Personal Finance
New Social Security benefit legislation points to need for broader reform
Richard Stephen | Istock | Getty Images
When President Joe Biden signed the Social Security Fairness Act on Jan. 5, it was a victory for those who tirelessly lobbied for years for new changes that will provide more generous benefits to public workers with pensions.
Yet for the policy community, the enacted change backed by overwhelming bipartisan support in both the House and Senate is a huge disappointment.
“Literally, you cannot find a Social Security expert who thought Social Security Fairness Act was a good idea,” said Andrew Biggs, senior fellow at the American Enterprise Institute.
The new law eliminates two provisions that adjusted Social Security benefits for individuals who also receive pension income from work performed in the public sector where payroll taxes to Social Security were not paid.
The now defunct Windfall Elimination Provision, or WEP, reduced Social Security benefits for approximately 2 million individuals who also have pension or disability benefits from work where they did not contribute to Social Security. The WEP was enacted in 1983.
The Government Pension Offset, or GPO, reduced Social Security benefits for nearly 750,000 spouses, widows and widowers who receive their own pensions from work in the public sector. The GPO was created in 1977.
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The provisions were intended to help ensure all Social Security beneficiaries get a comparable payout from the program. Because Social Security is progressive and intended to be an anti-poverty program, low-income workers receive a higher income replacement rate when they collect benefits. The WEP and GPO were intended to adjust public workers’ benefits so they were not treated as low-income workers.
Once the bill was signed, organizations that lobbied for the change praised the new law for finally providing affected workers the full Social Security benefits they had earned. For the National Committee to Preserve Social Security and Medicare, the new law caps off a decades-long fight to either modify or repeal the rules.
“It’s a way of cutting benefits for a class of people who are providing a public service for our communities,” said Maria Freese, senior legislative representative at the National Committee to Preserve Social Security and Medicare.
“They got singled out, and their Social Security earns them less in benefits than a person who decided not to go into public service,” Freese said.
As the new law is phased in, Social Security beneficiaries may see monthly benefit increases ranging from an average of $360 to $1,190, the Congressional Budget Office has estimated. Affected beneficiaries will also get lump-sum payments for the extra benefits they would have received throughout 2024.
The law makes the program “more fair” now that people will no longer be penalized for income earned outside of the system, said John Hatton, staff vice president for policy and programs at the National Active and Retired Federal Employees Association, or NARFE.
Notably, income from capital gains or inheritances already did not influence the size of Social Security benefits. The same should be true for income earned outside of the program, Hatton said.
Yet many policy experts maintain the changes never should have been enacted.
“What we saw was a huge special interest push for a very poorly developed and poorly targeted policy which is creating windfalls for a number of recipients,” said Maya MacGuineas, president of the bipartisan Committee for a Responsible Federal Budget.
Notably, that change will cost almost $200 billion over 10 years, according to the CBO, at a time when Social Security’s trust funds are already running low. The program’s combined trust funds are expected to last until 2035, at which point 83% of benefits will be payable, Social Security’s trustees projected last year. Eliminating the WEP and GPO will bring move that depletion date six months closer.
Experts both for and against the Social Security Fairness Act agree Congress needs to address the program’s funding shortfall sooner rather than later.
Provisions aimed to prevent benefit windfalls
The WEP and GPO rules, and how their intricacies affect individual beneficiaries, are complex.
“There is an injustice here that the provisions tried to correct, maybe not perfectly,” said Alicia Munnell, senior advisor at the Center for Retirement Research at Boston College.
Despite experts’ tireless efforts to explain the provisions to lawmakers, “we all failed,” Munnell said. Now what’s left is “bad policy,” she said.
Put simply, without the WEP, state and local workers who only work in jobs that pay into Social Security for a short time look like low earners and consequently get the extra benefits aimed at low earners, she said.
The elimination of the GPO also now makes it so a nonworking spousal Social Security benefit goes to a full-time worker with their own pension benefit, noted Charles Blahous, senior research strategist at George Mason University’s Mercatus Center.
“There’s zero justification for doing that,” said Blahous, who called the legislation “unserious” and “disappointing.”
While the WEP and GPO were imperfect, they were needed to prevent the payment of benefit windfalls to a small number of people who didn’t pay Social Security taxes for years, he said.
“It’s a very concerning indicator of Social Security’s future,” Blahous said.
