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Is Social Security Progressive 1 (December 2006)

handle is hein.congrec/cbo8632 and id is 1 raw text is: A series of issuze summaries from the Congressional Budget Office DECEMBER 15, 2006 Is Social Security Progressive? Summary For people wvith lowver thani average earings, thle ratio of thec lifetimei benelfits theCy rceive from Social SecuriFty to theC ife2timeI payrol ta01xes they payI\ for theC pgrmis ighe1r thlan tisfor- people \ wit hihr aveageeanins.InI that senlse, thie Social Seculrity systemi is progressive. For- people inI the bottom fifthi of thie eann s sribti[on, thie ato ofbenfits to taxels is almost three timecs as high as is for- thlose ih top fifthi. Thec bene1fits paid to retiredl w\orkerS, whic a) CCOutl for about[ the-uresOf total benfhS, are a1SO pr'ogrIessive, butI leSS progr11essive than Socil Secuity1 beneifits overall. The Social Security benefit Formula is designecd to provide beneficiaries whio hiad lowecr lifc- time 1anig with ontly bene1fits that are highe1r, as a pecenCtage(1 of their life-ttl Ime averageC earingIs, thanl those receivedl by igher-earning benieficiaries. Thatl pr'ogressivity in the beneIfit forlaL is only partly1 offset byV the fact ha hiheernn inivdu llen to live loinger and thuLs collct beneICfits longerCt. TheC benefits paid to disabled w\orkers and to the de- penden~ts andC surivors VoI- f SocialI Securi-ty par11ticipanlts are byv thleir nature genera_ lly pai to 1in(1diiaS withl lower lifetime earingls. DisaIbledwvorker and( aILIary* bene1fit's togethier accounit For oily aIbout a qutarter of totalI benefits, btut they' aCCOunlt for_ most of the differ- ececs II the benecflt-to-tax ratio across the earnlings dis - tribution. There-fore, anialyses that conisidecr the enltire SocMi Security systemI Will genlerally find( more overlll p RogressIv\iytn, ,1 Studies that focuIS 01Onl onrtiredk workers. Disabhled-wvorker beneifits are still progressive, bUt less so, whe measure byCSUC 1 a methiod that approxi- maes theirl insuanIMce value to alI w\orkeris rathecr thanl oneC that con)siderIs only1 theC benefits actully,1 paid. Social Security is the nation's largest domestic program. It provides income support to 49 million beneficiaries, including retired workers, disabled workers, and their dependents and survivors. Benefit payments currently account for more than a fifth of federal outlays, and the payroll taxes that finance the program account for more than a quarter of federal revenues. Social Security can have a significant effect on the eco- nomic well-being of workers and their families. One key to understanding that effect, and how it might change under proposals to modify the program, is to measure how Social Security benefits and the burden of the Social Security payroll tax are distributed among different groups of participants.' Of particular interest is whether and to what extent the program is progressive, in the sense of redistributing income from individuals with higher lifetime earnings to those with lower lifetime earnings. Tax systems are typically identified as progressive if indi- viduals with higher income pay a larger fraction of their income in taxes than do individuals with lower income. Similarly, public benefit programs are identified as pro- gressive if they provide proportionately greater benefits to individuals with lower income. Because the Social Security system involves both taxes and benefits, measures of its progressivity must incorpo- rate information about both. To do so, analysts com- 1. The Congressional Budget Office's (CBO's) past analyses of pro- posals to change Social Security have included studies of the effects of proposals on aggregate Social Security finances and the total federal budget and studies of how taxes and benefits are dis- tributed among different groups of participants. See, for example, Long Term Analysis of S. 2427, the Sustainable Solvency First/or Social Secu rity Act of 2006 (April 2006). Analogous information is included in CBO's baseline analyses; see The Outlook for Social Security (June 2004) and Updated Long-Term Projections for Social Security (June 2006). f

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