Vote Buying with Social Security
Vote Buying with Social Security
With the depletion of its trust funds a decade away, most of Congress finds it easier to spend $183 billion to buy votes of government pensioners than prevent an immediate 23% cut in benefits.
Winter may have just begun, but when Spring arrives, the latest Trustees Report on Social Security and Medicare program status will blossom just before Washington Tidal Basin’s Yoshino cherry trees.
But we don’t have to wait for that report for gruesome news about its financial health. We have the 2022 report - issued last March - to enlighten and alarm us. And legislation pending in Congress, with hundreds of cosponsors, will worsen it.
Social Security’s largest trust fund - which pays about $1 trillion in annual retirement benefits to about 66 million beneficiaries today - will run out by 2033. “At that time, the fund's reserves will become depleted, and continuing program income will be sufficient to pay 77 percent of scheduled benefits,” the 2022 Trustees Report states.
Let me put that in plain English—an immediate 23 percent cut in benefits. I can’t wait to see the campaign commercials.
Your checks won’t be smaller, but you will receive them less often as working Americans replenish the trust funds. And it may happen sooner than you think.
Never mind that Congress has been borrowing from that trust fund to pay its bills since its inception, and it’s been running in the red since 2010.
Forty years ago, the same trust fund was months away from insolvency when a bipartisan coalition, led in large part by Senate Majority Leader Bob Dole (R-KS), along with Democratic House Speaker Thomas “Tip” O’Neill and the Reagan Administration, carefully cobbled together a complicated but necessary reform proposal wrought with political risk. It gradually raised the retirement age for full benefits from 65 to 67 (66 years and four months for those born in August 1956, near the peak of the “baby boom”), higher payroll taxes on both individuals and employers, some accounting gimmicks, and modest adjustments and a one-time delay in cost-of-living benefits from July to the following January.
But there were two more big changes that I remember well, having been a congressional employee before the reform bill and during its deliberations, resulting from a policy objective to bring public employees exempt from Social Security into the system. It created a “Windfall Elimination Provision” and a “Government Pension Offset” that affects spouses and widows or widowers.
Please stay with me because a big gaggle of Congress critters in both major political parties would like to repeal those provisions. This would create a massive windfall for many government retirees with generous pensions when the system is racing to bankruptcy. Some background is in order, plus letting you know that federal and most other public pension benefits are nicer than most corporate ones, to the extent they still exist - defined benefit (pension) programs have gone the way of the dodo bird at even the most significant employers, leaving newer and younger employees with only 401(k) matching contribution programs. But not Uncle Sam.
The sponsors said the 1983 reforms would last for the “foreseeable future,” or about 40 years when baby boomers would retire in droves. That time has arrived, with a gift of an additional few “bonus” years, if you can call them that.
More plain English. As a young congressional staffer, my participation in the Social Security program was voluntary or unavailable a few years before the reform bill took effect. A very generous Civil Service Retirement System (CSRS) promised great retirement benefits, totaling roughly 80 percent of my final salary in federal employment if I worked and lived long enough (30-plus years of creditable service and retiring after age 62). As a 23-year-old staffer on Capitol Hill, retirement was the last thing on my mind when starting my first congressional job. I did not pay into Social Security during those first few years on “the Hill.” Extra take-home pay was my goal.
That ended after the 1983 reforms when, like all other private sector employees, new federal and many other public employees started paying Social Security taxes in January 1984. Existing public employees at the time were “grandfathered” unless they chose to move to the new system (most didn’t). The objective was to get more people, especially public employees, to pay into Social Security. In addition, Congress created a new, less generous program for federal employees - the Federal Employees Retirement System, or FERS, as a defined benefit (pension) program. They also created a Thrift Savings Plan (TSP), which allows federal workers to voluntarily contribute to one or more of several funds with a 1 percent (taxpayer-funded) employer match, mimicking an Individual Retirement Account (IRA). It has performed very well.
Note: Members of Congress and Article I employees are in the same retirement system as all other federal employees. However, each year of employment in Congress counts as 1.7 years in FERS. That’s because congressional careers - staff and Members - are typically much shorter than our permanent administrative state employees. A substantial chunk of congressional employees serve less than the five creditable years (closer to 3 actual years on Capitol Hill) it takes to become “vested” in the system. It takes 17 years at, say, the Department of Transportation to collect the same federal pension as a 10-year veteran of Capitol Hill, assuming equal salaries (until very recently, Article II employees were better paid on average than Hill staffers, with median incomes north of $66,000 annually, not including bonuses. Hill staffers average less).
Let’s return to the Windfall Elimination Provision and its smaller cousin, the Government Pension Offset.
U.S. Rep. Abigail Spansberger (D-VA, and a candidate for Governor in 2025) and GOP Rep. Garret Graves (R-LA) have introduced legislation, H.R. 82, the Social Security Fairness Act, cosponsored by some 300 of their colleagues (not counting now-former U.S. Rep. George Santos, R-NY, who was expelled but still is listed as a cosponsor).
The bill would repeal the two provisions above, raising Social Security retirement benefits dramatically for hundreds of thousands of retirees benefiting from existing generous public employee retirement plans for $183 billion over ten years.
The legislation would hasten Social Security’s retirement trust fund (Old Age Survivors and Disability Insurance, OASDI) bankruptcy by at least one year.
A companion Senate bill, S.597, by Senators Susan Collins (R-ME) and Sherrod Brown (D-OH, running for reelection), has also attracted an impressive array of 48 bipartisan sponsors, including conservative heartthrobs John Kennedy (R-LA), future Indiana Gov. Mike Braun (R) and Markwayne Mullin (R-OK).
