Senate passes Social Security Fairness Act, but at what cost?

On Dec. 21, the Senate passed the Social Security Fairness Act. The bill cleared the House of Representatives last month and will now almost certainly be signed into law by President Joe Biden.

But that doesn't mean the debate over the legislation is over. After the vote, supporters of the SSFA hailed it as a restoration of benefits for seniors who had been unfairly short-changed. Opponents, however, continued to call it an expensive giveaway that would worsen the program's already troubled finances.

"It truly is a step back for Social Security fairness, for fiscal responsibility and for Social Security's solvency," said Andrew Biggs, a senior fellow at the American Enterprise Institute and a fierce critic of the bill.

The bill's allies in Congress — who, unusually, belong to both parties — see things differently.

"I thank my colleagues for the overwhelming support this legislation has received, as it will help millions of Americans retire with dignity and receive the Social Security benefits they earned through years of work," Senator Susan Collins, the Maine Republican who co-authored the bill with Ohio Democrat Sherrod Brown, said in a statement.

The Senate vote caps a decades-long saga. In 1983, Congress passed a package of cost-saving reforms to save Social Security from imminent insolvency. The SSFA undoes two of those reforms: the Windfall Elimination Provision (WEP) and the Government Pension Offset (GPO).

Both measures reduce Social Security benefits for certain retirees. The WEP does so for seniors who, over the course of their careers, worked in both the public and private sectors. And the GPO cuts spousal benefits for former government workers whose partners worked in the private sector.

READ MORE: How the Social Security Fairness Act could affect retirement

Why cut these benefits? Because in both cases, such retirees are eligible for both Social Security and government pensions — a combination that conservative analysts call "double dipping."

"The Social Security Fairness Act is a misnomer, in that it repeals rules that were expressly designed to prevent windfalls to certain public sector employees and therefore make Social Security more fair," Biggs said. "The Social Security Fairness Act restores these windfalls, which can mean significant extra benefits received by retired public sector employees who neither need them nor paid for them."

The Congressional Budget Office estimates that the WEP currently docks benefits for 2.1 million Americans, while the GPO does so for about 746,000. That means the SSFA will increase benefits for almost 3 million retirees.

For those affected by the WEP, the CBO calculated, that increase comes out to an average of $360 per month. For those impacted by the GPO, the boost is $700 per month for those with a living spouse, or $1,190 for those whose spouse is deceased.

Over the course of an entire retirement, that adds up to significant money. HealthView Services, a company that projects health care costs for financial advisors, calculated that if a WEP-affected worker retires at 65, he or she stands to gain $331,371 in additional benefits by age 90 — all thanks to the SSFA.

"I am pleased that now these unfair provisions in our Social Security system will finally be done away with," Collins said. "This is a victory for thousands of teachers, first responders, and public servants in Maine who, through service to their communities, have been forced to forego their earned retirement benefits."

But how much will this victory cost? The CBO estimates that implementing the SSFA will raise the federal deficit by $196 billion over the next 10 years. 

And Social Security's finances are already on shaky ground. As it is, the program's Old-Age and Survivors Insurance trust fund — the part that pays benefits to retirees and their spouses — will become insolvent by 2033, according to the CBO. If the SSFA takes effect, the agency projected, that insolvency will be sped up by about six months.

The SSFA does not include a mechanism to pay for these costs. This is likely because doing so would have jeopardized the bill's bipartisan support — increasing payroll taxes, for example, would have been unpopular with Republicans, and raising retirement ages would have been a nonstarter with Democrats — but even supporters of the bill see this as a problem.

"The biggest weakness is it has no pay-for," said Mary Johnson, a Social Security analyst formerly at The Senior Citizens League. "The only way to pay for the bill, really, is to raise the amount of wages subject to taxation. And conservatives are very much against the tax increases that would be needed to offset the costs of the bill."

READ MORE: The Social Security solution hiding in plain sight

Such revenue-side solutions are available. Multiple bills to "scrap the cap" — i.e., remove or raise the limit on how much income is taxed for Social Security — have been proposed, but so far have gone nowhere in Congress.

And to Biggs' dismay, so have other bills that would have taken a more surgical approach to improving — instead of eliminating — the WEP and GPO.

"While the existing rules … aren't perfect, legislation had been proposed that would make them much more accurate at little cost to the budget," Biggs said. "But that's not what public employees wanted. They wanted to restore the Social Security windfalls."

Ron Mastrogiovanni, CEO of HealthView Services, supports the SSFA but worries about the question mark over its financing. Sooner or later, he said, Social Security's funding problems will have to be solved — and it may be vulnerable retirees who pay for them, through raised retirement ages or reduced cost-of-living adjustments.

"What concerns me is, who's going to pay the price?" said Mastrogiovanni. "I think it's a good bill, don't get me wrong. But to ignore how to address all the shortfalls we currently have and to just put that on the back burner is a mistake."