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C B O STU DY

EARNINGS SHARING OPTIONS FOR
THE SOCIAL SECURITY SYSTEM

The Congress of the United States
Congressional Budget Office”

PREFACE

A number of proposals have been made that would combine the earnings of
husbands and wives and divide them equally for the purpose of calculating
Social Security benefits--"earnings sharing." The Social Security Amend
ments of 1983 directed the Secretary of Health and Human Services (HHS)
to prepare a report on earnings sharing, which was submitted last year. The
Amendments also directed the Congressional Budget Office (CBO) to
examine the methodologies, recommendations, and analyses used in the HHS
report. This report to the Senate Committee on Finance and to the House
Committee on Ways and Means responds to this requirement. In accordance
with CBO’s mandate to provide objective and impartial analysis, it contains
no recommendations.
Ralph E. Smith and Richard A. Kasten of CBO’s Human Resources and
Community Development Division, and Paul R. Cullinan of the Budget
Analysis Division, conducted this study under the general supervision of
Nancy M. Gordon and Martin D. Levine. Many people provided valuable
comments, including Dorothy Amey, David C. Lindeman, Alicia H. Munnell,
Frank J. Sammartino, Neil M. Singer, Lawrence H. Thompson, Sheila R.
Zedlewski, and staff of the Social Security Administration in the Office of
Legislative and Regulatory Policy and in the Office of the Actuary. The
manuscript was edited by Francis S. Pierce. Ronald Moore typed the several
drafts, provided editorial assistance in the draft stages, and prepared the
report for publication.
Rudolph G. Penner
Director
January 1986

CONTENTS

SUMMARY ................................................................................. xiii

CHAPTER I.

CHAPTER II.

CHAPTER III.

CHAPTER IV.

CHAPTER V.

IN T R O D U C TIO N .......................................................................

The HHS R e p o r t .........................................................................
Assessment o f the HHS Study and Overview
o f the CBO R e p o r t ...............................................................

2
3

WHY EARNINGS SHARING HAS BEEN PROPOSED . . .

Relevant Provisions in the Social Security A c t ................
Issues Regarding Treatment o f Two-Earner
Couples, Divorced Women, and W idow s...........................

5
12

EARNINGS SHARING PLANS AND CRITERIA
FOR THEIR ASSESSM ENT....................................................

Earnings Sharing P r o p o s a ls .....................................................
Criteria for Assessing O ption s...............................................

17
24

ANALYSIS OF EARNINGS SHARING P L A N S ...................

Methodology and Limitations ...............................................
Potential Long-Term E ffects of
Earnings Sharing....................................................................
Potential E ffects o f Earnings Sharing
Plans with Transition P rovisions........................................
Conclusions Regarding the Earnings
Sharing P l a n s .........................................................................

INCREMENTAL OPTIONS

.....................................................

Description o f the O p t i o n s .....................................................
Comparison o f Packages o f Incremental
O p t i o n s ....................................................................................
C on clu sion ....................................................................................

31
45

71
91

vi CONTENTS

APPENDIX A.

January 1986

BUDGETARY IMPACT OF THE HHS P L A N S ...................

Measuring Costs for Social S e cu rity .....................................
95
97
Costs o f Earnings Sharing P la n s.............................................
Uncertainty o f Cost P r o je c t io n s ........................................ .. 103
Costs o f Incremental O p t i o n s ................................................ 106

APPENDIX B.

MICROSIMULATION TECHNIQUES......................................109
DYNASIM: A General Description ......................................109
Limitations o f the A p p r o a c h ...................................................I l l

APPENDIX C.

ADDITIONAL T A B L E S ............................................................. 115

APPENDIX D.

DESCRIPTION OF HHS INCREMENTAL
OPTION S....................................................................................... 131
Widows and W id ow ers................................................................131
Working W o m e n .......................................................................... 133
Divorced Women ........................................................................136
H o m e m a k e rs................................................................................137

January 1986

SUMMARY
TABLE 1

TABLE II-1

TABLE III-l

TABLE IV -1

TABLE IV-2

TABLE IV-3

TABLE IV-4

TABLE IV-5

TABLE IV-6

TABLE IV-7

TABLES vu

AVERAGE ANNUAL SOCIAL SECURITY
BENEFITS OF SELECTED ELDERLY GROUPS
IN THE YEAR 2030 UNDER ILLUSTRATIVE
EARNINGS SHARING O P T IO N S ..........................................

MONTHLY BENEFITS UNDER CURRENT LAW
FOR ONE- AND TWO-EARNER COUPLES
AND FOR SURVIVORS AT AGE 6 5 .....................................

SUMMARY OF TRANSITION PROVISIONS
FOR RETIRED WORKERS, SPOUSES,
AND SURVIVORS.......................................................................

ANNUAL BENEFITS OF SELECTED ELDERLY
GROUPS IN THE YEAR 2030 UNDER
RETROSPECTIVE GENERIC EARNINGS
SHARING ....................................................................................

ANNUAL BENEFITS OF SELECTED ELDERLY
GROUPS IN THE YEAR 2030 UNDER
RETROSPECTIVE MODIFIED EARNINGS
SHARING ....................................................................................

EFFECTS OF EARNINGS SHARING OPTIONS
ON BENEFITS PAID TO ELDERLY AND
NONELDERLY RECIPIENTS IN THE
YEAR 2030 .................................................................................

ANNUAL BENEFITS OF SELECTED ELDERLY
GROUPS IN THE YEAR 2030 UNDER
GENERIC EARNINGS SHARING I .......................................

ANNUAL BENEFITS OF SELECTED ELDERLY
GROUPS IN THE YEAR 2030 UNDER
MODIFIED EARNINGS SHARING I .....................................

ANNUAL BENEFITS OF SELECTED ELDERLY
GROUPS IN THE YEAR 2030 UNDER
MODIFIED EARNINGS SHARING I I .....................................

ANNUAL BENEFITS OF SELECTED ELDERLY
GROUPS IN THE YEAR 2030 UNDER
MODIFIED EARNINGS SHARING I I I ..................................

viii TABLES

TABLE IV-8

TABLE IV-9

TABLE V -l

TABLE V-2

TABLE V-3

TABLE V-4

TABLE V-5

TABLE V-6

TABLE V-7

January 1986

ANNUAL BENEFITS OF SELECTED ELDERLY
GROUPS IN THE YEAR 2030 UNDER
GENERIC EARNINGS SHARING IV . ...................................

AVERAGE ANNUAL SOCIAL SECURITY
BENEFITS OF SELECTED ELDERLY GROUPS
IN THE YEAR 2030 UNDER ALTERNATIVE
BENEFIT P L A N S .......................................................................

PERCENTAGE CHANGE IN TOTAL OASDI
BENEFIT PAYMENTS IN 2030 UNDER FOUR
PACKAGES OF INCREMENTAL OPTIONS........................

ANNUAL BENEFITS OF WIDOWS IN THE
YEAR 2030 UNDER EARNINGS SHARING
AND UNDER FOUR PACKAGES OF
INCREMENTAL OPTIONS .....................................................

ANNUAL BENEFITS OF DIVORCED WOMEN
WITH DECEASED EX-HUSBANDS IN THE
YEAR 2030 UNDER EARNINGS SHARING
AND UNDER FOUR PACKAGES OF
INCREMENTAL OPTIONS .....................................................

ANNUAL BENEFITS OF DIVORCED WOMEN
WITHOUT DECEASED EX-HUSBANDS IN THE
YEAR 2030 UNDER EARNINGS SHARING
AND UNDER FOUR PACKAGES OF
INCREMENTAL OPTIONS .....................................................

ANNUAL BENEFITS OF WIDOWERS IN THE
YEAR 2030 UNDER EARNINGS SHARING
AND UNDER FOUR PACKAGES OF
INCREMENTAL OPTIONS .....................................................

ANNUAL BENEFITS OF DIVORCED MEN
IN THE YEAR 2030 UNDER EARNINGS
SHARING AND UNDER FOUR PACKAGES
OF INCREMENTAL O PTIO N S................................................

ANNUAL BENEFITS OF SELECTED ELDERLY
GROUPS IN THE YEAR 2030 UNDER
PACKAGE A ...............................................................................

January 1986

TABLE V-8

TABLE V-9

TABLE V-10

TABLE A - l

TABLES ix

ANNUAL BENEFITS OF SELECTED ELDERLY
GROUPS IN THE YEAR 2030 UNDER
PACKAGE B ...............................................................................

ANNUAL BENEFITS OF SELECTED ELDERLY
GROUPS IN THE YEAR 2030 UNDER
PACKAGE C ...............................................................................

ANNUAL BENEFITS OF SELECTED ELDERLY
GROUPS IN THE YEAR 2030 UNDER
PACKAGE D ...............................................................................

ALTERNATIVE MEASURES OF COSTS OF
EARNINGS SHARING O P T IO N S ..........................................

TABLE A -2

EFFECTS OF EARNINGS SHARING OPTIONS
ON BENEFITS PAID TO ELDERLY AND
NONELDERLY RECIPIENTS IN THE
YEAR 2030 .................................................................................. 100

TABLE C - l

ANNUAL BENEFITS IN THE YEAR 2030
UNDER RETROSPECTIVE GENERIC EARNINGS
SHARING BY BENEFIT UNDER CURRENT
L A W ...............................................................................................116

TABLE C -2

ANNUAL BENEFITS IN THE YEAR 2030
UNDER RETROSPECTIVE MODIFIED
EARNINGS SHARING BY BENEFIT
UNDER CURRENT LAW ....................................................... 118

TABLE C -3

ANNUAL BENEFITS IN THE YEAR 2030
UNDER GENERIC EARNINGS SHARING I
BY BENEFIT UNDER CURRENT L A W ................................ 120

TABLE C -4

ANNUAL BENEFITS IN THE YEAR 2030
UNDER MODIFIED EARNINGS SHARING I
BY BENEFIT UNDER CURRENT L A W ................................122

TABLE C -5

ANNUAL BENEFITS IN THE YEAR 2030
UNDER MODIFIED EARNINGS SHARING II
BY BENEFIT UNDER CURRENT L A W ................................ 124

x TABLES

January 1986

TABLE C -6

ANNUAL BENEFITS IN THE YEAR 2030
UNDER MODIFIED EARNINGS SHARING III
BY BENEFIT UNDER CURRENT L A W ................................ 126

TABLE C -7

ANNUAL BENEFITS IN THE YEAR 2030
UNDER GENERIC EARNINGS SHARING IV
BY BENEFIT UNDER CURRENT L A W ................................ 128

FIGURES
FIGURE 1

PRIMARY INSURANCE AMOUNTS IN
RELATION TO AVERAGE INDEXED
MONTHLY EARNINGS UNDER CURRENT
LAW, FOR WORKERS WHO TURNED
AGE 62 IN 1 9 8 1 ..........................................................................

SUMMARY

Almost 37 million people now receive Social Security cash benefits. Many
of them receive their benefits as spouses, ex-spouses, or survivors of
workers covered by Social Security. For example, a wife can receive a
spousal benefit equal to up to 50 percent of her husband’s basic benefit; if
she is a widow, she can receive up to 100 percent of the amount to which he
would have been entitled. In general, the total amount that can be received
by someone who is eligible for benefits both as a worker and as an
"auxiliary" of a worker equals the higher of the two amounts. 1/
This treatment of couples in which both spouses have worked and paid
Social Security payroll taxes for substantial portions of their lives has come
under criticism as more married women pursue careers. Because married
women can receive benefits as spouses based on their husbands’ earnings,
they often receive little, if any, additional retirement benefits from their
own (and their employers’) Social Security taxes, compared with the amounts
they would receive based on their husbands’ earnings. Two-earner couples
generally receive lower total retirement benefits than one-earner couples
with the same total covered earnings and similar payroll tax contributions,
because a spouse’s benefit is provided for spouses who had little or no
attachment to the paid labor force. Moreover, survivors of two-earner
couples generally receive less than survivors of one-earner couples with the
same total covered earnings.
Concern has also been raised about the adequacy of benefits for many
elderly unmarried women. Elderly women are more likely to rely on Social
Security benefits for the majority of their incomes than are married couples
and elderly men. In 1984, 2.0 million of the 3.3 million poor Social Security
beneficiaries age 62 and over were unmarried women.

Divorced spouses can receive benefits as if still married, if the marriages lasted at least
10 years, if they are not married at the time they become eligible for benefits, and if
they meet the other eligibility requirements. All spouses, whether men or women, are
eligible for auxiliary benefits; at times, for ease of exposition, explanations are in terms
of wives, divorced women, or widows.

xiv EARNINGS SHARING

January 1986

A number of proposals have been made to change the rules by which
Social Security benefits are calculated. Some would credit each spouse with
half of the couple’s combined covered earnings for the purpose of determin
ing Social Security benefits. This approach is referred to as "earnings
sharing."
The Social Security Amendments of 1983 (Section 343) directed the
Secretary of Health and Human Services (HHS) to prepare a report on
earnings sharing and instructed the Congressional Budget Office (CBO) to
report on "the methodologies, recommendations, and analyses used in the
Secretary’s report." The HHS report contains a detailed analysis of the
potential effects of two specific earnings sharing plans and of several
options for making the transition from the present benefit structure to one
based on earnings sharing. A simulation model was used to depict the
characteristics of the beneficiary population in the year 2030, thereby
enabling HHS to estimate the effects on major beneficiary groups 40 years
after earnings would have begun to be shared under the two earnings sharing
plans it examined. Long-range costs were estimated by the Social Security
Administration’s Office of the Actuary. HHS also analyzed two dozen
options other than earnings sharing that could be used to address one or
more of the problems for which earnings sharing has been proposed. The
HHS report made no recommendations. 2/
CBO has no criticism of the basic methodology used by HHS or of the
way its methodology was applied. The microsimulation approach is the most
appropriate method of estimating the potential effects on future beneficiar
ies of a major change in the Social Security system. Nonetheless, specific
estimates are subject to a wide range of errors and interpretations. For
example, it is impossible to predict accurately the values of the many
variables, such as future economic and demographic trends, on which the
estimates are based. This report by CBO, therefore, includes further
analyses intended to complement those of HHS and to provide additional
perspectives on its findings. For example, CBO examined several issues and
options not addressed in the HHS report, including the sensitivity of some of
the estimated effects of earnings sharing to alternative assumptions about
women’s future labor force activities and future divorce patterns.

The report also discusses the potential effects of earnings sharing on the administration
of the Social Security system and the concerns of various interest groups regarding
the treatment of women under the present benefit structure. These aspects of the HHS
report are not addressed in this report.

January 1986

SUMMARY xv

ISSUES
Throughout the evolution of the Social Security system, the benefit struc
ture has maintained a number of key features and premises: that benefits
should be related to covered earnings; that the benefit structure should be
progressive, in the sense that the percentage of wages replaced should be
higher for beneficiaries with low earnings histories than for beneficiaries
with high past earnings; and that receipt of benefits should not be meanstested.
Earnings sharing proposals would maintain most of the basic features
of the system. Because earnings credits accumulated by spouses during a
marriage would be divided evenly between them for the purpose of comput
ing entitlement to benefits, however, people would receive benefits based
only on their own earnings records. This benefit structure would replace the
current structure under which people can get workers’ benefits based on
their own records and can also qualify for benefits as spouses or surviving
spouses based on the earnings records of their spouses or ex-spouses. The
objectives of proponents include making the system, in their view, fairer in
its treatment of two-earner couples and their survivors, and providing
adequate benefits for divorced women, widows, and women who have taken
time out of the labor force for child care.
Some opponents of earnings sharing agree with the criticisms of the
current Social Security benefit structure, but are concerned that earnings
sharing would be too costly or too likely to cause disruptions in the lives of
recipients. Moreover, earnings sharing would be difficult to implement and
would not assist beneficiaries in the near term. Others are opposed to
earnings sharing because they view the current system as a superior method
of providing benefits to workers and their families.
The fundamental problem in any change in the benefit structurewhether based on earnings sharing or not—is that increasing benefits for
some would mean either reducing benefits for others below what they
otherwise would receive or making up the difference by higher taxes. The
key issues for the Congress, then, are whether it wants to make changes in
the Social Security benefit structure that would raise some people’s bene
fits, and, if so, how it wishes to pay for them. Earnings sharing need not
result in net additional outlays; but if not, some beneficiaries would receive
lower benefits than they are scheduled to be paid under current law.
The introduction of earnings sharing would also raise certain problems
of transition. How rapidly should it be done, and how should benefits be

xrvi EARNINGS SHARING

January 1986

determined for those whose earnings records would include years both
before and after the change? 3/
EARNINGS SHARING OPTIONS
Two major earnings sharing plans were examined in the HHS
report--Generic Earnings Sharing and Modified Earnings Sharing. The key
features of the Generic plan, once it was fully implemented, would be: 4/
o

Earnings of husbands and wives would be evenly divided during
years of marriage, and benefits would be based on each person’s
own record;

A surviving spouse would be credited with the entire amount of
the decedent’s covered earnings for each year of marriage (with
the restriction that the survivor’s record each year could not
include more than the maximum taxable earnings base for that
year); and

Auxiliary benefits for spouses and for surviving spouses would be
abolished.

The Modified plan is designed to help beneficiaries in certain circum
stances and to avoid certain problems that might otherwise result from
earnings sharing under the Generic plan. Its key features are as follows:
o

The HHS report (Chapter VI) also raised a number of administrative issues concerning
earnings sharing. Converting to a new system in which earnings records each year
would reflect combined, rather than individual, earnings would certainly require the
Social Security Administration to undertake a major change in its recordkeeping systems
and would also involve additional operating costs, especially during the transition period.

Other specifications for this plan include: earnings sharing would terminate on the
date of a final divorce decree; each person’s insured status woulf3be based on the earnings
credited to his or her record after sharing and/or inheritance; and benefits for children
and the family maximum would be based on a worker’s earnings records, adjusted by
shared or inherited earnings.

SUMMARY rvii

January 1986

law as they would under Generic earnings sharing; for example, if
only the higher-earning spouse of a lifelong couple retired, he or
she would be able to claim current law benefits until the other
spouse retired.
o

Both spouses would be insured for benefits if either spouse was
considered insured under current law; this would prevent a spouse
who would have been eligible for worker or auxiliary benefits
under current law from losing eligibility under earnings sharing.

The current law special minimum benefit provision would be
modified by lowering the earnings level needed to qualify for a
year of coverage; by adding five years of coverage that would be
countable; by indexing the value of a year of coverage by a wage
index, rather than by a price index; and by including years of child
care as years of coverage. 5/
These modifications would
especially help beneficiaries with many years of employment and
low earnings.

Each plan would be implemented prospectively--that is, earnings
before 1990 would not be shared, and benefits would be based on shared
earnings records of workers who become eligible only in 1995 or later. Thus,
not until the middle of the next century would the majority of beneficiaries
have earnings histories that reflected entire careers in which earnings
records were shared during years of marriage.
As a result, moving to the new system would require special transition
provisions. Otherwise, some people would incur reductions in benefits
simply because their earnings records would only reflect earnings sharing for
a part of their worklives. If all benefits were based on shared earnings
starting only five years after implementation, large losses could occur for
many beneficiaries in the early years.
HHS and CBO analyzed several sets of transition provisions that could
be used to ameliorate this problem. Each would guarantee beneficiaries
some or all of the benefit amount to which they would be entitled under
current law, if that amount was higher than what they would receive under
the earnings sharing plan. The four alternatives analyzed by CBO can be
briefly characterized as follows:

Up to 10 years of caring for children under age six could be included in the calculation
of benefits under the special minimum provision.

xviii EARNINGS SHARING

Januaiy 1986

Transition I would enable survivors and divorced spouses to con
tinue to receive benefits based on current law, rather than on
earnings sharing, if based on events that occurred before the plan
went into effect. 6/ A declining current law benefit guarantee
would also be provided, although by 2030 it would have little, if
any, effect on the benefits of individuals retiring then.

Transition II would provide a current law benefit guarantee to
survivors of workers who died before 1995. A guarantee for
spouses’ benefits would be rapidly phased out, so it would not be
available to spouses becoming eligible after 2005. Likewise,
survivors’ benefits would not be available for those becoming
eligible after 2015.

Transition III contains a declining guarantee intended to provide
the least losses to those with low benefits; it would also provide
additional amounts to certain divorced beneficiaries.

Transition IV would guarantee recipients 100 percent of current
law benefits for a specified period or indefinitely. The specific
provisions of the "no-loser" option analyzed by CBO would
guarantee couples their total combined benefits, and would
guarantee others their individual benefits, under current law.

Transitions I and II were presented and analyzed in the HHS report.
Transition III was subsequently suggested by the Technical Committee on
Earnings Sharing, a private group that has been developing an earnings
sharing plan. The HHS report analyzed a no-loser option similar to
Transition IV, but with each recipient guaranteed his or her current law
benefit; this would mean that many couples whose combined benefits under
earnings sharing would be at least as high as under current law would
nonetheless be receiving additional amounts from the guarantee.
POTENTIAL EFFECTS OF EARNINGS SHARING
How would the two earnings sharing plans affect recipients of Social
Security? CBO has analyzed the Generic plan and the Modified plan in
combination with various transition provisions. These illustrate the wide
range of specific earnings sharing options that could be designed to change
6.

Current law survivor benefits would be guaranteed to survivors of marriages that began
prior to 1990 and to survivors of spouses who died before 1995. Current law spousal
benefits would also be guaranteed to divorced spouses for marriages that began before
1990.

SUMMARY xix

January 1986

the Social Security system. Summary Table 1 highlights the effects of
three of the options also examined by HHS on the average benefit levels in
2030 (expressed in 1984 dollars) for each of several types of elderly
recipients.
o

Generic Earnings Sharing with Transition I (hereafter called Gen
eric I) illustrates the effects of the Generic plan if implemented
with relatively generous current law guarantees.

Modified Earnings Sharing with the same transition rules (Modi
fied I) may be compared with Generic I to show the differences in
effects between these two versions of earnings sharing.

Modified Earnings Sharing with Transition II (Modified II) may be
compared with Modified I to show the importance of the transi
tion rules.

CBO’s estimates are based on the same simulation methodology and
assumptions used by HHS. Minor differences between the versions of the
simulation model used by CBO and HHS resulted in inconsequential
differences in the estimated effects. In addition, HHS focuses on the
number of recipients who would gain or lose at least 1 percent of their
current law benefits in 2030, whereas the tables in the CBO report only
record changes of at least 5 percent. An estimated gain or loss of only 1
percent in 2030 seems too small to be meaningful, given the uncertainty of
the estimates. 7/
Effects on Beneficiaries
Each of these options would move the Social Security benefit structure
closer to the achievement of three key objectives of the proponents of
earnings sharing. First, the combined retirement benefits of couples would
be less affected by the proportion of total covered wages earned by each
spouse. Consequently, the average benefit of couples in which the wives had
7.

The main differences in results involve dissimilarities in the number of beneficiaries
in each group, rather than any substantial differences in estimated effects of earnings
sharing. For example, HHS estimates that there would be 13.4 million elderly married
couples receiving benefits, rather than 12.9 million, and that Generic I would reduce
their average benefit by 0.3 percent, rather than 0.5 percent. Moreover, the tables in
the CBO report show fewer winners and losers, but with larger average gains and losses.
This is a direct consequence of using a 5 percent, rather than a 1 percent, change to
identify winners and losers.

X X EARNINGS SHARING

January 1986

SUMMARY TABLE 1. AVERAGE ANNUAL SOCIAL SECURITY
BENEFITS OF SELECTED ELDERLY
GROUPS IN THE YEAR 2030 UNDER
ILLUSTRATIVE EARNINGS SHARING OPTIONS
(Numbers of beneficiaries in millions;
benefits in 1984 dollars) a/
Benefits
Group

Number of Current
Beneficiaries
Law

Generic I

Modified I

Modified II

Married Couples^/
Total
12.9
Wives worked at
7.8
least 30 yrs.
Wives worked fewer
than 30 yrs.
5.1

16,670

16,590

16,960

16,900

17,030

17,260

17,560

17,490

16,100

15,540

16,040

15,970

Widows
Total
Worked at least
30 yrs.
Worked fewer
than 30 yrs.

15.3

9,190

9,230

9,270

8,140

8.2

9,710

9,870

9,910

9,040

7.1

8,600

8,490

8,530

7,090

Divorced Women with
Deceased Ex-Husbands
Total
Worked at least
30 yrs.
Worked fewer
than 30 yrs.

6.4

8,240

8,490

8,600

7,700

4.6

8,420

8,760

8,870

8,190

1.8

7,780

7,750

7,880

6,410
(Continued)

See the text for a description of the plans. Beneficiaries depicted in this table are age
62 or older and would comprise approximately three-quarters of all beneficiaries in
the simulated population.

Couples in which both spouses would receive benefits under current law and at least
one spouse is age 62 or older.

SUMMARY xxi

January 1986

SUMMARY TABLE 1. (Continued)

Benefits
Number of Current
Law
Beneficiaries

Group

Generic I

Modified I

Modified II

Other Divorced Women
Total
Worked at least
30 yrs.
Worked fewer
than 30 yrs.

2.9

6,190

6,920

7,230

7,210

2.2

6,630

7,340

7,660

7,650

0.7

4,810

5,600

5,880

5,810

10,140

10,160

10,130

9,000

8,980

Widowers
Total

3.8

9,680

Divorced Men
Total

4.4

9,550

8,960

Percent Change in Total Benefits in 2030 Paid to
Elderly and Nonelderly Recipients Relative to Current Law
Elderly c/
Nonelderly d/
Total
SOURCE:

1.0
8.3
1.6

2.6
25.4
4.5

-1.5
24.9
0.8

Congressional Budget Office simulations.

These estimates include elderly groups not shown in the top panel of the
table--about 5.4 million couples in which only one spouse would be receiving
benefits, and 6.7 million never-married individuals.

The estimated increases in benefits for the nonelderly largely reflect the effects
of expanding coverage for disability benefits.

xxii EARNINGS SHARING

January 1986

substantial employment histories would increase relative to that of other
couples, better reflecting their relative Social Security payroll tax contri
butions. This would result from replacing spousal benefits with benefits
based on shared earnings records.
Second, the benefits paid to survivors would also be less affected by
the proportion of total wages earned by each spouse. Thus, the average
benefit of widows with substantial work histories would increase relative to
that of other widows. This would result from their benefits under earnings
sharing being determined by a combination of their own and their deceased
husbands’ shared earnings records. Under current law, they receive benefits
based on either their deceased husbands’ earnings or their own.
Third, divorced women (especially those whose ex-husbands were alive)
would receive significantly higher benefits than under current law. A
divorced woman now receives a benefit that is based on either her own work
record or that of her ex-husband, assuming she satisfies the eligibility
criteria; if her ex-husband is still alive, her benefit is based on half of his
basic benefit. Under earnings sharing, her benefit would be based on a
combination of her own earnings in years she was not married and shared
earnings in other years, generally resulting in larger payments.
The results for these options also highlight two.groups that might be
adversely affected by earnings sharing. First, elderly couples in which the
wives did not have substantial work histories--and their survivors--likely
would be worse off, on average, under earnings sharing unless special
protections were added. This, too, would result from replacing spousal
benefits with benefits based on shared earnings records. It is the other side
of the coin of success in achieving the first objective.
Second, widows (including divorced women with deceased ex-husbands)
might not do much better, as a group, under earnings sharing than they
would under current law; under one option (Modified II) they would do far
worse. One reason many widows (and divorced women with deceased exhusbands) would do worse under these earnings sharing plans is that these
plans would treat all benefits for them as workers’ benefits and eliminate
actuarial reduction rules favorable to widows under current law. The
actuarial reduction for a widow now is based on her age at the time she first
receives survivor benefits, even if she has already been receiving benefits as
a worker or spouse. Moreover, the present law limits the reduction in her
survivor benefits stemming from the early retirement of her deceased

January 1986

SUMMARY xxiii

husband to 17.5 percent. 8/ Under the earnings sharing plans analyzed by
HHS and CBO, her reduction, if any, would be based on her age at the time
she first receives any benefits and, therefore, would often be larger. In
addition, under the Generic plan, widows age 60 or 61 would no longer be
eligible for survivors’ benefits, whereas they are under current law.
The main difference between the Generic and the Modified plans for
elderly beneficiaries would result frdm the liberalization of the special
minimum benefit provisions in the latter plan. Under current law, the
special minimum provides some long-term, low-wage workers with higher
benefits than they would receive under the regular benefit formula. The
expansion of the special minimum provided in the Modified plan would help
beneficiaries who would otherwise have very low benefits. Married couples
would receive the majority of these gains. Both earnings sharing plans
would increase the progressivity of the Social Security benefit structure,
with the special minimum provisions making the Modified plan the more
redistributive of the two plans.
Each of the three options depicted in Summary Table 1 would result in
many people receiving benefits significantly different from the amounts
they would receive under current law. For example, under Generic I, in
2030 almost 7 million elderly widows and divorced women would gain at
least 5 percent, with an average increase of 20 percent of their benefit
under current law; over 2 million elderly widows and divorced women would
incur a reduction in benefits of at least 5 percent, with an average loss of
about 25 percent. 9/
Costs
The earnings sharing plans examined here would likely increase the total
cost of the Social Security system. 10/ CBO’s estimates for 2030 illustrate
the relative magnitudes. Generic I is estimated to add 1.0 percent to the
benefits that would be paid to elderly recipients in 2030 and Modified I to
8.

The special treatment of survivors under present law is likely to become more important
as the age of full retirement is raised. Beginning in 2022, for example, a worker who
started collecting benefits at age 62 (five years before the age of full retirement) would
incur a 30 percent reduction.

The elimination of the favorable actuarial reduction rules for widows would be a major
cause of the large losses.

10.

The cost estimates in this report are estimated changes in benefit payments only; they
do not include administrative costs.

xxiv EARNINGS SHARING

January 1986

add 2.6 percent; in contrast, Modified II would reduce by 1.5 percent
Social Security benefits going to the elderly population. All of these options
are estimated to raise the total program costs, however, because benefits
would increase for the nonelderly population as well. 11/
The Social Security Actuary’s estimates indicate that the three options
discussed here would add between 2.7 and 5.6 percent to total Social
Security costs over the period from 1984 through 2058, with the costs
growing over time. For example, the Generic I plan would add 0.7 percent
between 1984 and 2008, and 3.9 percent between 2035 and 2058. Estimates
of the costs of earnings sharing proposals are, however, subject to consider
able uncertainty - - especially for years far into the future.
The results illustrate the fundamental tradeoff that the Congress must
address in its consideration of changes in the Social Security benefit
structure: higher benefits for some recipients must be paid for through
lower benefits for others or through higher taxes, or through a combination
of the two. The options examined here would generally pay for some of the
higher benefits going to married couples in which wives had relatively long
work histories by providing lower benefits to couples in which the wives had
fewer years of work experience; widows who worked many years would
receive more, while other widows would get less; and divorced women would
gain, while divorced men would lose. But additional revenues would also be
needed.
INCREMENTAL OPTIONS
Additional options examined in the HHS report would attempt to achieve
one or more of the objectives for which earnings sharing proposals have been
made, but more rapidly and without as large a change in the existing benefit
structure.
These "incremental" options could be considered either as
alternatives to earnings sharing or as interim changes while an earnings
sharing plan is being implemented.

11.

In particular, many homemakers could become eligible for disability benefits depending
on the specific provisions of the plan. The issue of whether to provide disability insurance
to people without substantial work histories is not addressed in this study. One option
analyzed by HHS, Generic Earnings Sharing with Transition II (Generic II), would lower
total costs by a small amount.

January 1986

SUMMARY xxv

The CBO analysis illustrates this approach by combining options that
would increase survivors’ benefits--for example, by permitting survivors to
inherit the earnings credits of their deceased spouses for the years during
which they were married--with other options that would increase the
auxiliary benefits of divorced spouses. The four specific combinations
analyzed by CBO would increase the total benefits paid to Social Security
recipients in 2030 by about 4 percent, with most of the increased benefits
going to elderly widows and divorced women. The incremental options
would provide the additional benefits much faster than earnings sharing,
and, as a consequence, their costs in the early years would be much higher.

CHAPTER I

INTRODUCTION

Passage of the Social Security Act fifty years ago laid the basis for the
present Old Age, Survivors, and Disability Insurance (OASDI) program, as
well as for a number of other programs. The original Social Security Act
provided annuities only to retired workers and did not cover dependents and
survivors. Amendments to include these groups began to be enacted in
1939, before any benefits had been paid. 1/
OASDI currently provides benefits to almost 37 million people, many
of whom are receiving benefits as spouses of retired or disabled workers or
as widows or widowers. Beneficiaries in May 1985, for example, included 25
million retired and disabled workers (some of whom were also receiving
other benefits); over 3 million recipients receiving benefits as spouses of
retired or disabled workers (including ex-spouses of retired workers); and
almost 5 million widows and widowers who were receiving benefits based on
their deceased spouses’ earnings. (Most of the other 4 million recipients
were dependent children.)
One of several recurring issues regarding the Social Security system
concerns the fairness and adequacy of its provisions with respect to twoearner couples, ex-spouses, and survivors. Most recently, when the Congress
enacted major changes in 1983 designed to assure the financial soundness of
the Social Security retirement and disability system well into the 21st
century, a number of proposals were considered that would fundamentally
change the methods by which earnings covered by the Social Security Act
are credited. In particular, proposals were made that involved crediting
each spouse with one-half of the combined covered earnings of husbands and
wives for the purpose of determining Social Security benefits—"earnings
sharing." 2/
1.