Lawmakers face Social Security solvency dilemma
The Social Security Fairness Act was passed by the Senate with a 76-vote bipartisan majority. Amendments that were introduced in those final legislative hours in December — including efforts to add ways to pay for the change or alter the provisions instead of replacing them — failed. The Senate took up the bill after the House passed it in November with a 327 bipartisan majority.
Now that the WEP and GPO elimination has become law, one way to make the changes more equitable would be bring the 25% of state and local workers who do not currently contribute to Social Security into the program, according to Munnell.
While Congress could revisit the changes it just made with the Social Security Fairness Act, experts say that’s unlikely.
The bigger problem lawmakers now face is when and how to restore the program’s solvency.
“We are still in a place where politically it’s very difficult for members of Congress to come out in support of any substantive, responsible changes to the program that will address its long-term fiscal issues,” said Emerson Sprick, associate director of economic policy at the Bipartisan Policy Center.
Future action will require presidential leadership and a commitment to address the issue, Sprick said.
However, for now, President-elect Donald Trump has promised not to touch Social Security. Trump has also said he wants to eliminate taxes on Social Security benefit income. Trump’s presidential transition team did not immediately respond to a request for comment.
Because that change would be expensive, over $100 billion a year, and does not have the same fairness argument to it, it would be less likely to go through, according to Biggs.
While Trump has promised no benefit cuts, that creates a mathematical problem for Republicans, who are typically a low-tax party, he said.
Ultimately, restoring Social Security’s solvency may require benefit cuts, tax increases or a combination of both.
“We know that we need to be addressing Social Security and Medicare because of the insolvency that they both face within roughly a decade,” MacGuineas said. “Neither party, no leader, seems to have the political will or the integrity to start talking about how to get that done.”
The Federal Reserve held interest rates steady at the conclusion of its policy meeting on Wednesday.
In what could be Jerome Powell’s last as chair before President Donald Trump’s yet-to-be-confirmed nominee Kevin Warsh takes the helm, central bankers maintained the federal funds rate in a target range of 3.5% to 3.75%.
Inflation has surged since the war with Iran began, leaving policymakers with limited room to act, according to Sean Snaith, the director of the University of Central Florida’s Institute for Economic Forecasting. “We’re in a kind of suspended animation — between Iran and the Fed transition,” Snaith said.
Before the oil shock, inflation was holding above the Fed’s 2% target but not worsening. Now the jump in energy costs could have longer-term inflationary effects, economists say.
For Americans struggling in the face of higher gas prices and overall affordability challenges, the central bank’s decision to keep interest rates unchanged does little to ease budgetary pressures. “The cavalry isn’t coming anytime soon,” Snaith said.
How the Fed decision impacts you
The Fed’s benchmark sets what banks charge each other for overnight lending, but also has a trickle-down effect on many consumer borrowing and savings rates.
Short-term rates are more closely pegged to the prime rate, which is typically 3 percentage points above the federal funds rate. Longer-term rates, such as home loans, are more influenced by inflation and other economic factors.
Credit cards
Most credit cards have a short-term rate, so they track the Fed’s benchmark.
After the Fed cut rates three times in the second half of 2025, the average annual percentage rate has stayed just under 20%, according to Bankrate.
“Without Fed rate cuts, there’s not much reason to expect meaningful declines anytime soon, so carrying a balance will remain very expensive,” said Matt Schulz, chief credit analyst at LendingTree.
Mortgage rates
Fixed mortgage rates, on the other hand, don’t directly track the Fed but typically follow the lead of long-term Treasury rates.
Concerns about how the Iran war will impact the U.S. economy have already pushed the average rate for a 30-year, fixed-rate mortgage up to 6.38% as of Tuesday, from 5.99% at the end of February, according to Mortgage News Daily.
That leaves homeowners with existing low mortgage rates “feeling stuck,” said Michele Raneri, vice president and head of U.S. research and consulting at TransUnion. “Mortgages, more than any other credit type, work on a churn,” she said, referring to how a dip in rates can boost borrowing activity.
Student loans
Federal student loan rates are also fixed and based in part on the 10-year Treasury note, so most borrowers are somewhat shielded from Fed moves and recent economic uncertainty.
Current interest rates on undergraduate federal student loans made through June 30 are 6.39%, according to the U.S. Department of Education. Interest rates for the upcoming school year will be based in part on the May auction of the 10-year note.
