Social Security fairness Archives

Originally published at Forbes.com on November 11, 2020.

Imagine that you’re a blue-collar worker who starts out with an apprenticeship directly out of high school and works until your full retirement age of 67 — for a working lifetime of 49 years.

If you had a pension in the private sector, say, 1.5% of pay per year, you’d get a pension benefit of 73.5% of your average pay.

On the other hand, imagine you’re a white collar worker who attends college for 4 years, then grad school for another three, with a gap year travelling Europe somewhere along the way. That’s a working lifetime of only 41 years. For many college graduates, add another year, because college often takes longer or an unpaid internship gets tacked on somewhere along the way. With the same pension plan, your benefit would only be 60% of average pay. If you decide to take early retirement at age 62, that would put you at a 35 year working lifetime, or a hypothetical private-sector pension of 52.5%.

But in any of these three cases — the person who works 49 years, or 40 years or 35 years, if their highest-35-year average salary is the same, indexed for wage increases, then their Social Security benefit — or, strictly speaking, their Primary Insurance Amount before any early retirement reduction, is the same.

Is that fair?

Is it fair that someone who continues to work after reaching that 35 year marker, even if they take a pay cut (say, in a semi-retirement part-time job) so that the new work history won’t actually boost their Social Security benefits, must continue to pay FICA taxes?

Yes, framed this way, it sounds pretty outrageous. It suggests that blue-collar workers are being cheated out of money they should be getting, or that white-collar workers are getting money that they don’t deserve.

Of course, that’s not actually the way the 35 year averaging works. (I admit: I initially wrote “the purpose of the 35 year averaging” but realized I can’t make a claim as to the intentions of the formula’s designers.) Effectively, the system presumes that workers who are not in the workforce are missing for valid and appropriate reasons, whether it’s schooling, or periods of unemployment or caregiving for children or parents. In some Social Security systems, say, France, for instance, the system requires a full “working lifetime” and grants “credits” for justified reasons such as these, but no such “credit” for periods spent on the beach in Fiji.

Or, the system’s design has the effect of saying, “anyone who worked ‘enough’ years over their lifetime deserves the same benefit-relative-to-income as anyone else who worked at least that much.” Social Security, in this point of view, is not about hard work, but just about being “a worker.” There’s nothing particularly worthy about working more years beyond this minimum, no reason to get rewarded or for someone who didn’t do so to lose out, because, after all, Social Security is not truly “earned” in the same way as a private-sector pension but is social insurance, which operates entirely differently. This is similar to Biden’s promise that any individual who works at least 30 years (and, remember, to earn sufficient credits requires earning $5,640 per year, as of 2020, or 15 hours per week at minimum wage) would be promised a benefit of 125% of the single-person poverty line, not because they had “earned” it by their contributions but as a matter of social insurance.

But this is, again, the problem with our ideology about Social Security. If we wished to reward people who worked more years, without increasing costs for the system, it stands to reason that we’d need to somehow reduce benefits for people who had worked fewer years. And we’ve talked ourselves into the premise that the system is fundamentally unalterable, rather than designing a system which is fundamentally flexible enough to respond to changing conditions.

December 2024 Author’s note: the terms of my affiliation with Forbes enable me to republish materials on other sites, so I am updating my personal website by duplicating a selected portion of my Forbes writing here.

Originally published at Forbes.com on March 13, 2018.

“Why does [name of sibling] get to [do or have desired activity or thing] and I don’t? It’s not fair.”

“Oh, yeah. Well, life’s not fair.”

How many times have you been on one end or another of this parent/child conversation? I still can picture in my mind the time that my one-year-older-than-me sister was allowed to stay up late to play Monopoly with my parents and I couldn’t.

As it happens, a writer at the Washington Post made this discovery about Social Security: it’s full of benefits that benefit the wrong people and shortchange others, a litany of items that call to mind my first-grade self standing there in my nightgown saying, “it’s not fair.” (Did I really do this? I have no idea.)

The article in question, “How late-in-life dads — like Trump — are eligible for a Social Security bonus,” by Allan Sloan and C. Eugene Steuerle, starts with a complaint about what it calls the “Late-in-Life-Baby Bonus” which gives supplemental benefits to parents of minor children. As Sloan and Steuerle see it, it is particularly unfair because, on the one hand, parents who have not yet reached retirement age aren’t eligible to collect these benefits (unless, though the authors don’t mention it, because they’re widowed/widowered or disabled), and, at the same time, retirees who have children for shameful reasons (e.g., President Trump being a parent late in life because he took up with a younger trophy wife) and who don’t need the money (again, Trump) are eligible.

But it is in the nature of Social Security that there is no means test, and there is no judgment of whether those late-in-life children are due to skeezy May-December relationships or because of unexpected near-menopausal pregnancies or because retirement-age individuals have adopted children, sometimes even grandchildren when their parents are unable to care for them. It’s just taken as a given that household financial needs are greater with a child present so additional benefits are provided.

Also subject to criticism is the so-called “Single Parent Shortchange,” which is another way of observing that the somwhat crude mechanism by which Social Security provides benefits to stay-at-home/low-earning moms, constructed in an era in which those moms were expected to be married to the fathers of their children, is a benefit that isn’t earned by those women and accordingly comes from everyone else’s FICA taxes. They write,

Single parents are among the lowest-income payers of Social Security taxes. Why should they subsidize other folks’ never-working spouses in a way that gives the biggest benefits to the best-off people?

The fact that Social Security accommodates divorce by providing spousal benefits to divorced ex-spouses, in the same manner as if the couple was still married, is subject to criticism as the “Serial Spouse Bonus,” that is, because any given worker, if he had been married multiple times, each for over 10 years, would have multiple ex-wives able to claim spousal benefits if they exceeded benefits under their own earnings records.

And, finally, they take issue with the “Equal Earner Penalty,” which they characterize as

a couple with two people each earning $40,000 gets about $100,000 less in lifetime benefits than a couple with one spouse earning $80,000 and the other earning nothing. This happens even though both couples and their employers pay identical Social Security taxes.

This is, of course, not a surprise — again, spouses’ benefits are a clunky form of social welfare spending built into Social Security. And even comparing two unmarried individuals, the progressive nature of Social Security benefits means that, in a more real-world example than a zero-lifetime-income individual, a person with a low lifetime income gets an “unfair” amount of “extra” benefits due to the 90% first-bendpoint percentage — irrespective of whether that low income was due to having been poor, or having been a stay-at-home mom in a middle-class family.

I’ll remind readers that my preferred benefit is a flat benefit, and all of these are non-issues in such a system, especially if the issue of benefits for mothers is solved by giving accrual credits to individuals who were out of the workforce caring for children, rather than adjusting benefits at retirement, or, alternatively, by not caring at all about employment history in handing out benefits.

But such a system would generate its own cries of unfairness: why should Bill Gates get a benefit if he doesn’t need one? Why should that fat slob who never worked get one?

Ultimately, all these cries of unfairness really highlight the ways that Social Security does dual duty as a social welfare program for the elderly and as a mainstream income-replacement retirement program. People want it both ways — they want to feel they’re “earned” their benefits but at the same time, they want benefits to be progressive, with the needy getting more and the wealthy paying more. And when it comes to proposed updates to the system, we see even more of these two impulses, as pundits and ordinary Joes and Janes alike simultaneously insist that workers have earned every penny of their future benefits by dint of their own hard work and FICA taxpaying, and yet, in order to repair the solvency of the system, that the millionaires and billionaires had better be called upon to pay in their “fair share,” that is, subsidize the system.