Legislation to provide benefits for dependents and survivors of retired workers was
enacted in 1939; benefits for disabled workers in 1956; benefits for dependents of disabled
workers in 1958; and benefits for certain divorced spouses in 1965.

Congressional interest in earnings sharing precedes the 1983 Amendments. For
example, the Social Security Amendments of 1977 directed the Secretary of Health,
Education, and Welfare to examine proposals to eliminate dependency as a factor in
the determination of a spouse’s Social Security benefits. Earnings sharing was one
of the options analyzed in the resulting report to Congress by the U.S. Department of
Health, Education, and Welfare, Social Security and the Changing Roles of Men and
Women (February 1979).

2 EARNINGS SHARING

January 1986

The interest in earnings sharing led the Congress, in the Social
Security Amendments of 1983, to direct the Secretary of Health and Human
Services (HHS) to prepare a report on earnings sharing. This section of the
amendments also directed the Congressional Budget Office (CBO) to submit
a study to the Senate Committee on Finance and to the House Committee
on Ways and Means on "the methodologies, recommendations, and analyses
used in the Secretary’s report." 3/ The present paper responds to this
requirement.
THE HHS REPORT
In 1985, HHS prepared a 632-page report that provides an extensive
discussion of earnings sharing. 4/ The bulk of the HHS report analyzes the
effects on costs and on major beneficiary groups of two specific earnings
sharing plans. It specifies two sets of provisions covering the transition
period when the system would be moving from its present structure to one
based on earnings sharing. These would cushion the passage by providing at
least partial guarantees of current law benefits to some beneficiaries who
would otherwise incur losses under earnings sharing. The report also
estimates the effects of providing recipients with a "no-loser"
guarantee--that is, guaranteeing them the higher of their benefits under
earnings sharing or under current law.
The principal method used by HHS to estimate the potential effects on
beneficiaries of changing the Social Security system involves simulating the
characteristics of the beneficiary population in a future year and then
applying the benefit rules under each option to that population. Most of the
HHS analysis is based on a simulated population for the year 2030--40 years
after earnings would have begun to be shared under the major options
examined. Long-range costs are estimated by the Social Security Adminis
tration’s Office of the Actuary for the 75-year period ending in the year
2058- - that is, the period 1984-2058.

The 1983 Social Security Amendments address some related issues as well. For example,
they permit eligible divorced spouses to receive benefits based on their former spouses’
earnings whether or not the former spouses have applied for benefits. Other provisions
improve benefits for certain widows and eliminate virtually all remaining gender-based
distinctions in the Social Security legislation. For a summary of the 1983 Amendments,
see John A. Svahn and Mary Ross, "Social Security Amendments of 1983: Legislative
History and Summary of Provisions," Social Security Bulletin, vol. 48 (July 1983),
pp. 3-48.

U.S. Department of Health and Human Services, Report on Earnings Sharing
Implementation Study (January 1985). All subsequent references to this study will
cite it as the HHS report.

Chapter I

INTRODUCTION 3

The HHS report used the same methodology to analyze 24 options
other than earnings sharing that could be used to address one or more of the
problems for which earnings sharing has been proposed. These "incremental"
options would increase benefits for widows, working women, divorced
women, or homemakers without requiring as large a change in the Social
Security benefit structure as would the earnings sharing options. They are
presented by HHS for consideration either as alternatives to earnings
sharing or as interim steps.
Other major parts of the HHS report include a detailed discussion of
the potential effects of earnings sharing on the administration of the Social
Security system and a report by a contractor, the Research Triangle
Institute, on the concerns of various interest groups regarding the treatment
of women under the Social Security system. These aspects of HHS’s study
are not addressed in the CBO report.
ASSESSMENT OF THE HHS STUDY
AND OVERVIEW OF THE CBO REPORT
The HHS study well illustrates the extent to which the effects of earnings
sharing on specific beneficiary groups and on total costs would depend on
the exact terms of the plan. CBO has no criticism of the basic methodology
used by HHS to estimate the effects of the options that it examined or of
the way its methodology was applied. The microsimulation approach HHS
used is the most appropriate method of estimating the potential effects on
future recipients of a major change in the Social Security benefit structure.
Nonetheless, specific estimates based on simulation models are subject to a
wide range of errors. For example, the assumptions concerning future
economic and demographic trends could turn out to be wrong, or the past
behavioral relationships on which the models are based could shift in future
years. Likewise, any Social Security cost projections are subject to error,
particularly for periods far into the future.
The simulations provide an enormous quantity of information about the
potential effects of a policy option on future beneficiaries, which can be
tabulated and summarized in many ways. The HHS report emphasizes the
percentages of people in various groups whose benefits under an option
would be at least 1 percent higher or lower than under current law in the
year 2030. In view of the uncertainty of the estimates, the number of years
into the future for which the benefits are being projected, and the
expectation that real benefits will be much larger in the future than they
are today, differences as small as 1 percent may be too small to be
meaningful.

4 EARNINGS SHARING

January 1986

This report is intended to complement the analyses of HHS and to
provide additional perspectives on the findings. CBO examined several
options and issues not addressed in the HHS report. For example, the new
study conducted by CBO and reported here includes: an additional transition
option for implementing earnings sharing; an alternative version of the "no
loser" guarantee; an analysis of the sensitivity of some of the estimated
effects on costs and on beneficiaries to changes in women’s working patterns
and to future divorce patterns; and estimates of the effects of combining
pairs of incremental options.
The CBO study uses the same basic methodology as HHS to examine
the structure of benefits under each option, highlighting different aspects of
the estimates. For example, each earnings sharing option’s effect on the
average benefits paid to elderly couples (and their survivors) in which the
wives worked at least 30 years is compared with the option’s effect on
elderly couples in which the wives had less work experience. In addition, the
analysis focuses on those whose benefits would be at least 5 percent higher
or lower than under current law in order to pinpoint the circumstances in
which a substantial change in a person’s benefits might result.
Chapter II of this report briefly explains why earnings sharing has been
proposed. The relevant provisions of the current Social Security benefit
structure and the problems that result from these provisions are identified.
Chapter III describes how earnings sharing proposals address these problems.
It also sets forth criteria that can be used to judge the extent to which
specific options would achieve the objectives of earnings sharing. Readers
already familiar with the Social Security system and with earnings sharing
may wish to go directly to Chapter IV.
Chapter IV presents CBO’s analysis of several specific earnings sharing
options. The potential long-term characteristics of the two plans included
in the HHS report are explored and then the effects of five specific options
based on these plans are estimated. Chapter V presents CBO’s analysis of
four illustrative combinations of several of the incremental options that
were included in the HHS report.
The potential costs of the earnings sharing options and of the
incremental options are examined in Appendix A. Alternative methods of
measuring these costs and the uncertainty of the cost projections are
discussed. Other appendixes discuss the simulation methodology used by
HHS and by CBO and its limitations (Appendix B); present additional tables
on the distributional effects of the earnings sharing options analyzed in
Chapter IV (Appendix C); and briefly describe the incremental options
included in the HHS report (Appendix D).

CHAPTER H

WHY EARNINGS SHARING
HAS BEEN PROPOSED

Earnings sharing is a response to several issues that have been raised
concerning the current benefit structure of Social Security. This chapter
summarizes key provisions of the Social Security benefit structure and the
issues that give rise to earnings sharing proposals. Provisions that affect
only a small percentage of beneficiaries are not discussed unless they are
directly relevant to the assessment of these proposals.
RELEVANT PROVISIONS IN THE SOCIAL SECURITY ACT
The Social Security Act provides workers who retire or become dis
abled with lifetime benefits that are related to their past earnings levels.
In general, workers who reach age 62 after 1990 must have worked in
employment covered by Social Security at least 10 years; a shorter work
history is sometimes sufficient to be eligible for disability benefits. 1/
Spouses’ benefits, widows’ and widowers’ benefits, and benefits to certain
children of retired, deceased, and disabled workers are also based on insured
workers’ past earnings.
These benefits are financed through payroll taxes levied on workers
and their employers.
In 1985, workers and their employers each contri
buted 5.7 percent of covered earnings up to $39,600, for a maximum tax of

A worker must be fully insured to be eligible for retirement benefits, which requires
having a specified number of quarters of coverage. For those attaining age 62 after
1990, 40 quarters will be required. For disability benefits, fewer quarters may be needed
to be fully insured, but the worker must also have worked at least 20 out of the last 40
quarters preceding the onset of disability (except for workers under age 32). Beginning
in 1978, each $250 of annual earnings resulted in one quarter of coverage up to a
maximum of four quarters annually. This earnings requirement is automatically
increased each year to reflect the growth in overall wage levels; in 1985, the amount
needed for one quarter of coverage is $410.

6 EARNINGS SHARING

January 1986

$2,257 each. 2/ The tax rate is scheduled to increase in steps to 6.2
percent in 1990. The taxable earnings maximum is automatically adjusted
each year to reflect changes in average earnings. 3/
Workers’ Benefits
Benefits of retired and disabled workers are based on their earnings histories
in employment covered by Social Security, expressed as an average over
their working lifetimes known as the Average Indexed Monthly Earnings
(AIME). From this, a formula is used to calculate a worker’s Primary
Insurance Amount (PIA), which is then adjusted for a number of factors,
such as reductions for early retirement, credits for later retirement, and
increases for inflation. 4/
An insured worker becomes eligible for early retirement benefits at
age 62. Currently, eligibility for full retirement benefits is at age 65. The
Social Security Amendments of 1983 increased this age of retirement with
full benefits to 67, with the change phased in through two steps in the first
quarter of the next century.
A worker’s AIME depicts the average wage earned in covered employ
ment, with some adjustments. Each year’s earnings for which Social
Security taxes were credited are indexed to the average wage level in the
year of the worker’s sixtieth birthday. (Earnings when age 60 or older are
entered without being indexed.)
The number of years upon which the AIME is based equals five less
than either the number of years after 1950 or the year in which the worker
became age 21, if later (and before the worker reaches age 62). Thus,
2.

An additional 1.35 percent tax is levied on employers and on employees for the Medicare
part of Social Security; the tax rate is scheduled to increase to 1.45 percent in 1986.

The adjustment is based on the change in average wages and is made for the year
following a year in which an automatic benefit increase becomes effective (as discussed
below).

Throughout this report, references to a worker’s earnings denote earnings covered by
Social Security for the purpose of determining worker benefits. For additional details
on the calculation of benefits, see Congressional Budget Office, Financing Social
Security: Issues and Options for the Long Run (November 1982), Chapter III, on which
the following description is largely based.

Chapter II

WHY EARNINGS SHARING HAS BEEN PROPOSED 7

workers who have earnings in more than the required number of years are
able to drop out their five lowest indexed earnings years--including years in
which they had no covered earnings. If the worker has earnings in fewer
years than the number required, zeroes are entered into the AIME calcula
tions to make up the required number. Total indexed earnings are then
divided by the total number of months in the computation years to arrive at
the AIME. Earnings received subsequent to the initial calculation can be
substituted for those in any previous year if that would increase benefits.
To convert this earnings history to a worker’s PIA, a formula is applied
that is progressive in the sense that it is designed to provide benefits that
are a higher proportion of preretirement earnings for those with low average
earnings than for those with higher earnings. This largely reflects a
perception that relatively high replacement rates--that is, benefits as a
proportion of preretirement earnings--are necessary for those with rela
tively low earnings, in order to provide them with adequate retirement
incomes.
Under the formula, 90 percent of the first part of a worker’s AIME is
replaced by Social Security benefits, but for subsequent portions of the
AIME the proportion falls, first to 32 percent and finally to 15 percent. (See
Figure 1 for an illustration of the formula.) For workers who reached age 65
in 1984--and thus initially became eligible for retirement benefits in 1981
(that is, turned age 62 in that year, whether or not actually retiring
then)--the formula is as follows: a worker’s PIA equals 90 percent of the
first $211 of the AIME, plus 32 percent of the AIME between $211 and
$1,274, plus 15 percent of the AIME over $1,274. The points at which the
percentage of the AIME replaced by the PIA changes are known as "bend
points." They are indexed to average annual earnings for the labor force as
a whole, so that as wages rise over time, the average replacement rates (the
ratio of PIA to earnings) are maintained. This also assures that two
individuals with similar relative earnings histories will have PIAs that are
approximately the same proportion of their AIME, even if they become age
62 in different years. For workers who become eligible in 1985, the bend
points are $280 and $1,691.
In general, workers receive 100 percent of their own PIAs in benefits
if they first receive benefits at the age of full retirement. The benefit is
reduced if they retire earlier; for example, a worker who retires at age 62,
which is currently three years before the age of full retirement, receives a
20 percent reduction. Workers still will be able to retire at age 62 after the
age of full retirement is increased, but the benefit reduction will be larger.
For example, a worker who retires at age 62 in 2022--when the full
retirement age will be 67--will receive a 30 percent reduction. Likewise, a

8 EARNINGS SHARING

January 1986

Figure 1.

Primary Insurance Amounts in Relation to Average Indexed Monthly
Earnings Under Current Law, for Workers Who Turned Age 62 in 1981

Average Indexed M onthly Earnings (A IM E)
S O U R C E : Congressional B udget O ffic e .
N O T E : F o r w orkers in this c o h o rt w h o retired at age 6 5 (in 1 9 8 4 ), the PI A w o u ld be based on the
fo rm u la illu strated in this fig u re , w ith the am ounts increased by th e cost-of-livin g adjustm ents
effe c tiv e in 1 9 8 1 , 1 9 8 2 , and 1 9 8 3 .

credit is given for later retirement. For example, a worker who delays
receipt of benefits until age 70 in 2030--three years beyond the full
retirement age--will receive a 24 percent increase. 5/ Beginning with the
year of initial eligibility (age 62 for retired workers), the PIA is increased
each year for the increase in the Consumer Price Index (CPI), measured by
the percentage increase from the third quarter of one year to the third
quarter of the next year. 6/

The current delayed retirement credit is 3 percent for each year past the full retirement
age. This increment will be increased in steps, starting in 1990, until it reaches 8 percent
in 2008.

If the CPI increases by less than 3 percent, the cost-of-living adjustment is delayed until
the following year, at which time the PIA is adjusted for the increase in the CPI during
the two-year period.

Chapter II

WHY EARNINGS SHARING HAS BEEN PROPOSED 9

Finally, benefits may be withheld if recipients continue to work after
starting to receive benefits. Retirement benefits received by those under
age 70 are reduced by $1 for every $2 of earnings over the exempt amount
applicable for that year. The annual exempt amount of earnings is indexed
for changes in average wages. In 1985, this "earnings test" applied to
earnings over $7,320 for recipients age 65 through 69 and $5,400 for those
under age 65. Beginning in 1990, the earnings test benefit withholding rate
will decrease to $1 for every $3 of earnings above the exempt amount.
To illustrate the present benefit structure, consider a worker who
retired at age 65 in 1984 with an AIME of $1,000, had no dependents, and
had no subsequent earnings. The PIA would be based on the bend points
applicable in 1981, the year in which the worker reached age 62. Thus, the
PIA, before cost-of-living adjustments, would be $442 per month. 7/ This
would be increased by the cost-of-living adjustments effective in 1981,
1982, and 1983, which provided a cumulative increase of 23.6 percent,
raising the monthly benefit in 1984 to $546 ($6,552 annually).
One relevant exception to this procedure for determining worker
benefits is the special minimum benefit for long-term, low-wage workers.
Under this alternative calculation, a worker’s PIA is determined by multiply
ing the number of years in excess of 10 (but not more than 20) in which
earnings were at least a specified percentage of the maximum taxable wage
by a flat dollar amount ($18.70 in 1985). 8/
Auxiliary Benefits
Spouses and survivors of workers may also be eligible for benefits based on
the workers’ PIA. Consider, for example, a retired worker with a spouse
who never worked in covered employment. Assume that the spouse is the
same age. For convenience, the worker will be assumed to be the husband—
although the benefit structure does not make a distinction based on gender
The spouse of a retired worker is entitled to an auxiliary benefit equal to 50
percent of the worker’s PIA.
In the illustration in which the worker’s
7.

The PIA in 1981 dollars would equal 0.90 times $211 plus 0.32 times $789.

The original requirement, in 1972, was that the worker must have earned at least 25
percent of the maximum taxable earnings in order to be credited with a year of coverage.
For this purpose, ad hoc increases in the tax base are not counted. That is, the additional
increases in 1979 through 1981 are not included. Thus, the effective requirement in
1985 is that the worker earn about 19 percent of the maximum.

10 EARNINGS SHARING

January 1986

PIA was $546, the wife’s benefit would be $273 per month, raising the
total monthly Social Security benefits that would be paid to this couple to
$819 ($9,828 per year).
If, however, the spouse starts receiving benefits before the age of full
retirement, spousal benefits are reduced. The maximum reduction under
current rules is for spouses who begin receiving benefits at age 62; their
benefits are reduced by 25 percent. Persons receiving spousal benefits who
have earnings above the annual exempt amounts for their age have their
benefits withheld as well. In addition, benefits for spouses may be withheld
if the worker on whose record their benefits are based has earned over the
exempt amount.
Three other major aspects of the Social Security benefit structure
must be understood as a prelude to a discussion of earnings sharing:
auxiliary benefits for divorced spouses, widows’ benefits, and benefits for
persons who are eligible based on their own earnings records as well as on
their spouses’ records. 9/
Divorced Spouses. Under current law, divorced spouses are entitled to
spousal benefits as if still married, if the marriage lasted at least 10 years
and they are not married at the time they become eligible for benefits, and
if they meet the other eligibility requirements, such as age. Benefits for a
divorced spouse are not contingent on the actual retirement of the former
spouse. A divorced spouse who was not married for 10 years is not eligible
for these auxiliary benefits.
Surviving Spouses. Widows and widowers--including surviving divorced
spouses who meet the criteria for spousal benefits--generally are eligible
for benefits based on 100 percent of the deceased worker’s PIA. If the
deceased worker retired early and, therefore, was receiving a reduced
benefit, the widow’s benefit would be limited to the amount the deceased
worker would receive if still alive, except that her maximum reduction
because of the deceased husband’s early retirement would be 17.5 percent.
In effect, a widow inherits her husband’s earnings record to replace her own
record-except that she cannot also receive the 50 percent spousal benefit.
To be eligible to receive these benefits, the survivor must be at least age 60
9.

Total benefits payable on the basis of one worker’s earnings are subject to a maximum
for any one family. In general, if more than two members of a family are eligible for
benefits based on one person’s earnings record, total family benefits will not increase
with additional family members. Benefits paid to divorced spouses (and divorced
survivors) are not included in the family maximum.

Chapter II

WHY EARNINGS SHARING HAS BEEN PROPOSED 11

or have a dependent child under age 16.10/ In the illustration in which
the husband’s PIA was $546, the wife (at the age of full retirement) would be
entitled to $546 per month.
The amount of a widow’s benefit is also reduced if she begins to
receive the benefit before the age of full retirement. 11/ Widows can
receive reduced benefits as early as age 60 (age 50 if they are disabled), and
the maximum reduction for age is 28.5 percent. If the deceased worker’s
benefit had been reduced because of early retirement, then the widow’s
benefit would equal either the amount the husband would be getting if still
alive (subject to the 17.5 percent limit noted above) or the husband’s PIA
adjusted for the widow’s age at the time she first receives survivor
benefits- - whichever amount is lower.
Although the maximum reduction for early retirement will increase by
10 percentage points (from 20 percent to 30 percent for workers and from
25 to 35 percent for spouses), the maximum reduction for widows’ benefits
will not be increased when the age of full retirement is raised. This
difference in the calculation of actuarial reductions will grow in importance
because the majority of women likely will retire well before age 67 but
fewer women will become widows before age 67. Implications of the
actuarial reductions under current law for how widows would fare under
earnings sharing are discussed in Chapter IV.
Entitlement as a Worker and as a Dependent. Many people eligible for
auxiliary benefits as spouses, ex-spouses, or widows of workers are also
eligible for benefits as workers based on their own earnings records. The
general rule in these cases is that the total amount received equals the
higher of the two benefits to which the person is entitled. If, for example, a
woman is eligible for the spousal benefit as the wife of a retired worker and
is also eligible for a smaller retired worker benefit based on her own
earnings, then she receives an amount equal to the former benefit; this is
recorded in the Social Security records as if she received her retired worker
benefit plus the portion of the spousal benefit that exceeded her retired
worker benefit. Such "dual entitlement," as defined in Social Security
records, occurs only when the auxiliary benefit is the larger of the two
benefits.

10.

In the latter case, the maximum benefit is 75 percent, rather than 100 percent, of the
decedent’s PIA.

11.

Disabled widows and widowers between the ages of 50 and 60 can receive 71.5 percent
of the decedents’ PIAs. Benefits to survivors between age 60 and 65 are reduced by
slightly under one-half percent for each month (5.7 percent per year) under age 65 at
the time of entitlement.

12 EARNINGS SHARING

January 1986

In the illustration used above, the wife is eligible for a spousal benefit
of $273. If she had also been eligible for a worker’s benefit in her own right
of, for example, $200 then her total benefit would still be $273--$200 as a
worker plus $73 as a spouse. If, instead, she had also been eligible for a
worker’s benefit of $300, then she would receive $300 as a worker and would
not be eligible for a spousal benefit.
ISSUES REGARDING TREATMENT OF TWO-EARNER
COUPLES, DIVORCED WOMEN, AND WIDOWS
The Social Security benefit structure outlined above has been criticized on
grounds that can be broadly categorized as unfairness in the distribution of
benefits and benefit inadequacy for certain groups. Criticisms that have
given rise to earnings sharing proposals mainly involve questions having to
do with the payments to married beneficiaries in which both spouses have
substantial covered earnings, and with the adequacy of benefits received by
divorced women and widows. These problems are described in this section.
This study (as well as the HHS report) does not address other
fundamental issues concerning the Social Security system. In particular, all
of the options analyzed would keep intact key features and premises of the
current benefit structure: that benefits should be related, at least to some
extent, to covered earnings; that the benefit structure should be progress
ive, in the sense that the percentage of wages replaced is higher for
beneficiaries with low covered earnings histories than for beneficiaries with
high past earnings; and that receipt of benefits should not be means-tested.
Within this framework, considerable scope remains for varying the provi
sions that determine who receives what.
Treatment of Two-Earner Couples
Two closely related problems arise for married beneficiaries in which both
spouses have substantial covered earnings. First, married women with
earnings, who usually have both lower wages and shorter periods of labor
force participation than their husbands, often receive little, if any, addition
al retirement benefits from their (and their employers’) Social Security
taxes. This occurs for such women because benefits to which they become
entitled as workers offset, rather than augment, their benefits as spouses.
Thus, among those who have retired, only women whose entitlements as
workers exceed the benefits they would have received as spouses receive
any additional retirement benefits as a result of the Social Security taxes

Chapter II

WHY EARNINGS SHARING HAS BEEN PROPOSED 13

they paid and, for many of these women, the additional retirement benefit
is small. (Most female workers, however, are insured for death and
disability benefits during part of their adulthood as a result of their Social
Security contributions.)
Second, two-earner couples will generally receive lower total benefits
than one-earner couples with the same total covered earnings. This problem
arises because a married woman who did not work in covered employment is
nonetheless receiving a benefit equal to 50 percent of that of her husband,
while a two-earner couple may receive a smaller spousal benefit or none at
all. 12/ This problem is exacerbated for surviving spouses, most of whom
are women, because they are generally eligible to receive benefits equal to
either 100 percent of their deceased spouses’ benefits or their own retired
worker benefits, whichever is larger. 13/ Thus, the survivor of a two-earner
couple may receive much less than the survivor of a one-earner couple with
the same total earnings-and, therefore, approximately the same total
Social Security payroll taxes.
These problems are illustrated in Table II-l.
Consider, again, the
earlier illustration--a couple in which only one spouse worked in covered
employment who retired at age 65 in 1984 (the first block in the table). If
the worker’s average indexed monthly earnings (AIME) were $1,000, the
monthly retirement benefit in that year will be $546. The spouse (assumed
to be the same age) will be entitled to an auxiliary benefit equal to 50
percent of the retirement benefit—$273. Thus, the couple will receive $819
per month.
Under current law, and assuming neither spouse had subsequent
earnings, they will continue to receive total benefits of $819 per month,
adjusted each year for inflation, for as long as they both live. When either
spouse dies, the total benefit will be reduced to $546 (adjusted for
inflation)--that is, the worker benefit if the nonworker dies first or the
survivor benefit if the worker dies first.
Now consider the case of a two-earner couple with the same combined
earnings history, but with one spouse accounting for three-quarters of the
total rather than all of it (Case 2 in the table). The higher earner will be
12.

The worker benefit for a one-earner couple would provide a lower replacement rate than
would the combined worker benefits for two spouses with the same total earnings because
of the progressivity of the PIA formula. The auxiliary benefit, however, would more
than offset this effect.

13.

The amount received depends both on the age at which the deceased worker began
receiving retirement benefits (if at all) and the age at which the surviving spouse begins
receiving benefits.

14 EARNINGS SHARING

TABLE II-1.

January 1986

MONTHLY BENEFITS UNDER CURRENT LAW
FOR ONE- AND TWO-EARNER COUPLES AND
FOR SURVIVORS AT AGE 65 (in. dollars) a/
Preretirement Average
Indexed Monthly
Earnings (AIME) b/

Initial
Retirement Survivor’s
Benefit c/ Benefit dI

Case 1: One Earner
Couple
Spouse 1
Spouse 2

1,000
1,000
0

819
546
273

546
546

1,000
750
250

697
447
250

447
447

1,000
500
500

698
349
349

349
349

Case 2: Unequal Earnings
Couple
Spouse 1
Spouse 2
Case 3: Equal Earnings
Couple
Spouse 1
Spouse 2
a.

In each case, it is assumed that the husband and wife were both age 65 in 1984 and,
if working, retired in that year. Monthly benefit amounts are for 1984. Under current
law, these benefits are increased each year for inflation.

The AIME is an average based on a worker’s covered earnings record, with each year’s
earnings adjusted for growth in average covered earnings.

For spouses, the higher of the person’s monthly benefit as a worker or as the spouse
of a worker.

The higher of the person’s monthly benefit as a worker or the widow (or widower) of
a worker.

Chapter II

WHY EARNINGS SHARING HAS BEEN PROPOSED 15

entitled to a benefit of $447 and the lower earner to $250.14/ The lower
earner will not be eligible for the spousal benefit because the worker’s
benefit exceeds half of the higher earner’s PIA--$223. Therefore, their
combined monthly benefits equal $697.
This illustrates the problems identified above:
First, the lesserearning spouse receives very little additional retirement benefit from the
Social Security taxes paid--$250 versus $223. Second, this couple receives
$132 per month less than the one-earner couple that had the same total
earnings (and might have paid the same total Social Security taxes).
Moreover, the death of either spouse of the two-earner couple would reduce
the benefit for the survivor to $447-$99 less per month than the survivor in
the first case would receive.
The situation for a surviving spouse is even worse if the two spouses
each had the same earnings history, as illustrated by the third couple in the
table. This couple receives $698 per month in total retirement benefitsabout the same as the other two-earner couple and $131 less than the
benefit to which the one-earner couple is entitled. The survivor in this
couple, though, would only receive $349—almost $200 per month less than
the survivor of the one-earner couple.
The Social Security benefit structure was developed in an era when a
much smaller fraction of married women worked for pay than is the case
today. As recently as 1950, only 20 percent of married women were in the
labor force, compared with over 50 percent now. The provision of spousal
benefits reflected the need for higher retirement income for couples than
for individuals to maintain a specified standard of living. Although it was
always the case that spousal benefits resulted in the Social Security taxes
paid by two-earner couples providing less retirement benefits than would be
received by comparable one-earner couples who paid the same taxes, this
issue was not as salient 30 or 40 years ago as it is today. 15/
Treatment of Divorced Women and Widows
Benefit adequacy is of particular concern for elderly women without
husbands. In the case of divorced women, this problem occurs because they
14.

The progressivity of the PIA formula is illustrated by the smaller proportional difference
in their benefits than in their earnings.

15.

See Richard Burkhauser and Karen Holden, ed., A Challenge to Social Security (New
York, New York: Academic Press, 1982), especially pp. 1-13, for a concise history of
spousal and survivor benefits and the issues raised at the time of their enactment.

16 EARNINGS SHARING

January 1986

are generally eligible for benefits of 50 percent of their ex-husbands’
benefits (if they were married at least 10 years and as long as their former
husbands are alive). Unlike married women, however, they typically do not
have anyone else’s benefits to draw on in meeting household expenses. For
divorced women, therefore, spousal benefits may provide inadequate levels
of support.
For widows, concern with the adequacy of benefits reflects the size of
this population and their relatively high poverty rate. Nearly half of all
poor elderly beneficiaries in 1984 were widows. 16/ Elderly women are
more likely to rely on Social Security benefits for the major part of their
incomes than are couples and elderly men. In 1984, 20 percent of unmarried
female beneficiaries (most of whom were widows) age 62 and over had total
incomes below the poverty line, compared with about 6 percent of elderly
couples who were receiving benefits and 16 percent of elderly unmarried
male beneficiaries.
In addition to these general benefit adequacy issues, two specific
problems have been raised in the context of the earnings sharing debate.
First, under current law, widows are not generally entitled to survivor
benefits until they reach age 60 (age 50 if disabled) unless they are caring
for a dependent child. The period during which widows are not eligible is
known as the "widow’s gap." Second, a divorced spouse must have been
married for at least 10 years to qualify for spousal benefits. Thus, someone
who was a fulltime homemaker for nine years and then was divorced would
not have accrued any credit toward eligibility for Social Security benefits
either as a worker or as a spouse during that period.
The substantial rise in the divorce rate (not yet reflected in the
cohorts who have already retired) has increased attention to the treatment
of ex-spouses within the Social Security benefit structure and has already
resulted in amendments to the original benefit structure.
Until 1965,
divorced persons were not entitled to spousal or survivor benefits unless
they were caring for eligible children. Amendments in that year generally
provided benefits to divorced women who had been married at least 20 years
and were dependent on their ex-spouses. Subsequently, the marriage
duration requirement was reduced to 10 years, the dependency requirement
was eliminated, and the benefits extended to divorced husbands. These
amendments ameliorate the problems that many divorced women without
covered work of their own would otherwise face.

16.

Of the 3.3 million beneficiaries age 62 and over in families with incomes below the
poverty line in 1984, 0.8 million were married, 0.4 million were nonmarried men, and
2.0 million were nonmarried women. Widows accounted for 1.6 million of the poor,
nonmarried women.

CHAPTER m

EARNINGS SHARING PLANS
AND CRITERIA FOR THEIR ASSESSMENT

As shown in the preceding chapter, the Social Security benefit structure
does not always provide similar treatment for families with the same
earnings, and may be inadequate for the needs of some recipients, particu
larly elderly divorced and widowed women. The enactment of earnings
sharing has been proposed as a step in relieving both types of problemsparticularly that of equal treatment. Proponents hold that it would yield a
benefit structure better suited for the social and economic realities of the
late twentieth and early twenty-first centuries.
Some critics of the current benefit structure nonetheless oppose
earnings sharing. They view the transition from the current system as too
costly or too likely to disrupt the lives of recipients, including some of those
whom earnings sharing is intended to help. Moreover, earnings sharing
would be difficult to implement and would not assist beneficiaries in the
near term. 1/ Other opponents of earnings sharing contend that the
rationale for auxiliary benefits for spouses and survivors is basically sound,
even though social and economic conditions have changed. Auxiliary
benefits are one way of helping to provide one-earner couples and survivors
with adequate benefits.
This chapter describes how earnings sharing proposals address the
problems discussed in Chapter II, and presents criteria for assessing them.
The criteria are the same as those used in the HHS report.
EARNINGS SHARING PROPOSALS
"Earnings sharing" proposals all contain one key element: they would divide
the earnings credits accumulated by spouses during a marriage evenly
between them for the purpose of computing entitlements to Social Security
benefits. Earnings sharing proposals vary in their specific provisions.
Their general rationale, however, is that marriage is a partnership and
1.

The incremental options discussed in the HHS report (Chapter VII) and in Chapter V
of this report illustrate other methods of addressing one or more of the criticisms of
the current structure.

