SOCIAL SECURITY

NORMAN, OKLA. — Imagine how you would feel if your boss told you he was going to pay you a higher salary if you got married. Imagine if he told you he would pay you even more if your wife would stay at home and raise kids. And imagine how you would feel if he told you he was going to pay his “straight” workers more than his “gay” workers. Basically, that’s how Social Security works.

Social Security is America’s pension, but it is not a fair pension. Among other things, it is a welfare program for stay-at-home moms.

Social Security takes billions of dollars from working women and men and gives them to stay-at-home moms. The message for women is clear: America wants you to stay out of the work force. That’s what we wanted women to do in the 1930s, when Social Security was created, and that’s still what Social Security wants them to do today.

But Social Security should not interfere with a woman’s choice between payroll work and household work. That choice should be left to women, not the government.

Nor should the Social Security system favor one-income married couples over two-income couples, gay couples and single individuals.

But it does.

How is it that Social Security rewards stay-at-home moms? The key is that the pension provides generous benefits to the spouses and surviving spouses of retired workers. For example, a woman who never works will collect a check equal to 50% of her husband’s benefits; a widow will collect 100% of his benefits.

You are probably thinking that giving spousal benefits to wives and moms sounds pretty good. But it turns out that spousal benefits are heavily subsidized by unmarried workers.

Worse still, not all married couples are winners. The only real winners are traditional, one-income married couples, right out of the 1930s. That’s because of the “dual-entitlement rule.”

When a woman can claim Social Security benefits both as a retired worker and as a spouse (or a surviving spouse) of her husband, the dual-entitlement rule keeps her from getting both benefits. Instead, she only gets the larger of the two. That’s the penalty.

This rule currently cuts the benefits of more than 5 million wives and widows. Social Security takes billions of payroll tax dollars from these elderly women and gives them no additional retirement benefits in return. In effect, the Social Security payroll tax is a marriage penalty on working women.

What’s the solution?

One approach is to privatize the pension system. Then, Social Security “contributions” would be deposited in individual-retirement savings accounts and invested in the stock market. These accounts would work like today’s Individual Retirement Accounts (IRAs).

With individual accounts, there would be no marriage penalties and there would be no disincentive for a woman to choose payroll work over household work. Marriage would have no impact on the balance in a worker’s individual account. Social Security contributions and the earnings on those contributions would be paid only to that worker and her family, and no money would ever be taken from her account to provide benefits for others.

Indeed, there would be no redistribution at all under a privatized Social Security system. Unfortunately, it is this lack of redistribution that poses the biggest stumbling block to privatizing Social Security. No redistribution would mean no redistribution to retirees whose own account balances would provide inadequate retirement incomes.

In particular, this would leave millions of low-income women who benefit from redistribution vulnerable. Even the most adamant supporters of privatization concede this point. At the very least, the welfare system would have to be beefed up. But it’s hard to see what would be gained by replacing the current Social Security system with a privatized pension system and a larger welfare system.

Instead, Social Security should be reformed to eliminate marriage penalties but preserve redistribution based on lifetime earnings and need.

The best approach is known as earnings sharing. In its simplest form, earnings sharing would eliminate spouse and surviving-spouse benefits. Instead, each spouse in a married couple would be credited with one-half of the couple’s combined earnings during marriage. In the end, each spouse’s benefit would be based on one-half of the married couple’s earnings credits during marriage, plus whatever earnings credits each accrued before or after the marriage.

Earnings sharing would virtually eliminate Social Security’s marriage penalties. In particular, Social Security taxes paid by a secondary worker would almost always lead to greater benefits for that worker. Also, couples with identical total earnings would receive identical benefits, regardless of the proportion of wages earned by each spouse. Moreover, neither divorce nor remarriage would adversely affect a spouse’s future benefits.

Earnings sharing, then, is a far less radical way to eliminate Social Security’s marriage penalties.