Comments on the Social Security Notch Issue

T-HRD-92-46: Published: Jul 23, 1992. Publicly Released: Jul 23, 1992.

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GAO discussed its: (1) work on the "notch" disparity in Social Security benefits; and (2) belief that Congress made the right decision in not advancing notch legislation. GAO noted that: (1) other studies have confirmed and supported its original analysis and findings; (2) the notch group is not worse off compared to other beneficiaries; (3) the notch is an artifact of the corrected wage-indexed formula which restored the historical pattern of initial benefits; (4) beneficiaries immediately preceding the notch group received unintended overcompensation because of the flawed old formula; (5) successive cohorts received higher benefits because their wage base was larger; (6) proposed notch legislation would require additional revenue-raising measures; (7) increased payroll taxes on current workers, who already will receive a lower return on their social security contributions than previous beneficiaries, would be inequitable; (8) the Social Security Administration estimated that the cost of the proposed notch legislation would be $4.6 billion per year in added benefit costs; (9) the Old Age and Survivors Trust Fund has not yet reached minimum long-term solvency, and additional unfunded costs would weaken it further; and (10) due to current economic conditions and adverse trends in all Social Security trust funds, the costs of the notch legislation would exacerbate financial pressures on the social security system.

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