Following is the key section of a Congressional Budget Office estimate on a House bill (HR-82) to repeal the windfall elimination provision and the government pension offset, two provisions that reduce and can eliminate Social Security benefits for those also drawing an annuity from a retirement program that does not include Social Security, such as CSRS.
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 SNAP benefits paid to people who receive benefits through both programs; changes 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 earnings for retirees who had lower earnings than it does for people who had higher earnings. The current-law formula makes no distinction between a low AIME because of low lifetime earnings and a low AIME because of noncovered earnings. 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 2022, that amount is $27,300.) 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 90 percent for all workers who are subject to the current-law WEP, thus increasing Social Security spending. CBO used historical data to calculate that size of the affected group. According to CBO’s analysis, 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 enacting this provision begins to decline toward the end of the 2022-2032 period. Historical beneficiary data were used 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 2023 by $330, on average, for 2.0 million Social Security beneficiaries (about 3 percent of all Social Security beneficiaries); in December 2031, that increase would reach $410, on average, for 1.8 million beneficiaries.
In total, CBO estimates that repealing the WEP would increase off-budget direct spending by $88 billion over the 2022-2032 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 that amount. (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 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 80,000 people would receive spousal or surviving spousal benefits in December 2031.
CBO estimates that eliminating the GPO would increase monthly benefits in December 2023 by an average of $670 for 410,000 spouses and by an average of $1,150 for 370,000 surviving spouses; in December 2031, that increase would reach $840, on average, for 410,000 spouses and $1,560 for 430,000 surviving spouses. (About 1 percent of all Social Security beneficiaries would be affected by the change in December 2023.) We expect that the number of people affected by GPO will increase initially and then decline slightly toward the end of the 2022-2032 period; estimated costs continue to rise through that period because the increase in average benefits is greater than decrease in people affected by 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 $107 billion over the 2022-2032 period.
Interaction Among Social Security Provisions
The benefits of a small group of people are affected by both the WEP and the GPO. CBO expects that the total cost of repealing both provisions—$195 billion over the 2022-2032 period—would be $10 billion less because of interactions between the two provisions.