules to avoid similar clashes between House members and leadership in the future.

This change is further controversial in that repealing WEP and GPO would unfairly benefit public sector workers at a high cost to taxpayers. Instead, Congress should change the WEP formula to enhance fairness and accuracy in Social Security benefits without increasing taxpayer costs, and reform Social Security spousal benefits to better reflect the realities of 21st century families.

What are the WEP and GPO rules?

The WEP adjusts Social Security benefits for workers who have pensions from working for state or local governments and who also qualify for Social Security but with a limited earnings record. The GPO makes similar adjustments for spouses and survivors who worked in jobs that were not subject to Social Security’s taxes.

Congress adopted these adjustments to preserve the intent behind Social Security’s progressive benefit formula, which replaces a higher percentage of preretirement wages for lower-income workers than for higher earners, and to duplicate the dual-entitlement rule that prevents workers from collecting more than one benefit at a time. Before the windfall elimination provision and government pension offset were implemented, certain workers and spouses would receive an unfair “windfall” in the form of higher benefits than Congress intended.

For the WEP, the reasons include that Social Security’s benefit formula is based on average earnings over 35 years. Workers who spent part of their careers in state and local government positions in which their earnings were excluded from Social Security taxation would appear to have had lower earnings than they did. Because Social Security’s formula replaces 90% of earnings in the lowest tier and only 15% of earnings in the highest tier, a benefit adjustment for workers with non-covered earnings makes sense to prevent higher-income earners from receiving Social Security benefits based on a lower-income earner’s replacement rate.

For the GPO, the Social Security Administration applies an implicit test of a spouse’s or widow(er)’s dependency on the primary worker for financial support. This is particularly important because, unlike private pension plans, there are no actuarially fair adjustments applying to spousal and survivor benefits—these are pure income transfers from taxpayers to a worker’s spouse. The GPO reduces a Social Security spousal benefit by an amount equal to two-thirds of the non-covered government pension (i.e., a 67% offset). It also affects mostly individuals who have generous public pensions. As the Bipartisan Policy Center explains, “because the GPO already treats all affected beneficiaries more generously than the standard benefit formula (by applying a 67% offset rather than a 100% offset against the spousal or widow(er) benefit), any reform to improve fairness would be politically challenging. […] Nearly 70% of beneficiaries affected by the GPO had their entire spousal or widow(er) benefit offset and had an average monthly non-covered pension of $3,502.”

Fixing an Outdated Approach

While Congress adopted WEP rules to ensure the program’s progressive intent, the current approach treats some beneficiaries better than others. When these rules were enacted in 1983, Social Security lacked the necessary data to make appropriate adjustments. Today, thanks to more complete earnings data, including from work not subject to Social Security taxes, the agency could calculate the proper benefit adjustment if Congress changed the formula to improve accuracy and fairness.

President Barack Obama’s 2017 budget included such a proposal. The Concord Coalition has proposed such a change, calling the current repeal effort “The Social Security Un-Fairness Act.” A bipartisan duo in the House, Reps. Kevin Brady, (R‑TX) and Richard Neal, (D‑MA), had put forth a plan in 2015. A version of this change was also included in the comprehensive Social Security Reform Act of 2016, from then-Rep. Sam Johnson, (R‑TX). And most recently, House Budget Committee Chair Jodey Arrington (R‑TX) introduced the Equal Treatment of Public Servants Act (H.R. 5342) with bipartisan support.

For GPO, the best approach is to rethink Social Security spousal and survivor benefits, which are outdated, hailing from an era when most households had a single earner. In today’s world with many more two-earner families, Social Security’s spousal benefits often provide disproportionately high payouts to the non-working spouses of higher-income earners, while lower-income families with similar earnings attained by two workers receive less. Since the GPO is not based on a beneficiary’s earnings but those of their spouse, there’s no simple way to address this provision. Congress should rethink the purpose of spousal benefits as part of a more comprehensive reform package.

A New Handout Instead of a Fix

Instead of improving upon the current formula for WEP to ensure fair treatment across affected populations, Congress is considering giving public sector workers a new handout. The Social Security Fairness Act of 2023 (H.R.82) would repeal both rules, giving public sector workers unfairly high benefits by treating them as if they had been low-income workers with limited earnings histories and discounting years of public service that qualified them for receiving generous public pensions.

It’s no surprise that in this election cycle characterized by candidates giving away taxpayer-funded goodies left and right, changes to these complex Social Security provisions have gained traction. They affect voters who are represented by well-funded special interest groups, particularly public sector employee unions for teachers, police officers, and firefighters.

As Mancur Olson argues in The Logic of Collective Action, well-organized groups with concentrated benefits (like those affected by WEP and GPO) are often more effective at lobbying for their interests than larger groups with diffuse benefits. Well-funded public sector unions can secure a substantial benefit increase for their members by lobbying Congress aggressively while the broader taxpayer base, which would bear the cost of the repeal, is a much larger and more diffuse group, and thus less able to organize to defend their interests.

Don’t Repeal WEP/GPO

The proposed repeal of the Windfall Elimination Provision (WEP) and Government Pension Offset (GPO) would unfairly benefit certain public sector workers at a substantial cost to taxpayers. Adopting a new formula for WEP, as previously proposed, could enhance fairness and accuracy in Social Security benefits without increasing costs for taxpayers. Meanwhile, Congress should either leave GPO in place until Congress revamps spousal and survivor benefits as part of a comprehensive Social Security reform package or consider a better formula that achieves parity between covered and non-covered workers with respect to spousal and survivor benefits.

Taxpayers will be better served if Congress does nothing, instead of making things worse. Repealing WEP/GPO would be a costly election giveaway to public sector union members that would increase unfairness in the system by enhancing redistributive features that disproportionately harm younger workers.