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Written by: Eugene Steuerle
Social Security: Should Principles Matter When Deciding Who Gets What?
In the midst of the debate over the amount of increased debt that the new Republican Congress is willing to entertain, it’s worth looking at one item that a Republican House and a Democratic Senate legislated after the last election: the so-called Social Security Fairness Act. While many commentators on the left and right have criticized the law, I want to address a broader issue: how its enactment exemplifies two longstanding problems plaguing efforts by both parties to control the federal budget.
First, it remains impossible to reestablish a rational budget process as long as Congress can enact eternal giveaways—that is, spending increases and tax cuts that require no future annual appropriations—while neglecting the takeaways necessary to cover the costs. Second, misleading and distorted rhetoric reinforces how elected officials identify winners in legislation but not the losers who must eventually pay.
Eternal giveaways
The Act repealed the Windfall Elimination Provision (WEP) and Government Pension Offset (GPO). When originally enacted, these provisions aimed to create greater parity between workers paying Social Security taxes for most of their lives and a minority who avoided paying tax on a significant share of their earnings. With repeal, however, most recipients will get a significantly lower rate of return on Social Security tax payments than many state and local government employees with the same lifetime earnings.
The Congressional Budget Office estimates that the recent WEP-GPO repeal will cost $196 billion over ten years. While that cost might look “modest” at about $20 billion a year, Social Security has been paying benefits for 85 years. Assuming that it lasts at least another 85 years, the total cost of this enactment rises into the trillions of dollars.
These costs further deplete the Social Security trust fund. The federal government’s total deficit rises regardless of whether Congress eventually reimburses the trust fund with income tax or other non-Social Security revenues. While Congress has established numerous points of order to limit giveaways bought on credit, in this case, it simply voted to ignore those rules.
Unfunded giveaways promised in the past now totally dominate public spending and leave no flexibility to use new revenues to do anything new. Yet, as this WEP-GPO repeal proves, more unpaid-for and eternal giveaways keep coming even in a period of extraordinary deficits.
Congress will soon decide how many of President Trump’s promises to extend tax cuts in the 2017 Tax Cuts and Jobs Act (TCJA), exempt tips from income tax, repeal the taxation of Social Security benefits, and repeal the cap on state and local tax deductions. Even if some of these giveaways are paid for, many more remain on the books, creating our extraordinary budget bind.
Misleading rhetoric fuels giveaways and obscures the need for takeaways
Congress and the bill’s advocates succeeded in controlling the message received by the public. The Act was labeled as one for “Fairness.” The bill’s lobbyists convinced the state and local employees not paying Social Security tax on their earnings that they were the aggrieved parties.
The media bought in. One news report defined the passage as a bipartisan legislative achievement. Another said, “Congress Approves Full Social Security Benefits for Public Sector Retirees,” incorrectly noting that those retirees would now “collect Social Security benefits at the same level as other beneficiaries.” In fact, they’ll collect at a higher level relative to the Social Security taxes that they paid.
A reader glancing only at the first paragraphs would also learn that teachers, firefighters, and police officers would benefit from the law. Yet most teachers, firefighters, and police officers, including many with lower incomes and paying higher taxes, are excluded from the add-on benefits. They live in the majority of jurisdictions that have opted into, not out of, paying Social Security taxes on current earnings.
Who can be against “fairness,” a “full” and “level” benefit, “teachers, firefighters, and police officers,” when the rest of the story—who’s left out and who pays—is either ignored or subsumed within later discussions?
Please don’t misunderstand me. The WEP/GPO rules were poorly designed and needed reform. At times, they did give some state and local employees a lower rate of return on their Social Security tax payments than similarly situated workers. But that was a problem fixable without full repeal and giving state and local employees with higher lifetime earnings the type of redistribution Social Security intended for those with lower lifetime earnings.
Still, when legislation's winners are celebrated and the losers—usually some unidentified future taxpayers—are ignored, elected officials have a hard time opposing it even if they want to.
Our government has long given away money and refused to collect the funds necessary to pay for those giveaways. While budget reformers often define their goal as reducing the resulting deficits, that’s not enough.
No long-term solution to our budget mess can succeed without somehow limiting eternal giveaways and exposing the eventual takeaways required from unidentified taxpayers.
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*Reprinted largely from Tax Vox, February 12, 2025