One interesting U.S. House cosponsor is Speaker Mike Johnson (R-LA). The House bill is on the march, thanks to a hearing held last month by the House Ways and Means Committee in Louisiana’s capital city, Baton Rouge. It’s practically guaranteed to pass at least the House, with pretty good odds in the U.S. Senate. And, of course, the President will sign it.
Here’s an argument for the bill, courtesy of Richmond Times-Dispatch, based on testimony to the House Ways and Means Committee:
Robert Callahan retired in 2006 after 29 years as a Fairfax County police officer. He had contributed 12.5% of his earnings to the Fairfax County Police Officers Retirement System, but he also had contributed to Social Security in jobs he worked before joining the police department and as an officer at two other local governments for a total of 16 years.
Callahan stopped working full time this year and began receiving his Social Security benefits in June at age 67 years and three months. He calculated that his benefit should have been $2,224 a month, but the Windfall Benefit Provision reduced the monthly benefit to $1,658, a difference of $566 a month. He does not think he should be penalized for his contributions to the Fairfax police pension plan.
"While employed as a police officer I contributed a significantly higher percentage of my income to a retirement plan than I would have had to Social Security and have earned that benefit as result of my contributions and years of Service," he wrote in testimony to the U.S. House Ways and Means Committee.
Congress has resisted previous attempts to repeal the provisions, in part because it does not want public sector retirees to collect an unfair "windfall," but also because of the cost to a Social Security system that faces serious concerns about its future solvency. Repealing the provisions would cost an estimated $183 billion over 10 years, according to the Congressional Research Service.
The reporter needs to be corrected on one point: the $183 billion cost was projected by the Congressional Budget Office. Not reported is Callahan’s public pension as a retired cop, which I bet is pretty close to his final salary.
While Callahan’s argument seems compelling, and I’m sympathetic to first responders, he paid nothing into Social Security for 29 years while a public employee. In exchange, he contributed to a public pension plan with a generous benefit, a tradeoff he knew and accepted. He is getting credit for years he did pay into Social Security, just not on the same basis as others who have paid into the system their entire career.
Congress in 1983 was specifically trying to avoid the situation Callahan and his supporters in Congress now want to create.
The 40-year-old reform law was written to bring public employees into Social Security and broaden its base as part of a federal retirement scheme to mirror the private sector and save Social Security for future generations. This bill would throw that out of whack with a nice, immediate windfall for many public (many unions) retirees and hasten Social Security’s impending financial crisis.
These public pensions are generous. I receive pensions from my 16 years at a major corporation and 11.5 years as a federal employee under FERS. My federal pension, with an annual cost of living allowance (COLA), exceeds my corporate one, which doesn’t get a COLA. Many (but not all) corporate employees benefit from equity (stock grants, options, and generous bonuses) from their jobs, while government workers don’t. That, in part, is why they get nicer pensions. For the record, I’m not affected by the bill nor the Windfall Elimination Provision.
Civil service workers also have a lot better job security. Try firing one sometime.
This isn’t about “fairness.” This is about bribing us with our own money. They seem less interested in preventing an immediate 23 percent or more cut in those same benefits in less than a decade. If only Reps. Graves, Spanberger, and their colleagues spent more time trying to rescue a system spinning toward bankruptcy. The list of public employee associations (many with large political action committees that overwhelmingly support Democrats) endorsing the bill should wake up any responsible Member of Congress, especially Republicans.
It is too late to rescue Social Security and Medicare without politically painful reforms. This bill would make that challenge even more urgent and difficult. Still, for aspiring governors and Senators seeking reelection, the urgent trumps the important, especially when winning elections tops the priority list.
In the investment business we are seeing couples retire in their late 60's with $7,000 or more per month! That seems like a lot of money.
People pay into it and when they don't think they are getting it they yell "I paid my whole life for that, I had better get it!" What the politicians don't communicate to them is that SS is an "insurance program," Not a retirement program. It is called the "Old-Age, Survivors, and Disability Insurance (OASDI) program." Insurance, not a retirement plan!
What I am getting at is "means testing." People going into retirement with a certain amount, maybe 500k per year of retirement income don't need the insurance. They are able to avoid the tragedy of being broke in their old age. The insurance is for low income people who never learned how to become middle or high income people. You have to have those people or we would have no janitors, or unskilled labor jobs. The need the insurance.
It works like this: You own house for 40 years and pay fire insurance on it the entire time. It never burns down. Do you get your money back? No. SS is the same. They just need to communicate it to taxpayers. Create recognition and some perks for those who don't use the system, like free national parks passes or whatever. They need to make it clear at the beginning that if you are lucky enough to get rich, you have helped the country. Working that out would be tough but doable.
Finally, the life expectancy for people when SS started was about 65. So half of the people back then were "too dead to get it." Average life expectancy now is more like 75. We need to start reducing it to match reality. A 40 year old may have to wait until 72. A 50 yr old until 69, a 25 year old until 75, etc. 25 year old almost always tell you "it won't be there when they are old," due to dumbing down the news on SS. Tweaking the ages makes sense to people. "Grandfather in" at first those who are 59 or over. Make 58 yr old wait one more year, and do the math down the line. Politicians are chicken. You see what Trump did to DeSantis early on? DeSantis was for this age rearrangement and Trump claimed he was "trying to take your social security." And it was effective while being a total lie.
This is a very well written and researched look at legislation that is designed to undo one of the key provisions of the 1983 Social Security Reform Act. I am a federal retiree having worked for 23+ years in Congress. I would benefit from this new law (though not a huge amount). But I think you are right and this new proposal should not pass. The collapse of Social Security is less than a decade away. Since the OMB and CBO score budgets ten years out, it will be interesting to see if they show the trust fund collapse in the next budget reports.