Individual Equity Considerations of the Current and Proposed Social Security Benefit Provisions.
Outslay, Edmund
1981
Abstract
The principal objective of this research is to provide a thorough analysis of the issue of individual equity within the social security program as it relates to future beneficiaries. Individual equity is defined, for purposes of this research, as an actuarially-adjusted present value of expected social security benefits at retirement age at least equal to the actuarially-adjusted future value of expected social security taxes paid at retirement age. The degree of attainment of individual equity is measured for family units of different earner compositions (one earner or two earner) for different total family earnings and different working periods. Comparisons are made between family units of different earner compositions which have the same total family earnings. Comparisons are also made between family units of the same earner composition with the same relative family earnings across different working periods. The scope of this research may be summarized in the following manner: (1)Equity: Three concepts of equity are employed in this study; an actuarial approach, an absolute (break-even) approach and a private annuity approach. (2)Cohorts: Four full working lives are examined (1951-1993, 1961-2003, 1971-2013, 1981-2023). Within each working life, cohorts are formed by wage income and family worker composition. (3)Economic assumptions: Each cohort is analyzed under the intermediate and pessimistic CPI and average annual covered wage growth assumptions projected in the 1980 Trustees Report of the OASI trust fund. Two interest rate assumptions are also made: 1% real interest and 3% real interest. (4)Alternative benefit proposals: In addition to the current social security benefit provisions, the proposals made by the 1979 Advisory Council, the AICPA Federal Tax Division, and the Social Security Administration are also examined. The findings of this study indicate that the determination of whether a beneficiary can expect to receive a "fair" return from the social security program, viewed from the date of entrance into the workforce, was found to be dependent on the real rate of return and the deemed total contribution of the worker. At one extreme, all of the cohorts, single and married, achieved an equitable return using a one percent real rate of return and considering only the worker's OASI contribution. At the other extreme, few of the cohorts achieved an equitable return using a three percent real rate of return and considering both the employer and the employee OASI contributions. The findings also reveal that the current benefit structure does not produce equivalent benefits across family units which pay in equal total taxes in differing proportions among the spouses. In each case, the dependent's benefit to the spouse of a single worker outweighed the dual use of the higher PIA rates in the computation formula for dual earner spouses. The results of this research do establish that the Advisory Council proposals increase the return to higher wage income workers, but the increase is not appreciable nor does it result in any relative change in actuarial equity attainment. The earnings sharing results indicate that relative inequities across family units are virtually eliminated. It is recommended that earnings sharing be adopted with an increase in the percentage in the top bracket of the PIA formula. This will increase the return to higher income unmarried workers, while at the same time addressing the dual earner-single earner family inequities.Types
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