Social Security and Women

In considering Social Security reform, House Ways and Means Committee Chairman Thomas has expressed the desire to look at other aspects of the system besides its solvency. One interesting problem involves the treatment of stay-at-home mothers, an issue highlighted in a story in Thursday’s BNA Daily Tax Report.

Stay-at-home mothers, who leave the workforce to take care of their children, potentially get shortchanged in the calculation of social security benefits. For the years in which women are outside the paid workforce, they pay no social security taxes and thus make no contribution to the system. This doesn’t hurt women who stay married, as they are eligible for benefits based on the income of their working spouse. But others may receive lower benefits as a result of their choice.

This presents a conundrum of sorts for those who value the contribution of the homemaker. On one hand, giving no benefits for that seems to undervalue this contribution. (Yes, guys, celebrating Mother’s Day once a year is not going to be enough.) On the other hand, how does one measure the value? Even if we could, how should we expect to fund these benefits?

Markets set the value of most things, and they generally do so effectively. I’ve seen studies that seek to value the contribution of mothers based on the equivalent cost of professional services, and these values are high. However, as much as one might like to reward this contribution, doing it through the social security system is problematic. If we set some amount, what would that say to women who chose to work (or had to work) and earned less than this amount?

It should be noted, however, that women enjoy a demographic benefit that is not shared by those of us with a Y chromosome. They live longer, and thus stand to collect more from the system. As of 2002, a 65 year old male can expect to live 16.6 years, whereas a female could expect to live 19.5 years. (See the tables at http://www.cdc.gov/nchs/data/nvsr/nvsr53/nvsr53_06.pdf . These tables raise other issues, too, including the differences in life expectancy based on race. The absence of private accounts may well hurt some groups more than others, to the extent they are more likely to leave their contributions in the system for the benefit of other groups. But that is another topic.)

Of course, this means that the group who may be worse off than the stay-at-home mothers are the stay-at-home dads. Not only does their work get undervalued, but their kids apparently drive them to an early grave. Ouch!

Private accounts might provide some way out of the conundrum, as they might provide a means of accounting for benefits based on the earnings of the working spouse in a way that protects the interest of the nonworking spouse. (Thus, a portion of the benefits from the working spouse would get transferred to the nonworking spouse's account, without changing the total contribution.) However, no one is advocating that private accounts become the sole basis for these benefits. Assigning work credits based on half the working spouse’s income would also be possible, but that could complicate the existing system’s benefit structure. This might protect those who don't stay married. This conundrum will not be easily solved.
EAM