Car loans
Auto loan rates are tied to several factors, including the Fed’s benchmark. Because financing costs remain elevated, new car buyers are taking on longer loans to keep their monthly payments manageable, according to the latest data from Edmunds.
Even so, with the rate on a five-year new car loan near 7%, the average monthly payment on a new car rose to $773 in the first quarter of 2026, an all-time high.
“Car buyers are in a tough spot right now because they’re getting squeezed from both ends: high sticker prices and high interest rates, with neither showing any signs of letting up,” said Joseph Yoon, consumer insights analyst at Edmunds.
“Until the rate picture shifts, buyers will keep stretching loan terms to make payments work, which only adds to the total cost of ownership down the road,” Yoon said.
Savings rates
While the Fed has no direct influence on deposit rates, the yields tend to be correlated with changes in the target federal funds rate. So, although rates on certificates of deposit and high-yield savings accounts have fallen from recent highs, they are holding above the annual rate of inflation.
For now, top-yielding online savings accounts and one-year CD rates pay around 4%, according to Bankrate.
“Yields on high-yield savings accounts and certificates of deposit are down from their peaks of a few years ago, but they’re still strong compared to what we’ve seen for most of the past decade,” Schulz said.
Milan Markovic | E+ | Getty Images
The average tax refund is 11.2% higher this season, compared with about the same period in 2025, according to the latest IRS filing data.
As of April 10, the average refund amount for individual filers was $3,397, up from $3,055 about one year ago, the IRS reported on Friday.
The IRS data reflects about 114 million individual returns received, out of about 164 million expected through Tax Day. Next week’s filing update is expected to include data through the April 15 deadline.
President Donald Trump‘s 2025 legislation, rebranded to the “working families tax cuts,” was a key talking point for Republicans on Tax Day.
With the November midterm elections approaching and Republicans defending slim majorities in Congress, many GOP lawmakers have highlighted Trump’s tax breaks and higher average refunds.
Meanwhile, affordability has been top of mind for many Americans amid rising costs of gas, electricity, food and other living expenses.
For filers who expected a refund this season, nearly one-quarter, or 23%, planned to use the funds to pay down credit card debt, and the same share said they would save the payment, according to the CNBC and SurveyMonkey Quarterly Money Survey, released in April. It polled 3,494 U.S. adults at the end of March.
Who benefited from Trump’s ‘big beautiful bill’
“It’s been a great tax season for the American people,” many of whom have benefited from Trump’s tax breaks, Treasury Secretary Scott Bessent said during a White House press briefing on Wednesday.
More than 53 million filers claimed at least one of Trump’s “signature new tax cuts” — the deductions for tip income, overtime earnings, seniors and auto loan interest — the Department of the Treasury also announced on Wednesday.
Those filers, who claimed the deductions on Schedule 1-A, have seen an average tax cut of over $800, according to the Treasury. Tax cuts can trigger a higher refund or reduce taxes owed, depending on the filer’s situation.
Some filers who itemize tax breaks have also seen benefits from the bigger federal deduction limit for state and local taxes, known as SALT. Trump’s legislation raised that cap to $40,000, up from $10,000, for 2025.
The latest SALT deduction limit change is expected to primarily benefit higher earners, according to a May 2025 analysis of various proposals from the Tax Foundation.
The Treasury has not released data on how many filers have claimed the SALT deduction during the 2026 filing season.
Traders work at the New York Stock Exchange on April 16, 2026.
NYSE
U.S. stocks climbed to record highs on Thursday against a backdrop of war, an oil supply shock and economic forecasts warning of stunted growth amid a protracted conflict.
Many investors may be thinking: Why?
Largely, it’s because the stock market is a barometer of what investors think will happen in the future, rather than an assessment of the present day, according to economists and market analysts.
Investors are essentially shrugging off the Middle East conflict as a blip that will be resolved relatively quickly, they said.
“The stock market isn’t trying to price what’s happening today,” said Joe Seydl, a senior markets economist at J.P. Morgan Private Bank. “The stock market is always trying to price what the world is going to look like six to 12 months from now.”
Why stocks have been ‘resilient’
The S&P 500, a U.S. stock index, fell about 8% in the initial weeks of the Iran war, from the start of the conflict on Feb. 28 to a recent low on March 30.
