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“A reappraisal of social security financing”—revisited

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Notes

  1. The design of the system has changed little since these reforms. Since 1983, the most important changes have perhaps been the decision to subject 85% of the benefits of higher income beneficiaries to income taxation, up from 50%, and the elimination of the earnings test, in 2000, for workers older than the Full Retirement Age.

  2. Of course, rising longevity increases the ratio of lifetime benefits to earnings unless some change is made in the retirement age, which is what is scheduled to occur as the full retirement age increases.

  3. The premium for Medicare Part B is projected to increase from 9% of the average Social Security benefit in 2006 to 11% in 2030. Unpublished data from Centers for Medicare and Medicaid Services (2007).

  4. The combined employer-employee OASDI payroll tax rate rose from 10.8% in 1982 to 11.4% in 1984, to 12.12% in 1989, and then to its current level of 12.4% in 1990.

  5. Diamond and Orszag (2004) characterize this legacy cost as legacy debt and argue that it be explicitly recognized and the interest financed in a systematic fashion within the Social Security program. They suggested three changes: (1) gradually increase coverage to include all state and local workers so that more workers would bear the burden of the legacy debt; (2) impose a legacy tax on earnings above the maximum taxable earnings base, so that high earners would contribute to the legacy cost based on their entire earnings; and (3) split the remainder of the legacy costs between future beneficiaries and workers in the form of a benefit reduction for those becoming eligible after 2023 and a modest rise in the payroll tax rate after 2023.

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Authors and Affiliations

  1. Peter F. Drucker Chair in Management Sciences, Carroll School of Management, Boston College, Chestnut Hill, MA, USA

    Alicia H. Munnell

  2. Center for Retirement Research, Boston College, Hovey House, 140 Commonwealth Avenue, Chestnut Hill, MA, 02467, USA

    Alicia H. Munnell

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  1. Alicia H. Munnell
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Correspondence to Alicia H. Munnell.

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Munnell, A.H. “A reappraisal of social security financing”—revisited. J Econ Finance 32, 394–408 (2008). https://doi.org/10.1007/s12197-008-9045-3

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