Biden's Social Security Boost: A Windfall for Public Workers

President Joe Biden has signed into law the Social Security Fairness Act, a measure that significantly increases Social Security benefits for nearly 3 million public employees and retirees. This legislation, which repeals the Windfall Elimination Provision (WEP) and the Government Pension Offset (GPO), will provide a substantial financial boost to public workers, many of whom have long felt unfairly treated by these policies.



The Congressional Budget Office (CBO) estimates that eliminating the WEP would boost monthly payments to affected beneficiaries by an average of $360 by December 2025. Ending the GPO would increase monthly benefits in December 2025 by an average of $700 for 380,000 recipients getting benefits based on living spouses, and an average of $1,190 for 390,000 surviving spouses getting a widow or widower benefit. These increases will provide a much-needed financial lifeline to public workers, many of whom have struggled to make ends meet on their previous benefits.

The increased benefits will have a ripple effect on local economies, particularly in areas with a high concentration of public employees. Public workers are likely to spend a significant portion of their additional income locally, contributing to the local economy. This increased spending can lead to higher demand for goods and services, job creation, and increased local tax revenues, all of which can contribute to local economic growth.

However, the increased payouts will also put additional strain on the Social Security Trust Funds, which are already facing a looming insolvency crisis. The annual Social Security and Medicare trustees report released last May warned that the program's trust fund will be unable to pay full benefits beginning in 2035. The new law is estimated to hasten the program's insolvency date by about half a year.

To mitigate the impact on the Trust Fund's solvency, several measures can be considered. One option is to adjust payroll tax rates. Currently, the Social Security payroll tax rate is 6.2% for employees and 6.2% for employers, totaling 12.4% of earnings. Raising this rate could help shore up the Trust Fund. For example, if the payroll tax rate were increased by 1 percentage point (to 7.2% for employees and employers), it would generate an additional $124 billion in revenue annually, according to the CBO.

Another option is to gradually increase the full retirement age for Social Security benefits. The current full retirement age is 67 for people born in 1960 or later. Raising the retirement age could help reduce the number of people drawing benefits and ease the strain on the Trust Fund. For instance, if the full retirement age were increased to 68 for people born in 1970 or later, it would reduce the long-term financial shortfall by about 15%, according to the Social Security Administration.

In conclusion, the Social Security Fairness Act will provide a significant financial boost to nearly 3 million public employees and retirees. This increased income will have a positive impact on local economies, particularly in areas with a high concentration of public employees. However, the increased payouts will also put additional strain on the Social Security Trust Funds, which are already facing a looming insolvency crisis. To mitigate this impact, Congress should consider adjusting payroll tax rates or gradually increasing the full retirement age for Social Security benefits.