But stocks have rebounded since then, erasing all losses since the beginning of the war. The S&P 500 closed at an all-time high on Thursday — about 11% higher than its nadir at the end of March. That followed a record close on Wednesday.
“The market has remained very resilient in the face of the war and has rallied strongly on the prospect that it will be resolved,” said Mark Zandi, chief economist at Moody’s.
A ship waits to pass through the Strait of Hormuz following the two-week temporary ceasefire between the US and Iran, which is conditional on the opening of the strait, in Oman on April 8, 2026.
Shady Alassar | Anadolu | Getty Images
And while investors cheered the possibility of a diplomatic off-ramp to the conflict, the temporary ceasefire has appeared tenuous, with the U.S. and Iran each accusing the other of breaking the agreement.
Nations haven’t been able to reach a peace deal ahead of the ceasefire’s end. Vice President JD Vance said U.S. officials left peace talks in Pakistan over the weekend after the Iranian delegation refused to agree to American demands not to develop a nuclear weapon.
The markets ‘have memory’
Ultimately, the stock market is signaling a collective belief that tensions will ratchet down, the war will end in the near term and oil flows through the Strait of Hormuz will normalize, economists said.
That’s largely because investors have been conditioned to believe that President Donald Trump will back off if the economic pain becomes too intense, economists said — the so-called “TACO” trade, shorthand for “Trump always chickens out.”
“Investors strongly believe — and have been conditioned to believe — he’s going to stand down, find a way to pivot, declare victory and move on,” Zandi said.
Trump has pushed back on the notion of backing down, framing his brinkmanship as a savvy negotiating tactic.
Economists pointed to a recent example of this dynamic: in April 2025 during so-called liberation day, when the Trump administration levied a host of tariffs on U.S. trading partners.
Within days — after the stock market had cratered more than 12% — Trump announced a 90-day pause on those tariffs. Stocks then saw one of their biggest daily rallies in history following Trump’s reversal.
Investors remember that Trump often de-escalates geopolitical shocks — which is why they’ve seized on positive headlines that hint at progress in peace talks, for example, Seydl said.
“The markets have memory,” Seydl said.
AI stocks and the ‘tech boom’
Traders celebrating at the New York Stock Exchange on April 15, 2026, as the S&P 500 closed above the 7,000 level for the first time.
NYSE
There are other factors underpinning market resilience during wartime, economists said.
One is the investors’ enthusiasm for artificial intelligence and technology stocks, which account for almost half of the S&P 500’s market capitalization, Zandi said.
“Those stocks run on their own dynamic independent of anything, including the war in Iran,” Zandi said. “I think we would have been down a lot more and it would have been harder for us to recover had it not been for the very, very optimistic perspectives on AI.”
We’re in the middle of a “tech boom” — and investors are likely to remain optimistic until they think the tech cycle has run its course, Seydl said.
More broadly, stock investors are essentially making a bet on the future earnings growth of a company — and the earnings backdrop has been “pretty solid,” Seydl said.
Consumer spending appears to be stable, for example, economists said. And companies are getting a boost to their after-tax earnings from the GOP’s so-called “big beautiful bill,” which, among other things, made it easier to write off investments upfront and therefore reduce their tax liability, Zandi said.
Going forward
Experts said there will be an economic hit from the Iran war, though.
“Despite the recent news of a temporary ceasefire, some damage is already done, and the downside risks remain elevated,” Pierre-Olivier Gourinchas, director of research at the International Monetary Fund, wrote Tuesday.
A protracted conflict risks deep and global economic pain, he wrote.
Even if the conflict is short-lived — as the broad market expects — stocks are unlikely to march much higher until it’s clear the U.S. is on the other side of the war and its economic fallout, Zandi said.
If investors are incorrect, and President Trump doesn’t back down or quickly extricate the U.S. from the war, the stock market may see a “full-blown correction” or worse, Zandi said. A stock market correction is a decline of at least 10% from recent highs.
“Everyone thinks they know what the script is,” Zandi said. “Now they just need to follow the script. If they don’t, the market will have some real problems.”
The uncertainty provides yet another example of why the average investor with a long time horizon should stick to their investment plan and ignore the noise, experts said.
“Trying to time the market is very difficult if not impossible for the average investor,” Seydl said. “It’s better to take a long-term perspective and ride out bouts of volatility.”
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