Social Security:

The Notch Issue

HRD-88-62: Published: Mar 24, 1988. Publicly Released: Mar 24, 1988.

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Pursuant to a congressional request, GAO reviewed the disparity of social security benefits, known as the notch, between classes of recipients, resulting from the Social Security Amendments of 1977, specifically: (1) how the notch arose; (2) its effect on beneficiaries; (3) the financial implications of some proposed notch legislation; and (4) the socioeconomic characteristics of affected social security recipients.

GAO found that the 1977 amendments: (1) altered the benefits computation formula; (2) stabilized replacement rates and lowered their level; (3) caused retirees born in or after 1917 to receive smaller benefit amounts than those born before then; and (4) did not fully anticipate rapid inflation from 1977 to 1983 which increased the notch between those groups. GAO also found that legislative proposals to lessen the benefit disparities: (1) would require making additional payments to beneficiaries, using current trust fund balances to finance notch remedies, increasing revenue through payroll taxation, and reducing benefits and other expenditures; (2) were generally costly and difficult to administer; and (3) could jeopardize the system's short-run financial condition.

Matter for Congressional Consideration

  1. Status: Closed - Implemented

    Comments: Congress has responded to this recommendation by not advancing legislation that would raise Social Security benefit payments and incur additional costs to the Trust Fund.

    Matter: In evaluating legislative proposals concerning the notch issue, Congress may wish to consider: (1) financing notch legislation which would be as neutral as possible in its effect on the Social Security Trust Funds and, where relevant, the federal budget; (2) the feasibility of implementing the legislation; and (3) not lengthening the transition period.

 

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