Category: Guest Article of the Month

The Social Security Fairness Act of 2023, formally known as H.R. 82, aimed at ending two provisions in the Social Security system that affect public sector employees who have earned pensions from jobs not covered by Social Security. These provisions are the Windfall Elimination Provision and the Government Pension Offset, both of which reduce or eliminate Social Security benefits for workers who have worked in both public-sector and private-sector jobs.

The Problem: WEP and GPO

The Windfall Elimination Provision and the Government Pension Offset were originally designed to prevent public sector workers from receiving larger Social Security benefits than they would have been entitled to had they worked in jobs covered by Social Security for their entire careers. However, critics argue that these provisions disproportionately harm workers who have spent a significant portion of their careers in public service, such as teachers, police officers, firefighters, and other state and local government employees.

Windfall Elimination Provision (WEP)

The WEP reduces the Social Security benefits of individuals who have worked in both the private sector (where they paid into Social Security) and the public sector (where they often did not contribute to Social Security). Typically, Social Security benefits are based on an individual’s 35 highest-earning years. The WEP alters the formula used to calculate benefits for individuals with fewer than 30 years of substantial earnings in Social Security-covered employment, leading to a lower Social Security benefit than they would otherwise be entitled to. For many, this results in a significant reduction in the monthly payment they would have received under the standard Social Security formula.

Government Pension Offset (GPO):

The GPO affects spouses and widows/widowers of Social Security beneficiaries. Under this provision, individuals who receive a government pension from work that was not covered by Social Security (such as state or local government employees) see a reduction in their spousal or survivor benefits from Social Security. The offset is calculated by reducing the spousal or survivor benefit by an amount equal to two-thirds of the government pension. This can leave many public employees with little to no spousal or survivor benefits despite their spouse having paid into Social Security.

What H.R. 82 Seeks to Accomplish

By eliminating both the WEP and GPO, the bill aims to ensure that public sector workers who have earned Social Security benefits through their work in the private sector are not penalized by reductions in those benefits. It also seeks to provide fairer treatment for the spouses and survivors of government employees who may otherwise see their Social Security benefits reduced or eliminated entirely.

The bill has garnered bipartisan support, as lawmakers from both sides of the aisle recognize the fairness of eliminating these provisions, which many see as an unjust penalty against those who have dedicated their careers to public service. H.R. 82, if passed, would provide much-needed relief to millions of retirees, many of who are struggling with the financial impacts of these provisions.

Conclusion

The introduction of H.R. 82, the Social Security Fairness Act of 2023, marks a crucial point in the ongoing debate over Social Security benefits for public sector workers. By eliminating the Windfall Elimination Provision and the Government Pension Offset, the bill would restore fairness and equity for millions of public employees who have spent their careers in service to their communities. As this bill progresses, it will likely remain a significant issue in discussions surrounding Social Security reform and the treatment of public sector employees.

The coming shakeup of the executive branch, along with Republican control of both houses of Congress, means tax changes are highly likely in 2025 and beyond. Positioning for new and amended tax provisions is already off to the races.

Regardless of the political landscape, on rare occasions, some measures have broad bipartisan support. One such bill is called the Methane Reduction and Economic Growth Act. It proposes adding a new credit for sequestering “qualified” methane from mining activities.

Looking Ahead Into 2025

Proponents of the Methane Reduction and Economic Growth Act hope the tax credit will have a beneficial economic impact and create jobs. The idea is to capture and utilize the methane for productive industrial uses or as an alternative for heating buildings. The methane emitted by mines that qualify have long lifespans, with some abandoned mines emitting methane for up to 100 years. The long lifespan of the methane source is hoped to support the significant capital investment required to get the process up and running.

There is also significant potential for job creation in areas most impacted by the shutdown of coal-fired power plants, which in turn devastated the coal mining industry. The concept of using mine methane as an energy source could support rural American jobs.

Landscape and Potential for the Credit

There is a lot of mine methane to capture, with most not currently being captured. The U.S. government estimates abandoned coal mines produce about 237,000 metric tons annually. This methane has many potential uses, including hydrogen production.

Details on the New Subsection

The new section of 45Q credits would be based on the quantity of qualified methane that is sequestered. The captured methane must then be sent to the pipeline and used for producing heat or electricity. To be considered “qualified methane,” it must be captured from certain types of mines, including closed, abandoned, and surface mines. Finally, the methane captured must have otherwise been sent into the atmosphere if it had not been for the capture equipment activity.

Only qualified facilities may obtain the credit. Among other factors, the taxpayer needs to capture a minimum of 2,500 metric tons of methane each year to qualify. There are a lot more technical regulatory requirements related to the specific nature of the methane capture, but those are beyond the scope of this article.

Conclusion

Typically, tax bills are split down the aisle based on political partisanship. This makes the passage of tax legislation difficult at best, due to competing interests and a divided government. The tax credits related to methane capture, however, appear to be unusually bipartisan in nature. This is due to the unique intersection of democratic support from an environmental and climate perspective, meeting with Republican interest to support economic development in rural coal mining areas where the industry has been devastated. Put these two interests together, and you have the makings for a widely supported bipartisan bill that is very likely to pass.