Knock-On Effects of the WEP and the GPO Repeal

Last night the Senate passed HR 82, which repeals the WEP and the GPO. As I posted last night, this is a bit more complicated than some people think and some folks may be surprised by some of the ultimate outcomes. While those “complications” were very much discussed by opponents of the bill, today I thought I’d talk about some of the knock-on effects of the passage that I haven’t seen discussed.

Discussion of the bill indicated that this is about a $20 billion a year change in benefits. While that increase will obviously impact the folks receiving those benefits, I haven’t seen much discussion of some of the other impacts of this. In effect, this will be a $20 billion a year stimulus to the U.S. economy. In addition, that stimulus will not be evenly distributed among the states.

While not everyone stay in the same state they worked in when they retire, most people do. I don’t know if this research looked at where recipients actually live in retirement or is based on where retirees worked, but either way it’s likely reasonably directionally accurate. States such as Massachusetts, Ohio, Colorado and Louisiana will see much larger impacts than a state like New York. And, of course, the population of the state matters. So while California and Texas have a lower share of folks affected, the state still be greatly impacted due to their larger populations.

While this will obviously provide extra stimulus to those state’s economies, it will also likely result in at least slightly increased inflation in those states. It will be slightly inflationary for the entire country, but again those states most impacted should also see higher inflation relative to the U.S. as a whole. Another impact on this could be the effect on the Federal Reserve, as any increased inflationary pressure could result in them not cutting interest rates by as much as they would have (or perhaps not at all). Also keep in mind that due to the apparently retroactive piece of this bill (to January 1, 2024), the stimulus in the first year (once they figure out how to get the increased benefits flowing) will actually be $40 billion ($20 billion from the retroactive 2024 benefits and $20 billion from the ongoing 2025 benefits).

It will also be interesting to see how it impacts state budgets. This will vary dramatically not only based on the map above, but on state tax policy. Some states don’t tax Social Security at all, some tax it partially, and some tax it fully. The more that an individual state taxes Social Security, the more their revenues will go up. And of course states have different levels of state sales taxes (revenues should also increase with the stimulus), and different levels of property taxes (which will eventually increase as the stimulus will eventually flow through to property values).

Then there are other impacts at the individual level. For retired folks under the age of 65 who are claiming Social Security and were affected by the WEP and the GPO and also are getting health insurance through the ACA marketplace, this will increase their income and therefore decrease their ACA subsidy (although that could be going away anyway in the Trump Administration). For folks who are 65 or older and were affected by the WEP and the GPO, this will increase their income and, for some of them, may trigger a new IRMAA threshold, resulting in increased Medicare premiums.

I’m sure there are many other impacts I haven’t thought of. None of this is intended to argue one way or the other, just to illustrate the complicated interconnections of government policies that are often overlooked. I don’t know that anyone will ever take the time – or be able to – tease out all of these impacts, but I think it’s safe to say that they will be there whether they are measured or not. (And, of course, the much discussed downstream effects discussed in the previous post from the acceleration of the Social Security “insolvency” date.)

Edit 1-1-25: Another interesting aspect of this is taxes. For example, if it does indeed end up retroactive to January of 2024 and people get a big one-time check in 2025 for a years plus worth of WEP/GPO reductions, that could cause some interesting complications in terms of taxation. Obviously it could push someone into a different tax bracket, but there’s also the matter of how Social Security income itself is taxed. Some of these checks will likely be large enough to move some folks into the 85% of Social Security income is taxed area for 2025, whereas if they had been spread out over 24 months – and two tax years – it might not have.