18 EARNINGS SHARING

January 1986

therefore any income earned by either spouse may be said to belong to both
of them. The credits earned by a couple toward future Social Security
benefits would be treated in a manner similar to community property assets,
subject to equal distribution at the termination of a marriage.
For
marriages that remain intact, most earnings sharing proposals would require
or allow a splitting of the earnings credits at the time of eligibility for
benefits. Benefits for each spouse would be based on a combination of the
person’s own earnings from periods in which he or she was not married and a
half share of the combined earnings in periods of marriage.
Most earnings sharing plans would eliminate the present law auxiliary
benefits for adults based on marriage to a beneficiary (or received as a
survivor of a deceased spouse). The earnings sharing approach would thus
address two problems identified in the preceding chapter with respect to the
treatment of two-earner couples in intact marriages:
o

Workers’ benefits would no longer be offset by spousal benefits,
and hence increased covered earnings would usually result in
increased retirement benefits.

Likewise, the combined retirement benefits would no longer be
affected by the proportion of total covered wages earned by each
spouse. All couples having identical combined earnings histories
(and of the same age, married to each other throughout their
careers, and retiring at the same time) would receive identical
benefits regardless of whether these combined histories were the
result of one spouse’s work or that of both spouses.

The two plans described here are those examined in detail in the HHS
report. Others could be formulated by varying the specific provisions. For
example, both plans include a provision that enables a surviving spouse
(including divorced surviving spouses) to inherit the decedent’s earnings
record for the years in which they were married. Alternatively, an earnings
sharing proposal could be developed that did not contain an inheritance
provision. Another alternative would be to permit inheritance by a divorced
spouse only if the death occurred within a specified number of years after
the marriage ended. Without inheritance or some other method of providing
benefits to surviving spouses, however, many more women could incur
substantial reductions in Social Security benefits upon the deaths of their
husbands or former husbands. 2/
2.

Appendix E of the HHS Report (pp. 359-382) discusses several policy issues that would
need to be resolved in developing an earnings sharing plan, including whether special
provisions should be made for surviving spouses and divorced surviving spouses.

Chapter III

EARNINGS SHARING PLANS AND CRITERIA 19

Earnings sharing options can be characterized by their long-term
features and by the transition provisions that are included to phase them in.
The former indicate how the Social Security benefit structure would be
altered once the new system was fully implemented.
The transition
provisions are designed to protect some beneficiaries in the short run who
would otherwise lose--for example, those who would lose because their
earnings records would have been shared for only part of their careers. The
transition provisions are given considerable attention by developers of
earnings sharing proposals because they could determine the benefit levels
of a major fraction of beneficiaries well into the twenty-first century.
Two long-term plans are analyzed in this report, along with four sets
of transition provisions. The two plans are referred to in the HHS report as
"Generic Earnings Sharing" and "Modified Generic Earnings Sharing" (short
ened to "Modified Earnings Sharing" here). The first two sets of transition
provisions are referred to in the HHS report as "Transition I" and "Transition
II." The third set was developed by the Technical Committee on Earnings
Sharing after the completion of the HHS report and was specifically
designed for the Modified plan; it will be referred to here as "Transition III."
The fourth set would guarantee recipients their benefits under current law if
these benefits were higher than those under an earnings sharing plan. This
type of provision is referred to in the HHS report as a "No-Loser" plan; the
specific guarantee analyzed by CBO will be referred to as "Transition IV."
The plans and transitions are described below.
Generic Earnings Sharing Plan
The key features of this plan, once fully implemented, are:
o

The Social Security benefit structure would be converted to one in
which the earnings records of husbands and wives would be evenly
divided during years of marriage and benefits would be based on
each person’s record.

In addition, a surviving spouse would be credited with the entire
amount of the decedent’s covered earnings for each year of
marriage (with the restriction that the survivor’s record each year
could not include more than the taxable earnings base for that
year).

Auxiliary benefits for spouses and for surviving spouses would be
abolished.

20 EARNINGS SHARING

January 1986

In addition, earnings sharing would terminate on the date of a final
divorce decree; each person’s insured status would be based on the earnings
credited to his or her record after sharing and/or inheritance; and benefits
for children and the family maximum would be based on a worker’s earnings
record, as adjusted by shared or inherited earnings.
Modified Earnings Sharing Plan
Several modifications of the Generic plan have been proposed to help people
in certain circumstances and to avoid certain problems that would otherwise
result from earnings sharing. The key provisions and the reasons for their
inclusion are:

Earnings records would be combined and shared only when a
couple divorced, when both spouses claimed worker benefits, or
when the lesser-earning spouse claimed disability benefits. By
sharing earnings then, rather than as earnings were credited,
certain beneficiaries would not lose benefits relative to current
law as they would under Generic earnings sharing; for example, if
only the higher-earning spouse of a lifelong couple retired, he or
she would be able to claim current law benefits until the other
spouse retired.

The current law special minimum benefit provision would be
modified by lowering the earnings level needed to qualify for a
year of coverage; by adding five years of coverage that would be
countable; by indexing the value of a year of coverage by a wage
index, rather than by a price index; and by including years of child
care as years of coverage. 3/
These modifications would
especially help beneficiaries with many years of employment and
low earnings.

Up to 10 years in which a person had earnings less than the amount needed for a year
of coverage and was caring for children under age six could be included in the calculation
of his or her PIA under the special minimum provision.

Chapter III

EARNINGS SHARING PLANS AND CRITERIA 21

In addition, a child who was entitled to benefits based on both parents’
earnings records would receive a benefit based on the combined earnings
record of the parents. Under the Generic plan, the child would only receive
the higher of the two. 4/
Transition Provisions
The earnings sharing plans examined in detail by HHS and CBO are
prospective--that is, earnings before 1990 would not be shared and benefits
would be based on shared earnings records of workers who became eligible in
1995 or later. Each of the sets of transition provisions analyzed in
Chapter IV would permit some people who would be better off under current
law than they would be under an earnings sharing plan to base some or all of
their benefits on the current benefit structure. Their main features are
outlined in Table III -1.
Transition I. Under Transition I, surviving spouses (including surviving
divorced spouses) who would be eligible for auxiliary benefits under current
law would receive these benefits (if they were higher than the benefits
under the new benefit structure) if based on a marriage that began before
1990 or on a marriage to a worker who died before 1995. Similarly, divorced
spouses would be eligible for the auxiliary benefits if they were based on a
marriage that began before 1990.
In addition, people becoming eligible for benefits as retired workers or
spouses would be guaranteed a percentage of current law benefits (as an
alternative to their benefits under earnings sharing). The percentage
guaranteed would equal 100 percent for beneficiaries becoming eligible in
1995 and would decline by one percentage point per year to 64 percent in
2030. There would be no guarantee for newly eligible beneficiaries after
2030.
Transition II. Under Transition II, there would be a much faster transition to
a benefit structure based solely on earnings sharing:
o

Survivors of workers who died before 1995 would be eligible to
receive the higher of the benefits payable under current law or
under earnings sharing; and

Children of deceased homemakers would be provided benefits under a special rule; their
benefits would be based on one-half of the surviving worker’s credits accumulated during
the marriage.

Benefit
Category

SUMMARY OF TRANSITION PROVISIONS FOR RETIRED WORKERS,
SPOUSES, AND SURVIVORS

Transition
I

III

100 percent guarantee for
people reaching age 62
in 1995, declining to
64 percent for people
reaching age 62 in 2030

No guarantee for worker
benefits

Declining individual
benefit guarantee
with rate of decrease
determined by amount
ofPIA

100 percent guarantee
of combined benefits
of couple; if not
married, then 100
percent guarantee of
individual benefit

Spouse

Same as for workers

100 percent guarantee
based on marriages that
began before 1990 for
spouses who reach age 62
in 1995; guarantee
declines to 0 for spouses
who reach age 62 in 2005

Same as for workers

100 percent guarantee
of combined benefits
of couple

Divorced
Spouse

100 percent guarantee
based on marriages that
began before 1990; same
guarantee as for workers
if based on later
marriages

Same as for spouses

Same as for workers,
except that current law
divorced spouse benefit
would equal two-thirds,
rather than one-half

100 percent guarantee

Survivor

100 percent guarantee for
survivors (including
divorced survivors) on
basis of marriages that
began before 1990 or
marriages to workers who
died before 1995

100 percent guarantee for
survivors (including
divorced survivors) on
basis of marriages to
workers who died before
1995; declining guarantee
on basis of marriages that
began before 1990

Same as for workers

100 percent guarantee

January 1986

Worker

22 EARNINGS SHARING

TABLE III-1.

Chapter III

EARNINGS SHARING PLANS AND CRITERIA 23

People who would be eligible to receive benefits as spouses,
divorced spouses, surviving spouses, or divorced surviving spouses
from marriages beginning before 1990 would be eligible to receive
the higher of the benefit based on shared earnings or a transition
al benefit; the latter would be a declining percentage of the
benefit under current law, such that spouses’ benefits would not
be available to people becoming eligible after 2005 and survivors’
benefits would cease for those becoming eligible after 2015.

Transition III. The Technical Committee on Earnings Sharing, a private
group that has been developing an earnings sharing plan, suggested transition
provisions with characteristics different from those of either Transition I or
Transition II. The protection provided by Transition III would be a declining
individual benefit guarantee designed to provide the smallest losses to lowbenefit recipients. The first bracket in the benefit formula plus a portion of
the second bracket would be completely guaranteed from 1996 through
2030.5/ The guarantee for the remainder of the second bracket would
gradually decline, based on the date that a person became eligible for
benefits--95 percent of current law benefits still would be guaranteed in
2005, 85 percent in 2015, 65 percent in 2025, and 50 percent in 2030. The
guarantee for the highest bracket would be rapidly phased out, ending for
those becoming eligible in 2010 or later. Thus, workers with extremely low
PIAs would be protected fully against a reduction from current law because
of the implementation of earnings sharing if they become eligible in 2030 or
earlier; workers reaching age 62 by 2030 with average earnings would have
about 70 percent of their benefits guaranteed; and workers whose earnings
histories were at the maximum would only have about half of their current
law benefits guaranteed. 6/
In addition, the guarantee for divorced spouses under Transition III
would be based on two-thirds of the former spouse’s benefit, rather than the
one-half provided by current law. In effect, this transition provision would
be equivalent to increasing the auxiliary benefit for divorced spouses whose
former husbands or wives were still alive. The purpose of this provision
would be to increase the auxiliary benefit until earnings sharing would have
become sufficiently mature to provide help to these women.

This guarantee would be applicable to the first bracket of the PIA formula or the poverty
threshold, whichever is higher.

Sheila Zedlewski, "The Distributional Consequences of an Earnings Sharing Proposal,"
Project Report No. 3344 (Washington, D.C.: The Urban Institute, December 1984), p. 19,
and conversations in July 1985 with Edith Fierst, Chair of the Technical Committee
on Earnings Sharing. As of September 1985, the Technical Committee had not issued
a final report on its plan.
5 7 -0 0 6 0 - 8 6 - 2

24 EARNINGS SHARING

January 1986

Transition IV. Finally, under Transition IV, beneficiaries would be guaran
teed 100 percent of current law benefits for a specified period or indefin
itely. The specified provisions modelled by CBO would guarantee married
couples their total combined benefits and other beneficiaries their individual
benefits under current law. 7/
CRITERIA FOR ASSESSING OPTIONS
Proposals to change the Social Security benefit structure can be assessed in
terms of their effects on the fairness of the system, on the adequacy of
benefits, and on total costs. The HHS report contains six standards of
evaluation for assessing specific earnings sharing plans: 8/
o

Equalize benefits for one- and two-earner couples with the same
total earnings;

Equalize benefits for survivors of couples with the same total
earnings;

Increase benefit adequacy for women by taking account of time
out of the paid labor force for child care and/or homemaking
responsibilities;

Increase benefit adequacy for divorced women;

Increase benefit adequacy for widows; and

Expand eligibility to provide disability benefits for homemakers
and to provide survivors’ benefits to widows who do not qualify
because they are under age 60 and do not have children under age
16 (the "widow’s gap").

In addition to these standards for assessing effects on benefits, HHS
also examined the effects on total costs of implementing each proposal.
Any option that would increase the Social Security benefits payable to
7.

The "no loser" option analyzed by HHS would guarantee each person his or her current
law benefit, even if one spouse’s loss would be less than the other spouse’s gain. The
effects of this alternative are briefly discussed in Chapter IV.

HHS, p. 18.

Chapter III

EARNINGS SHARING PLANS AND CRITERIA 25

some people must either reduce the benefits to others or increase total
costs, relative to their amounts under current law.
The first two standards listed by HHS have to do with the fairness of
the current benefit structure. One indicator of fairness (or equity) is the
extent to which beneficiaries with similar covered earnings receive similar
Social Security benefits.
Meeting these standards would achieve two
objectives of proponents of earnings sharing--to have the combined retire
ment benefits of a couple and each survivor’s benefit no longer affected by
the proportion of total covered wages earned by each spouse. Couples in
which the wives had substantial work histories (and their survivors) would
gain relative to other couples.
The other standards address the adequacy of benefits for various
groups. Although HHS expresses these standards in terms of broad demo
graphic groups--for example, homemakers, divorced women, and widows--it
is clear from its discussion of the underlying issues and from statements by
advocates of earnings sharing proposals that the biggest concerns about
adequacy involve women with the lowest benefits under the current struc
ture. The objectives of proponents include higher benefits for these women.
The analysis in the HHS report uses these standards to evaluate
earnings sharing plans. The major part of the analysis is based on a
simulated beneficiary population in the year 2030, disaggregated by marital
status in that year. Estimates are reported of whether each group, on
average, would have higher or lower benefits under a specific plan, relative
to current policy, and what percentages of each group would gain and lose as
a result.
The main purpose of the remainder of this study is to indicate what
the structure of benefits might look like under alternative plans, comparing
those distributions with the distribution of benefits projected under current
law. 91 Less emphasis is given to the percentages that would gain or lose
relative to current law. Judgments about whether one plan is superior to
another, in the long run, are assumed to reflect values concerning the
relative importance of achieving various objectives. The identification of
gainers and losers (especially losers) supplements this information by helping
to pinpoint the circumstances in which change in the law might have a major
effect on a person’s benefits. It also helps to identify circumstances in
which transition provisions or supplemental provisions might be warranted.

As discussed in Chapter IV, CBO’s analysis concentrated on the effects on beneficiaries
age 62 or older. It did not address the success of each plan in achieving the objectives
concerning disabled homemakers and the widow’s gap.

26 EARNINGS SHARING

January 1986

The analysis illustrates the central dilemma that the achievement of
any one of the objectives listed above must involve either spending
additional money on Social Security benefits or reducing the benefits of
others or both (compared with amounts under current law). Moreover,
achievement of one objective could move the benefit structure further away
from the achievement of another. Adding provisions to attempt to achieve
multiple objectives generally would raise the total cost. 10/ The issue, then,
is one of tradeoffs between lower benefits for some recipients or higher
taxes overall.

10.

One option not analyzed in the HHS report or by CBO is to offset the cost of an earnings
sharing plan by an across-the-board reduction in the growth in Social Security benefits.
In that case, total outlays would not increase and the tradeoffs would all involve gains
for some beneficiaries at the expense of losses for most other beneficiaries; the only
unaffected beneficiaries would be those whose gain from earnings sharing equalled
their loss from the general benefit reduction.

CHAPTER IV

ANALYSIS OF EARNINGS SHARING PLANS

The enactment of earnings sharing would result in a fundamental change
in the methods used to compute Social Security benefits. The current
principle that benefits derive from a record reflecting a person’s earnings
would be replaced by one in which the earnings record would reflect half of
the combined earnings of the person and spouse during years of marriage.
Moreover, auxiliary spousal benefits would be abolished. Instead, each
spouse would have his or her own record.
This chapter analyzes the effects of several earnings sharing options.
After a brief description of the methodology, it presents estimates of the
potential long-term costs and effects on major beneficiary groups of the
Generic and Modified plans. These estimates are based on hypothetical
options in which earnings are shared retrospectively--that is, they assume a
population that has experienced earnings sharing since 1951. This approach
is useful for understanding the long-term characteristics of the Generic and
Modified plans themselves. As noted in the HHS report, however, earnings
sharing proposals typically approach sharing on a prospective basis--with
sharing of earnings beginning five years after enactment and benefits based
on shared earnings beginning ten years after enactment--and include special
provisions for the transition to the new system. The effects in a particular
year would depend on the specific transition provisions in use.
The prospective analysis reports CBO’s estimates of the potential
impacts of prospectively implementing five specific earnings sharing op
tions, each based on either the Generic or Modified plan. In that section,
emphasis is placed on the effects on costs and on beneficiaries of the
transition provisions. The final section provides a brief summary of the
results.
METHODOLOGY AND LIMITATIONS
The estimates of the effects of implementing each option were made by
applying the plan’s benefit determination rules to a simulated population in
the year 2030; benefit levels are expressed in 1984 dollars. The determina-

28 EARNINGS SHARING

January 1986

tion of a person’s Social Security benefits under current law or under any
of the earnings sharing options examined in this study requires detailed
information about, among other things, year-by-year covered earnings for
both the person and any current or former spouse, dates of birth and of
eligibility for worker benefits, and relationships to other people.
Underlying Assumptions
The simulation methodology used by CBG is basically that of HHS. I I As in
the HHS report, most of the estimates reported below were based on a
simulated population in the year 2030 that was assumed to have had work
histories and demographic histories consistent with the II-B assumptions
made by the Social Security Actuary in 1983 for the purpose of projecting
the status of Social Security trust funds. 2/ For example, it was assumed
that the labor force participation rate of women will continue to increase,
but at a somewhat slower rate than during the past several decades. 3/ It
was also assumed that divorce rates of people married for different
durations will remain at their current levels.

The simulations are based on modified versions of the dynamic simulation model
(DYNASIM) developed by Guy Orcutt and his colleagues at the Urban Institute in the
early 1970s.
Guy Orcutt, Steven Caldwell, and Richard Wertheimer II, Policy
Exploration Through Microanalytic Simulation (Washington, D.C.: The Urban Institute,
1976). The version on which CBO’s analysis is based is described by Jon Johnson, Richard
Wertheimer II, and Sheila Zedlewski, "The Dynamic Simulation of Income Model,"
Vols. I and II, Project Report 1434-03 (Washington, D.C.: The Urban Institute, November
1983).

1983 Annual Report o f the Board of Trustees of the Federal Old A g e and Survivors
Insurance and Disability Insurance Trust Funds. Each year, the Office of the Actuary
develops four sets of projections. The assumptions under alternative I are the most
optimistic in terms of the financial wellbeing of the Social Security trust funds;
alternative III contains the most pessimistic assumptions; and alternatives II-A and
II-B are the intermediate ones. This was the latest report available at the time that
the simulated populations used by HHS and by CBO were created. Similar assumptions
were made by the Office of the Actuary in 1985.

Under the Office of the Actuary’s II-B projections, the labor force participation rates
of women in most age groups would continue to rise until early in the next century and
then level off. For example, the participation rate of women between the ages of 40 and
44 would increase from 70 percent in 1985 to about 78 percent in 2010 and remain there
for the next 50 years. Because the age composition of the population would be changing
throughout this period, with a larger share of the female population over age 65, the
participation rate for women as a group is projected to decline after the year 2000, but
the age-adjusted rate is not. See Social Security Administration, Economic Projections
forOASDI Cost Estimates, 1983, Actuarial Study No. 90 (February 1984), Table 10G.

Chapter IV

ANALYSIS OF EARNINGS SHARING PLANS 29

The version of the simulation model used by CBO differs slightly from
that used in the HHS study. CBO’s version was used to simulate a population
based on the economic and demographic assumptions used by HHS, with
similar results for elderly beneficiaries. 4/ Because CBO and HHS used
different versions of the same simulation model (DYNASIM), there are
minor differences in the two sets of estimates. These mostly involve
differences in the number of beneficiaries in each group, rather than any
substantial dissimilarities in estimated effects of earnings sharing. In
addition, estimates of the number of beneficiaries who would gain or lose in
the simulation year are displayed in this report’s tables based on the number
whose benefit would change by at least 5 percent--rather than the 1 percent
used in most of the HHS tables. This does not reflect any conflict between
the two sets of results.
CBO’s version of the model was then used to simulate a population
based on alternative assumptions about women’s future labor force activities
and about future divorce rates. This enabled CBO to examine the sensitivity
to these assumptions of some of the estimated effects of earnings sharing.
The results are included in the discussion of the estimated effects of earning
sharing plans with transition provisions later in this chapter and in the
discussion in Appendix A of the uncertainty of cost projections. In brief, the
alternative assumptions of higher female labor force participation and
divorce rates that were made did not result in any major differences in the
estimated effects of earnings sharing.
Chances of Error
Estimates of the Social Security benefits that would be paid in a future year
under current law or under alternative plans are necessarily subject to a
very wide range of errors. It is impossible to predict accurately the values
of the many variables on which these estimates depend. Even if the specific
set of aggregate assumptions from the Office of the Actuary were to be
correct, errors could still result from failure to project accurately the
individual relationships. If, for example, the projections of divorce rates
were accurate, but the extent to which divorces occurring among couples in
which the wives were fulltime homemakers was understated, the value to
divorced women of auxiliary benefits could be understated as well. 5/
4.

Further discussion of the simulation methodology used by HHS and CBO and its
limitations is provided in Appendix B.

Another potential source of error is that the implementation of a change in the Social
Security benefit structure could cause some people to change their behavior. For
example, a worker whose benefits would be reduced under an earnings sharing option
(relative to current law) might delay retirement.

30 EARNINGS SHARING

January 1986

For these reasons, the estimates presented in this report, as well as
those in the HHS report, should be interpreted as indicative of what might
occur as a result of implementing the options examined, compared with
continuing the current benefit structure. The estimates of the benefits that
would be paid to recipients with specified characteristics, employment and
marital histories, and behavior should be correct, given the assumptions
made, but the numbers of people in each group are difficult to predict. The
methodology probably results in estimates that are more accurate in terms
of the relative effects of one plan versus another than in terms of their
absolute effects. The reason for expecting this is that many of the sources
of error would affect the accuracy of the estimates of the number of
beneficiaries or the benefit levels under all of the plans.
One dimension in which the simulations are likely to be especially
inaccurate is in identifying the population eligible for disability insurance.
The number will depend on how many people will be physically or mentally
impaired and will apply for benefits, as well as the rules used to determine
eligibility. Therefore, most of the estimates reported in this study are for
beneficiaries who are at least age 62, most of whom would be receiving
benefits based on retirement rather than on disability. 6/
Estimates of the additional costs of implementing an option, relative
to current law costs, are likely to be more accurate than the estimates of
the total costs themselves for the reasons noted above. Therefore, in this
chapter most of the discussion of costs is in terms of estimates of
percentage differences between the benefits that would be paid in the
simulation year under the various plans and the benefits that would be paid
in that year under current law. A fuller discussion of the costs of each
option--and their uncertainty—is presented in Appendix A. 7/

At the end of 1982, for example, about 29 million beneficiaries were age 62 or older,
of whom less than 3 percent (700,000) were receiving benefits as disabled workers,
spouses of disabled workers, or disabled survivors. Among the 7 million beneficiaries
under age 62, almost half (3.4 million) were disabled workers, spouses and children
of disabled workers, or disabled survivors. See Social Security Bulletin, Annual
Statistical Supplement, 1983, Tables 59 and 67.

The cost estimates reported in Appendix A include some based on the model used by
the Social Security Administration’s Office of the Actuary, as well as those based on
the simulation model used here. Differences in estimates generated by the two models
are discussed there.

Chapter IV

ANALYSIS OF EARNINGS SHARING PLANS 31

The discussion of effects on beneficiaries reports estimates of average
benefits for various groups and of the percentages of beneficiaries in each
group whose benefits would be at least 5 percent higher or lower, relative to
their projected benefits under current law. For the purpose of estimating
the number of gainers and losers from a plan, compared with benefits under
current policy, HHS included changes in excess of 1 percent, whereas the
main tables in this report only record beneficiaries as gainers or losers if
their benefits are estimated to change by at least 5 percent. Consequently,
the tables in the present report depict fewer winners and losers, but with
their average gains and losses, of course, being much larger. In view of the
number of years into the future for which the benefits are being projected,
the uncertainty of the estimates, and the expectation that real benefits will
be much larger in the future than they are today, a 1 percent gain or loss
relative to current law benefits seems too small a range to be meaning
ful. 8/ Even a 5 percent "loss," relative to current law, would still result in
substantial real benefit growth, although lower replacement rates.
POTENTIAL LONG-TERM EFFECTS OF EARNINGS SHARING
The remainder of this chapter discusses the effects of the two earnings
sharing plans described in Chapter III. The first--Generic Earnings Shar
ing--would split the earnings of married couples as credits are earned;
would permit surviving spouses, in effect, to add the decedents’ earnings
record to their own (up to the taxable earnings base) for each year of
marriage; and would abolish auxiliary benefits for spouses and surviving
spouses. The second--Modified Earnings Sharing--adds several provisions to
this plan that would make it more generous in certain cases: sharing would
occur when a couple divorced, when both spouses claimed worker benefits,
or when the lesser-earning spouse claimed disability benefits, rather than as
earnings were credited; both spouses would be insured for benefits if either
spouse was considered insured under current law; and the special minimum
benefit provision would be liberalized. Both of these plans are designed to
be implemented prospectively, with the sharing of records not to begin until
1990. Thus, even in 2030 most beneficiaries would have earnings histories
that reflected some years prior to the onset of earnings sharing.
Consequently, proposals usually contain transition provisions.

Under the Office of the Actuary’s II-B assumptions in 1983, the average benefit level
in 2030 would be $7,600 (in 1984 dollars), 53 percent higher than projected for 1985.
The future growth rates of earnings and other variables on which benefits are based
are quite difficult to predict. But even much lower growth rates would produce an
average benefit several decades from now whose real value would be substantially higher
than recent amounts.

32 EARNINGS SHARING

January 1986

In order to illustrate some of the effects of the Generic and Modified
Earnings Sharing plans in the long run, members of the simulated population
in 2030 were given earnings records as if sharing had been implemented in
1951--thereby simulating up to 80 years of shared records. Thus, virtually
everyone would have records that reflected the rules of a plan throughout
their working lives. The purpose of these estimates is to understand some of
the long-term characteristics of each plan, not to portray the actual effects
in a particular year of implementing such a plan. A plan that was not
prospective would be very difficult to implement, because the Social
Security Administration would need to obtain the beginning and ending dates
of past marriages, as well as future ones. Moreover, many people nearing
retirement age when it went into effect would likely incur substantial losses
without adequate time to adjust their financial plans.
To depict a group that had experienced a lifetime of earnings sharing
under a plan that was implemented prospectively would have required the
simulation of a population to at least the year 2070. An important
difference is that, under the Actuary’s intermediate projections, very old
female beneficiaries in the year 2030 would have had fewer years of work
experience than their counterparts in 2070. Because the gains to married
couples and widows from earnings sharing plans are positively associated
with the number of years that the women worked in covered employment,
the retrospective estimates might tend to understate their benefits (and the
associated costs).
The CBO estimates indicate that, in the long run, implementation of
either the Generic plan or the Modified plan would produce changes in the
benefit structure consistent with several of the objectives of earnings
sharing proponents: increases in the benefits of couples in which the wives
had substantial work histories, relative to the benefits of other couples;
increases in the benefits of widows who had substantial work histories,
relative to other widows; and increases in the benefit levels of divorced
women. These gains would come, in part, at the expense of reductions in
the average benefits of other groups--especially other married couples and
widows and divorced men--and, in part, through an increase in total outlays.
The major distinction between the Generic and the Modified plans for
elderly recipients is the latter’s liberalization of the special minimum rules,
which would increase outlays mainly by raising amounts paid to recipients
with low current law benefits.

Chapter IV

ANALYSIS OF EARNINGS SHARING PLANS 33

Total Costs 9/
Under the assumptions given above, if the Social Security benefit structure
was converted to the Generic Earnings Sharing plan, the total benefits paid
to Social Security recipients after 80 years of shared earnings records (from
1951 to 2030) would be 1.7 percent ($11 billion in 1984 dollars) higher than
the amount that would be paid in the same year (2030) under current law.
The Modified Earnings Sharing plan would expand total benefits--and thus
costs--by 4.5 percent, which is about $30 billion (in 1984 dollars) above what
would be the amount under current law.
Benefits for people age 62 and over would increase by 1.1 percent ($7
billion) under the Generic plan and by 2.6 percent ($16 billion) under the
Modified plan. Larger percentage increases in benefits paid to people under
age 62 probably would result from implementation of either earnings sharing
plan because more people would be eligible for disability benefits. Total
benefits paid to the under-62 age group would increase, relative to current
law, by 7.3 percent ($4 billion) under the Generic plan and by 24.7 percent
($14 billion) under the Modified plan. The Generic plan would increase
benefits paid to the nonelderly by a smaller amount in part because it would
reduce benefits for disabled workers who shared with a lower-earning
spouse, would eliminate benefits for nondisabled widows under age 62, would
eliminate benefits for surviving spouses based on caring for dependent
children, and would reduce benefits for children if the higher-earner parent
died. 10/ As previously noted, the estimates for the nonelderly population
are more problematic than those for the elderly population because of the
difficulty of projecting the number of disabled beneficiaries.
Long-Term Effects on Beneficiaries of
Generic Earnings Sharing
The effects on beneficiaries of implementing an earnings sharing plan would
depend, to a considerable extent, on their marital status and their employ9.

The cost estimates in this report are estimated changes in benefit payments only; they
do not include administrative costs.

10.

The estimate for the Generic plan reflects a $3 billion reduction in benefits for people
under age 62 who already would have been receiving benefits under current law and
a $7 billion outlay for new beneficiaries in this age group. The estimated cost of the
Modified plan includes a $3 billion increase for current law beneficiaries and an $11
billion outlay for new beneficiaries.

34 EARNINGS SHARING

January 1986

ment history. The estimates of the effects of the Generic plan summar
ized in Table IV -1 illustrate the major patterns. 11/
Married Couples. Even though this plan would be a major departure from
the present method of determining benefits, the majority of elderly couples
in the simulated population would receive benefits similar to their benefits
under current law. 12/ Among these 13 million recipient couples, the annual
average benefit (in 1984 dollars) would be $16,620--about $50 (0.3 percent)
less than the benefit they would have received under current law (see the
first row of Table IV -1). About one-fifth of the couples, or 2.6 million,
would have benefits that were at least 5 percent higher than they would
have received under current law and nearly one-fourth, 2.9 million, would
have benefits that were at least 5 percent lower.
The critical distinction between the couples who would be better or
worse off under this earnings sharing plan is, of course, the extent to which
both spouses had covered earnings. The second and third rows of numbers in
Table IV-1 illustrate this result. As shown under the Generic plan, couples
in which the wives worked at least 30 years would gain an average of 1.6
percent of their average benefit under current law. By contrast, other
couples would lose 3.4 percent of their current law benefit, on average.
About three-quarters of the couples that would gain from this plan-but only
one-third of the couples that would lose—are those in which the wives
worked at least 30 years. 13/
Widows. The results for widows are similar to those for married couples.
The average benefit level under the Generic plan would be almost identical
to the level under current policy. Over one-third of the 15 million widows in
11.

The distributions of effects by marital status that are used throughout this study are
for the simulated population in the year 2030 and reflect their most recent marital status.
Thus, beneficiaries who had been divorced or widowed and then remarried would be
included in the "married couple" group, even though their benefits might be based in
part on past marriages. For example, over 40 percent of elderly beneficiary couples
in the simulated population contain at least one previously married spouse.

12.

The couples referenced in the analysis, unless otherwise stated, are married couples
in which both spouses would receive benefits under current law and at least one spouse
is age 62 or older.

13.

Examination of the effects on couples, disaggregated by the number of years that the
wives worked in covered employment, indicates that the likelihood of gaining under
this earnings sharing plan, relative to current law, uniformly increases with years of
wives’ employment; the likelihood of losing uniformly decreases.

Chapter IV

ANALYSIS OF EARNINGS SHARING PLANS 35

the simulated population would be better off and about one-third would be
worse off, compared with benefits under current law. Again, effects would
differ by length of previous employment. About two-thirds of the widows
who would gain from this plan would be women who had worked at least 30
years, whereas only about half of the widows who would lose would be in this
group. 14/
Under current law an eligible widow receives, in effect, the higher of
her own worker benefit or that of her husband (subject to actuarial
reductions). Under Generic Earnings Sharing, she would instead add her
shared earnings record to his for years they had been married and only be
eligible for worker benefits. In general, this would work to the advantage of
widows with lengthy work histories.
Whether a particular widow would be better or worse off would depend
on the exact pattern of her earnings history, as well as that of her husband.
The effect would also depend on how long she had been married to the
decedent and on their ages at retirement and on her age when he died.
Under the Generic plan (as well as the Modified plan), the decedent’s
earnings record would only be inherited for the years in which they were
married. Thus, unlike current law, widows who had only been married a
short time would derive few benefits based on inheriting their husbands’
earnings records. The ages of the spouses would be important both because
earnings are indexed to the year of first eligibility for benefits and because
the 35 years of highest covered earnings of husbands and wives would be less
likely to be matched if there were large differences in their ages.
One reason many widows would do worse under earnings sharing is that
they would no longer gain the advantage from the current law rules on
actuarial reductions for survivors that were described in Chapter II. Be
cause widows would inherit their husbands’ earnings record but would
continue to receive benefits as workers, widows’ actuarial reductions (if any)
would be based on the age at which they retired, not their age when they
become eligible for survivors’ or spousal benefits. Some widows who would
lose, then, would be those who retired early and whose husbands died at a
relatively old age, the group that benefits most from the current rules
governing survivor benefits. This difference in how benefits are actuarially
reduced would become increasingly important for widows who retired early
after the turn of the century because the size of the maximum actuarial
14.

