Wednesday, October 30, 2013

CBO report on “Medicare and Social Security Payroll Taxes and Benefits for People in Different Birth Cohorts”

CBO has an interesting report on the lifetime social security and Medicare taxes Americans pay and the benefits they can expect to receive, and how these “money’s worth” factors have changed over time. You can check out the report here.

Median Lifetime Scheduled Social Security Payroll Taxes and Benefits for Various Cohorts, by Decade of Birth

1 comment:

WilliamLarsen said...

I think the CBO made some mistakes. Based on my analysis for cohorts I found that those born after 1985 could expect to receive 29 cents for each dollar of payroll taxes and interest at the US treasury rate. When I did this calculation ten years ago the US Treasury Rate was higher. What I had done was used the annualized rate over 30 years which was a bit lower around 5.5%, but considerably more than today's.

They also assumed full benefits being paid with the same payroll taxes. This of course is non sense. the SSA states they can pay ~75% of scheduled benefits in the first year the Trust fund is exhuasted. However under current law the trust fund must be maintained at 20% of current years expenses. Under current COLA law, COLA is reduced by 10% for each 1% reduction in the trust fund to expense ratio under 30% and is reduced to ZERO when it reaches 20%

To assume full scheduled benefits with COLA still does not agree with my numbers. On an actuarial level, the payroll tax for a fully funded program would be around 7 to 8% tops and the current OASI tax is 10.6%. This clearly shows that the tax is higher than required for a fully funded program which the CBO is assuming.

The only thing I do agree with is that earlier generations took far more out of the program than they paid which created today's unfunded liability or LEGACY DEBT as many like to call it.