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Imagine a retirement system that... treats married couples with the same total earnings differently by granting smaller benefits to those whose earnings are more equally split between spouses; and [a retirement program] that gives an additional benefit to spouses just for being spouses but no such benefit to single and many divorced parents, including those who raise more children, work more, and pay more taxes.
--C. Eugene Steuerle, Senior Fellow, Urban Institute Steuerle, C. Eugene, and Favreault, Melissa M., "Social Security for Yesterday?s Family?" from Straight Talk on Social Security and Retirement Policy, Urban Institute, November 2002.
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OUTDATED IDEAS HAVE MADE SOCIAL SECURITY UNFAIR TO TODAY'S WORKING COUPLES
The Nobel Prize-winning economist Milton Friedman famously said, "There's no such thing as a free lunch."
So when it looks like someone is getting a free lunch, you can bet that in reality someone else is paying for it. That's the case with many people in Social Security today.
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Mr. and Mrs. Two-Job
You sit in your office all day, making sales calls for a demanding boss. Your husband, Mr. Two-Job, works all day and puts in lots of overtime. You and your husband are a "Two-Job" couple. Your combined income is $60,000. Out of this, you have to pay for daycare and everything else your family needs. Your two children are busy in extracurricular activities, and you're often tired.
Mr. and Mrs. One-Job
Up the street live Mr. and Mrs. One-job. Mr. One-Job earns all the income for the family, totaling $60,000. The One-Jobs have no children, but Mrs. One-job stays home, attends yoga class, and visits her financially secure mother in a nursing home. She isn't very tired.
Even though both households earn the same amount and pay the same amount of Social Security taxes, when they retire Mr. and Mrs. Two-job will receive thousands of dollars less each year from Social Security than the One-jobs.
Why? Social Security pays a spousal benefit to a worker's spouse even if the spouse never works and contributes to the system. This is the situation with Mr. and Mrs. One-job. Mr. One-job will receive his retirement benefit and Mrs. One-job will get a check totaling 50 percent of his benefit -- even though she never contributed a dime. Someone's getting something for nothing, or so it seems.
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If both spouses earn income, like the Two-Jobs, the lower earning spouse receives a benefit based either on her own benefit, or the 50 percent spousal benefit -- whichever is larger. The result is that the Two-jobs will receive a much smaller Social Security check than the One-jobs. In this case, the Two-jobs and many other workers are subsidizing Mrs. One-job. In effect, the Two-Jobs are paying for the free lunch the One-Jobs are receiving.
An outdated system that doesn't reward work.
The 50 percent spousal benefit was adopted in 1939, when nearly seven out of ten married women worked at home. Today approximately 70 percent of married women now work outside home and pay Social Security taxes.
Some people contend that the spousal benefit is a subsidy for staying home and raising children. Not so.
A married woman who stays at home and never has children will receive a spousal benefit, while a married woman who has children but works outside the home won't. In other words, it's not an incentive for having kids but an incentive not to work. Rather odd given that Social Security is supposed to reward work, not penalize it.
By failing to keep pace with the changing nature of American families, Social Security's outdated benefits result in serious inequities. A quick glance at the chart shows what I'm talking about:
When one person gets something for nothing, another person always has to pay extra. It's time Congress stopped the free lunch, got rid of the inequities, and modernized Social Security.
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