In addition, nondisabled widows between the ages of 60 and 61 would no longer be eligible
for survivors’ benefits, as they are under current law. These losses are not included
in Table IV -1, because it (as with all subsequent tables on beneficiary effects) only
includes beneficiaries age 62 or older.

36 EARNINGS SHARING

TABLE IV -1.

Group

January 1986

ANNUAL BENEFITS OF SELECTED ELDERLY
GROUPS IN THE YEAR 2030 UNDER RETROSPECTIVE
GENERIC EARNINGS SHARING (Numbers of
beneficiaries in thousands; benefits in 1984 dollars) a/

Number of
Beneficiaries

Average
Benefit
Under Percent
Plan Change c/

Beneficiaries
Who Would Gain
At Least 5 % b/
Average
Number Gain

Beneficiaries
Who Would Lose
At Least 5 % b/
Average
Number' Loss

Married Couples^
12,880

16,620

-0.3

2,630

2,050

2,950

1,890

Wives worked at
least 30 yrs.

7,830

17,310

1.6

1,920

2,080

960

1,750

Wives worked fewer
than 30 yrs.

5,050

15,560

-3.4

710

1,980

1,960

Total

Widows
15,320

9,150

-0.5

5,900

1,920

5,040

2,380

Worked at least
30 yrs.

8,210

9,990

2.9

4,030

2,080

2,510

2,420

Worked fewer than
30 yrs.

7,100

8,180

-4.9

1,880

1,590

2,530

2,340

Total

Divorced Women with
Deceased Ex-Husbands
Total

6,400

8,560

3.9

3,490

1,800

1,700

2,480

Worked at least
30 yrs.

4,650

8,990

6.8

2,790

1,780

1,020

2,260

Worked fewer than
30 yrs.

1,750

7,420

-4.5

690

1,880

680

2,800
(Continued)

ANALYSIS OF EARNINGS SHARING PLANS 37

Chapter IV

TABLE IV -1.

(Continued)

Number of
Beneficiaries

Group

Average
Benefit
Under Percent
Plan Change c/

Beneficiaries
Who Would Gain
At Least 5 % hi
Average
Number Gain

Beneficiaries
Who Would Lose
At Least 5 % bt
Average
Number Loss

Other Divorced Women
Total

2,930

7,220

16.6

2,090

1,470

100

880

Worked at least
30 yrs.

2,230

7,610

14.8

1,550

1,430

750

710

5,980

24.2

540

1,580

1,140

1,850

1,340

240

1,770

670

1,160

2,570

1,590

Worked fewer than
30 yrs.

Widowers
Total

3,810

10,280

6.2

Divorced Men
Total

4,360

SO U R CE:

8,800

-7.9

Congressional Budget Office sim ulations.

The average gains (losses) are for the beneficiaries whose benefits under the plan w ould be at least 5 percent
higher or lower than their benefits under current law in the simulation year.

Relative to benefit under current law.

Couples in which both spouses would receive benefits under current law and at least one spouse is age 62
or older.

38 EARNINGS SHARING

January 1986

reduction for workers, but not for survivors, will be increasing. The
maximum reduction for workers after the full retirement age is raised to 67
in 2022 will be 30 percent, rather than the current 20 percent. Thus, the
spread between the maximum reduction for a survivor on her deceased
husband’s PIA (fixed at 17.5 percent) and the maximum reduction for a
worker’s benefit will have widened considerably. 15/
Divorced Women. Divorced women, as a group, would gain considerably
from implementation of Generic Earnings Sharing. Recall that under
current law divorced women who were married at least 10 years are eligible
for benefits equivalent to what they would have received had they remained
married--50 percent of their husbands’ benefits while the husbands are alive
and 100 percent of the benefits after they die (each subject to actuarial
reductions). Under the Generic plan, divorced women instead would be
credited with half of the combined earnings during the years of their
marriage while the ex-husbands were alive and all of the combined earnings
during those years (up to the Social Security tax base in each year) after
their husbands died. This procedure would, in effect, smooth out the benefit
stream for divorced women, generally providing them with considerably
more than they would receive under current law while their former husbands
were alive and slightly more than they would receive as divorced survivors;
the benefits of divorced women would still be affected by whether their
ex-husbands were deceased, as under current law, but the average impact
would be smaller.
The 2.9 million divorced women whose ex-husbands were alive would
receive larger gains than any other major elderly group examined—their
average benefit increasing by about 17 percent to $7,220. This group of
women usually derive little, if any, Social Security benefits from their ex15.

To illustrate the potential significance of the current reduction rules in the year 2030,
CBO estimated the effect of making the size of widows’ actuarial adjustments under
current law depend on the age at which they first received any benefits, rather than
on the age at which they first received survivor benefits - - that is, the effect of breaking
the link between survivor benefits and a widow’s age when her husband died. Under
this option, the average widow would have a $640 lower benefit than under current
law and the average divorced woman with a deceased ex-husband would have a $310
lower benefit; 6.3 million widows and 1.4 million divorced women with deceased exhusbands would have lower benefits than under current law. Comparing the adjusted
"current law" benefits with the benefits that would be paid under the retrospective
Generic plan, the average widow would gain about $600 from earnings sharing; half
(8.0 million) would be better off; and one-fifth (2.8 million) would be worse off. That
is, a substantial part of the estimated effects of the retrospective Generic plan reported
in the text is associated with the impacts of the different actuarial reduction rules, and
with the redefinition of all benefits under the earnings sharing plans examined here
as "workers’" benefits.

Chapter IV

ANALYSIS OF EARNINGS SHARING PLANS 39

spouses’ earnings records. At most, they are eligible for 50 percent of
their former husbands’ benefits-less than most of them would receive based
on their own earnings records. Thus, the full implementation of the Generic
plan would be especially advantageous to this group. Two-thirds of the
group would gain and hardly any would lose. The small number of these
divorced women who had worked less than 30 years would benefit the most-with their average benefit increasing by 24 percent, from $4,810 to $5,980.
The 6.4 million divorced women with at least one deceased ex-spouse
would increase their average benefit by about 4 percent to $8,560. Under
the Generic plan, they would inherit their husbands’ share of the earnings
records for the years in which they were married. Among the women who
had substantial earnings of their own, the plan would generally provide a
higher benefit than most of them would receive under current law. Thus,
among women in this group who had worked at least 30 years, the average
benefit under the plan would be about 7 percent higher than under current
law; three-fifths of these women would gain; and one-fifth would lose. But
many of the women with shorter work histories would be better off under
current law. On average, the 1.8 million divorced survivors with less than
30 years of covered earnings would incur a 4.5 percent reduction under this
plan.
Divorced Men. The group that would bear the largest losses would be
divorced men-a direct result of sharing earnings records during the years
that they were married to spouses who earned less. The average benefit of
these 4.4 million men under this plan would be $8,800, about 8 percent less
than the $9,550 they would receive under current law. The majority of this
group would lose. Most of those who would gain (610,000 of the 670,000
gainers) would be divorced men with one or more former wives who had
died; they would have inherited the earnings records of these women for the
years in which they were married.
Widowers. In the simulation year, there would only be about 3.8 million
widowers--reflecting the shorter life expectancies of men relative to
women and their greater likelihood of remarriage. Their average Social
Security benefit would be $10,280, which is about 6 percent higher than they
would receive under current law. Almost half (1.8 million) would gain at
least 5 percent because they would be able to inherit their deceased wives’
shared earnings records. A small number (240,000) would be worse off by at
least 5 percent under this plan. Most of these widowers who would lose
would still be sharing part of their earnings records with living former wives
who had earned less than they had.

40 EARNINGS SHARING

January 1986

Other Elderly Groups. In addition to the approximately 13 million elderly
couples and 33 million other elderly women and men depicted in Table IV-1
(and subsequent tables), there are about 5 million other couples in the
simulated population in which only one spouse would receive benefits under
current law and almost 7 million never-married beneficiaries.
Most of the one-beneficiary couples would be those in which the other
spouses would not yet be eligible for benefits, either because they were not
age 62 or had not yet retired. Most of the couples in which the wife would
be the only beneficiary would gain (1.9 of these 2.2 million couples) because
under the Generic plan the wives’ earnings records would be replaced by half
of the combined earnings histories; this would generally provide higher
AIMEs and, hence, higher benefits for wives and lower AIMEs for their
husbands. For the same reason, three-fourths of the one-beneficiary couples
in which the husbands would be the beneficiaries would lose relative to
current law (2.4 of these 3.3 million couples). These gains and losses usually
would be for a short period-until both spouses became eligible for benefits.
The Generic plan would have no effect on the benefits of the nevermarried recipients. They would receive no spousal benefits under current
law and would have no shared earnings under this plan.
Distribution by Benefit Levels. The Generic plan would also affect the
progressivity of the Social Security benefit structure. In general, the
Generic plan would redistribute benefits in favor of low-benefit recipients.
For example, widows with current law benefits below $10,000 in 2030 (in
1984 dollars) would gain, on average, whereas widows with current law
benefits above this level would lose. (More details on the distribution of
each plan’s effects are provided in Appendix C.)
One reason for the general progressivity of this plan (and all other
earnings sharing options examined in this chapter) is the progressivity of the
Social Security benefit structure itself. Because the formula for converting
average earnings into benefits is designed to replace a higher proportion of
the earnings of low-wage workers, lower-benefit people would gain more
from the addition of a portion of their spouses’ or ex-spouses’ earnings to
their own records.
Long-Term Effects on Beneficiaries of
Modified Earnings Sharing
Most of the general patterns observed for the Generic plan are found in the
analysis of the Modified plan as well. The additional protection provided by
the modifications would result in some of the major groups increasing their

Chapter IV

ANALYSIS OF EARNINGS SHARING PLANS 41

average benefits, relative to the Generic plan; no major group of
recipients would have lower benefits (see Table IV-2). As noted earlier, the
total benefits paid to the simulated population, ages 62 and over, would be
2.6 percent above current law benefits, compared with 1.0 percent more
under the Generic plan, largely from liberalizing the special minimum pro
vision. 16/ The difference, expressed in 1984 dollars, is about $9 billion.
About three-quarters of the increment would go to married couples. 17/
The remainder would be distributed across the other groups. Recipients
whose benefits under current law are relatively low would fare best, because
of the special minimum benefit provisions.
Married Couples. The average benefit level of married couples under this
plan would be 2 percent higher than their average benefit under current law.
Couples in which the wives had worked in covered employment for at least
30 years would have average benefits about 3 percent higher under this plan
than they would under current law, while other couples would have average
benefits 0.3 percent less than under current law.
The Modified plan would provide higher average benefits, more
gainers, and fewer losers than would the Generic plan. Couples in which the
wives had shorter work histories would receive a larger share of the
increment. For example, two-thirds of the reduction in the number of
couples who would lose (510,000 of the 760,000) would be among the couples
in which the wives had worked less than 30 years.

16.

To confirm that the key provisions in the Modified plan for elderly beneficiaries are
those that would liberalize the special minimum, a set of estimates was generated in
which the Modified Earnings Sharing rules other than those involving the special
minimum were used. These indicated that, without the special minimum provisions,
the Modified plan would provide benefits to all major elderly groups, other than married
couples, nearly identical to the distribution of benefits under the Generic plan. For
married couples, the other provisions would account for about one-third of the difference
between the Modified and the Generic plans: the average benefit for couples would
be $16,620 under the Generic plan, $16,740 under the Modified plan without the special
minimum benefit provisions, and $16,990 with these provisions. Total benefits paid
to elderly recipients under the Modified plan without its special minimum provisions
would be 1.5 percent above current law benefits- -compared with 2.6 percent with the
full Modified plan and 1.0 percent with the Generic plan.

17.

Of the total, $4.8 billion would go to couples in which both spouses would receive benefits
under current law, and $2.5 billion to one-beneficiary couples (providing more for couples
in which the husbands were the sole beneficiaries and slightly less for couples in which
the wives were the only beneficiaries).

42 EARNINGS SHARING

TABLE IV-2.

Group

January 1986

ANNUAL BENEFITS OF SELECTED ELDERLY
GROUPS IN THE YEAR 2030 UNDER RETROSPECTIVE
MODIFIED EARNINGS SHARING (Numbers of
beneficiaries in thousands; benefits in 1984 dollars) a/

Number of
Beneficiaries

Average
Benefit
Under Percent
Plan Change c/

Beneficiaries
Who Would Gain
At Least 5 % b/
Average
Number Gain

Beneficiaries
Who Would Lose
At Least 5 % b/
Average
Number Loss

Married Couples^
Total

12,880

16,990

2.0

3,890

2,000

2,190

1,640

Wives worked at
least 30 yrs.

7,830

17,600

3.3

2,600

2,060

720

1,550

Wives worked fewer
than 30 yrs.

5,050

16,050

-0.3

1,290

1,890

1,470

1,680

Widows
Total

15,320

9,180

-0.1

6,040

1,930

4,990

2,370

Worked at least
30 yrs.

8,210

10,020

3.2

4,100

2,080

2,480

2,410

Worked fewer than
30 yrs.

7,100

8,210

-4.6

1,940

1,620

2,510

2,330

Divorced Women with
Deceased Ex-Husbands
Total

6,400

8,630

4.7

3,590

1,850

1,680

2,470

Worked at least
30 yrs.

4,650

9,050

7.6

2,880

1,820

1,010

2,250

Worked fewer than
30 yrs.

1,750

7,500

-3.6

710

1,970

670

2,800
(Continued)

Chapter IV

ANALYSIS OF EARNINGS SHARING PLANS 43

TABLE IV -2.

(Continued)

Number of
Beneficiaries

Group

Average
Benefit
Under Percent
Plan Change c/

Beneficiaries
Who Would Gain
At Least 5 % b/
Average
Number Gain

Beneficiaries
Who Would Lose
At Least 5 % b/
Average
Number Loss

Other Divorced Women
Total

2,930

7 ,45 0

20.3

2,350

1,590

930

Worked at least
30 yrs.

2,230

7 ,86 0

18.6

1,780

1,550

690

710

6 ,14 0

27.7

570

1,700

1,270

1,860

1,350

240

1,690

760

1,140

2,450

1,600

Worked fewer than
30 yrs.

Widowers
Total

3,810

10,290

6.3

Divorced Men
Total

4,360

SOURCE:

8 ,85 0

-7 .3

Congressional Budget Office sim ulations.

The average gains (losses) are for the beneficiaries whose benefits under the plan would be at least 5 percent
higher or lower than their benefits under current law in the sim ulation year.

Relative to benefit under current law.

Couples in which both spouses would receive benefits under current law and at least one spouse is age 62
or older.

44 EARNINGS SHAKING

January 1986

The more generous special minimum benefit provisions would make the
Modified plan particularly valuable for couples whose benefits under current
law would be relatively low. Couples whose benefits under current law are
less than $12,500 would experience average benefit increases of 11.7
percent under this plan, compared with an increase of 2.4 percent under the
Generic plan. Couples with higher current law benefits would do better
under this plan too, but by much smaller amounts. 18/
Widows and Widowers. The effects of this plan on survivors would be quite
similar to the effects of the Generic plan. The average benefit of widows
would be 0.1 percent lower than their benefit under current law and that of
widowers would be 6.3 percent higher. The corresponding effects under the
Generic plan were 0.5 percent lower and 6.2 percent higher than under
current law.
Divorced Beneficiaries. As under the Generic plan, the marital group that
would benefit most from the Modified plan is divorced women, especially
those whose former husbands are alive--their average benefit would be 20.3
percent above their current-law benefit. Among divorced women with
deceased ex-spouses, the average benefit under this plan would be 4.7
percent above that of current law. Because of the minimum benefit
provisions under the Modified plan, divorced women, in general, would gain
more than they would under the Generic one (the comparable numbers under
it were 16.6 percent and 3.9 percent).
Divorced men again would be the marital group that would lose the
most. Under the Modified plan, their average benefit would be 7.3 percent
below that under current law. A small number of them would be helped by
the special minimum provisions, which accounts for the slight reduction in
their average loss compared with the Generic plan.
Other Elderly Groups. The only people whose benefits would be lower under
the Modified plan than under the Generic plan are a small number of couples
in which the wives would be eligible for retirement benefits ahead of their
husbands (that is, older than their husbands). Because under the Modified
plan earnings would not be shared until the husbands claimed benefits as
well, these women would receive the same benefits as they would under
current law (unless they had shared with, or inherited from, previous
18.

The average increase in benefits, relative to current law, under the Modified plan would
range from 0.1 percent to 3.2 percent for the other benefit categories examined; under
the Generic plan, the average reductions for these groups would range from 0.2 percent
to 1.0 percent (reported in Appendix Tables C -1 and C - 2).

Chapter IV

ANALYSIS OF EARNINGS SHARING PLANS 45

husbands). It will be recalled that under the Generic plan these women
would receive benefits based on their shared earnings records, which could
be higher. As a consequence, the Modified plan is estimated to provide
higher benefits, relative to current law, for 1.7 million of the 2.2 million
affected couples; the Generic plan would provide higher benefits for 1.9
million of them.
For analogous reasons, fewer elderly couples in which the husband was
the sole beneficiary would lose under this plan than would lose under the
Generic plan. The average benefit of this group under the Modified plan
would be about 2 percent below the average under current law. 19/
Finally, never-married women and men would gain under this plan as a
direct result of the liberalized special minimum provisions. About 900,000
of the 3.3 million women and 200,000 of the 3.4 million men would gain. All
of the gainers would be people whose benefits under current law would be
less than $10,000.
POTENTIAL EFFECTS OF EARNINGS SHARING
PLANS WITH TRANSITION PROVISIONS
This section analyzes the potential effects of phasing in several specific
earnings sharing options. Each would share earnings prospectively (begin
ning in 1990) and would provide benefits based on either the Generic
Earnings Sharing or the Modified Earnings Sharing plan examined above
(starting in 1995).
One might argue that, in the long run, the fact that many people would
receive lower benefits than they would have received under current law is
not necessarily a serious problem--there would be ample time for them to
adjust their work and savings activities (for example, by leaving the labor
force for shorter periods of time or by retiring later than they otherwise
would have), and real benefits would be much higher than they are today
because of expected growth in real earnings. Regardless of the long-term
results of earnings sharing, in the short run some people would lose simply
because the earnings records from which their benefits would be calculated
would only reflect shared earnings for a part of their worklives. If benefits
19.

Under the Modified plan, the average benefit would be $9,950; 510,000 would gain,
relative to current law; and 1.0 million would lose. Under the Generic plan, the average
benefit would be $9,000; 400,000 would gain; and 2.4 million would lose.

46 EARNINGS SHARING

January 1986

were to be based on shared earnings starting only five years after
implementation--as specified in both plans analyzed here--earnings sharing
could produce large losses for many beneficiaries in the early years. Even in
2030, most beneficiaries would not have been covered by earnings sharing
for all of the years on which their AIME would be based. A later starting
date for basing benefits on shared earnings records would reduce this
problem but would postpone achievement of the objectives of earnings
sharing.
The effects of four sets of transition provisions are analyzed below.
These provisions were described in the preceding chapter and are briefly
summarized here.

20.

Transition I would enable survivors and divorced spouses to
continue to receive benefits based on current law, rather than on
earnings sharing, if based on events that occurred before the plan
went into effect. 20/ A declining current law benefit guarantee is
also provided, although by 2030 it would have little, if any, effect
on the benefits of people retiring then.

Transition II would provide a current law benefit guarantee to sur
vivors of workers who died before 1995, and a declining guarantee
to survivors on the basis of marriages that began before 1990. A
benefit guarantee for spouses’ benefits would be rapidly phased
out, so it would not be available to spouses becoming eligible
after 2005.

Transition III-the set of transition provisions suggested by the
Technical Committee on Earnings Sharing--contains a declining
benefit guarantee intended to provide the least losses to lowbenefit recipients. It was designed to accompany the Modified
plan.

Transition IV would guarantee 100 percent of current law benefits
to all couples and to all unmarried beneficiaries. It was designed
to accompany the Generic plan.

Chapter IV

ANALYSIS OF EARNINGS SHARING PLANS 47

The major effects on elderly beneficiaries of the two earnings sharing
plans and the various sets of transition provisions are illustrated as follows:
First, the Generic and Modified plans are examined, based on implementa
tion of each plan with Transition I (hereafter called Generic I and Modi
fied I, respectively). Next, the effects of Transition II and Transition III are
examined based on implementation of the Modified plan with these transi
tions (hereafter called Modified II and Modified III). Finally, the effects of
Transition IV are examined by estimating the effects of implementing the
Generic plan with this no-loser guarantee (Generic IV). A table comparing
the average benefits that would be provided to each major elderly group is
provided at the end of this chapter.
Total Costs
The extent to which current law benefits would be guaranteed is critical in
determining the cost of implementing an earnings sharing plan. Estimates
of the effects on total benefits that would be paid in 2030 under the five
illustrative options, relative to benefits under current law, are reported in
Table IV-3.
These estimates indicate the orders of magnitude of the relative costs
associated with the various plans and transition provisions. The costs of
each plan, relative to current law, would vary from one year to the next,
generally increasing over time. For the elderly population, the Modified
plan would provide more benefits than would the Generic plan with the same
set of transition provisions. For example, Modified I would increase benefits
paid to this group in 2030 by 2.6 percent, compared to 1.0 percent under
Generic I-virtually identical to the corresponding estimates of the long
term costs reported above. In 2030, Transition II, by removing current law
benefit guarantees much more rapidly than the other transitions, would
provide the lowest benefits--under Modified II, the elderly would receive 1.5
percent lower benefits than they would under current law. Transition III
would provide benefit guarantees that, on average, are slightly smaller than
provided by Transition I; the main differences between the two transitions
involve whose benefits would be most protected. Finally, the complete
guarantee provided by TransitionIV would be, by far, the most costly--Gen
eric IV would add 4.1 percent to the benefits paid to elderly beneficiaries
(relative to current law), compared to 1.0 percent under Generic I.
The cost estimates for the nonelderly beneficiaries largely reflect the
effects the Generic and Modified plans would have on expanding coverage
for disability benefits. The basic policy issue of whether full-time home
makers should be provided disability benefits is not addressed in this study.

48 EARNINGS SHARING

TABLE IV-3.

Option

January 1986

EFFECTS OF EARNINGS SHARING OPTIONS ON
BENEFITS PAID TO ELDERLY AND NONELDERLY
RECIPIENTS IN THE YEAR 2030 a/
Percent Change in Benefits Paid in 2030
Relative to Current Law
Elderly b/
Nonelderly
Total

Generic I

1.0

8.3

1.6

Modified I

2.6

25.4

4.5

Modified II

-1.5

24.9

0.8

Modified III

2.0

24.8

4.0

Generic IV

4.1

22.3

5.7

SOURCE:

Congressional Budget Office simulations.

See the text for descriptions of the options.

Defined as recipients age 62 or older.

As previously discussed, simulation of the number of disabled beneficiaries
is especially problematic. The estimates of the benefit increases for the
nonelderly population under Generic I and Modified I --8.3 percent and 25.4
percent, respectively--are similar to the corresponding estimates under the
retrospective Generic and Modified plans. The only substantial effect of
any of the transition provisions is that the no-loser guarantee illustrated by
the Generic IV option would protect many nonelderly beneficiaries from
losses in current law benefits, such as disabled workers who shared with a
lower-earning spouse and members of families in which the high-earning
spouse is deceased or disabled. 21/

21.

Both groups would be protected by the Modified plan, but not by the Generic plan.

Chapter IV

ANALYSIS OF EARNINGS SHARING PLANS 49

To examine the sensitivity of these estimates to the assumptions used
to project the characteristics of the simulated population, an alternative
population for 2030 was simulated. Under the alternative scenario, the
labor force participation rate of women in 2030 was about 10 percent higher
and the divorce rate was about 20 percent higher than assumed in the
baseline simulation.
Under the high-participation, high-divorce set of
assumptions, the estimated cost of Generic I would be 1.1 percent, rather
than 1.6 percent, above current law; the estimated cost of Modified I would
be 3.8 percent, rather than 4.5 percent, above current law.
The alternative set of assumptions produces a higher estimated effect
of earnings sharing on elderly beneficiaries and a lower effect on nonelderly
beneficiaries than are estimated with the baseline set of assumptions. For
example, Generic I is estimated to increase the total benefits that would be
paid to the elderly in 2030 by 1.3 percent above current law, rather than 1.0
percent; estimated benefits for the nonelderly would be 0.1 percent below
current law, rather than 8.3 percent above it. The difference in the
estimates for the elderly appears to result mainly from the difference in the
percentage of women assumed to have worked for many years. These
women have the most to gain and, of course, there would be more of them in
the alternative scenario than in the baseline simulation. The difference in
the estimates for the nonelderly likely results from more women being
eligible for current law disability benefits in their own right under the
alternative scenario. 22/
Effects on Beneficiaries of Transition I
The estimates reported in Tables IV-4 and IV-5 indicate that, by the year
2030, the Transition I provisions would generate average benefits for most
elderly groups similar to the long-run averages derived for the retrospective
Generic and Modified plans. Had an earlier year been chosen, the transition
provisions would have played a larger role in the estimates. 23/ In general,
the transition provisions would reduce the number of beneficiaries who
22.

Using the alternative set of assumptions, total benefits paid to the elderly under
Modified I would be 2.8 percent, rather than 2.6 percent, higher than under current
law; benefits paid to the nonelderly would be 15.1 percent, rather than 25.4 percent,
higher.

23.

The HHS report (pp. 136-137) examined the effects of earnings sharing for the year
2010 as well. It estimates, for example, that 29 percent of the elderly couples would
receive at least 1 percent less than their current law benefits under Generic I in 2010
and 44 percent would receive at least 1 percent less in 2030. If the Generic plan was
implemented prospectively with no transition provisions, 37 percent of the couples would
lose in 2010 and 46 percent would lose in 2030.

50 EARNINGS SHARING

TABLE IV -4.

Group

January 1986

ANNUAL BENEFITS OF SELECTED ELDERLY
GROUPS IN THE YEAR 2030 UNDER GENERIC
EARNINGS SHARING I (Numbers o f beneficiaries
in thousands; benefits in 1984 dollars) a/

Number of
Beneficiaries

Average
Benefit
Under Percent
Plan Change cl

Beneficiaries
Who Would Gain
At Least 5 % b/
Average
Number• Gain

Beneficiaries
Who Would Lose
At Least 5 % b/
Average
Number* Loss

Married C ou pled
Total

12,880

16,590

-0.5

1,980

1,870

2,340

1,870

W ives worked at
least 30 yrs.

7,830

17,260

1.4

1,500

1,890

540

1,920

Wives worked fewer
than 30 yrs.

5,050

15,540

-3 .4

480

1,830

1,800

1,860

Widows
15,320

9,230

0.4

2,930

1,730

1,680

2,720

Worked at least
30 yrs.

8,210

9,870

1.7

2,340

1,790

1,110

2,610

Worked fewer than
30 yrs.

7,100

8,490

-1 .2

590

1,520

570

2,930

Total

Divorced Women with
Deceased Ex-Husbands
Total

6,400

8,490

3.0

1,990

1,420

510

2,610

Worked at least
30 yrs.

4,650

8,760

4.1

1,650

1,390

340

2,200

Worked fewer than
30 yrs.

1,750

7,750

-0 .3

340

1,570

170

3,420

(Continued)

Chapter IV

ANALYSIS OF EARNINGS SHARING PLANS 51

TABLE IV-4.

(Continued)

Number of
Beneficiaries

Group

Average
Benefit
Under Percent
Plan Change c/

Beneficiaries
Who Would Gain
At Least 5 % b/
Average
Number Gain

Beneficiaries
Who Would Lose
At Least 5 % hi
Average
Number Loss

Other Divorced Women
Total

2,930

6,920

11.8

1,760

1,240

120

660

Worked at least
30 yrs.

2,230

7,340

10.7

1,320

1,220

670

710

5,600

16.3

440

1,310

640

1,430

1,180

130

1,590

490

1,000

2,280

1,340

Worked fewer than
30 yrs.

Widowers
Total

3,810

10,140

4.8

Divorced Men
Total

4,360

SO U R C E:

8,960

-6.3

Congressional Budget Office sim ulations.

The average gains (losses) are for the beneficiaries whose benefits under the plan would be at least 5 percent
higher or lower than their benefits under current law in the sim ulation year.

Relative to benefit under current law.

Couples in which both spouses would receive benefits under current law and at least one spouse is age 62
or older.

52 EARNINGS SHARING

TABLE IV-5.

Group

January 1986

ANNUAL BENEFITS OF SELECTED ELDERLY
GROUPS IN THE YEAR 2030 UNDER MODIFIED
EARNINGS SHARING I (Numbers of beneficiaries
in thousands; benefits in 1984 dollars) a/

Number of
Beneficiaries

Average
Benefit
Under Percent
Plan Change d

Beneficiaries
Who Would Gain
At Least 5 % b/
Average
Number Gain

Beneficiaries
Who Would Lose
At Least 5 % b/
Average
Number Loss

Married Couples^
Total

12,880

16,960

1.8

3,390

1,810

1,640

1,550

Wives worked at
least 30 yrs.

7,830

17,560

3.1

2,320

1,840

400

1,510

Wives worked fewer
than 30 yrs.

5,050

16,040

-0.4

1,070

1,750

1,240

1,570

Widows
Total

15,320

9,270

0.8

3,220

1,710

1,650

2,700

Worked at least
30 yrs.

8,210

9,910

2.1

2,480

1,770

1,090

2,580

Worked fewer than
30 yrs.

7,100

8,530

-0.8

740

1,500

560

2,920

Divorced Women with
Deceased Ex-Husbands
Total

6,400

8,600

4.4

2,380

1,490

510

2,530

Worked at least
30 yrs.

4,650

8,870

5.4

1,950

1,430

340

2,160

Worked fewer than
30 yrs.

1,750

7,880

1.3

420

1,740

170

3,250

(Continued)

Chapter IV

ANALYSIS OF EARNINGS SHARING PLANS 53

TABLE IV-5.

(Continued)

Number of
Beneficiaries

Group

Average
Benefit
Under Percent
Plan Change cl

Beneficiaries
Who Would Gain
At Least 5 % hi
Average
Number Gain

Beneficiaries
Who Would Lose
At Least 5 % hi
Average
Number Loss

Other Divorced Women
Total

2,930

7,230

16.7

2,160

1,420

650

Worked at least
30 yrs.

2,230

7,660

15.4

1,650

1,390

590

710

5,880

22.3

520

1,510

780

1,430

1,190

130

1,450

590

990

2,160

1,360

Worked fewer than
30 yrs.

Widowers
Total

3,810

10,160

4.9

Divorced Men
4,360

Total

SOURCE:

9,000

-5.8

Congressional Budget Office sim ulations.

The average gains (losses) are for the beneficiaries whose benefits under the plan would be at least 5 percent
higher or lower than their benefits under current law in the sim ulation year.

Relative to benefit under current law.

Couples in which both spouses would receive benefits under current law and at least one spouse is age 62
or older.

54 EARNINGS SHARING

January 1986

would lose, relative to current law, from the implementation of either
plan, while the lack of a complete work lifetime of earnings sharing for
many beneficiaries would reduce the number who would gain.
The estimates for the Generic plan illustrate these patterns. Under
Generic I the estimated average benefit of married couples in 2030 would be
$16,590, with about 2.0 million couples gaining and 2.3 million couples losing
at least 5 percent (see Table IV-4). 24/ Under the fully implemented
Generic plan--as depicted by the retrospective earnings sharing results
reported in Table IV-1--the average benefit would be $16,620; 2.6 million
couples would gain and 2.9 million couples would lose at least 5 percent.
Likewise, Modified I would provide couples with an average benefit of
$16,960, which would be within $30 of their estimated benefit under the
fully implemented Modified plan--but with about 500,000 fewer couples
either gaining or losing at least 5 percent.
The current law guarantee is especially important for widows. They
would be guaranteed their current law benefits if they were married before
1990 or if their husbands died before 1995. Thus, the number of widows
estimated to lose under either plan with Transition I is 1.7 million (11
percent of all widows), compared with 5.0 million (33 percent) under either
plan implemented retrospectively without transition provisions. On the
other hand, the 2.9 million widows who would gain under Generic I and the
3.2 million who would gain under Modified I are fewer than estimated above
(5.9 million and 6.0 million, respectively) because they would have had a
shorter period in which to share (and inherit) earnings records.
Divorced beneficiaries whose marriages ended before 1990, or whose
former husbands died before 1995, would be guaranteed their current law
benefit. This would have a major effect on divorced women with deceased
ex-husbands, many of whom would otherwise have had substantial losses as a
result of either earnings sharing plan. Recall that, under current law,
eligible divorced survivors can receive up to 100 percent of their ex-spouses’
benefits. The estimated number who would lose under Generic I or
24.

