October 19 2012
Vicki E. Alger
It's called Social Security. Social Security's spousal and survivor benefit provisions - which date back to 1939 - make the program a terrific deal for spouses who stay out of the labor force. As such, they are unfair to the growing number of two-earner families, and they discourage married women from working outside the home. …
Here's how the system works. Single people pay payroll taxes and collect benefits based on their own earnings. Married people pay payroll taxes based on their own earnings and can collect either a spousal benefit or a benefit based on their own earnings (whichever is higher); they can also choose to switch to a survivor benefit if they are widowed. Thus, a non-earning spouse who pays no payroll taxes can still claim Social Security benefits based on the earning spouse's work history.
As a result of this design, one-earner couples get a much higher rate of return on their Social Security contributions than two-earner couples and singles.
Nataraj Slavov explains that single people and two-earner couples get about a 2.5 percent rate of return on their Social Security compared to a 4.5 percent return for single-earner couples.
One solution is “earnings sharing,” which would allow married couples to divide their earnings equally among them for Social Security purposes—eliminating any disincentive for single-earning couples to become dual-earning couples if they choose.
Back in 1940 about 20 percent of married women were in the labor force, increasing to 61 percent in 2010. Thus, today two-earner couples outnumber single-earner couples.
Married couples should be free to decide what working arrangements work best for them and their families. “But,” as Nataraj Slavov concludes, “it's a problem when the government tilts the playing field.”