Source: Daniel Fetter, Lee M. Lockwood, National Bureau of Economic Research (NBER), NBER Working Paper No. w22132, March 2016
From the abstract:
Many major government programs transfer resources to older people and implicitly or explicitly tax their labor. In this paper, we shed new light on the labor supply effects of such programs by investigating the Old Age Assistance Program (OAA), a means-tested and state-administered pension program created by the Social Security Act of 1935. Using newly available Census data on the entire US population in 1940, we exploit the large differences in OAA programs across states to estimate the labor supply effects of OAA. Our estimates imply that OAA reduced the labor force participation rate among men aged 65-74 by 5.7 percentage points, nearly half of its 1930-40 decline. Estimating a structural model of labor supply, we find that the welfare costs to recipients of the high tax rates implicit in OAA’s earnings test were quite small. Predictions based on our reduced-form estimates and our estimated model both suggest that Social Security could account for at least half of the large decline in late-life work from 1940 to 1960.
Source: William R. Morton, Congressional Research Service, CRS Report, R41716, April 8, 2016
…This report provides an overview of SSA’s mandatory spending but focuses primarily on discretionary appropriations for the agency’s administrative expenses. …
Source: Carmen Solomon-Fears, Congressional Research Service, CRS Report, R44423, March 21, 2016
The Child Support Enforcement (CSE) program was enacted in 1975 as a federal-state program (Title IV-D of the Social Security Act, P.L. 93-647). It is intended to help strengthen families by securing financial support for children from their noncustodial parent on a consistent and continuing basis and by helping some of these families to remain self-sufficient and off public assistance. Child support payments enable parents who do not live with their children to fulfill their financial responsibility to them by contributing to the payment of childrearing costs. …..
Source: Kathryn Anne Edwards, Anna Turner, Alexander Hertel-Fernandez, Economic Policy Institute and the National Academy of Social Insurance, January 2016
From the abstract:
UPDATED! Social Security is the nation’s most successful anti-poverty program and it remains a fundamental pillar of the American economy—one that is critical to the long-term economic security of today’s young people. A Young Person’s Guide to Social Security, Third Edition (PDF) released by the Economic Policy Institute and the National Academy of Social Insurance, gives young adults the information they need to participate in debates about Social Security’s future. The 60-page guide is written by young authors for students and young workers and explains why Social Security is not in grave danger as oft-reported.
Source: Alison Shelton, AARP, Public Policy Institute, Fact Sheet, March 2016
Social Security is especially important for women ages 65 and older because they are less likely than are older men to have family income (including their own income) from pensions, savings, or other sources. Moreover, three key features of the Social Security program — progressivity of the benefit formula, guaranteed benefits for life, and inflation-adjusted benefits—are particularly beneficial for women.
Source: Raimond Maurer, Olivia S. Mitchell, Ralph Rogalla, and Tatjana Schimetschek, Wharton School of the University of Pennsylvania, Public Policy Initiative, Issue Brief: Volume 3, Number 9, November 2015
From the summary:
• Political debate has focused on the question of whether Social Security solvency should be achieved by larger benefit cuts or higher taxes, which in effect asks which people—current or future generations—should bear the greater burden of fixing the system.
• But new research reframes this debate, offering a budget-neutral, actuarially fair lump sum payment, instead of the current delayed retirement credit, as a way to encourage people to delay claiming their Social Security benefits and work longer.
• Under one of the lump sum alternatives presented here, survey participants indicated a willingness to delay claiming Social Security by up to eight months, on average, compared to the status quo, and to continue working for four of them.
• Delayed claiming would mean additional months or years of Social Security payroll tax contributions, which could modestly improve the program’s solvency. Other benefits are possible as well: improved physical and mental health among the elderly from extended labor force participation, which could reduce the strain on health care programs like Medicare and Medicaid and help offset the macroeconomic costs of an aging population.
Source: Elizabeth Warren, The Nation, March 7, 2016
Social Security is the most powerful tool available to lift people out of poverty.