It will be recalled that HHS focuses on gains and losses of 1 percent or more, whereas
the CBO analysis counts changes of 5 percent or more. For married couples, in particular,
this difference is important because the majority of couples with gains and losses under
Generic I are estimated to incur changes of less than 5 percent. Thus, HHS reports (on
p. 6 of the Executive Summary and on p. 39 of the text) that 37 percent of the couples
would gain and 44 percent would lose, whereas the corresponding CBO estimates are
15 percent and 18 percent. The difference is almost entirely due to the different
percentage thresholds, as Table A5 on p. 434 of the HHS report indicates that 17 percent
of couples are gainers of at least 5 percent and 18 percent are losers.

Chapter IV

ANALYSIS OF EARNINGS SHARING PLANS 55

Modified I is about 500,000, compared with 1.7 million under retrospective
earnings sharing. Even though many of the divorced women with deceased
ex-spouses who would be expected to gain from earnings sharing would not
have shared and inherited earnings from complete work histories, 2.4 million
would still gain; the estimates for the retrospective plans, which may better
reflect the long-term effects of inheritance, indicate that about 3.5 million
would gain.
As previously discussed, divorced women with no deceased ex-husbands
would do, on average, much better in the long run under either earnings
sharing plan than they would under current law, and divorced men would do
worse. These patterns hold for the results in 2030 under Transition I as well,
but the average impacts would not be as large--because many of the
divorced beneficiaries whose marriages included years prior to 1990 would
have had some married years in which earnings were not shared, and the
transition guarantees would protect beneficiaries who would otherwise lose.
Finally, it is important to note that the implementation of Generic I
would have a major effect on the benefit levels of some beneficiaries--even
though, for the majority of beneficiaries, the impacts would be small. For
example, among the 6.7 million widows and divorced women who would have
gains of at least 5 percent, the average gain would be about 20 percent;
among the 2.3 million unmarried women who would incur losses of at least 5
percent, the average loss would be about 25 percent. An estimated 610,000
unmarried women (2.5 percent of this group) would gain at least 40 percent,
and 340,000 (1.4 percent) would lose at least this percentage of their current
law benefits. 25/
Effects of Transition II
Transition II would not provide as much protection in 2030 as would
Transition I. Therefore, the simulated population would, in general, have
lower average benefits and more losers (relative to current law) under this
set of transition provisions than under Modified I. More recipients in every
current law benefit group would lose under Transition II than under Modi
fied I. The estimated number of beneficiaries who would gain is virtually
unaffected by the choice of transition provisions because current law
guarantees, of course, cannot result in beneficiaries doing better than they
25.

The changes for married couple beneficiaries are not as large because generally the
losses of one spouse would offset the gain of the other. The estimated average gain or
loss of couples whose benefits would change by at least 5 percent is 11 percent, with
very few couples estimated to gain or lose more than 30 percent. Among the group with
the largest proportion of beneficiaries who incur reduced benefits - - divorced men - - the
average loss would be about 13 percent, with most of them losing less than 20 percent.

56 EARNINGS SHARING

January 1986

would have done under current law. These patterns are illustrated by
estimates of the benefits that would be paid in 2030 under Modified II (see
Table IV-6). 26/
The major differences are for widows and divorced women with
deceased ex-husbands. Modified II would reduce the average benefit of
widows by 11.5 percent of the amount under current law--compared with a
0.8 percent average increase under Modified I. The average benefit for
divorced women with deceased ex-husbands also would be reduced below
current law under Modified II and increased under Modified I. For both
groups, the results reflect much larger numbers of beneficiaries who would
lose under Modified II. One reason these women’s benefits are especially
sensitive to the transition rules is that they would be the oldest of the major
groups examined and thus least likely to have been able to inherit their
husbands’ or ex-husbands’ full earnings records.
Effects of Transition III
Transition III (the provisions suggested by the Technical Committee on
Earnings Sharing) would produce a different pattern of benefits than either
of the other transitions, largely because the extent of the current law
benefit guarantee would vary according to the size of the PIA on which it
was based. Low-benefit recipients would be helped by Modified III in two
ways--by the special minimum provisions of the Modified plan and by the
tilt in the benefit formula transition arrangements. In general, the average
benefits that would be paid to widows and divorced women with deceased
ex-husbands under Modified III are lower than would be paid under Modified I
and higher than would be paid under Modified II (see Table IV-7). 27/
26.

There would be 40,000 fewer couples who would gain under Modified II than under
Modified I. This results from one spouse gaining under the Modified plan (regardless
of which transition is used) and the other spouse being protected from losses under
Transition I but not under Transition II.

27.

The effects of this plan on beneficiaries--especially on widows--are quite sensitive
to the number of years that earnings are shared. The estimates presented here were
based on the assumption that earnings records would start to be shared in 1990, thereby
providing 40 years during which records could be shared. As the plan is described by
Sheila Zedlewski in ’’The Distributional Consequences of an Earnings Sharing Proposal,"
Project Report No. 3344 (Washington, D.C.: The Urban Institute, December 1984),
records would be shared starting in 1985. CBO estimates that the additional five years
of shared earnings would increase (relative to the estimates reported in Table IV - 7)
the average benefits of married couples by $100; of widows by $200; and of divorced
women by $200.

Chapter IV

ANALYSIS OF EARNINGS SHARING PLANS 57

Divorced women with no deceased former husbands would do best
under Transition III because it would provide protection as if the current law
divorced-spouse benefit equalled two-thirds, rather than one-half, of the
worker benefit. As previously discussed, many divorced women whose
husbands are alive would gain because earnings sharing would generally
provide them with more than a benefit based either on their own earnings or
on half of their husbands’ benefits. Others would gain because of the special
minimum benefit provisions in the Modified plan.
Effects of a "No - Loser" Transition
All of the earnings sharing options analyzed in this chapter thus far would
result in some beneficiaries receiving lower benefits than they would
receive under current law. In general, the major groups of "losers" would
include many married couples in which the wives had little covered earnings,
many widows and divorced women with deceased ex-husbands, and divorced
men. Their losses, in effect, would pay for some or all of the gains that
would accrue to other beneficiaries as a result of implementing earnings
sharing.
An alternative approach would be to provide recipients with the higher
of their benefits under earnings sharing or under current law. This would
require a transition provision in which beneficiaries would be guaranteed 100
percent of current law benefits for a specified period or indefinitely. This
"no-loser" approach would, of course, cost much more to implement than
would the other transition options during the period in which the guarantee
was in force.
This approach would require, in effect, the operation of two parallel
benefit structures--one based on current law and the other based on
earnings sharing. If the guarantee was later to be removed, the issue of how
to make that transition would need to be addressed. Delaying the removal
of the current law guarantee would enable more beneficiaries to have shared
earnings records throughout their careers, however. Nonetheless, as illus
trated by the estimates for retrospective earnings sharing, there would still
be a number of beneficiaries who would have lower benefits under either of
the fully implemented earnings sharing plans than they would under current
law.
The no-loser approach can be illustrated by adding a guarantee to the
Generic plan, as was done in the HHS report. In that analysis, each
beneficiary was guaranteed his or her benefit under current law. For
couples, this means that in the typical case in which one spouse would gain

January 1986

58 EARNINGS SHAKING

TABLE IV-6.

Group

ANNUAL BENEFITS OF SELECTED ELDERLY
GROUPS IN THE YEAR 2030 UNDER MODIFIED
EARNINGS SHARING II (Numbers of beneficiaries
in thousands; benefits in 1984 dollars) a/

Number of
Beneficiaries

Average
Benefit
Under Percent
Plan Change c/

Beneficiaries
Who Would Gain
At Least 5 % b/
Average
Number* Gain

Beneficiaries
Who Would Lose
At Least 5 % b/
Average
Number Loss

Married C o u p le d
Total

12,880

16,900

1.4

3,350

1,810

1,900

1,720

Wives worked at
least 30 yrs.

7,830

17,490

2.7

2,300

1,840

530

1,950

Wives worked fewer
than 30 yrs.

5,050

15,970

-0 .8

1,050

1,750

1,380

1,630

Widows
Total

15,320

8,140

-11.5

3,220

1,710

7,960

2,720

Worked at least
30 yrs.

8,210

9,040

-6.8

2,480

1,770

3,820

2,580

Worked fewer than
30 yrs.

7,100

7,090

-17.6

740

1,500

4,130

2,860

Divorced Women with
Deceased Ex-Husbands
Total

6,400

7,700

-6.5

2,380

1,490

2,440

2,860

Worked at least
30 yrs.

4,650

8,190

-2.7

1,950

1,430

1,500

2,580

Worked fewer than
30 yrs.

1,750

6,410

-17.6

420

1,740

940

3 ,31 0
(Continued)

Chapter IV

ANALYSIS OF EARNINGS SHARING PLANS 59

TABLE IV -6.

(Continued)

Number of
Beneficiaries

Group

Average
Benefit
Under Percent
Plan Change c/

Beneficiaries
Who Would Gain
At Least 5 % hi
Average
Number Gain

Beneficiaries
Who Would Lose
At Least 5 % b/
Average
Number Loss

Other Divorced Women
Total

2,930

7,210

16.4

2,160

1,420

150

870

Worked at least
30 yrs.

2,230

7,650

15.4

1,650

1,390

660

710

5,810

20.7

520

1,510

1,120

1,430

1,190

180

1,480

590

990

2,220

1,370

Worked fewer than
30 yrs.

Widowers
Total

3,810

10,130

4.7

Divorced Men
Total

4,360

SOURCE:

8,980

-6.0

Congressional Budget Office sim ulations.

The average gains (losses) are for the beneficiaries whose benefits under the plan would be at least 5 percent
higher or lower than their benefits under current law in the simulation year.

Relative to benefit under current law.

Couples in which both spouses would receive benefits under current law and at least one spouse is age 62
or older.

60 EARNINGS SHARING

TABLE IV -7.

Group

January 1986

ANNUAL BENEFITS OF SELECTED ELDERLY
GROUPS IN THE YEAR 2030 UNDER MODIFIED
EARNINGS SHARING III (Numbers of beneficiaries
in thousands; benefits in 1984 dollars) a/

Number of
Beneficiaries

Average
Benefit
Under Percent
Plan Change c/

Beneficiaries
Who Would Gain
At Least 5 % b!
Average
Number• Gain

Beneficiaries
Who Would Lose
At Least 5 % bl
Average
Number Loss

Married Couples^
Total

12,880

17,070

2.5

3,880

1,760

1,320

1,580

Wives worked at
least 30 yrs.

7,830

17,640

3.6

2,590

1,790

360

1,510

Wives worked fewer
than 30 yrs.

5,050

16,200

0.6

1,290

1,700

950

1,600

Widows
15,320

8,990

-2 .2

3,250

1,710

5,300

1,500

Worked at least
30 yrs.

8,210

9,710

0.0

2,500

1,770

2,780

1,490

Worked fewer than
30 yrs.

7,100

8,170

-5 .0

750

1,510

2,520

1,520

Total

Divorced Women with
Deceased Ex-Husbands
Total

6,400

8,400

2.0

2,500

1,510

1,720

1,490

Worked at least
30 yrs.

4,650

8,660

2.9

2,000

1,460

1,120

1,490

Worked fewer than
30 yrs.

1,750

7,720

-0 .8

490

1,720

600

1,480
(Continued)

Chapter IV

ANALYSIS OF EARNINGS SHARING PLANS 61

TABLE IV -7.

(Continued)

Number of
Beneficiaries

Group

Average
Benefit
Under Percent
Plan Change cl

Beneficiaries
Who Would Gain
At Least 5 % b/
Average
Number Gain

Beneficiaries
Who Would Lose
At Least 5 % b/
Average
Number Loss

Other Divorced W omen
Total

2,930

7,300

17.9

2,260

1,450

690

Worked at least
30 yrs.

2,230

7,710

16.2

1,690

1,430

680

710

6,040

25.5

580

1,510

750

1,430

1,190

130

1,250

590

990

2,060

1,270

Worked fewer than
30 yrs.

Widowers
Total

3,810

10,160

4.9

Divorced Men
Total

4,360

SO U R C E :

9,070

-5.1

Congressional Budget Office sim ulations.

The average gains (losses) are for the beneficiaries whose benefits under the plan wTould be at least 5 percent
higher or lower than their benefits under current law in the simulation year.

Relative to benefit under current law.

Couples in which both spouses wrould receive benefits under current law* and at least one spouse is age 62
or older.

62 EARNINGS SHARING

January 1986

from earnings sharing and the other would lose, the former would still gain
and the latter would not lose. Consequently, many couples whose combined
benefits under Generic I would be at least as high as their benefits under
current law would nonetheless be receiving additional benefits from the
guarantee. 28/
The option analyzed by CBO would guarantee couples their combined
benefits under current law, rather than their individual benefits. (For
beneficiaries other than married couples, the guarantee modelled by CBO is
the same as the one in the HHS report.) Guaranteeing combined, rather
than individual, benefits would thereby limit the protection to couples who
would otherwise lose benefits if earnings sharing were implemented. One
problem, however, is that it might be possible for couples to increase their
total benefits by divorcing--because if one ex-spouse would gain and the
other would lose under earnings sharing, the guarantee would protect the
latter if they were not still married.
The total benefits going to elderly recipients in 2030 under this option
would be 4.1 percent above the current law total for these recipients. The
estimated difference between the total benefits that would be paid to the
elderly in 2030 under Generic IV and under Generic I --3.1 percent of current
law benefits or about $19 billion (in 1984 dollars)--illustrates the cost of
providing complete protection of current law benefits. The effects on major
groups of elderly beneficiaries are reported in Table IV-8. Every couple and
every individual beneficiary who would have lost under the Generic I plan
(reported in Table IV-6 above) would receive, instead, the current law
benefit.
A complete current law guarantee, then, would cost much more than
the same earnings sharing plan without such a guarantee. The additional
benefits would go to people who would otherwise incur benefit reductions.
This would be one way of assuring that many widows and others who might
be worse off under earnings sharing would not incur losses as a result of
earnings sharing. One consequence of guaranteeing individual benefits,
however, would be less progress toward achieving the objective of having
benefits for couples no longer affected by the proportion of total covered
wages earned by each spouse.

28.

CBO estimates that the version of the no-loser guarantee in the HHS report would
increase the average benefit of married couples by 8.6 percent, whereas the version
reported here would increase their average benefit by 2.4 percent (each relative to
current law). Because the estimates for the other groups are the same for both versions,
CBO estimates that the version in the HHS report would increase total benefits in 2030
paid to elderly recipients by 6.4 percent, compared to 4.1 percent in this version.

Chapter IV

ANALYSIS OF EARNINGS SHARING PLANS 63

CONCLUSIONS REGARDING THE EARNINGS
SHARING PLANS
What would earnings sharing accomplish? The answer depends, in part, on the
specific provisions of the plan and the extent to which current law benefits
would be guaranteed. Table IV-9 summarizes the major results of CBO’s
analysis.
In general, the plans examined in this chapter would move the Social
Security benefit structure closer to the achievement of three key objectives
of their proponents. First, the combined retirement benefits of couples
would be less affected by the proportion of total covered wages earned by
each spouse.
For example, the difference in average benefits between
couples in which the wives worked at least 30 years and other couples would
widen from about $900 ($17,030 for the former and $16,100 for the latter) to
between $1,200 and $1,700, depending on which version was implemented.
Guarantees of current law benefits tend to reduce this effect of earnings
sharing, with Generic IV producing the smallest effect.
Second, the benefits paid to survivors would also be less affected by the
proportion of total wages earned by each spouse. Under current law, widows
who worked at least 30 years would have an average benefit of $9,710--about
$1,100 above that of other widows. Under the various versions of earnings
sharing examined here, this difference would widen to between $1,400 and
$2,000. This would occur, however, mainly from reductions of up to $1,500 in
the average benefits of widows with relatively short work histories; even
under the most generous transition provisions, widows with substantial work
histories would only gain an average of $600. One reason widows would not
do much better under these earnings sharing plans is that the actuarial rules
favorable to them under current law would be eliminated.
Third, divorced women (especially those with no deceased ex-husbands)
would receive significantly higher benefits under these earnings sharing plans
than under current law. The average benefit of divorced women with no
deceased ex-husbands would increase by about 12 percent (to $6,920) under
Generic I and by even more under the various versions of the Modified plan.
That of divorced women with deceased ex-husbands would increase by 3
percent (to $8,490) under Generic I; under Modified I and Modified III, their
average benefit would also be higher than under current law; but under
Modified II, it would be about 7 percent lower. Divorced men would, in
effect, be paying for part of the gains of divorced women (except with
Generic IV). Their average benefits would decrease by about 6 percent (to
$9,000).

64 EARNINGS SHARING

TABLE IV-8.

January 1986

ANNUAL BENEFITS OF SELECTED ELDERLY
GROUPS IN THE YEAR 2030 UNDER
GENERIC EARNINGS SHARING IV
(Numbers of beneficiaries in thousands;
benefits in 1984 dollars) a/

Group

Average
Benefit
Number of
Under
Percent
Beneficiaries
Plan
Change c/

Beneficiaries
Who Would Gain
At Least 5 % b/
Average
Number Gain

Married Couples^/
Total
Wives worked at
least 30 yrs.
Wives worked fewer
than 30 yrs.

12,880

17,060

2.4

1,980

1,870

7,830

17,520

2.9

1,500

1,890

5,050

16,330

1.5

480

1,830

Widows
Total
Worked at least
30 yrs.
Worked fewer than
30 yrs.

15,320

9,540

3.7

2,930

1,730

8,210

10,230

5.4

2,340

1,790

7,100

8,730

1.5

590

1,520

Divorced Women with
Deceased Ex-Husbands
Total
Worked at least
30 yrs.
Worked fewer than
30 yrs.

6,400

8,700

5.5

1,990

1,420

4,650

8,930

6.1

1,650

1,390

1,750

8,090

4.0

340

1,570
(Continued)

ANALYSIS OF EARNINGS SHARING PLANS 65

Chapter IV

(Continued)

TABLE IV-8.

Average
Benefit
Under
Percent
Number of
Plan
Change d
Beneficiaries

Group

Beneficiaries
Who Would Gain
At Least 5 % b/
Average
Number Gain

Other Divorced Women
Total
Worked at least
30 yrs.
Worked fewer than
30 yrs.

2,930

6,960

12.4

1,760

1,240

2,230

7,380

11.3

1,320

1,220

710

5,630

17.0

440

1,310

5.4

1,430

1,180

1.4

490

1,000

Widowers
Total

3,810

10,200

Divorced Men
Total

4,360

SOURCE:

9,690

Congressional Budget Office simulations.

The average gains are for the beneficiaries whose benefits under the plan would be at
least 5 percent higher than their benefits under current law in the simulation year.

Relative to benefit under current law.

Couples in which both spouses would receive benefits under current law and at least
one spouse is age 62 or older.

January 1986

66 EARNINGS SHARING

TABLE IV -9.

Group

AVERAGE ANNUAL SOCIAL SECURITY BENEFITS
OF SELECTED ELDERLY GROUPS IN THE YEAR 2030
UNDER ALTERNATIVE BENEFIT PLANS
(Numbers of beneficiaries in thousands; benefits
in 1984 dollars) a/

Number of
Beneficiaries

Current
Law

Benefits
Modified
I
II

Generic
I

III

Generic
IV

Married Couples!^
12,880

16,670

16,590

16,960

16,900

17,070

17,060

W ives worked at
least 30 yrs.

7,830

17,030

17,260

17,560

17,490

17,640

17,520

W ives worked fewer
than 30 yrs.

5,050

16,100

15,540

16,040

15,970

16,200

16,330

Total

Widows
15,320

9,190

9,230

9,270

8,140

8,990

9,540

Worked at least
30 yrs.

8,210

9,710

9,870

9,910

9,040

9,710

10,230

Worked fewer than
30 yrs.

7,100

8,600

8,490

8,530

7,090

8,170

8,730

Total

Divorced Women with
Deceased Ex-Husbands
Total

6,400

8,240

8,490

8,600

7,700

8,400

8,700

Worked at least
30 yrs.

4,650

8,420

8,760

8,870

8,190

8,660

8,930

Worked fewer than
30 yrs.

1,750

7,780

7,750

7,880

6,410

7,720

8,090
(Continued)

ANALYSIS OF EARNINGS SHARING PLANS 67

Chapter IV

TABLE IV -9.

(Continued)

Number of
Beneficiaries

Group

Current
Law

Benefits
Modified
II
I

Generic
I

III

Generic
IV

Other Divorced Women
Total

2,930

6,190

6,920

7,230

7,210

7,300

6,960

Worked at least
30 yrs.

2,230

6,630

7,340

7,660

7,650

7,710

7,380

710

4,81 0

5,600

5,880

5,810

6,040

5,630

10,160

10,130

10,160

10,200

9,000

8,980

9,070

9,690

2 .0

4 .1

Worked fewer than
30 yrs.

Widowers
3,810

Total

9,680

10,140

Divorced Men
Total

4,360

9,550

8,960

Percentage Change in Total Benefits in 2030
Paid to Elderly Recipients Relative to Current Law d
Total

1.0

SO U R CE:

2.6

-1 .5

Congressional Budget Office sim ulations.

See the text for a description of the plans. Beneficiaries depicted in this table are age 62 or older and would
account for approximately three-quarters of all beneficiaries in the sim ulated population.

Couples in which both spouses would receive benefits under current law and at least one spouse is age 62
or older.

These estim ates include elderly groups not shown in the ta b le --a b o u t 5 .4 million couples in w^hich only
one spouse would be receiving benefits and 6.7 million never-married individuals.

68 EARNINGS SHARING

January 1986

The estimates reported in this chapter also highlight several problems
and issues.
In particular, elderly women who had been outside the paid
labor force for many years would, in general, incur losses: married couples
in which the wife had worked less than 30 years and widows who had worked
less than 30 years generally would be worse off on average under earnings
sharing than under current policy. They could be protected by guaranteeing
them some or all of their current law benefits, but this would raise the total
cost of earnings sharing and prevent equalization of benefits for one- and
two-earner couples, and their survivors, with the same total earnings.
In addition, the transition provisions accompanying an earnings sharing
plan can play an important role in the plan’s effects—even 40 years after
implementation. A rapid transition to a new benefit structure based
entirely on earnings sharing, such as would occur with Transition II, would
result in many beneficiaries incurring losses because of being caught in the
middle of the change in benefit rules. A slow transition would raise total
costs. The provisions suggested by the Technical Committee (Transition III)
illustrate how transition rules could be structured in a way that would
provide greater protection for low-benefit recipients than for high-benefit
recipients, but would do so by altering the existing redistributive balance in
the program.
A key issue in the development and assessment of earnings sharing
plans is the extent to which the gains to some beneficiaries should be paid
for by others through reductions in their benefits (relative to current law).
One way or another, higher benefits for some recipients must be paid
for - - either through lower benefits for others or through higher taxes.

CHAPTER V

INCREMENTAL OPTIONS

Earnings sharing is not the only way in which Social Security might be
modified to address the concerns discussed in Chapter II; a number of other,
less far-reaching, methods could be used. The HHS report analyzed a variety
of these measures, including some that would increase benefits for working
spouses, surviving spouses, and divorced spouses. These approaches would
generally build on features that already exist under current law, and could
affect benefits for those retiring in the relatively near term. They could be
used either to complement earnings-sharing proposals that would not be
effective for many years, or as substitutes.
HHS examined 24 incremental options designed to mitigate problems
with the current benefit structure, evaluating each independently of the
others. CBO has no fundamental disagreement with the HHS analyses of
these options. 1/ Because the Congress may want to consider implementing
more than one of the options, CBO has examined combinations of them. For
example, these combinations include options that would address the dispari
ties in benefits received by the survivors of one- and two-earner couples,
and others that could be used to improve the adequacy of benefits for
elderly divorced spouses. The combinations of incremental options present
ed below are meant to illustrate possible approaches, and should not be
construed as recommendations.
It should be noted that modifications in the benefit structure might
have unintended effects. For example, increasing divorced spouses’ benefits
might encourage some couples to divorce. Similarly, incremental changes
designed to assist low-income beneficiaries might increase the income of
relatively affluent recipients as well, and might also entail significant costs.
In fact, if the aim is to increase the incomes of the poorest recipients of
Social Security, altering the benefit structure may be less efficient than
focusing on means-tested programs such as Supplemental Security Income
(SSI), to achieve the same goals at lower cost. But the pros and cons of
doing so are beyond the scope of this report.
1.

The Congress might wish to modify some of them. For example, the zero earnings
requirement for child care dropout years would cause a notch to result between the
benefits received by different groups of women because women with very low earnings
might receive lower benefits than otherwise similar persons with no earnings in a given
year.

70 EARNINGS SHARING

January 1986

DESCRIPTION OF THE OPTIONS
CBO has selected three specific options from the HHS report for analysis.
Two options deal with the issue of disparate benefits for the survivors of
one- and two-earner couples who had the same combined earnings. The
other option would provide higher benefits for divorced spouses.
For
purposes of comparison, CBO has analyzed a second option for divorced
spouses as well. Each of these options would guarantee current law benefits
to recipients, thereby ensuring that no one would lose from the changes.
The alternatives are presented in four different combinations,
with each of the survivor options being packaged with a divorced spouse
option. They are analyzed in terms of their impacts on benefit levels in
2030, to make them comparable with the analyses already presented. Unlike
earnings sharing, these changes could be implemented relatively quickly, so
that their effects would be greater in earlier years. The options for
survivors are as follows:
o

Survivors would inherit all of the earnings credits of their
deceased spouses for the years during which they were married,
including those prior to enactment of this option. These credits
would be combined with the survivors’ earnings credits, subject to
the limitation that the total in any year could not exceed the
taxable maximum wage. A beneficiary’s earnings record for years
in which he or she was not married would not be altered.

Alternatively, survivors’ benefits would equal two-thirds of the
sum of their own retirement or disability benefits and the benefits
for which they would be eligible as surviving spouses.

The options for divorced spouses are as follows:
o

Divorced spouses’ benefits would be raised by one percentage
point for each year of marriage over 10 and up to 35 years.
Therefore, benefits would equal 50 percent of the former spouses’
PIAs for marriages lasting 10 years and rise to 75 percent for
marriages ending in divorce that lasted at least 35 years. The
current law requirement for duration of marriage-10 yearswould remain unchanged, and the higher divorced spouses’ benefits
would not be available until two years after the final divorce
decree. Actuarial reductions would be computed in the same
manner as now.

Chapter V

INCREMENTAL OPTIONS 71

Divorced spouses’ benefits would be increased from 50 percent to
75 percent of the former spouses’ PIAs, but these higher benefits
would be payable beginning two years after the final divorce
decree. This option was not included in the HHS report.

Thus the four packages or combinations of options are:
o

Package A: Inheritance of earnings credits and increased di
vorced spouses’ benefits depending on the length of marriage
(options 1 and 3);

Package B: Survivors’ benefits equal to two-thirds of the com
bined worker/survivor benefits and increased divorced spouses’
benefits depending on the length of marriage (options 2 and 3);

Package C: Inheritance of earnings credits and a 75-percent-ofPIA divorced spouses’ benefit (options 1 and 4); and

Package D:
Survivors’ benefits equal to two-thirds of the
combined worker/survivor benefits and a 75- percent -of-PIA di
vorced spouses’ benefit (options 2 and 4).

COMPARISON OF PACKAGES OF INCREMENTAL OPTIONS
The incremental options, as indicated earlier, may be considered either as
alternatives or as complements to earnings sharing proposals. In this section,
the relative costs of the four packages and their effects on beneficiaries are
discussed and compared with the earnings sharing options. The simulated
benefits for the four packages are also compared to one another for their
potential effects on elderly widowed and divorced populations. Finally, issues
relating to the use of these packages or other incremental options as part of
the transition to a fully implemented earnings sharing system are discussed.
Total Increases in Benefits Under
the Packages of Incremental Options
Total benefit payments in 2030 from an incremental package would be 3.6
percent to 4.2 percent higher than under current law (see Table V-l), an
increase (in 1984 dollars) of $23 billion to $27 billion in 2030 Social Security
benefit payments. (These costs are somewhat different from those produced
by the Office of the Actuary. See Appendix A for a discussion of these

5 7 -0 0 6 0 - 8 6 - 3

January 1986

72 EARNINGS SHARING

differences and of the potential near-term budget costs.) The highest cost
would be that for Package C--the combination of inheritance of earnings
credits and the flat 75 percent divorced spouses’ benefit--while the smallest
increase in benefits would be under Package B--two-thirds of the combined
worker/survivor benefit plus the divorced spouses’ benefit scaled to years of
marriage.
Overall, the costs of the incremental packages are similar to those of
the Modified Earnings Sharing plans with the first and third transition
options. The incremental plans have virtually all of their impact on elderly
beneficiaries, however, whereas the earnings sharing plans would provide
substantial increases to many nonelderly as well. For example, Pack
age D--two-thirds of the combined worker/survivor benefit and the 75
percent divorced spouses’ benefit--would increase 2030 total benefit pay
ments by the same percentage as the Modified III plan, but the average
increase for the elderly would be 4.4 percent under Package D and about 2.0
percent under the earnings sharing plan.
By far the largest component of the costs is attributable to the options
dealing with survivors (1 and 2) rather than to those for divorced spouses (3
and 4). If inheritance of earnings credits (Option 1) or two-thirds of the

TABLE V -1.

PERCENTAGE CHANGE IN TOTAL OASDI
BENEFIT PAYMENTS IN 2030 UNDER FOUR
PACKAGES OF INCREMENTAL OPTIONS
Under
Age 62

Age 62
or Older

All
Ages

Package A

0.7

4.2

3.9

Package B

0.0

4.0

3.6

Package C

0.7

4.5

4.2

Package D

0.0

4.4

4.0

SOURCE:

Congressional Budget Office.

Chapter V

INCREMENTAL OPTIONS 73

combined benefits (Option 2) were implemented alone, the increased
benefit costs would amount to 3.6 percent and 3.3 percent, respectively. By
comparison, the divorced spouse options are much less expensive--0.3
percent for Option3, and 0.7 percent for Option4 --although Option4 is
more than twice as expensive as Option 3.
Comparison of the Packages with Earnings Sharing Plans
The packages of incremental options detailed here would chiefly affect
widowed and divorced persons. They would also have a small effect on
married couples, but only the results for widows, widowers, and divorced men
and women are presented here.
Tables V-2 through V-6 display the simulation results. The packages
would provide higher benefits on average to widows, widowers, divorced
women with at least one deceased spouse, and divorced men than would be
provided under current law or under any of the earnings sharing plans.
Divorced women whose former husband(s) still survived would receive, on
average, more from Packages A and B than under current law, but less than
they would receive under the earnings sharing proposals. Packages C and D,
which would provide a 75 percent divorced spouses’ benefit to all those
meeting the duration of marriage requirement, would increase benefits more
than some earnings sharing plans but less than the most generous ones.
Because the packages incorporate present law benefit guarantees, no
beneficiary would experience benefit reductions relative to current
law--which necessarily would increase program costs. Because virtually all
of the additional benefits would be targeted on widows and divorced persons,
the packages would permit much larger increases among the target groups
than would the earnings sharing proposals. For example, average benefits
for widows under Package A would be 8.1 percent higher than under the
Generic I earnings sharing plan and 8.5 percent above current law levels (see
Table V-2). In addition, approximately twice as many of these widows would
gain more than 5 percent relative to current law under Packages A and C
than under Generic I. Under Packages B and D, the ratio would be almost 3
to 1.
Divorced women with deceased former spouses are simulated to
receive, on average, about 10 percent higher benefits under Packages A and B
than under current law. In contrast, average increases for this elderly group
under the earnings sharing plans would range from 2.0 percent under the
Modified III plan to 5.5 percent under the Generic IV plan (see Table V -3).

January 1986

74 EARNINGS SHARING

TABLE V-2.

Option

ANNUAL BENEFITS OF WIDOWS IN THE
YEAR 2030 UNDER EARNINGS SHARING AND
UNDER FOUR PACKAGES OF INCREMENTAL
OPTIONS (Numbers of beneficiaries in thousands,
benefits in 1984 dollars) a/

Average
Benefit
Under
Percent
Plan Change c/

Beneficiaries Who
Would Gain At
Least 5 % b/
Average
Number Gain

Beneficiaries Who
Would Lose At
Least 5 % b/
Average
Number Loss

Earnings Sharing Alternatives
Generic I

9,230

0.4

2,930

1,730

1,680

2,720

Modified I

9,270

0.8

3,220

1,710

1,650

2,700

Modified III

8,990

-2.2

3,250

1,710

5,300

1,500

Generic IV

9,540

3.7

2,930

1,730

Incremental Packages
Package A

9,980

8.5

6,150

1,900

Package B

10,010

8.9

8,410

1,440

Package C

9,980

8.6

6,200

1,910

Package D

10,020

8.9

8,430

1,450

- -

SOURCE:

Congressional Budget Office simulations.

