Enacting the bill would increase off-budget spending by tens of billions of dollars in the years after 2034, but CBO has not completed a detailed estimate of those costs. Image: TippaPatt/Shutterstock.com
By: FEDweek StaffFollowing is the key portion of the Congressional Budget Office estimate of bills pending in Congress to repeal the windfall elimination provision and government pension offset provisions of Social Security affecting many current and future federal retirees under the CSRS system.
H.R. 82 would amend title II of the Social Security Act to eliminate the Windfall Elimination Provision (WEP) and the Government Pension Offset (GPO). Those provisions reduce OldAge and Survivors Insurance (OASI) and Disability Insurance (DI) benefits for people who also are eligible for benefits from certain other pension plans. The change would apply to benefits payable for January 2024 and later.
Basis of Estimate
For this estimate, CBO assumes that H.R. 82 will be enacted near the beginning of fiscal year 2025. The bill would increase benefits payable for January 2024 and later, and CBO assumes that higher benefits owed for the months before enactment would be paid retroactively mostly in fiscal year 2025, with some paid in fiscal year 2026. After that, benefits would be paid in the fiscal year in which they are due. This estimate is based primarily on CBO’s analysis of historical data on WEP and GPO recipients and on projections of the adjustments to their benefits under current law.
Background
The WEP reduces benefits for retired or disabled workers who have fewer than 30 years of employment covered by Social Security if they also receive pensions based on noncovered employment. The GPO reduces the spousal or surviving spousal benefits of people who receive pensions based on noncovered employment.
The benefit formula for determining Social Security payments uses a worker’s lifetime earnings from work covered by the Social Security system.1 That formula generally applies three factors—90 percent, 32 percent, and 15 percent—to three brackets of a worker’s average indexed monthly earnings (AIME), a measure of career average earnings in covered employment. (The AIME excludes noncovered earnings.) The result of applying the benefit formula to the AIME is the worker’s monthly benefit before adjustments, known as the primary insurance amount (PIA).
Because the outlays of the Social Security trust funds are off-budget, most of the bill’s effects would be off-budget. In addition, CBO estimates that the increase in Social Security benefits specified by the bill would result in a decline in Supplemental Nutrition Assistance Program (SNAP) benefits paid to people who receive benefits through both programs; the reduction in SNAP payments would be on-budget.
Eliminate the Windfall Elimination Provision
The Social Security monthly benefit formula is designed so that the PIA replaces a greater share of covered earnings for retirees who had lower earnings than it does for people who had higher earnings. The current-law formula makes no distinction between workers who have low AIMEs because they have low lifetime earnings and those who have low AIMEs because they worked in noncovered employment for a portion of their career. The WEP is designed to remove the advantage of the benefit formula for people whose low AIME results from noncovered earnings.
For people whose pensions are based in part on noncovered work and who worked fewer than 30 years in the Social Security system, the WEP reduces the first factor of the AIME from 90 percent to an amount that ranges from 40 percent to 85 percent, depending on the number of years with substantial covered earnings. (The “substantial” threshold is indexed to average national earnings; in 2024, that amount is $31,275.) The reduction in Social Security benefits under the WEP is limited to half the amount of a pension that is based on noncovered earnings.
H.R. 82 would eliminate the WEP and raise the first factor to the standard 90 percent for all workers who are subject to the current-law WEP, thus increasing Social Security spending. According to CBO’s analysis of historical data, the number of people newly receiving Social Security benefits and also subject to the WEP is declining, and we expect that trend to continue. Because of that trend, the cost of eliminating the WEP begins to decline toward the end of the 2024-2034 period. CBO used historical beneficiary data to calculate the average benefit reduction attributable to the WEP; projections of future reductions were based on that amount as adjusted for projected growth in benefits, including cost-of-living adjustments and growth in wages.
CBO estimates that eliminating the WEP would increase monthly benefits in December 2025 by $360, on average, for 2.1 million Social Security beneficiaries (about 3 percent of all Social Security beneficiaries); in December 2033, that increase would reach $460, on average, for 1.8 million beneficiaries.
In total, CBO estimates that repealing the WEP would increase off-budget direct spending by $101 billion over the 2024-2034 period.
Eliminate the Government Pension Offset
Under current law, the eligible spouse of a living retired or disabled worker is entitled to a monthly Social Security benefit that equals up to 50 percent of the worker’s monthly benefit; a surviving spouse is entitled to the full amount. When spouses are eligible for benefits on the basis of their own covered earnings, their spousal benefit is reduced by the amount of the benefit that is calculated using his or her own earnings. (An individual’s spousal benefit is reduced to zero if that person’s own worker benefit is higher than the spousal benefit.)
Under current law, the GPO reduces spouses’ or surviving spouses’ Social Security benefits if they also receive a pension based on their own noncovered employment. That reduction is equal to two-thirds of the noncovered pension.
H.R. 82 would repeal the GPO, resulting in an increase in Social Security benefits paid to affected spouses and surviving spouses. CBO used beneficiary data to calculate the number of current beneficiaries subject to the GPO and the average reduction in benefits. Using historical growth rates, CBO projected the number of people who will be affected by the offset under current law. Under the bill, CBO expects some people in that category would newly apply for spousal or surviving spousal benefits, including those who might not apply under current law because the GPO would reduce or eliminate their Social Security benefits. Under H.R. 82, CBO estimates, an extra 70,000 people would receive spousal or surviving spousal benefits in December 2033.
CBO estimates that eliminating the GPO would increase monthly benefits in December 2025 by an average of $700 for 380,000 spouses and by an average of $1,190 for 390,000 surviving spouses; in December 2033, that increase would reach $860, on average, for 330,000 spouses and $1,520 for 480,000 surviving spouses. (About 1 percent of all Social Security beneficiaries would be affected by the change in December 2025.) We expect that the number of people affected by GPO will increase initially and then decline slightly toward the end of the 2024-2034 period; estimated costs continue to rise through that period because the increase in average benefits is greater than decrease in people affected by the GPO. Those estimates include people who would newly apply because of the elimination of the current-law GPO.
In total, CBO estimates, repealing the GPO would increase off-budget direct spending by $110 billion over the 2024-2034 period.
Increase in Long-Term Net Direct Spending and Deficits
CBO estimates that enacting H.R. 82 would not increase on-budget deficits in any of the four consecutive 10-year periods beginning in 2035.
Enacting the bill would increase off-budget spending by tens of billions of dollars in the years after 2034, but CBO has not completed a detailed estimate of those costs. In CBO’s baseline projections, if the OASI and DI trust funds were combined, the balance of the combined fund would be exhausted in 2034. Based on the estimated effects of the bill through 2034, CBO expects that the bill would advance the exhaustion date for the combined trust funds by roughly a half a year.
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