The National Center for Policy Analysis has released “How Social Security Reform Could Benefit Workers,” by Liqun Liu, Andrew J. Rettenmaier and Thomas R. Saving.
Congress is once again considering changes to Social Security in an attempt to "save" the program. Social Security benefit payments have exceeded tax revenues since 2010; the funding deficit is growing and, barring reform, will continue to grow indefinitely. Higher tax revenues are necessary to fund benefits as they are currently calculated.
When workers consider the retirement benefits they expect from Social Security they must also consider the taxes paid during their working years. Average-wage workers retiring today have paid more Social Security taxes than they will receive in retirement benefits, so their net benefits are negative. For future workers, who will have to pay higher taxes to finance the program’s growing expenditures, net benefits will dip even lower.
The system is financed on a pay-as-you-go basis where current tax payments are transferred to current retirees. Changing demographics have resulted in a reduction in the number of workers supporting each retiree and a corresponding need for higher tax rates. The Social Security system cannot escape the ongoing demographic shift, but its share of the economy can be reduced and workers can escape the higher taxes necessary to fund the current program if they are willing to take lower Social Security benefits when they retire.
You can read the whole document here.
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