See the text for a description of the plans. The 15.32 million beneficiaries depicted
in this table are age 62 or older.

Beneficiaries are considered to have gained or lost if their benefits under the plan
would be at least 5 percent higher or lower than their benefits under current law in the
simulation year.

Relative to benefit under current law.

Chapter V

INCREMENTAL OPTIONS 75

ANNUAL BENEFITS OF DIVORCED WOMEN
WITH DECEASED EX-HUSBANDS IN THE
YEAR 2030 UNDER EARNINGS SHARING AND
UNDER FOUR PACKAGES OF INCREMENTAL
OPTIONS (Numbers of beneficiaries in
thousands, benefits in 1984 dollars) a/

TABLE V-3.

Average
Benefit
Under
Percent
Plan Change d

Option

Beneficiaries Who
Would Gain At
Least 5 % hi
Average
Number Gain

Beneficiaries Who
Would Lose At
Least 5 % bl
Average
Number Loss

Earnings Sharing Alternatives
Generic I

8,490

3.0

1,990

1,420

510

2,610

Modified I

8,600

4.4

2,380

1,490

510

2,530

Modified III

8,400

2.0

2,500

1,510

1,720

1,490

Generic IV

8,700

5.5

1,990

1,420

Incremental Packages
Package A

9,100

10.4

3,280

1,640

Package B

9,070

10.1

3,300

1,580

Package C

9,200

11.6

3,410

1,770

Package D

9,200

11.6

3,540

1,700

SOURCE:

Congressional Budget Office simulations.

See the text for a description of the plans. The 15.32 million beneficiaries depicted
in this table are age 62 or older.

Beneficiaries are considered to have gained or lost if their benefits under the plan
would be at least 5 percent higher or lower than their benefits under current law in the
simulation year.

Relative to benefit under current law.

January 1986

76 EARNINGS SHARING

TABLE V -4.

Option

ANNUAL BENEFITS OF DIVORCED WOMEN
WITHOUT DECEASED EX-HUSBANDS IN THE
YEAR 2030 UNDER EARNINGS SHARING AND
UNDER FOUR PACKAGES OF INCREMENTAL
OPTIONS (Numbers of beneficiaries in
thousands, benefits in 1984 dollars) a/

Average
Benefit
Under
Percent
Plan Change c/

Beneficiaries Who
Would Gain At
Least 5 % hi
Average
Number Gain

Beneficiaries Who
Would Lose At
Least 5 % b/
Average
Number Loss

Earnings Sharing Alternatives
Generic I

6,920

11.8

1,760

1,240

120

660

Modified I

7,230

16.7

2,160

1,420

650

Modified III

7,300

17.9

2,260

1,450

690

Generic IV

6,960

12.4

1,760

1,240

Incremental Packages
Package A

6,700

8.2

1,020

1,440

Package B

6,700

8.2

1,020

1,440

- -

Package C

7,170

15.8

1,420

2,010

Package D

7,170

15.8

1,420

2,010

SOURCE:

Congressional Budget Office simulations.

See the text for a description of the plans. The 15.32 million beneficiaries depicted
in this table are age 62 or older.

Beneficiaries are considered to have gained or lost if their benefits under the plan
would be at least 5 percent higher or lower than their benefits under current law in the
simulation year.

Relative to benefit under current law.

Chapter V

TABLE V -5.

INCREMENTAL OPTIONS 77

ANNUAL BENEFITS OF WIDOWERS IN THE
YEAR 2030 UNDER EARNINGS SHARING AND
UNDER FOUR PACKAGES OF INCREMENTAL
OPTIONS (Numbers of beneficiaries in
thousands, benefits in 1984 dollars) a/

Average
Benefit
Under
Percent
Plan Change c/

Option

Beneficiaries Who
Would Gain At
Least 5 % hi
Average
Number Gain

Beneficiaries Who
Would Lose At
Least 5 % bl
Average
Number Loss

Earnings Sharing Alternatives
Generic I

10,140

4.8

1,430

1,180

130

1,590

Modified I

10,160

4.9

1,430

1,190

130

1,450

Modified III

10,160

4.9

1,430

1,190

130

1,250

Generic IV

10,200

5.4

1,430

1,180

Incremental Packages
Package A

10,450

7.9

2,060

1,270

Package B

10,330

6.7

1,660

1,440

Package C

10,450

7.9

2,060

1,270

Package D

10,330

6.7

1,660

1,440

SOURCE:

---

Congressional Budget Office simulations.

See the text for a description of the plans. The 15.32 million beneficiaries depicted
in this table are age 62 or older.

Beneficiaries are considered to have gained or lost if their benefits under the plan
would be at least 5 percent higher or lower than their benefits under current law in the
simulation year.

Relative to benefit under current law.

January 1986

78 EARNINGS SHAKING

TABLE V -6.

Option

ANNUAL BENEFITS OF DIVORCED MEN IN THE
YEAR 2030 UNDER EARNINGS SHARING AND
UNDER FOUR PACKAGES OF INCREMENTAL
OPTIONS (Numbers of beneficiaries in
thousands, benefits in 1984 dollars) a/ b/

Average
Benefit
Under
Percent
Plan Change d/

Beneficiaries Who
Would Gain At
Least 5 % c/
Average
Number Gain

Beneficiaries Who
Would Lose At
Least 5 % c/
Average
Number Loss

Earnings Sharing Alternatives
Generic I

8,960

-6.3

490

1,000

2,280

1,340

Modified I

9,000

-5.8

590

990

2,160

1,360

Modified III

9,070

-5.1

590

990

2,060

1,270

Generic IV

9,690

1.4

490

1,000

Incremental Packages
Package A

9,810

2.7

810

1,150

Package B

9,760

2.1

590

1,450

Package C

9,820

2.8

840

1,180

Package D

9,770

2.3

630

1,470

SOURCE:

---

Congressional Budget Office simulations.

See the text for a description of the plans. The 15.32 million beneficiaries depicted
in this table are age 62 or older.

The relatively small unweighted number of divorced men precludes the separate
treatment of those with and without a deceased former spouse.

Beneficiaries are considered to have gained or lost if their benefits under the plan
would be at least 5 percent higher or lower than their benefits under current law in the
simulation year.

Relative to benefit under current law.

Chapter V

INCREMENTAL OPTIONS 79

Compared with the various earnings sharing plans, the inheritance of
earnings histories combined with the increase in divorced spouses’ benefits
linked to the length of the marriage (Package A) would have about twothirds more gainers than the Generic I and Generic IV plans, and about 30 to
40 percent more than the Modified I and III plans. Setting all divorced
spouses’ benefits equal to 75 percent of their former spouses’ PIAs would
result in slightly larger increases on average for divorced women with
deceased ex-spouses--PackagesC and D both would increase benefits 11.6
percent--because a slightly higher percentage would gain than under Pack
ages A and B. The benefits of some women with deceased ex-husbands
would be affected by the rules governing divorced spouses because they also
have living ex-husbands.
The simulation results indicate that widowers would also fare better
under either package than under earnings sharing. On average, Packages A
and B would raise their benefits by 7.9 and 6.7 percent respectively, whereas
the average gain under the four earnings sharing plans displayed in Table V-5
would be 4.8 to 5.4 percent. Moreover, the proportion of widowers gaining
at least 5 percent relative to current law would be about 54 percent under
Package A, 44 percent under Package B, and about 38 percent under the
earnings sharing plans. More widowers gain under these incremental options
because they can benefit from earnings before 1990 and because none of
them lose by sharing earnings with a living former spouse. Packages C and
D containing the flat 75 percent divorced spouses’ benefit would have no
greater effect on widowers than would Packages A and B.
Divorced men would, on average, receive small increases in benefits
under all four packages of incremental changes, in contrast to the average
reductions they would experience under three of the four earnings sharing
alternatives shown in Table V-6. The combination of the inheritance of
credits and either of the two divorced spouses’ benefit options (Packages A
and C) would result in about 19 percent of divorced men receiving increases
of 5 percent or more. On the other hand, Packages B and D and the earnings
sharing plans would have somewhat smaller percentages of gainers, ranging
from 11 percent to 14 percent.
Under Packages A and B, the only elderly group that would fare less
well than under earnings sharing would be divorced women whose ex-spouses
were still alive (see Table V-4). In contrast to the earnings sharing
proposals, which would raise their benefits by roughly 12 percent to 18
percent, Packages A and B would increase average benefits by about 8
percent. Moreover, the earnings sharing proposals would have 70 percent to
120 percent more gainers than would these two incremental combinations.
The more favorable treatment of divorced women under earnings sharing

80 EARNINGS SHARING

January 1986

would result from the fact that they would benefit from the sharing of
earnings while their ex-spouses survived. Moreover, when the divorced
spouses’ benefit is related to years of marriage, many divorced women would
get little or no additional benefits either because they had been married not
much longer than 10 years, or because their worker benefits would exceed
their potential divorced spouse benefits. Making the divorced spouses’
benefit a flat 75 percent would provide about 40 percent more gainers than
under the alternative divorced spouses’ benefit option, and the gainers would
receive 40 percent larger increases as well.
Comparison of the Packages with Each Other
Differences between the individual packages stem from their different
treatment of survivors and of divorced persons. Widows, widowers, and
divorced persons who survived their ex-spouses would be principally affected
by whether the specific package allowed inheritance of credits or provided
two-thirds of the combined benefits. On the other hand, elderly divorced
recipients whose former spouses were still alive could only receive addi
tional benefits as a result of the more generous divorced spouses’ benefit.
Tables V-7 through V-10 present the simulated distributional effects of
the various incremental packages for subgroups of the beneficiary popula
tion. For widows, packages containing the inheritance of earnings credits—
Packages A and C-would tend to benefit fewer recipients but would provide
larger average increases to those receiving increases than would the
approach based on two-thirds of the combined benefits. Any woman whose
benefit as a survivor is less than twice as large as her benefit as a worker
would gain from the combined-benefit options. Whether she would gain
from the options that include inheritance of earnings credits would depend
on the length of her marriage, the correspondence of her working years with
those of her husband, and on the relative sizes of the actuarial reductions in
her worker benefits and in her survivor benefits.
Each of the packages would provide much larger percentage increases
to low-benefit widows than to high-benefit widows. Widows with current law
benefits below $7,500 would receive increases averaging from 14.2 percent
under Package B to 16.3 percent under Package C; those with benefits
exceeding $12,500 would receive increases ranging from 1.8 percent to 2.8
percent. Packages A and C, which include the inheritance of earnings
credits, would help low-benefit widows for two reasons. First, low-benefit
widows are likely to have husbands with low earnings. The progressivity of
the benefit formula means that adding a wife’s earnings to her husband’s has
a larger effect if his earnings are low. Second, low-benefit widows tend to

Chapter V

INCREMENTAL OPTIONS 81

have larger actuarial reductions than high-benefit women. Women who
receive survivor benefits with large reductions are more likely to gain from
a worker benefit based on combined earnings. Packages B and D would
benefit more low-benefit widows than high-benefit widows because a woman
is more likely to have worker benefits more than half as big as her survivor
benefit if her survivor benefit is small.
The results for divorced women with deceased ex-husbands show
similar patterns of gains relative to current law benefit levels, but the
inheritance of earnings credits would be slightly more favorable to them
than providing two-thirds of the combined worker/survivor benefits. More
over, the largest differences would be for the lowest benefit group, with the
two packages containing the inheritance option—Packages A and C--in
creasing average benefits by 18.3 percent and 21.4 percent respectively,
while the corresponding increases for Packages B and D would be 12.9
percent and 16.8 percent. Packages A and C are more attractive for
divorced women because the inheritance option benefits divorced women
who were married as few as three years but divorced women must have been
married at least ten years to qualify for a survivor benefit. Divorced
women who are ineligible for survivor benefits would be concentrated in the
low-benefit category.
In addition, the lowest benefit groups would experience the largest
relative benefit increase from the flat 75 percent divorced spouses’ benefit
as incorporated into Packages C and D. Women who were married to their
deceased ex-spouses less than 10 years and women whose ex-husbands had
low earnings will tend to have low benefits. If such women also have living
ex-husbands, they may benefit from an increase in the spouses’ benefit level,
especially if the increase does not depend on the length of marriage.
Widowers would tend to be affected somewhat differently than widows
under the incremental packages. Average gains for all widowers would be
higher under Packages A and C--those containing the inheritance of
earnings credits--than under PackagesB and D, and inheritance would
provide gains of over 5 percent to about 24 percent more of these recipients
than would the combined-benefits approach. On the other hand, the average
gain for those with increases would be about 13 percent higher with the
combined-worker/survivor-benefits option.
The inheritance option provides more additional benefits than the
combined-benefit option for widowers, while widows do better under the
combined-benefit option. This inheritance option is relatively more attrac
tive to men than to women because very few widowers receive survivor
benefits, with their favorable treatment of actuarial adjustments, under

January 1986

82 EARNINGS SHARING

TABLE V -7.

ANNUAL BENEFITS OF SELECTED ELDERLY
GROUPS IN THE YEAR 2030 UNDER
PACKAGE A (Numbers of beneficiaries
in thousands; benefits in 1984 dollars) a/

Benefits
Under
Current
Law

Average
Benefit
Number of
Under
Percent
Beneficiaries
Plan
Change c/

Beneficiaries
Who Would Gain
At Least 5 % b/
Average
Number Gain

Widows
Total

15,320

9,980

8.5

6,150

1,900

Below $7,500

4,730

6,680

16.1

2,640

1,640

$7,500 - $10,000

4,790

9,760

11.2

2,210

2,070

$10,000 - $12,500

3,630

11,790

5.9

1,050

2,180

$12,500 and Over

2,160

14,620

1.8

250

2,030

Divorced Women with
Deceased Ex-Spouses
Total

6,400

9,100

10.4

3,280

1,640

Below $7,500

2,850

6,740

18.3

2,020

1,450

$ 7,500 - $10,000

1,950

9,560

10.1

910

1,840

$10,000 - $12,500

1,030

11,710

5.7

290

2,160

$12,500 and Over

570

14,600

2.1

2,540

Other Divorced Women
Total

2,930

6,700

8.2

1,020

1,440

Below $7,500

2,310

5,960

10.8

920

1,440

620

9,440

2.4

100

1,380

$7,500 and Over

(Continued)

INCREMENTAL OPTIONS 83

Chapter V

TABLE V-7.

(Continued)

Average
Benefit
Number of
Under
Percent
Plan
Change cl
Beneficiaries

Benefits
Under
Current
Law

Beneficiaries
Who Would Gain
At Least 5 % b/
Averagt
Number Gain

Widowers
Total

3,810

10,450

7.9

2,060

1,270

Below $7,500

1,010

6,590

14.3

670

1,190

$7,500 -$10,000

1,180

9,600

10.4

760

1,330

$10,000 - $12,500

850

11,780

6.1

370

1,310

$12,500 and Over

760

15,340

3.9

250

1,210

Divorced Men
Total

4,360

9,810

2.7

810

1,150

Below $7,500

1,200

6,030

5.4

380

910

$ 7,500 - $10,000

1,380

9,010

3.1

270

1,160

$10,000 - $12,500

920

11,320

1.7

1,490

$12,500 and Over

860

14,760

1.4

2,140

SOURCE:

Congressional Budget Office simulations.

See the text for a description of the plans. Beneficiaries depicted in this table are age
62 or older.

Beneficiaries are considered to have gained or lost if their benefits under the plan would
be at least 5 percent higher or lower than their benefits under current law in the
simulation year.

Relative to benefit under current law.

January 1986

84 EARNINGS SHARING

TABLE V-8.

ANNUAL BENEFITS OF SELECTED ELDERLY
GROUPS IN THE YEAR 2030 UNDER
PACKAGE B (Numbers of beneficiaries
in thousands; benefits in 1984 dollars) a/

Benefits
Under
Current
Law

Average
Benefit
Number of
Under
Percent
Beneficiaries
Plan
Change c/

Beneficiaries
Who Would Gain
At Least 5 % b/
Average
Number Gain

Widows

15,320

10,010

8.9

8,410

1,440

Below $7,500

4,730

6,570

14.2

3,100

1,230

$ 7,500 - $10,000

4,790

9,740

11.0

2,910

1,550

$10,000 - $12,500

3,630

12,010

7.8

1,840

1,660

$12,500 and Over

2,160

14,760

2.8

550

1,400

Total

Divorced Women with
Deceased Ex-Spouses

Total

6,400

9,070

10.1

3,300

1,580

Below $7,500

2,850

6,430

12.9

1,450

1,430

$ 7,500 - $10,000

1,950

9,730

12.0

1,210

1,640

$10,000 - $12,500

1,030

11,980

8.2

490

1,850

$12,500 and Over

570

14,760

3.2

150

1,600

Other Divorced Women

Total

2,930

6,700

8.2

1,020

1,440

Below $7,500

2,310

5,960

10.8

920

1,440

620

9,440

2.4

100

1,380

$7,500 and Over

(Continued)

Chapter V

INCREMENTAL OPTIONS 85

TABLE V - 8.

(Continued)

Average
Benefit
Number of
Under
Percent
Plan
Beneficiaries
Change d

Benefits
Under
Current
Law

Beneficiaries
Who Would Gain
At Least 5 % b/
Average
Number Gain

Widowers
Total

3,810

10,330

6.7

1,660

1,440

Below $7,500

1,010

6,570

13.8

640

1,240

$ 7,500 - $10,000

1,180

9,550

9.8

630

1,560

$10,000 - $12,500

850

11,650

4.9

290

1,540

$12,500 and Over

760

15,030

1.7

100

1,720

Divorced Men
Total

4,360

9,760

2.1

590

1,450

Below $7,500

1,200

6,070

6.1

310

1,350

$ 7,500 - $10,000

1,380

8,970

2.6

200

1,610

$10,000 - $12,500

920

11,260

1.1

1,460

$12,500 and Over

860

14,570

0.2

1,180

SOURCE:

Congressional Budget Office simulations.

See the text for a description of the plans. Beneficiaries depicted in this table are age
62 or older.

Beneficiaries are considered to have gained or lost if their benefits under the plan would
be at least 5 percent higher or lower than their benefits under current law in the
simulation year.

Relative to benefit under current law.

January 1986

86 EARNINGS SHARING

TABLE V-9.

ANNUAL BENEFITS OF SELECTED ELDERLY
GROUPS IN THE YEAR 2030 UNDER
PACKAGE C (Numbers of beneficiaries
in thousands; benefits in 1984 dollars) a/

Benefits
Under
Current
Law

Average
Benefit
Number of
Under
Percent
Beneficiaries
Plan
Change c/

Beneficiaries
Who Would Gain
At Least 5 % b/
Average
Number Gain

Widows

Total

15,320

9,980

8.6

6,200

1,910

Below $7,500

4,730

6,690

16.3

2,660

1,650

$ 7,500 - $10,000

4,790

9,770

11.3

2,230

2,080

$10,000 - $12,500

3,630

11,790

5.9

1,050

2,180

$12,500 and Over

2,160

14,620

1.8

250

2,030

Divorced Women with
Deceased Ex-Spouses

Total

6,400

9,200

11.6

3,410

1,770

Below $7,500

2,850

6,910

21.4

2,120

1,620

$ 7,500 - $10,000

1,950

9,630

10.8

930

1,930

$10,000 - $12,500

1,030

11,710

5.8

300

2,120

$12,500 and Over

570

14,600

2.1

2,540

Other Divorced Women

Total

2,930

7,170

15.8

1,420

2,010

Below $7,500

2,310

6,470

20.3

1,250

2,010

620

9,760

5.9

160

2,080

$7,500 and Over

(Continued)

Chapter V

INCREMENTAL OPTIONS 87

TABLE V - 9.

(Continued)

Average
Benefit
Number of
Under
Percent
Plan
Beneficiaries
Change d

Benefits
Under
Current
Law

Beneficiaries
Who Would Gain
At Least 5 % b/
Averagt
Number Gain

Widowers
Total

3,810

10,450

7.9

2,060

1,270

Below $7,500

1,010

6,590

14.3

670

1,190

$ 7,500 - $10,000

1,180

9,600

10.4

760

1,330

$10,000 - $12,500

850

11,780

6.1

370

1,310

$12,500 and Over

760

15,340

3.9

250

1,210

Divorced Men
Total

4,360

9,820

2.8

840

1,180

Below $7,500

1,200

6,080

6.2

410

1,000

$7,500 - $10,000

1,380

9,010

3.2

280

1,150

$10,000 - $12,500

920

11,320

1.7

1,490

$12,500 and Over

860

14,760

1.4

2,140

SOURCE:

Congressional Budget Office simulations.

See the text for a description of the plans. Beneficiaries depicted in this table are age
62 or older.

Beneficiaries are considered to have gained or lost if their benefits under the plan would
be at least 5 percent higher or lower than their benefits under current law in the
simulation year.

Relative to benefit under current law.

5 7 -0 0 6 0

8 6 - 4

January 1986

88 EARNINGS SHARING

TABLE V -10.

ANNUAL BENEFITS OF SELECTED ELDERLY
GROUPS IN THE YEAR 2030 UNDER
PACKAGE D (Numbers of beneficiaries
in thousands; benefits in 1984 dollars) a/

Benefits
Under
Current
Law

Average
Benefit
Number of
Under
Percent
Beneficiaries
Plan
Change c/

Beneficiaries
Who Would Gain
At Least 5 % b/
Average
Number Gain

Widows
15,320

10,020

8.9

8,430

1,450

Below $7,500

4,730

6,580

14.4

3,120

1,240

$ 7,500 - $10,000

4,790

9,750

11.1

2,920

1,550

$10,000 - $12,500

3,630

12,010

7.8

1,840

1,660

$12,500 and Over

2,160

14,760

2.8

550

1,400

Total

Divorced Women with
Deceased Ex-Spouses
Total

6,400

9,200

11.6

3,540

1,700

Below $7,500

2,850

6,650

16.8

1,650

$ 7,500 - $10,000

1,950

9,810

12.9

1,260

1,710

$10,000 - $12,500

1,030

11,980

8.2

490

1,830

$12,500 and Over

570

14,760

3.2

150

1,600

Other Divorced Women
Total

2,930

7,170

15.8

1,420

2,010

Below $7,500

2,310

6,470

20.3

1,250

2,010

620

9,760

5.9

160

2,080

$7,500 and Over

(Continued)

Chapter V

INCREMENTAL OPTIONS 89

TABLE V -10.

(Continued)

Benefits
Under
Current
Law

Number of
Beneficiaries

Average
Benefit
Under
Percent
Plan
Change c/

Beneficiaries
Who Would Gain
At Least 5 % b/
Average
Number Gain

Widowers
Total

3,810

10,330

6.7

1,660

1,440

Below $7,500

1,010

6,570

13.8

640

1,240

$7,500 -$10,000

1,180

9,550

9.8

630

1,560

$10,000 - $12,500

850

11,650

4.9

290

1,540

$12,500 and Over

760

15,030

1.7

100

1,720

Divorced Men
Total

4,360

9,770

2.3

630

1,470

Below $7,500

1,200

6,130

7.1

340

1,420

$ 7,500 - $10,000

1,380

8,970

2.7

200

1,580

$10,000 - $12,500

920

11,260

1.1

1,460

$12,500 and Over

860

14,570

0.2

1,180

SOURCE:

Congressional Budget Office simulations.

See the text for a description of the plans. Beneficiaries depicted in this table are age
62 or older.

Beneficiaries are considered to have gained or lost if their benefits under the plan would
be at least 5 percent higher or lower than their benefits under current law in the
simulation year.

Relative to benefit under current law.

90 EARNINGS SHARING

January 1986

current law. Thus, most of them are better off if they receive a worker
benefit based on both their own and their spouses’ earnings. Widows, on the
other hand, mostly receive benefits as survivors under current law. They
gain from inheritance only if the worker benefit based on combined earnings
is enough larger than a survivor benefit based on the deceased spouse’s
earnings to offset the loss of the favorable treatment of reductions for early
retirement.
Divorced men would receive relatively small gains under all four
packages, with the increases ranging from 2.1 percent for Package B to 2.8
percent for Package C. Only a small minority would gain from the
divorced-spouses’ options, whereas the survivor options would provide in
creases of at least 5 percent for about 13 percent of all divorced menPackages B and D-to 19 percent--Packages A and C. The patterns of gains
by benefit level would differ significantly, however. The inheritance of
earnings credits would provide larger dollar gains-for those who gained—to
those with higher benefit amounts. In contrast, the gainers under the
combined-benefit-survivors’ option would be largest for those with benefits
between $7,500 and $10,000, although because of the small number of
divorced men in the simulated elderly population there is reason to question
the reliability of these data.
Compatibility of the Packages with Earnings Sharing
The compatibility of the incremental options with earnings sharing plans
should also be addressed if these options are to be considered either as part
of the transition to earnings sharing or as interim measures to improve
benefits for certain beneficiary groups while earnings sharing proposals are
being fine-tuned. Certain incremental options would work better with a
future system of benefits based upon shared earnings than would others. For
example, because inheritance of earnings credits is a characteristic of each
of the earnings sharing plans evaluated by HHS, passage of such a measure
before the enactment of an earnings sharing system would facilitate any
subsequent enactment of earnings sharing. In contrast, the option that
would pay surviving spouses two-thirds of the sum of their own benefits and
their survivors’ benefits would not ease the transition from current law to
earnings sharing. Other examples might include options for changing
benefits for working spouses and dropout years that were contained in the
HHS report. Indeed, such changes might create new groups of "losers" to be
considered in any transition to earnings sharing.

Chapter V

INCREMENTAL OPTIONS 91

CONCLUSION

Incremental changes in the Social Security program offer an alternative
approach for coping with many of the concerns that have led to calls for
earnings sharing. As with earnings sharing, however, this strategy would have
both advantages and disadvantages. Incremental options offer, to some
degree, the means to target benefit increases on some beneficiary groups
about whom there is substantial concern. Options that would increase the
benefits of some recipient groups would, however, require that either taxes
be raised or benefits for others be lowered relative to current law. If
benefits were to be reduced, this could be done by lowering the basic benefit
level, relative to that under current law, by a relatively small amount or by
eliminating or significantly reducing the benefits received by small bene
ficiary groups.
On the other hand, incremental options would continue to maintain the
disparate treatment of certain types of beneficiaries under current law.
Moreover, the compatibility of the incremental options and earnings sharing
plans might be an important issue to be addressed in formulating future
changes in the program, and might limit the range of incremental options to
be considered. Finally, interactions between some potential changes might
yield new disparities in benefits even while they mitigated others.

5 7 -0 0 6 0 - 8 6 - 5

APPENDIXES

APPENDIX A

BUDGETARY IMPACT OF THE HHS PLANS

This appendix presents several different measures of the costs of the
earnings sharing alternatives contained in the Health and Human Services
(HHS) report over the 75-year projection period. It also discusses the
sensitivity of the cost estimates to variations in both economic and
demographic factors.
Depending on how they are specified and how transitions are imple
mented, earnings sharing plans and the incremental alternatives might
increase costs, generate savings, or have no net budget impact at all. The
HHS report contains estimates of Social Security program costs under
various earnings sharing proposals that range from a reduction of less than 1
percent of total benefit payments to an increase of almost 8 percent. HHS
estimates that the costs of its incremental options would range from
negligible amounts--for the options to modify the eligibility requirements
for disabled widow(er)s’ benefits--to a 10 percent increase under the option
to modify the dual entitlement provisions of current law. 1/ On the other
hand, benefit payments under the SSI, Food Stamp, and Medicaid programs
probably would fall somewhat because of the increases in Social Security
benefits experienced, on average, by those who will have low incomes under
current law.
MEASURING COSTS FOR SOCIAL SECURITY
There are many ways to express the costs of the current Social Security
program and of options that would change it. The measure traditionally
used--at least for long-range projections--is a percentage of the wage base
subject to the Social Security payroll tax. This "percent of taxable payroll"
measure is used to allow a determination of the payroll tax rate necessary
1.

Under current law, spouses may only receive spouses' or surviving spouses' benefits
when they exceed their own workers’ benefits. That is, there is a dollar-for-dollar offset
in current law between the spouse's benefit and the worker's benefit. This option would
reduce the entitlement to auxiliary benefits by $1 for every $2 of the worker's benefit.

96 EARNINGS SHARING

January 1986

to finance a particular program or option. It eliminates the problems of
evaluating costs over a 75-year period when even low rates of inflation can
make future costs appear very large relative to current outlays.
Since costs expressed as percents of taxable payroll may not be very
meaningful to the public, other measures may be useful. One alternative is
to transform the estimated costs of the options into percentage changes in
the projected costs of the OASDI program under current law. A second
alternative is to display the estimated costs of the options in dollars in
relation to the payroll tax base in 1984--that is, the additional costs of the
options in 1984 had the proposals been fully in effect. Each of the two
alternatives provides an easily understood guide to the additional burden on
generations of taxpayers should earnings sharing or other changes raise
future federal obligations.
Two different sets of cost estimates are presented in this appendix.
First, the costs of the various plans estimated by the Social Security
Administration’s Office of the Actuary are discussed. These are the only
estimates in this report that refer to costs over the entire 75-year
projection period. Second, the relative increases in benefits in 2030 as
simulated under the DYNASIM model are reviewed. 2/ The simulation
results refer only to 2030 and therefore cannot be generalized to calculate
comparable 75-year estimates. None of the estimates includes the adminis
trative costs of implementing the options. For some of the options, such
costs may be substantial.
The estimated benefit effects from the simulation differ somewhat
from those that can be inferred from the Actuary’s cost projections. These
differences are largely the result of different distributions of the types of
beneficiaries assumed by the Actuary and produced by DYNASIM. For
example, among women beneficiaries in 2030, the Actuary assumes nearly
one-half would be entitled to only retired worker benefits whereas the
DYNASIM figure is closer to one-third. On the other hand, DYNASIM has
about twice as many female beneficiaries whose own worker benefits would
be less than those to which they would be entitled either as spouses of
retired workers or as surviving spouses.
While it is impossible to determine at this time which distribution is a
more appropriate assumption for 2030, it is virtually certain that the actual
distribution in 2030 will differ from both. The staffs of the Office of the
2.

See Appendix B for a description of DYNASIM.

Appendix A

BUDGETARY IMPACT OF THE HHS PLAN 97

Actuary and the Congressional Budget Office (CBO) are currently
undertaking a review of the assumptions, but reconciliation of the results is
likely to be a lengthy process.
COSTS OF EARNINGS SHARING PLANS
This section discusses the long-range costs of the earnings sharing plans as
projected by the Office of the Actuary over the next 75 years, their
simulation by CBO in 2030, and the timing of their impacts over the next 75
years.
Cost Estimates Produced by HHS
Table A -1 presents two measures of the long-range OASDI costs for the
earnings sharing alternatives presented in the HHS report. One option--the
Generic II plan--would result in savings of 0.04 percent of taxable payroll
relative to current law. 3/ At the other extreme, the no-loser version of
taxable earnings sharing would increase costs by 1.0 percent of payroll. The
intermediate-cost earnings sharing options evaluated--GenericI and Modi
fied I--would increase costs by between 0.35 percent and 0.73 percent of
taxable payroll. 4/
Measuring HHS’s estimated costs as the percent change in total Social
Security outlays, rather than as percents of taxable payroll, indicates that
these plans could reduce benefit costs by 0.31 percent--for Generic II--or
increase them by about 7.7 percent--for the HHS version of a no-loser plan.
Alternatively, if costs were expressed as dollars in terms of 1984 taxable
payroll, the range of costs would be from a reduction of $0.6
billion--(-0.0004 times $1,597 billion)--to an increase of $16 billion (0.01
times $1,597 billion). 5/

All of the long-range estimates appearing in this appendix, unless specifically noted,
are based on the II-B demographic and economic assumptions of the 1984 Trustees’
Report. The II-B set of assumptions is the more conservative of the two intermediate
sets of assumptions, and the one most commonly cited as the basis for Social Security
cost projections.

See Chapter IV for a description of the two plans.

For the most recent estimates of 1984 taxable payroll see Henry Ballantyne,
"Long-Range Estimates of Social Security Trust Fund Operations in Dollars," Actuarial
Note 125 (Baltimore: Social Security Administration, April 1985).

January 1986

98 EARNINGS SHARING

TABLE A -1.

Plana/

ALTERNATIVE MEASURES OF COSTS OF
EARNINGS SHARING OPTIONS

1984 - 2008

Period
2009 - 2034

2035 - 2058

Total
1984 - 2058

Current Law as Percent
of Taxable Payroll b/
Outlays
Revenues
Difference

10.54
12.56
2.01

13.02
12.97
-0.05

15.29
13.16
-2.14

12.95
12.90
-0.06

Change in Costs as Percent of
Taxable Payroll
Generic I
Generic II
Modified I
Modified II
No Loser c/

0.07
-0.02
0.10
0.03
0.10

0.38
-0.06
0.75
0.37
0.97

0.60
-0.02
1.34
0.76
1.93

0.35
-0.04
0.73
0.39
1.00

Change in Costs as
Percent of Current Law Benefits
Generic I
Generic II
Modified I
Modified II
No Loser c/
SOURCES:

a.
b.
c.

