In contrast, the microlevel distributional consequences are more complicated and difficult to characterize. Some sense of them, in terms of taxes paid and for benefits received, can be seen in Figures 6-5 through 6-13, above, and they are detailed in more depth in Appendix C. Developing summary distributional measures that integrate the tax and benefit changes of each option is a complicated undertaking beyond our scope. However, we note that Social Security is now somewhat progressive in its overall consequences (Congressional Budget Office, 2006a): that is, those with higher earnings pay more in taxes in relation to lifetime benefits received than those with lower earnings, and we judge it likely that all four of our options would retain or increase the program’s current degree of progressivity.28

As we note at the outset of this chapter, other packages of frequently advanced program changes with similar overall fiscal impacts and differing distributional consequences, can be constructed, depending on one’s policy preferences. Our four illustrative options are indicative of the range of choices available to put Social Security on a solid financial footing and continue its role as a foundation for economic security in retirement for most working Americans.29



1. Changes to sustain Social Security finances will contribute to making the entire federal budget sustainable in at least two ways. First, it is now the largest federal program and so changes have a large effect relative to the entire budget. Although Social Security is designed to be self-financing, if its spending exceeds the program’s revenues, the difference adds to the federal deficit, and, conversely, if the program spends less than it takes in, this difference reduces the federal deficit. Second, sustaining Social Security finances helps rebuild public confidence that the federal government will finance the benefits it promises and promise only benefits that it can finance.


2. In addition to payroll taxes, which account for most Social Security revenue, small amounts come from the personal income taxes paid by upper-income individuals and families on their Social Security benefits and from interest earned on trust fund reserves.


3. Contrary to popular understanding, the benefits received by a retiree are only loosely related to the amount that retiree paid in payroll taxes because the benefit formula is progressive and because benefits are based on the average of the retiree’s highest-earning 35 years.


4. The retirement and the disability programs have separate trust funds and shares of the payroll tax. The former is much larger than the latter. For purposes of explication, the two separate trust funds are usually treated in the text as one. The illustrative options presented below sustain both the retirement and the disability programs. However, projections of trust fund balances combine the two.


5. “Scheduled” benefits are those payable when the trust fund is adequate: in projections, “payable” benefits are what they would be if they had to be reduced because the trust fund was inadequate to cover scheduled benefits. Except as noted otherwise, all benefit levels mentioned are scheduled. Also, except as noted otherwise, the projections for Social Security in this chapter, Appendix C, and in the design of the committee’s illustrative

The National Academies | 500 Fifth St. N.W. | Washington, D.C. 20001
Copyright © National Academy of Sciences. All rights reserved.
Terms of Use and Privacy Statement