Source: Roozbeh Hosseini (Arizona State University (ASU) – Economics Department), Ali Shourideh(University of Pennsylvania – Finance Department), January 19, 2016
From the abstract:
We study policy reforms aimed at overhauling retirement financing. We develop a novel approach by considering optimal reforms: policy reforms that minimize the cost for the government while respecting the distribution of welfare in the economy. Our model is an OLG model with life-cycle features and bequest motives where individuals are heterogeneous in their earning ability and mortality. Theoretically, we show that due to the negative correlation between earnings ability and mortality, post-retirement distortions to saving decisions are a robust feature of any optimal policy. We, then, use this framework to quantitatively analyze optimal reforms. Our quantitative exercise shows that an optimal reform relative to the status-quo must have three key features: First, post-retirement assets must be subsidized while bequests must be taxed. On average, optimal marginal subsidies on assets for individuals above age 65 is 3.2 percent, while optimal marginal tax on their bequest is 60 percent. Second, pre-retirement transfers must increase while social security benefits must become less generous in the aggregate and more progressive towards low income groups. Finally, earnings tax reform does not contribute to optimal reforms, i.e., optimal marginal taxes on earnings remain very close to the status-quo. The optimal policies reduce the present discounted value of net tax and transfers to each generation by 15 percent.
Source: Barry Bosworth, Gary Burtless, Kan Zhang, Brookings Institution, 2016
From the summary:
The U.S. Social Security system, which established old age benefits, is designed to be highly progressive by redistributing income from workers with high average lifetime earnings to workers—and their dependents—who have low lifetime earnings.
Under the basic benefit formula, workers that make less over the course of their lifetime will see a higher percentage of their monthly earnings replaced through Social Security benefits than workers with high lifetime earnings.
The program is one reason America’s senior citizens, when taken as a whole, have fared so well—even throughout the Great Recession. While the average income (adjusted for inflation) of households with a head below the age of 65 fell by 4 percent between 2003 and 2013, the income of those with a head 65 and over rose by 15 percent.
But new research from Barry Bosworth, Gary Burtless, and Kan Zhang finds evidence that some of the program’s progressivity is being offset due to a growing gap in life expectancy between the rich and the poor.
That gap, when taken together with the rise in average retirement ages since the early 1990s, means the gap between lifetime benefits received by poor and less educated workers and the benefits received by high-income and well educated workers is widening in favor of the higher income workers.
– Key findings on delayed retirement
– Key findings on rising old-age inequality
– Key findings on the growing gap in life expectancy between rich and poor
Source: Keith Hall, CBO blog post, February 10, 2016
After questions were raised by outside analysts, we identified some errors in one part of our report, CBO’s 2015 Long-Term Projections for Social Security: Additional Information, which was released on December 16, 2015.
The errors occurred in CBO’s calculations of replacement rates—the ratio of Social Security recipients’ benefits to their past earnings. The errors affected no other estimates in the report. A new version of the document, with corrections to Exhibits 10 and 12, has been posted on CBO’s website.
In the report, replacement rates were defined to be initial benefits as a percentage of average late-career earnings; for those calculations, earnings consisted of the last five years of earnings that were at least half of a worker’s average indexed earnings, adjusted for growth in prices. The estimates reported in December inadvertently included years with earnings below those intended amounts.
The corrected version shows substantially lower mean initial replacement rates for retired and disabled workers. For example, the corrected rate for retired workers born in the 1940s is 43 percent; the value CBO reported in December was 60 percent.
CBO’s 2015 Long-Term Projections for Social Security: Additional Information
Source: Congressional Budget Office, December 2015
Social Security, which marked its 80th anniversary in 2015, is the largest single program in the federal government’s budget. About 72 percent of the roughly 60 million people who currently receive Social Security benefits are retired workers or their spouses and children, and another 10 percent are survivors of deceased workers; all of those beneficiaries receive payments through Old-Age and Survivors Insurance (OASI). The remaining 18 percent of beneficiaries are disabled workers or their spouses and children; they receive Disability Insurance (DI) benefits. In fiscal year 2015, spending for Social Security benefits totaled $877 billion, or almost one-quarter of federal spending. OASI payments accounted for about 84 percent of those outlays, and DI payments made up about 16 percent.