0.66
-0.19
0.95
0.28
0.95

2.92
-0.46
5.76
2.84
7.45

3.92
-0.13
8.76
4.97
12.62

2.70
-0.31
5.64
3.01
7.72

HHS report; 1984 Annual Report o f the Board of Trustees of the Federal OldAge and Survivors Insurance and Disability Insurance Trust Funds', and
Congressional Budget Office calculations.

See Chapter IV of this report and Chapters III-V of the HHS report for descriptions
of the various plans.
Components may not sum to totals because of rounding.
The No Loser plan guarantees individual recipients against loss of current law benefits.

Appendix A

BUDGETARY IMPACT OF THE HHS PLAN 99

To compare those costs with those of recently enacted changes in
Social Security, the Generic I plan would increase costs by slightly more
than the reduction in benefits that was estimated to result from the
six-month delay in the cost-of-living adjustment (COLA) enacted as part of
the Social Security Amendments of 1983. The Department of Health and
Human Services has estimated that the increased costs as a percent of
taxable payroll for enacting the Modified I plan would be very close to the
estimated savings from the increase in the retirement age enacted in 1983.
Such increases in costs are therefore comparable to the cost impacts of
restoring some of the benefit reductions enacted as part of the 1983
Amendments.
On the other hand, the OASDI trust funds were projected in 1984 to
operate with a small deficit over the 75-year projection period--0.06
percent of taxable payroll under the II-B assumptions. 6/ Adding any costs
without a commensurate rise in trust fund income would increase the
likelihood that future legislation would be necessary to increase revenues,
reduce benefits, or both, in order to restore financial balance in the
program. Therefore, even though the most expensive earnings sharing plan
would be expected to raise total program costs by less than 8 percent over
the 75-year projection period, enactment would increase the chances that
other difficult choices concerning Social Security financing would also need
to be addressed. Moreover, as discussed in further detail below, the timing
of the cost increases would be important, with the costs of the earnings
sharing options being much higher in later years than in the relatively near
future.
Cost Estimates Based on the Simulation Model
Table A -2 presents CBO’s simulations of the percentage changes in benefit
costs for the earnings sharing plans presented in the HHS report, as well as
for the variants analyzed by CBO. The latter include a plan specified by the
Technical Committee on Earnings Sharing (Modified III) and one with a
current law guarantee for couples and unmarried people, rather than a
guarantee based on individuals as in the HHS report (Generic IV).
The simulation results indicate that each of the plans, except the
Generic II plan, would raise total benefit payments in 2030 relative to
current law, with the increases ranging from about 1 percent to 8 percent.
6.

The most recent estimate, presented in the 1985 Trustees' Report, showed a long-range
deficit under the II -B assumption of 0.41 percent of taxable payroll.

100 EARNINGS SHARING

TABLE A-2.

Option
Generic I

January 1986

EFFECTS OF EARNINGS SHARING OPTIONS
ON BENEFITS PAID TO ELDERLY AND
NONELDERLY RECIPIENTS IN THE YEAR
2030 a/
Percent Change in Benefits Paid in 2030
Relative to Current Law
Elderly b/
Nonelderly
Total
1.0

8.3

1.6

-3.1

7.5

-2.2

Modified I

2.6

25.4

4.5

Modified II

-1.5

24.9

0.8

Modified III d

2.0

24.8

4.0

Generic IV d

4.1

22.3

5.7

No Loser d/

6.4

24.9

8.0

Generic II d/

SOURCE:

Congressional Budget Office simulations.

See the text for descriptions of the options.

Defined as recipients age 62 or older.

Plan appears in CBO evaluation but not in HHS report.

Plan appears in HHS report but not in CBO evaluation.

Appendix A

BUDGETARY IMPACT OF THE HHS PLAN 101

The Generic II plan would actually reduce program benefits in 2030 by 2.2
percent. It should be noted, however, that the simulated costs for the
nonelderly are much less reliable than for the elderly, because DYNASIM
does not simulate the disabled population very accurately. Comparing only
the costs for beneficiaries age 62 and older, the range would be from a
reduction of 3.1 percent to an increase of 6.4 percent.
In addition to Social Security costs, the interactions between Social
Security and other tax and transfer programs would likely result in changes
in the rest of the federal budget. For example, in 1983, over 5 percent of
Social Security beneficiaries also received benefits under the Supplemental
Security Income (SSI) program. 7/ In the same year, about 7 percent of
elderly recipients lived in households that also received benefits from the
Food Stamp program. 8/ Changes in Social Security that increased or
decreased payments to low-income beneficiaries would therefore be likely
to result in lower or higher expenditures for the SSI and Food Stamp
programs. Because the earnings sharing plans evaluated here would have
minimal impact on benefits until after the turn of the century, it is difficult
to ascertain whether they would have a measurable effect on the meanstested programs. The substantial real-income growth that is incorporated in
the II-B assumptions would be expected to lead to significantly lower
outlays from the means-tested programs as they are now structured. On the
other hand, substantial growth in income might lead to legislative changes
that expanded these programs’ benefits or liberalized their eligibility
criteria to reflect rising standards of living.
Similarly, revenues would be reduced by any changes that resulted in a
redistribution of benefits away from higher-income recipients because the
partial taxation of Social Security benefits then would affect fewer
recipients.
Timing of Costs
Also important when considering the various proposals is the distribution of
their costs and revenues over time. Under the 1984 Trustees’ Report II-B
assumptions, over the next 30 to 35 years the trust funds will benefit both
7.

U.S. Department of Health and Human Services, Social Security Bulletin, Annual
Statistical Supplement, 1983, Table 159 (p. 231).

U.S. Bureau of the Census, Current Population Reports, Series P-60, No. 14,
"Characteristics of Households and Persons Receiving Selected Noncash Benefits: 1983"
(Washington, D.C.: U.S. Government Printing Office, 1985).

102 EARNINGS SHARING

January 1986

from favorable demographic conditions and from the scheduled 1988 and
1990 payroll tax rate increases, thereby allowing them to experience annual
excesses of tax income over outgo. These surpluses are projected to become
annual deficits beginning around 2020 and to continue to worsen as the "baby
boom" retires. As a result, the substantial reserves built up in the trust fund
accounts during the period before 2020 are expected to decline as a
percentage of the annual benefit payments beginning about 2015, and to
decline in absolute terms beginning about 2050.9/ Consequently, by 2060,
trust fund balances will be nearly depleted. 10/
The cost impact of the various earnings sharing proposals would grow
over time, with costs being substantially higher in the last 25 years of the
projection period than in the first 25 years (see Table A -1). For example,
under the Generic I plan, the costs would grow from less than 0.1 percent of
taxable payroll during the 1984-2008 period to 0.6 percent of payroll in the
2035-2058 period. Similarly, the No Loser plan evaluated by HHS would be
expected to raise costs by 0.1 percent of taxable payroll during the next 25
years and by 1.93 percent in the last 25-year segment of the projection
period.
As a result, under all but the Generic II plan, the overall costs of the
Social Security cash benefits program would rise slightly in the relatively
near future but much more in later periods. The projections of current law
costs show outlays as a percent of payroll rising by about 45 percent from
the 1984-2008 period to the 2035-2058 period. Under Generic I the increase
would be closer to 50 percent; and under the No Loser plan, costs would
grow by about 62 percent between the two 25-year periods. In contrast,
current law revenues are projected to grow much more slowly, rising from
12.56 percent of taxable payroll for the 1984-2008 period to 13.16 percent in
the 2035-2058 segment of the projection period--an increase of only 5
percent.
Under these projections, the various earnings sharing plans would
accelerate the depletion of the trust funds expected to occur in the middle
of the twenty-first century. Current law OASDI outgo is expected to be
about 16 percent higher than trust fund revenues in the 2035 to 2058 period.
The Generic I, Modified I, and No Loser earnings sharing plans would
9.

During the period in which the trust funds build up reserves, Social Security will become
the owner of massive amounts of U.S. Treasury securities. As these securities are
redeemed, the Treasury will have either to sell more securities to the public or raise
more revenues, if other spending is to be maintained.

10.

Under the II -B assumptions of the 1985 Trustees’ Report, the OASDI fund will be
depleted in 2049.

Appendix A

BUDGETARY IMPACT OF THE HHS PLAN 103

increase the excess to about 21 percent, 26 percent, and 31 percent,
respectively. Although there is reason to be skeptical about the reliability
of 75-year projections, particularly for the third 25-year segment, estimated
cost increases of this magnitude would be likely to cause considerable
concern about the program’s funding for the middle of the next century.
UNCERTAINTY OF COST PROJECTIONS
Projections of the costs of earnings sharing proposals--and of program costs
in general--are based on sets of assumptions about future economic and
demographic events, such as fertility, mortality, economic growth, and labor
force participation. As such, these projections are subject to error, and this
uncertainty increases with the length of the projection period. Therefore, in
a program such as Social Security where projections are often made with
reference to a 75-year time span, all estimates--and particularly those
furthest into the future - - should be used with caution.
Recognizing this problem, the trustees of the Social Security trust
funds present projections of trust fund operations over the next 75 years
based on at least three different sets of assumptions about demographic
changes and the performance of the economy.
The various sets of
assumptions are constructed in order to provide estimates that range from
optimistic to pessimistic with regard to their impacts on the Social Security
trust funds. To illustrate, under the optimistic, or Alternative I, assump
tions of the 1984 Trustees’ report, the average cost of the OASDI program
over the next 75 years is estimated as 10.01 percent of taxable payroll. The
comparable figure under the pessimistic, or Alternative III, assumptions is
17.22 percent, or about 72 percent higher than under the optimistic
projections and a third higher than under the II-B assumptions. 11/
Demographic Factors
To a large extent, the ability to finance future benefits under current law
depends on the growth and composition of the population. Moreover, various
factors such as improvements in mortality rates and changes in disability
rates have important effects on the size of the beneficiary population during
the projection period. For instance, the 1984 II-B assumptions incorporate
mortality improvements in 1984 equal to the average annual gain exper
ienced during the 1968-1980 period, with the rate of improvement declining
11.

Similar relationships among costs occur under the various sets of assumptions used
for the 1985 Trustees' Report.

104 EARNINGS SHARING

January 1986

over time. If this rate of improvement is altered to be 50 percent higher
than the II-B assumptions--as in the Alternative III assumptions--the 75year actuarial balance becomes about 1.07 percent of taxable payroll in
deficit rather than 0.06 in deficit. While mortality improvements would
increase the size of the working age population slightly, and therefore
increase revenues, the considerable increase in the number of beneficiaries
would have a much more substantial effect on outlays.
On the other hand, factors such as fertility rates and labor force
participation rates are important determinants of the size of the work force
upon whom payroll taxes are levied. If fertility rates are assumed to be 20
percent lower than the 2.0 birth per woman rate used in the II-B assump
tions, the long-range balance declines by over 1 percent of taxable payroll,
from -0.06 percent to -1.15 percent.
Trends in marriage and divorce rates also are crucial, because such
rates are likely to have important consequences for child bearing, labor
force behavior, and beneficiary status. These factors are especially critical
to estimates of program costs under alternative benefit computation pro
cedures such as earnings sharing.
As discussed in Chapter IV, CBO has examined the sensitivity of the
results to changes in two factors that may be thought to have an important
impact on future beneficiaries: divorce rates and labor force participation
rates of women.
In one alternative scenario, participation rates are
assumed to increase more rapidly and reach an ultimate level about 10
percent higher than in the II-B assumptions. In another scenario, this higher
rate of participation in the labor force is combined with a 20 percent higher
divorce rate.
The DYNASIM projections using the increased rates of divorce and
labor force participation suggest that, overall, current law benefits would be
about 0.7 percent higher than the baseline projection.
Under these
alternative assumptions, estimates of 2030 benefit payments under the
Generic I plan are about 1.1 percent higher than for current law, in contrast
to the 1.6 percent difference when the baseline assumptions are used. Thus,
it appears that the higher labor force participation and divorce rates them
selves would not substantially alter the relative costs of earnings sharing
proposals.
Economic Factors
Assumptions about the performance of the economy also are critical to
projections of Social Security outlays, income, and trust fund balances.

Appendix A

BUDGETARY IMPACT OF THE HHS PLAN 105

Economic factors that enter into these projections include growth in gross
national product, in productivity, and in wage and nonwage compensation
per worker. Other factors include the future rates of unemployment, price
increases, and interest.
For example, if a 2.0 percent real wage growth assumption is
substituted for the 1.5 percent in the II-B set of assumptions, the 75-year
balance improves from -0.06 percent of taxable payroll to 0.62 percent.
Alternatively, if the ultimate inflation rate is assumed to be 5 percent
rather than 4 percent annually, the balance improves from -0.06 to 0.12
percent. The favorable effect of inflation on trust fund balances occurs
because, assuming that real wages remain constant, price increases will be
reflected in nominal wages--and, therefore, in trust fund revenues--more
rapidly than in OASDI benefit payments because of the lag in indexing
benefits to inflation.
One key variable for the purposes of evaluating the distribution of
benefits under current law and under earnings sharing is the relative wage
levels of male and female workers. Although it is generally agreed that
female labor force participation rates, particularly those of married women,
will continue to increase during the remainder of this century, controversy
persists about the earnings gap between men and women and whether this
gap will diminish over time. In part as a result of this uncertainty, the
earnings gap under each of the different sets of assumptions is maintained
at its current level. If this gap were to narrow and if the labor supply
patterns of women continued to become more like those of men, the cost
estimates for earnings sharing options--and those under current law as
well - - would be much different from those estimated in the HHS report.
Differences in Results of the Simulation
and the Actuarial Models
Another element of uncertainty in examining the cost and beneficiary
impacts of earnings sharing plans is that, although both estimation tech
niques use the same assumptions about aggregate economic and demographic
events, the simulation and the actuarial models produce somewhat different
beneficiary populations for 2030. These differences result primarily from
fundamental distinctions in the models’ treatments of individual bene
ficiaries. For example, the actuarial model used by the Social Security
Administration applied divorce and remarriage rates through tables based on
the ages of the two spouses, whereas the DYNASIM model uses a marriage
cohort approach that also allocates divorces according to length of mar
riage, the relationship of the spouses’ wage rates, and other factors. As a

106 EARNINGS SHARING

January 1986

consequence, it would be quite surprising if the models produced
populations with identical characteristics.
Similarly, women’s work histories are constructed differently under
the two models. Their labor force experience as simulated by DYNASIM
results in more women having insured status as workers than does the
actuarial model. DYNASIM indicates that fewer married women would be
eligible only for spouses’ benefits, and more would be either dually entitled
or entitled only as worker beneficiaries. These differences appear to have
an effect on both the estimates of current law benefit payments and on the
costs of the earnings sharing plans.
COSTS OF INCREMENTAL OPTIONS
Less comprehensive changes in the Social Security programs were also
discussed in the HHS report, and were described as options that might be
implemented either as part of the transition to earnings sharing or as
alternatives to the more far-reaching plans. These incremental options—24
in all-were presented as illustrations of program changes designed to
address specific concerns with the current program. CBO did not directly
evaluate all of these options, but rather attempted to determine whether
combinations of the options might be successful at alleviating problems
associated with the disparities between the benefits of the survivors of oneand two-earner couples and the relatively low benefits available to divorced
spouses. Accordingly, this appendix will not directly evaluate the HHS cost
estimates for the incremental options, but will instead discuss general
questions about the costs of these proposals.
Range of Social Security Benefit Costs
The largest component of the federal costs associated with the HHS options
is, of course, benefit payments under Social Security. In the long run, HHS
estimates that the plans could have a negligible impact on total benefits, or
could increase benefit costs by up to 10 percent, depending on the specific
plan. (Estimates of the potential administrative costs were not supplied in
the HHS report.) The most expensive plans in the long run tend to be those
that are directed at improving the benefits for two-earner couples and their
survivors, such as the inheritance of earnings credits or the modification of
the current dual entitlement provisions. Those with small costs often deal
with modifications of the number of years of earnings to be included in the
computation of benefits or with the various qualifications for disability

Appendix A

BUDGETARY IMPACT OF THE HHS PLAN 107

benefits.
The costs of two options, voluntary earnings sharing and the
provision of homemaker credits, could not be estimated.
Unlike the earnings sharing plans, however, the incremental options
would begin to affect benefit payments shortly after enactment. For
example, the option to increase benefits for those 85 and older beginning in
January 1986 was estimated to increase costs by $1.2 billion in calendar
year 1986, and by $8.0 billion over the 1986-1990 period. The most
expensive options over the next five years were the change in dual
entitlement rules-under which the offset for the spouse’s or surviving
spouse’s benefit would be changed from $1 for every $1 of the person’s own
worker benefit to $1 for every $2—and the provision of child care increment
years (a 2 percent benefit increase for every year in which the recipient had
a child under age seven and no earnings in that year). These two options
would each increase Social Security benefit costs by over $11 billion over
the 1986-1990 period. Moreover, these are the costs of providing such
benefit increases to only those becoming eligible after 1985. If they were to
be extended to all beneficiaries, the costs would be much larger.
On the other hand, several options would have relatively small costs
over the next five years. For instance, the option that would increase
divorced spouses’ benefits for those who had long marriages would, accord
ing to the HHS report, increase costs by less than $200 million over the
period. In general, the smaller-cost items would provide additional benefits
to fewer recipients, relatively small increases to these recipients, or both.
Other Federal Costs
As discussed earlier, many poorer Social Security recipients also receive
benefits from other federal assistance programs such as SSI and Food
Stamps. At the other end of the income spectrum, more affluent recipients
are affected by the partial taxation of Social Security benefits. Thus, any
increase in Social Security benefits to either low- or high-income recipients
would have a smaller federal budget impact than the increase in Social
Security benefits, because it also would work either to reduce other outlays
or to increase income tax revenues.
For an illustration of these offsetting effects, consider the option that
would raise benefits for the very old by 10 percent. Approximately 6
percent of these beneficiaries in June 1985 were concurrent recipients of
Social Security and SSI benefits, with their Social Security benefits averag
ing $233 per month and their federal SSI payments averaging $97. A 10
percent benefit increase would result in approximately 35 percent of these

108 EARNINGS SHARING

January 1986

persons losing their eligibility for federal SSI payments, and the average
affected recipient would lose $22 per month in federal SSI payments.
Therefore, federal SSI payments in calendar 1986 would fall by about $40
million. In addition, the loss of SSI eligibility would cause some current SSI
recipients to lose Medicaid eligibility as well, reducing federal Medicaid
costs by about $40 million. Moreover, Food Stamp benefits would be
reduced by another $5 million. Thus, while Social Security benefits would
rise by $1.2 billion that year, the net effect on federal spending would be
close to $1.1 billion.
On the income tax side, approximately 9 percent or 0.2 million of the
very old were simulated to have total incomes high enough to be affected by
the taxation of benefits. Of the additional $1.2 billion in Social Security
benefits paid under the option, CBO estimates that approximately $130
million in Social Security benefit payments would be received by those
paying income taxes on their benefits. For those currently paying income
taxes on their Social Security benefits, however, only a portion of their
benefits are subject to the income tax. As a result, only about 4 percent to
5 percent of total benefits to the age 85-and-over population actually affect
income tax liabilities. Assuming a 10 percent benefit increase would raise
these "countable" benefits by roughly the same percentage, income tax
revenues would grow by about $15 million in 1986.
Although the offsets in other portions of the federal budget would be
relatively small in the example above, other options might have more
significant interactions with other programs. For instance, if a flat dollar
benefit increase for the very old was provided rather than the 10 percent
increase--assuming the same total increase in Social Security
benefits--there would be much larger SSI, Medicaid, and Food Stamp offsets
and smaller income tax effects than those displayed above.

APPENDIX B

MICROSIMULATION TECHNIQUES

In order to analyze the distributional impact of changes in the Social
Security system, a data file must be created to represent the U.S.
population for years into the future, and that file must include all of the
information necessary for the calculation of benefits. One way to construct
these data files--and the method employed by both HHS and CBO-uses
microsimulation models, or more specifically, the Dynamic Simulation of
Income Model (DYNASIM). DYNASIM takes a recent sample of the U.S.
population and generates a similar population sample for a future year by
simulating for each individual important demographic and economic events,
such as births, family formation, labor force participation, and earnings.
This appendix presents a brief overview of DYNASIM and a discussion of the
limitations of this approach.
DYNASIM: A GENERAL DESCRIPTION
DYNASIM is a microsimulation model originally designed at The Urban
Institute as a tool for analyzing the impacts of policy decisions that would
affect the economic and demographic choices individuals and families would
face during future years. 1/ The original DYNASIM model has since been
modified in a number of important aspects, and its second-generation
version now has more compartmentalized structure. 2/ DYNASIM’s major
components are the Family and Earnings History (FEH) model and the Jobs
and Benefit History (JBH) model. Output from the FEH model, including
information on marital status, marital history, labor force status and
history, is fed into the JBH model, and the JBH model produces a data file
with Social Security coverage and benefits, private pension coverage and
benefits, and other characteristics for each person in the file.

For more details see Guy Orcutt, Steven Caldwell, and Richard Wertheimer II, Policy
Exploration Through Microanalytic Simulation (Washington, D.C.: The Urban Institute,
1976).

Jon Johnson, Richard Wertheimer II, and Sheila Zedlewski, "The Dynamic Simulation
of Income Model," vols. I and II, Project Report 1434-03 (Washington, D.C.: The Urban
Institute, November 1983).

110 EARNINGS SHARING

January 1986

DYNASIM ages its population one year at a time. Each person
represented in the file is first processed through the demographic modules
for the simulation of events such as divorce, marriage, birth, death, and
leaving home. This is followed by the simulation of economic character
istics including labor force participation, hours and weeks worked, and
earnings. The simulated characteristics of the population are adjusted to
reflect either historical target figures or assumed targets for future
years. 3/ 4/
Once the FEH model has produced an output file for a given year-an
output file that contains longitudinal records for labor force and marital
status variables-DYNASIM moves to a second stage in which the JBH model
simulates job changes, Social Security and private pension plan coverage,
retirement and disability income, and retirement decisions.
Currently, DYNASIM begins with the 1973 Exact Match File--a match
of the Census Bureau’s March 1973 Current Population Survey (CPS), Social
Security earnings records, and Internal Revenue Service 1972 tax return
information--as its initial input file. 5/
Demographic and labor force
information was derived from the 1973 CPS data, while Social Security
earnings histories before 1973 were available from the Social Security
records. Some of the variables needed for the simulation, such as length of
marriage, had to be imputed from information that was available on the CPS
records. Approximately one-half of the records from this modified file are
then selected in inverse proportion to their sample weights to produce a file
in which all records have identical sample weights.
The versions of DYNASIM used by HHS in its report differ in certain
ways from those used by CBO. For example, slightly different equations are
used to predict which couples get divorced. A more important difference is
that the disability component of the HHS version was modified to produce
longer spells of disability and to increase the mortality rates for the
disabled. This causes the HHS and CBO models to have different projections
3.

Because the initial data file used in the simulation contains data for 1972, the model’s
output must be aligned with historical information up through the present in order
to have an appropriate basis for simulating future events.

The files used in this report as well as the HHS report were generated by creating targets
consistent with the Intermediate B (II-B) economic and demographic assumptions of
the 1983 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors
Insurance and Disability Insurance Trust Fund, and constraining the output from the
FEH model to align with these targets.

The IRS component of the Exact Match File is not used by the DYNASIM model, and
is therefore not retained as part of the initial input file.

Appendix B

MICROSIMULATION TECHNIQUES 111

of benefit costs for beneficiaries under age 62, although the models have
similar results for elderly recipients.
LIMITATIONS OF THE APPROACH
Although microsimulation modelling can be a valuable addition to the set of
analytical tools used by policy analysts, current models have several
limitations. Among these are:
o

Lack of consensus as to the appropriate specifications for many
important behavioral relationships;

Reliance on externally determined economic and demographic
assumptions to guide the model;

Lack of recent databases that could be used as the initial files for
simulating Social Security benefits;

Lack of program-specific information for determining eligibility;
and

Shortness of the historical period over which the behavioral
relationships are estimated relative to the length of the projec
tion period.

Behavioral Relationships
In many instances, the behavioral relationships embodied in DYNASIM are
much less sophisticated than the best empirical research in the literature.
This circumstance usually results from one of two problems. First, the best
research in a given field usually employs databases that are not comparable
with the Current Population Survey (CPS) that generally serves as the initial
file for a DYNASIM run. For example, many labor supply studies of older
men have used data from the National Longitudinal Surveys or the Retire
ment History Study, and these studies employ many more variables than are
provided in the CPS. Therefore the specific equations estimated in those
studies cannot be translated into a corresponding equation in DYNASIM. In
addition, these analyses are often cross-sectional estimates--that is, focus
ing on behavior in a single period-whereas the purpose of DYNASIM is to
produce realistic longitudinal-multiyear-patterns. Second, the statistical
methods used in these studies are often too cumbersome or too expensive
for population simulations of 60,000 cases over a 58-year projection period.

112 EARNINGS SHARING

January 1986

The lack of behavioral models that can track behavior over time
forces users of simulation models to specify the levels and rates for many
key variables such as population size and age distribution, average earnings
and rate of growth in earnings, labor force participation, and incidence of
disability. As a result, the accuracy of the simulation is dependent on the
assumptions imposed on the model’s output by the user. In this report, the
exogenously determined assumptions are the II-B assumptions of the 1983
Trustees’ Report—except for CBO’s sensitivity analysis.
As a set, the II-B assumptions are not necessarily internally consist
ent. 6/ For example, the rates of real wage growth and unemployment are
determined without regard to labor force growth after the turn of the
century; divorce rates are assumed to remain at their 1978 levels despite
the assumption of continued increases in the labor force participation rates
for women; and fertility rates are expected to increase during the remainder
of this century at the same time that women are increasing their paid work
effort. On the other hand, use of the II-B assumptions constrained the
simulated results to be as consistent as possible with the estimates produced
by the SSA’s Office of the Actuary. Moreover, the choice of assumptions
was also constrained by the lack of alternatives that contained the economic
and demographic factors necessary for Social Security projections out to the
year 2030.
Economic and Demographic Assumptions
There is little consensus at the present time as to what factors determine
many of the demographic and economic events required for the simulation.
Empirical researchers using sophisticated methods find different relation
ships between variables, and few have even attempted to estimate equations
that can predict trends in economic and demographic behavior.
Lack of Databases
A third limitation of the existing dynamic simulation models is the absence
of recent databases with longitudinal earnings histories to use as the initial
input file for the simulations, or to validate the simulation results. The
1973 Exact Match file serves as the starting point for DYNASIM simula
tions. A similar file was generated with the 1978 CPS, but many cases could
6.

For a further discussion of this issue, see Appendix B: Report of the Panel of Consultants
to the 1979 Advisory Council on Social Security, in Social Security Financing and
Benefits (1979).

Appendix B

MICROSIMULATION TECHNIQUES 113

not be matched with their Social Security earnings records. Both are
somewhat outdated given the rapid economic, demographic, and social
changes experienced by American society in recent years.
Program-Specific Information
The validity of the simulations is also constrained by the lack both of
specific details required for determining program eligibility and benefit
levels--such as degree of medical impairment--and of modules to represent
the behavior of the agencies administering the program. One area in which
this is a major problem is in determining eligibility for Disability Insurance
(DI) benefits, where much of the recent concern has focused on program
administration.
Historical Period
Finally, virtually all of the behavioral relationships incorporated into
DYNASIM have been estimated on a relatively short historical period, one
that may not be ideal for 50-year projections. For example, the labor supply
decisions of men and women are modeled on the basis of 13 years--1967 to
1979--of data from the Michigan Panel Study of Income Dynamics. This
period was one of major disruptions in labor markets-relatively high
unemployment rates and rapid labor force growth as a result of the aging of
the baby boom population and the reentry of married women into the paid
work force-and therefore such data may not be appropriate for projections
of future labor market patterns. In addition, the marriage module is
founded on data from the early 1970s, and the education decisions are based
on even earlier data. While it is highly likely that the relative importance
of factors affecting these decisions changes over time, it is difficult in
practice to predict how these relationships will change. In large part,
changes are incorporated into DYNASIM through the overall target rates
imposed on the model by the user.

APPENDIX C

ADDITIONAL TABLES

January 1986

116 EARNINGS SHARING

TABLE C -l.

ANNUAL BENEFITS IN THE YEAR 2030 UNDER
RETROSPECTIVE GENERIC EARNINGS SHARING
BY BENEFIT UNDER CURRENT LAW
(Numbers of beneficiaries in thousands;
benefits in 1984 dollars) a/

Benefits
Under
Current
Law

Number of
Beneficiaries

Average
Benefit
Under Percent
Plan Changée/

Beneficiaries
Who Would Gain
At Least 5 % b!
Average
Number Gain

Beneficiaries
Who Would Lose
At Least 5 % b/
Average
Number Loss

Married Couples^/
Total

12,880

16,620

-0.3

2,630

2,050

2,950

1,890

Less than 812,500

2,110

10,510

2.4

590

2,150

390

1,650

$12,500 - $15,000

2,450

13,690

-1.0

390

2,240

620

1,610

$15,000 - $17,500

2,960

16,140

-0 .6

610

1,820

690

1,780

$17,500 - S20,000

2,500

18,520

-0.7

500

1,900

600

2,070

$20,000 or more

2,860

22,490

-0 .2

540

2,220

640

2,260

Widows
Total

15,320

9,150

-0.5

5,900

1,920

5,040

2,380

Less than 87,500

4,730

6,480

12.5

2,300

1,700

420

1,170

$7,500 - $10,000

4,790

9,360

6.6

2,260

2,030

1,220

1,490

$10,000 - $12,500

3,630

10,820

-2.9

1,070

2,200

1,750

1,980

$12,500 or more

2,160

11,730

-18.3

270

1,890

1,650

3,760

Divorced Women with
Deceased Ex-Husbands
Total

6,400

8,560

3.9

3,490

1,800

1,700

2,480

Less than $7,500

2,850

6,850

20.2

2,130

1,670

220

1,330

$7,500 - $10,000

1,950

9,200

6.0

980

1,930

540

1,630

$10,000 -S12,500

1,030

10,600

-4.3

310

2,190

490

2,350

570

11,250

-21.3

2,140

440

4,240

$12,500 or more

(Continued)

Appendix C

ADDITIONAL TABLES 117

TABLE C -l.

(Continued)

Benefits
Under
Current
Law

Number of
Beneficiaries

Average
Benefit
Under Percent
Plan Change d

Beneficiaries
Who Would Gain
At Least 5 % b/
Average
Number Gain

Beneficiaries
Who Would Lose
At Least 5 % b/
Average
Number Loss

Other Divorced Women
Total

2,930

7,220

16.6

2,090

1,470

100

880

Less than $7,500

2,310

6,470

20.3

1,760

1,450

780

10,000

8.5

330

1,570

1,120

$7,500 or more

620£/

Widowers
Total

3,810

10,280

6 .2

1,850

1,340

240

1,770

Less than $7,500

1,010

6,500

12.6

550

1,410

1,270

$7,500 - $10,000

1,180

9,410

8 .2

700

1,370

1,740

$10,000 - $12,500

850

11,530

3 .9

370

1,280

2,310

$12,500 or more

760

15,210

3 .0

230

1,190

1,440

Divorced Men
Total

4,360

8,800

-7 .9

670

1,160

2,570

1,590

Less than $7,500

1,200

5,730

0.1

350

1,150

450

870

$7,500 - $10,000

1,380

8,030

-8 .1

220

1,150

850

1,450

$10,000 - $12,500

920

9,920

-10 .9

1,240

650

1,860

$12,500 or more

860

13,130

-9 .8

1,200

620

2,020

SO U R C E :

Congressional Budget Office sim ulations.

The average gains (losses) are for the beneficiaries whose benefits under the plan would be at least 5 percent
higher or lower than their benefits under current law in the simulation year.

Relative to benefit under current law.

Couples in which both spouses would receive benefits under current law and at least one spouse is age 62
or older.

This group includes about 5 0 0 ,0 0 0 divorced women with benefits under current law between $ 7 ,5 0 0 and
810,000; 100,000 with benefits betw een 810,000 and § 1 2 ,5 0 0 ; and 30,000 with benefits of $ 1 2 ,5 0 0 or more.
Estimates of the effects of the plan on these groups are not provided because of sm all sample sizes.

January 1986

118 EARNINGS SHARING

TABLE C-2.

