Social Security Is Deeply Unfair. The Social Security Fairness Act Won't Fix That.
What is paid out to Social Security beneficiaries is not a return on workers' investments. It's just a government expenditure, like any other.
Since publishing an article yesterday about the Senate's upcoming vote on a bill to bestow better Social Security benefits on some retired public sector workers, I've received dozens of emails arguing that the current rules governing Social Security are deeply unfair.
I agree with the emailers, but not for the reasons they state.
Still, this seems like a good opportunity to highlight how Social Security works—and why it seems to make so many people angry. The big flaw at the center of the program is that no one has any property right to the money that flows through Social Security, though you would not know that from many of the responses I've received in the past 24 hours. A sampling:
"It is only FAIR we receive our Social Security benefits of which we contributed during our careers," wrote one reader named Rich, who said he was retired from law enforcement. "This is very simple, we are only asking to be treated Fairly."
"In my opinion, this is discriminatory as well as theft from the elderly," added another reader, a retired Federal Aviation Administration employee named Peter.
One former teacher named Vivian described the situation as "the government is outright STEALING from people."
"We are fighting for its repeal and to finally receive what is rightfully ours!" Vivian added.
Every one of those responses (and many others) is rooted in a common misunderstanding of how the Social Security program works on a fundamental level. The tax dollars that flow into Social Security do not belong to the workers who have those funds extracted from paychecks. They belong to the federal government—just like the dollars that fund the Pentagon or the Department of Health and Human Services or any other government program.
Therefore, what is paid out to beneficiaries is not a return on workers' investments, as many people seem to believe. It is a government expenditure, subject to the rules that govern those expenditures.
Since 1983, one of those rules—the Windfall Elimination Provision (WEP)—has curtailed Social Security payments to retirees who worked in the public sector and received a pension. That's true even if those workers also did some work in the private sector, in which case they might have earned some Social Security benefits. Those rules are the crux of the bill the Senate is currently considering.
Is that reduction in government expenditures to those people unfair? One can be sympathetic to the individuals who feel that way, but it's a little bit like saying that I should get a say in NASA's budget just because I paid taxes and some of those tax dollars might have gone to NASA.
Ultimately, these sentiments reveal more about the flaws of Social Security than they do about any notion of fairness.
Indeed, any conversation about the fairness of Social Security has to start by acknowledging how unfair the whole scheme is. Workers aren't given the choice to opt out. Younger, generally poorer workers are currently funding the retirements of older, generally wealthier beneficiaries. Most retirees receive significantly more in Social Security benefits than what they contributed during their careers. Is any of that fair?
The Social Security Fairness Act would increase payments to some retirees—and those retirees unsurprisingly see that as the fair outcome. However, it will cost the average couple $25,000 in lost benefits over the long term by accelerating the program's insolvency, according to an analysis by the Committee for a Responsible Federal Budget. Is that fair?
The big flaw at the center of all this is the simple fact that no one actually owns their Social Security benefits. That's a big part of the reason why people get so worked up about potential changes to the program. It's also why anyone who feels shortchanged in some way has to resort to making these silly arguments about fairness.
Allowing workers greater freedom to save for their own retirement would fix that. You can check your private retirement account anytime you'd like, see exactly how much you have, and not worry about federal policies that say you get more or less depending on what job you've had.
And if the company holding your account tells you one day that it going to return only half your money, you wouldn't argue with them about what was fair. No, you'd haul them into court for stealing from you. There would be an enforceable contract protecting your money.
Unfortunately, that's not how Social Security works. It never has and it never will. Understandably, this stresses people out.
It also creates opportunities for politically powerful special interests to influence the arbitrary rules governing who gets what. When retired public sector workers like Rich, Peter, and Vivian claim the WEP is unfairly reducing their benefits, this is what's really happening: They are looking at how the system worked before WEP was implemented in 1983, comparing that to how the system operates now, and complaining that they are now getting less than they would have under the old system.
That's true, but is it unfair? I don't think so. Like any government spending program, Social Security has arbitrary rules about who gets what and how much. You can dislike those rules and, of course, try to change them—which is exactly what these retired teachers and other public workers are trying to do.
But, then, they should be honest about what's happening. This isn't an attempt to make anything more or less fair. It's just a politically powerful special interest group trying to grab a bigger slice of the pie for its members.