ANNUAL BENEFITS IN THE Y EA R 2030 UNDER
RETROSPECTIVE MODIFIED EARNINGS SHARING
BY BENEFIT UNDER CURRENT LAW
(Numbers of beneficiaries in thousands;
benefits in 1984 dollars) a/

Benefits
Under
Current
Law

Number of
Beneficiaries

Average
Benefit
Under Percent
Plan Change c/

Beneficiaries
Who Would Gain
A t Least 5 % hi
Average
Number Gain

Beneficiaries
Who Would Lose
At Least 5 % hi
Average
Number Loss

Married Couples^
Total

12,880

16,990

2.0

3,890

2,000

2,190

1,640

Less than $12,500

2,110

11,460

11.7

1,330

2,040

150

1,430

$12,500 - $15,000

2,450

14,270

3.2

760

2,010

330

1,190

$15,000 - $17,500

2,960

16,360

0.8

720

1,790

540

1,460

$17,500 - $20,000

2,500

18,670

0.1

520

1,920

540

1,710

$20,000 or more

2,860

22,580

0.2

560

2,250

620

2,010

Widows
15,320

9,180

-0.1

6,040

1,930

4,990

2,370

Less than $7,500

4,730

6,550

13.8

2,430

1,720

380

1,130

$7,500 - $10,000

4,790

9,380

6.9

2,260

2,030

1,210

1,440

$10,000 - $12,500

3,630

10,820

-2.9

1,070

2,200

1,750

1,980

$12,500 or more

2,160

11,730

-18.3

270

1,890

1,650

3,760

Total

Divorced Women with
Deceased Ex-Husbands
Total

6,400

8,630

4.7

3,590

1,850

1,680

2,470

Less than $7,500

2,850

6,980

22.6

2,210

1,760

200

1,240

$7,500 - $10,000

1,950

9,220

6.2

1,000

1,920

540

1,590

$10,000 - $12,500

1,030

10,600

-4.2

310

2,190

490

2,350

570

11,250

-21.3

2,140

440

4,240

$12,500 or more

(Continued)

ADDITIONAL TABLES 119

Appendix C

TABLE C - 2.

(Continued)

Benefits
Under
Current
Law

Number of
Beneficiaries

Average
Benefit
Under Percent
Plan Change c/

Beneficiaries
Who Would Gain
At Least 5 % hi
Average
Number Gain

Beneficiaries
Who Would Lose
At Least 5 % hi
Average
Number Loss

Other Divorced Women
Total

2,930

7,450

20.3 ‘

2,350

1,590

930

Less than $7,500

2,310

6,750

25.5

2,020

1,590

840

10,030

8.9

340

1,600

1,030

$7,500 or more

620£/

Widowers
Total

3,810

10,290

6.3

1,860

1,350

240

1,690

Less than $7,500

1,010

6,520

13.0

560

1,410

960

$7,500 - $10,000

1,180

9,420

8.3

700

1,380

1,740

$10,000 - $12,500

850

11,540

4.0

370

1,280

2,18 0

$12,500 or more

760

15,210

3.0

230

1,190

1,440

Divorced Men
Total

4,360

8,850

-7.3

760

1,140

2,450

1,600

Less than $7,500

1,200

5,860

2.5

440

1,120

370

830

$7,500 - $10,000

1,380

8,080

-7.5

220

1,140

810

1,430

$10,000 - $12,500

920

9,930

-10.8

1,240

640

1,860

$12,500 or more

860

13,130

-9 .8

1,200

620

2,020

SOURCE:

Congressional Budget Office sim ulations.

The average gains (losses) are for the beneficiaries whose benefits under the plan would be at least 5 percent
higher or lower than their benefits under current law in the simulation year.

c.
d.

Relative to benefit under current law.
Couples in which both spouses would receive benefits under current law and at least one spouse is age 62
or older.

This group includes about 5 0 0 ,0 0 0 divorced women with benefits under current law between $ 7 ,5 0 0 and
S10,000; 1 00,000 with benefits between $ 1 0 ,000 and S 1 2 ,5 0 0 ; and 30,000 with benefits of $12,500 or more.
Estim ates of the effects of the plan on these groups are not provided because of sm all sam ple sizes.

120 EARNINGS SHARING

TABLE C-3.

January 1986

ANNUAL BENEFITS IN THE Y EA R 2030
UNDER GENERIC EARNINGS SHARING I
BY BENEFIT UNDER CURRENT LAW
(Numbers of beneficiaries in thousands;
benefits in 1984 dollars) a/

Benefits
Under
Current
Law

Number of
Beneficiaries

Average
Benefit
Under Percent
Plan Change c/

Beneficiaries
Who Would Gain
At Least 5 % b/
Average
Number Gain

Beneficiaries
Who Would Lose
A t Least 5 % hi
Average
Number Loss

Married Couples^/
12,880

16,590

-0 .5

1,980

1,870

2,340

1,870

Less than $12,500

2,110

10,340

0.7

380

1,940

370

1,440

$12,500 -$15,000

2,450

13,630

-1 .5

250

2,120

470

1,750

$15,000 - $17,500

2,960

16,150

-0 .5

490

1,630

530

1,750

$17,500 - 820,000

2,500

18,520

-0 .7

390

1,780

450

2,190

$20,000 or more

2,860

22,510

-0.1

470

2,010

530

2,130

Total

Widows
15,320

9,230

0.4

2,930

1,730

1,680

2,720

Less than $7,500

4,730

5,990

4.1

980

1,400

220

1,310

$7,500 - $10,000

4,790

8,980

2.3

1,110

1,880

540

2,160

$10,000 - $12,500

3,630

11,150

0.1

660

1,990

490

2,750

$12,500 or more

2,160

13,690

-4 .7

170

1,750

430

4,110

Total

Divorced Women with
Deceased Ex-Husbands
Total

6,400

8,490

3 .0

1,990

1,420

510

2,610

Less than $7,5.00

2,850

6,210

9.0

1,270

1,210

100

1,100

$7,500 - $10,000

1,950

9,020

3.8

510

1,670

150

1,530

$10,000 - $12,500

1,030

11,070

-0.1

160

2,130

120

2,830

570

13,360

-6 .6

1,710

130

4,730

$12,500 or more

(Continued)

Appendix C

ADDITIONAL TABLES 121

TABLE C-3.

(Continued)

Benefits
Under
Current
Law

Number of
Beneficiaries

Average
Benefit
Under Percent
Plan Change c/

Beneficiaries
Who Would Gain
At Least 5 % b/
Average
Number’ Gain

Beneficiaries
Who Would Lose
At Least 5 % b/
Average
Number Loss

Other Divorced Women
Total

2,930

6,920

11.8

1,760

1,240

120

660

Less than $7,500

2,310

6,140

14.1

1,490

1,190

580

9,840

6.8

270

1,490

870

$7,500 or more

620£/

Widowers
Total

3,810

10,140

4.8

1,430

1,180

130

1,590

Less than $7,500

1,010

6,200

7.4

440

1,040

1,240

$7,500 - S10,000

1,180

9,290

6.8

540

1,260

1,700

$10,000 -$12,500

850

11,480

3 .4

280

1,220

2,000

$12,500 or more

760

15,160

2.7

160

1,210

1,170

Divorced Men
Total

4,360

8 ,960

-6 .3

490

1,000

2,280

1,340

Less than $7,500

1,200

5,720

-0.1

250

990

370

700

$7,500 - $10,000

1,380

8,190

-6 .3

170

890

740

1,210

$10,000 - $12,500

920

10,220

-8 .2

1,410

580

1,540

$12,500 or more

860

13,380

-8 .0

1,150

590

1,720

SO URCE:

Congressional Budget Office sim ulations.

The average gains (losses) are for the beneficiaries whose benefits under the plan would be at least 5 percent
higher or lower than their benefits under current law in the simulation year.

c.
d.

Relative to benefit under current law .
Couples in which both spouses would receive benefits under current law and at least one spouse is age 62

or older.
This group includes about 5 0 0 ,0 0 0 divorced women with benefits under current law between $ 7 ,5 0 0 and
S10,000; 1 0 0 ,0 0 0 with benefits between $10 ,0 0 0 and 8 1 2 ,5 0 0 ; and 30,000 with benefits of $ 1 2 ,5 0 0 or more.
Estimates o f the effects of the plan on these groups are not provided because of sm all sample sizes.

January 1986

122 EARNINGS SHARING

TABLE C- 4.

ANNUAL BENEFITS IN THE YEAR 2030
UNDER MODIFIED EARNINGS SHARING I
BY BENEFIT UNDER CURRENT LAW
(Numbers of beneficiaries in thousands;
benefits in 1984 dollars) a/

Benefits
Under
Current
Law

Number of
Beneficiaries

Average
Benefit
Under Percent
Plan Change c/

Beneficiaries
Who Would Gain
A t Least 5 % b/
Average
Number Gain

Beneficiaries
Who Would Lose
At Least 5 % b/
Average
Number Loss

Married Couples^/
Total

12,880

16,960

1.8

3,390

1,810

1,640

1,550

Less than $12,500

2,110

11,230

9.4

1,200

1,810

170

1,010

$12,500 - $15,000

2,450

14,220

2.8

660

1,800

220

1,200

$15,000 - $17,500

2,960

16,400

1.0

610

1,650

370

1,440

$17,500-$20,000

2,500

18,700

0.3

430

1,800

380

1,660

$20,000 or more

2,860

22,610

0.3

490

2,040

490

1,900

Widows
15,320

9,270

0.8

3,220

1,710

1,650

2,700

Less than $7,500

4,730

6,090

5.8

1,270

1,400

180

1,290

$7,500 -$10,000

4,790

9,000

2.5

1,120

1,890

540

2,030

$10,000-$12,500

3,630

11,150

0.1

660

1,990

490

2,720

$12,500 or more

2,160

13,690

-4 .7

170

1,750

430

4,110

Total

Divorced Women with
Deceased Ex - Husbands
Total

6,400

8,600

4.4

2,380

1,490

510

2,530

Less than 87,500

2,850

6,460

13.4

1,630

1,370

930

$7,500 - $10,000

1,950

9,030

4.0

530

1,650

160

1,400

$10,000 - 812,500

1,030

11,070

-0.1

160

2,130

120

2,830

570

13,360

-6 .6

1,710

130

4,730

$12,500 or more

(Continued)

Appendix C

ADDITIONAL TABLES 123

TABLE C -4.

(Continued)

Benefits
Under
Current
Law

Number of
Beneficiaries

Average
Benefit
Under Percent
Plan Change c/

Beneficiaries
Who Would Gain
At Least 5 % b/
Average
Number Gain

Beneficiaries
Who Would Lose
A t Least 5 % b/
Average
Number Loss

Other Divorced Women
Total

2,930

7,230

16.7

2,160

1,420

650

Less than $7,500

2,310

6,510

21.1

1,880

1,400

510

9,880

7.3

290

1,510

850

$7,500 or more

620^

Widowers
Total

3,810

10,160

4.9

1,430

1,190

130

1,450

Less than $7,500

1,010

6,230

8.0

450

1,060

940

$7,500 -$10,000

1,180

9,290

6.9

540

1,280

1,700

$10,000 - $12,500

850

11,490

3.5

280

1,220

1,780

$12,500 or more

760

15,160

2.7

160

1,210

1,170

Divorced Men
Total

4,360

9,000

-5.8

590

990

2,160

1,360

Less than $7,500

1,200

5,840

2.0

340

980

290

670

S 7,500 - $10,000

1,380

8,220

-5.9

180

890

710

1,200

$10,000 - $12,500

920

10,220

-8.2

1,410

570

1,540

$12,500 or more

860

13,380

-8.0

1,150

590

1,720

SOURCE:

Congressional Budget Office sim ulations.

The average gains (losses) are for the beneficiaries whose benefits under the plan would be at least 5 percent
higher or lower than their benefits under current law in the simulation year.

Relative to benefit under current law.

Couples in which both spouses would receive benefits under current law and at least one spouse is age 62

This group includes about 5 0 0 ,0 0 0 divorced women with benefits under current law between $ 7 ,5 0 0 and

or older.
$ 1 0 ,0 0 0 ; 1 0 0 ,0 0 0 with benefits between $ 1 0 ,0 0 0 and $ 1 2 ,5 0 0 ; and 3 0 ,0 0 0 with benefits of $ 12,500 or more.
Estim ates of the effects of the plan on these groups are not provided because of small sam ple sizes.

124 EARNINGS SHARING

TABLE C-5.

January 1986

ANNUAL BENEFITS IN THE YEA R 2030
UNDER MODIFIED EARNINGS SHARING II
BY BENEFIT UNDER CURRENT LAW
(Numbers of beneficiaries in thousands;
benefits in 1984 dollars) a/

Benefits
Under
Current
Law

Number of
Beneficiaries

Average
Benefit
Under Percent
Plan Change d

Beneficiaries
Who Would Gain
At Least 5 % hi
Average
Number Gain

Beneficiaries
Who Would Lose
At Least 5 % hi
Average
Number Loss

Married Couples^/
Total

12,880

16,900

1.4

3,350

1,810

1,900

1,720

Less than $12,500

2,110

11,180

8.9

1,190

1,810

220

1,240

$12,500 - $15,000

2 ,450

14,180

2.5

650

1,790

260

1,270

$15,000 -$17,500

2,960

16,340

0.7

600

1,650

430

1,590

$17,500 - $20,000

2,500

18,670

0.1

420

1,790

410

1,680

$20,000 or more

2,860

22,480

-0 .2

480

2,050

580

2,220

Widows
Total

15,320

8,140

-11.5

3,220

1,710

7,960

2,720

Less than $7,500

4,73 0

5,770

0.3

1,270

1,400

1,180

1,440

$7,500 - $10,000

4 ,79 0

8,010

-8 .7

1,120

1,890

2,580

2,240

$10,000 - $12,500

3 ,630

9,700

-12 .9

660

1,990

2,410

2,700

$12,500 or more

2,160

10,950

-23 .8

170

1,750

1,780

4,310

Divorced Women with
Deceased Ex-Husbands
Total

6,400

7,700

-6 .5

2,380

1,490

2,440

2,860

Less than $7,500

2,85 0

6,290

10.4

1,630

1,370

420

1,330

$7,500 - $10,000

1,950

8,070

-7 .1

530

1,650

900

2,310

$10,000 - $12,500

1,030

9,450

-14 .7

160

2,130

680

2,980

570

10,350

-27 .6

1,710

440

5,250

$12,500 or more

(Continued)

ADDITIONAL TABLES 125

Appendix C

TABLE C-5.

(Continued)

Benefits
Under
Current
Law

Number of
Beneficiaries

Average
Benefit
Under Percent
Plan Change c/

Beneficiaries
Who Would Gain
At Least 5 % b/
Average
Number Gain

Beneficiaries
Who Would Lose
At Least 5 % hi
Average
Number Loss

Other Divorced Women
Total

2,930

7,210

16.4

2,160

1,420

150

870

Less than $7,500

2,310

6,490

20.7

1,880

1,400

100

760

9,850

7.0

290

1,510

1,120

$7,500 or more

620*!

Widowers
Total

3,810

10,130

4.7

1,430

1,190

180

1,480

Less than $7,500

1,010

6,220

7.9

450

1,060

870

$7,500 - $10,000

1,180

9,280

6.6

540

1,280

1,320

$10,000 - $12,500

850

11,440

3.1

280

1,220

2,000

$12,500 or more

760

15,150

2.6

160

1,210

1,560

Divorced Men
Total

4,360

8,980

-6.0

590

990

2,220

1,370

Less than $7,500

1,200

5,780

1.0

340

980

340

780

$7,500 - $10,000

1,380

8,200

-6.1

180

890

720

1,220

$10,000 - $12,500

920

10,220

-8.2

1,410

570

1,540

$12,500 or more

860

13,380

-8.0

1,150

590

1,720

SOURCE:

Congressional Budget Office sim ulations.

The average gains (losses) are for the beneficiaries whose benefits under the plan would be at least 5 percent
higher or lower than their benefits under current law in the sim ulation year.

Relative to benefit under current law.

Couples in which both spouses would receive benefits under current law and at least one spouse is age 62
or older.

This group includes about 5 0 0 ,0 0 0 divorced women with benefits under current law between $ 7 ,5 0 0 and
$ 1 0 ,000; 100,000 with benefits betw een $ 1 0,000 and $ 1 2 ,5 0 0 ; and 30,000 with benefits of $ 1 2 ,5 0 0 or more.
Estim ates of the effects of the plan on these groups are not provided because of sm all sample sizes.

126 EARNINGS SHARING

TABLE C-6.

January 1986

ANNUAL BENEFITS IN THE YEAR 2030
UNDER MODIFIED EARNINGS SHARING III
BY BENEFIT UNDER CURRENT LAW
(Numbers of beneficiaries in thousands;
benefits in 1984 dollars) a/

Benefits
Under
Current
Law

Number of
Beneficiaries

Average
Benefit
Under Percent
Plan Change d

Beneficiaries
Who Would Gain
At Least 5 % bl
Average
Number Gain

Beneficiaries
Who Would Lose
At Least 5 % bl
Average
Number Loss

Married C ou pled
12,880

17,070

2.5

3,880

1,760

1,320

1,580

Less than $12,500

2,110

11,420

11.2

1,340

1,820

1,240

$12,500 - $15,000

2,450

14,440

4.4

910

1,630

120

1,110

$15,000 - $17,500

2,960

16,520

1.8

700

1,620

280

1,410

$17,500 - $20,000

2,500

18,780

0.7

440

1,770

340

1,570

$20,000 or more

2,860

22,600

0.3

480

2,060

510

1,830

Total

Widows
15,320

8,990

-2.2

3,250

1,710

5,300

1,500

Less than $7,500

4,730

6,090

5.8

1,280

1,410

220

530

$7,500 -$10,000

4,790

8,910

1.5

1,130

1,890

1,420

840

$10,000 - $12,500

3,630

10,760

-3.4

660

1,990

1,950

1,290

$12,500 or more

2,160

12,560

-12.5

170

1,750

1,710

2,420

Total

Divorced Women with
Deceased Ex-Husbands
Total

6,400

8,400

2.0

2,500

1,510

1,720

1,490

Less than $7,500

2,850

6,490

13.9

1,730

1,400

200

750

$7,500 -$10,000

1,950

8,720

0.4

560

1,640

660

1,190

$10,000 - $12,500

1,030

10,640

-3.9

160

2,130

490

1,490

570

12,840

-10.2

1,710

360

2,440

$12,500 or more

(Continued)

Appendix C

ADDITIONAL TABLES 127

TABLE C -6.

(Continued)

Benefits
Under
Current
Law

Number of
Beneficiaries

Average
Benefit
Under Percent
Plan Change c/

Beneficiaries
Who Would Gain
At Least 5 % hi
Average
Number Gain

Beneficiaries
Who Would Lose
At Least 5 % hi
Average
Number Loss

Other Divorced W omen
Total

2,930

7,300

17.9

2,260

1,450

690

Less than $7,500

2,310

6,610

22.8

1,970

1,440

380

9,890

7.4

290

1,520

880

$7,500 or more

620^

Widowers
Total

3,810

10,160

4.9

1,430

1,190

130

1,250

Less than $7,500

1,010

6,250

8.3

450

1,060

610

$7,500 - $10,000

1,180

9,290

6.8

540

1,280

1,160

$10,000 - $12,500

850

11,490

3.6

280

1,220

1,450

$12,500 or more

760

15,150

2.6

160

1,210

1,330

Divorced Men
Total

4,360

9,070

-5.1

590

990

2,060

1,270

Less than $7,500

1,200

5,880

2.7

350

980

230

600

$7,500 - $10,000

1,380

8,300

-5 .0

180

890

680

1,080

$10,000 - $12,500

920

10,330

-7 .2

1,410

560

1,390

$12,500 or more

860

13,430

-7 .7

1,150

590

1,650

SOURCE:

Congressional Budget Office sim ulations.

The average gains (losses) are for the beneficiaries whose benefits under the plan would be at least 5 percent
higher or lower than their benefits under current law in the sim ulation year.

Relative to benefit under current law.

Couples in which both spouses would receive benefits under current law and at least one spouse is age 62
or older.

This group includes about 500 ,0 0 0 divorced women with benefits under current law between $ 7 ,5 0 0 and
$10,000; 1 0 0 ,0 0 0 with benefits between $ 1 0 ,0 0 0 and $ 1 2 ,5 0 0 ; and 30,0 0 0 w ith benefits of $ 1 2 ,5 0 0 or more.
Estim ates of the effects of the plan on these groups are not provided because o f sm all sample sizes.

128 EARNINGS SHARING

January 1986

TABLE C-7. ANNUAL BENEFITS IN THE YEAR 2030
UNDER GENERIC EARNINGS SHARING IV
BY BENEFIT UNDER CURRENT LAW
(Numbers of beneficiaries in thousands;
benefits in 1984 dollars) a/
Benefit
Under
Current
Law

Average
Beneficiaries Who
Benefit
Would Gain b/
Number of
Under
Percent
Average
Beneficiaries
Plan
Change c/ Number Gain
Married Couples^

Total
Less than $12,500
$12,500 - $15,000
$15,000 - $17,500
$17,500 - $20,000
$20,000 or more

12,880
2,110
2,450
2,960
2,500
2,860

17,060
10,650
14,100
16,600
19,060
23,050

2.4
3.8
1.9
2.3
2.2
2.3

1,980
380
250
490
390
470

1,870
1,940
2,120
1,630
1,780
2,010

3.7
5.2
5.1
3.4
1.0

2,930
980
1,110
660
170

1,730
1,400
1,880
1,990
1,750

5.5
9.7
5.3
3.1
1.1

1,990
1,270
510
160
50

1,420
1,210
1,670
2,130
1,710

Widows
Total
Below $7,500
$7,500 - $10,000
$10,000 - $12,500
$12,500 or more

15,320
4,730
4,790
3,630
2,160

9,540
6,050
9,220
11,520
14,510

Divorced Women with
Deceased Ex-Husbands
Total
Below $7,500
$7,500 - $10,000
$10,000 - $12,500
$12,500 or more

6,400
2,850
1,950
1,030
570

8,700
6,250
9,150
11,410
14,470

(Continued)

ADDITIONAL TABLES 129

Appendix C

TABLE C-7. (Continued)

Benefit
Under
Current
Law

Average
Beneficiaries Who
Benefit
Would Gainb/
Number of
Under
Percent
Average
Plan
Beneficiaries
Change cl Number Gain
Other Divorced Women

Total
Less than 87,500
$7,500 or more

2,930
2,310
620®/

6,960
6,160
9,910

12.4
14.6
7.6

1,760
1,490
270

1,240
1,190
1,490

5.4
8.3
7.3
4.5
2.9

1,430
440
540
280
160

1,180
1,040
1,260
1,220
1,210

1.4
4.0
1.5
0.8
0.4

490
250
170
40
30

1,000
990
890
1,410
1,150

Widowers
Total
Less than $7,500
$7,500 -$10,000
$10,000 - $12,500
$12,500 or more

3,810
1,010
1,180
850
760

10,200
6,240
9,340
11,600
15,200

Divorced Men
Total
Less than $7,500
$ 7,500 - $10,000
$10,000 - $12,500
$12,500 or more
SOURCE:
a.

b.
c.
d.
e.

4,360
1,200
1,380
920
860

9,690
5,950
8,870
11,220
14,610

Congressional Budget Office simulations.

See the text for a description of the plan. Beneficiaries depicted in this table are age
62 or older and would account for approximately three-quarters of all beneficiaries in
the simulated population.
Beneficiaries are considered to have gained if their benefits under the plan would be
at least 5 percent higher than their benefits under current law in the simulation year.
Relative to benefit under current law.
Couples in which both spouses would receive benefits under current law and at least
one spouse is age 62 or older.
This group includes about 500,000 divorced women with benefits under current law
between $7,500 and $10,000; 100,000 with benefits between $10,000 and $12,500; and
30,000 with benefits of $12,500 or more. Estimates of the effects of the plan on these
groups are not provided because of small sample sizes.

APPENDIX D

DESCRIPTION OF HHS INCREMENTAL OPTIONS

The Department of Health and Human Services report discusses a total of
24 incremental options, designed to improve protection for:
o

Widows and widowers;

Working women;

Divorced women; and

Homemakers 1/

WIDOWS AND WIDOWERS
The largest number of the incremental options assessed by HHS were
directed at either increasing benefits for widowed beneficiaries or extending
eligibility for certain widowed persons not now eligible for benefits. Some
of these options would affect significant numbers of beneficiaries while
others would focus on relatively small groups.
Option 1
The first option evaluated by HHS would allow surviving spouses-and
divorced surviving spouses--to inherit the earnings credits of their deceased
spouses for the years in which they were married. These earnings would be
combined with the surviving spouses’ own earnings-subject to the limitation
that total earnings could not exceed the maximum taxable wage in any
year--and a benefit based on these combined earnings would be computed.
A surviving spouse would be eligible for the higher of the new benefit or the
current law benefit.

More detailed description of these options may be found in Chapter VII of the HHS report.

132 EARNINGS SHARING

January 1986

Option 2
A variant of the first option would be to allow surviving spouses-and
divorced surviving spouses—to combine their own earnings records with the
entire earnings records of their spouses or former spouses to compute new
benefits. For divorced surviving spouses, this option would permit them to
use the earnings records of any of their former spouses to whom they were
married at least 10 years. Thus, as under current law, more than one spouse
could receive benefits based on the same set of earnings.
Option 3
An alternative to the inheritance of earnings approach is to base benefits to
surviving spouses on two-thirds of the sum of the deceased spouses’ benefits
and the surviving spouses’ benefits. Thus, the surviving member of a twoearner couple could receive higher benefits than under current law, while
survivors of one-earner couples would continue to get the same amount as
now.
Option 4
An option designed to help younger widows without minor children is to
provide an "adjustment benefit" to a worker’s surviving spouse age 55-59.
The benefit would equal 71.5 percent of the deceased worker’s basic benefit
and would be payable for up to six months after the worker’s death. This
benefit is designed to provide income for a limited period after a worker’s
death to a widow or widower who might otherwise have no source of income.
After the six-month period, the surviving spouse is expected to have made
the economic transition from married to widowed status.
Option 5
One relatively simple way to increase benefits for certain women is to
eliminate any actuarial reductions in benefits affecting disabled widows
regardless of age. That is, the benefits would equal 100 percent of the
deceased workers’ basic benefits. Moreover, disabled widows under age 50
would become eligible for benefits for the first time.
Option 6
One version of this option would be to liberalize the eligibility requirements
for disabled surviving spouses’ benefits by extending the period after a

Appendix D

DESCRIPTION OF HHS INCREMENTAL OPTIONS 133

worker dies during which the surviving spouse is eligible for disabled
widow(er)’s benefits. The current seven-year period would be increased by
three months for every quarter of coverage earned by the surviving spouse
after the worker’s death.
Option 7
Eligibility for disabled widow(er)’s benefits would be extended to 10 years
after a worker’s death, instead of the current 7-year period.
Option 8
Another option for increasing the benefits of surviving spouses who are
disabled would be to use the same definition of disability as for disabled
workers. Under current law, applicants for disabled worker benefits are
evaluated on vocational factors, age, and education as well as medical
factors, whereas applicants for disabled widow(er)s’ benefits may qualify on
medical criteria only. This option would eliminate that distinction.
Option 9
Under current law, a worker’s own delayed retirement credits are not
allowed to affect the total benefits for which the worker might be eligible
under the program’s dual entitlement provisions. This proposal would allow
the dollar amount of the worker’s own delayed retirement credits to be
added to the total benefit to be received as a surviving spouse.
Option 10
An option directed toward increasing the benefits of all very old beneficiar
ies including widows and widowers would be to raise benefits by 10 percent
for all those age 85 and over.
WORKING WOMEN
The current treatment of two-earner couples and the surviving spouses of
such couples is a major factor behind the interest in earnings sharing, and
eight HHS incremental options address that concern to a certain degree.

134 EARNINGS SHARING

January 1986

Two of these options alter the interaction between the worker’s benefit
and the spouse’s or survivor’s benefit, and the other six modify the
calculation of the worker’s benefit for years spent caring for children.
Option 11
The first option for working women is one that would change the current
offset between a worker’s benefits and those the worker might be eligible
for as a spouse. This option would change the current $l-for-$l offset to a
$l-for-$2 offset. That is, for every two dollars of a person’s own retired
worker benefit, the spouse’s or survivor’s benefit would be reduced by one
dollar.
Option 12
This option would pay a working spouse’s benefit to each member of a twoearner couple, and the benefit would be 25 percent of the lesser of the
worker’s benefit or the spouse’s or surviving spouse’s benefit. For example,
if a person was eligible for a worker’s benefit of $400 and a spouse’s benefit
of $200, then he or she would receive $450 per month-$400 plus 25 percent
of $200- - rather than $400 as under current law.
Option 13
Another method that could be used to increase benefits for some workers
would be to allow a worker to exclude up to 10 years from the regular
number of years used in computing benefits. The child care dropout years in
this option would be used after the regular dropout years, but could not
increase the total dropout years to more than 10. This option is relatively
more advantageous to disabled workers than retired workers, because those
becoming disabled before age 47 typically have fewer than five dropout
years whereas currently retired workers would have five dropout years.
Under this option, each could have as many as 10 excluded years of earnings.
Option 14
This option is similar to Option 13 except that the child care dropout years
would be in addition to the dropout years allowed under current law. Thus,
for workers turning age 62 after 1990, the number of years of earnings
included in the benefit computations would range from 25 years to 35 years
depending upon the number of child care dropout years.

Appendix D

DESCRIPTION OF HHS INCREMENTAL OPTIONS 135

Option 15
Under this option, the number of child care years-years with no earnings
and with a child under age seven-would be used to increase the worker’s
benefit directly. Specifically, each child care year up to 10 years would
increase the worker’s benefit by 2 percent, but the maximum benefit under
this calculation could not exceed that for which a maximum earner of the
same age and benefit type would be eligible.
Option 16
Another alternative would be to use child care credits for the purpose of
calculating the special minimum benefit, a benefit specifically designed to
provide additional benefits to long-term, low-wage workers.
Under this
option, the number of years that could be used to calculate the special
minimum benefit would be increased from 30 to 35, and up to 10 years of
child care could be used as years meeting the criteria of coverage for the
special minimum. A year of child care would be defined as any year in
which the worker had a child under age seven living with him or her and in
which total earnings were below the amount needed for a year of coverage
under the special minimum.
Option 17
A more generous version of Option 16 would be to take the special minimum
benefit as modified under Option 16 and replace the price-indexing of the
special minimum benefit with wage-indexing.
Option 18
The last of the options designed to address the treatment of working women
is to use child care years to relax the insured status requirements for
Disability Insurance benefits. This option would allow child care years not
to be considered in the determination of whether a person meets the
recency of work requirement-generally, a person has to have worked in 20
of the last 40 calendar quarters-for DI benefits. That is, if a person had a
child under age seven living with him or her and had no earnings during the
year, this year would not be included as one of the 10 years covered by the
recency-of-work requirement.

136 EARNINGS SHARING

January 1986

DIVORCED WOMEN
The increase in divorce rates over the past quarter century has contributed
to a growing concern about the economic status of divorced women,
particularly the elderly and disabled among them. HHS analyzed four
options targeted at improving benefits for divorced spouses.
Option 19
This option would raise benefits for many divorced spouses by increasing the
divorced spouse’s benefit by one percentage point for each year the
marriage had lasted beyond 10 years and up to 35 years. Thus, a person
divorced after 10 years of marriage would be eligible for the same 50
percent of the PIA of the former spouse as under current law, but one
married 35 years or more would be eligible for a benefit equal to 75 percent
of the former spouse’s PIA.
Option 20
One method to expand eligibility for divorced spouses’ and divorced surviv
ing spouses’ benefits would be to reduce the duration-of-marriage require
ment from the current 10-year period to 5 years.
Option 21
An alternative that would increase a divorced person’s disabled worker or
retired worker benefit would be to increase the number of dropout years to
be used in computing benefits. Under this option, one additional dropout
year-up to a maximum of 5--would be provided for each year of a marriage
that lasted at least 10 years and ended in divorce, when the person had no
earnings. No benefits payable as a result of this provision could be received
until at least two years had passed since the final divorce decree. In
addition, such benefits would only be payable to unmarried people.
Option 22
The final HHS option for improving benefits to divorced women is to allow
voluntary earnings sharing at divorce. Under this alternative, one member
of the divorcing couple would have to request that the couple’s total

Appendix D

DESCRIPTION OF HHS INCREMENTAL OPTIONS 137

earnings be split equally between the spouses on an annual basis. When
one of the spouses died, the surviving ex-spouse would inherit the deceased
spouse’s earnings credits for the period of their marriage.
HOMEMAKERS
Homemakers are the final group for whom HHS presented options for
benefit increases. One option is designed to replace the current system of
spouses’ and surviving spouses’ benefits with homemaker credits, while the
other would provide benefits to disabled homemakers.
Option 23
The first option would establish a system whereby imputed dollar values
would be determined for homemaker services, and such dollar amounts
would be placed into a person’s earnings record in the same way the regular
covered earnings are entered. The existing auxiliary benefits, such as those
for spouses and surviving spouses, would be eliminated. A more restrictive
version of this option would be to provide child care credits while retaining
all current law benefits. The HHS report did not contain specific details on
how the imputation for homemaker services would be determined.
Option 24
The final incremental option in the HHS report would provide benefits to
disabled spouses of retired or disabled workers. The benefits would be
restricted to spouses at least 50 years of age, and would be set at 37.5
percent of the retired or disabled worker’s PIA. In addition, Medicare
benefits would be available beginning 24 months after the first month of
eligibility for cash benefits.

Full text of Earnings Sharing Options for the Social Security System

FRASER