Relay-Version: version B 2.10 5/3/83; site utzoo.UUCP Posting-Version: version B 2.10.3 4.3bsd-beta 6/6/85; site ucbvax.ARPA Path: utzoo!linus!philabs!cmcl2!seismo!harvard!talcott!panda!genrad!decvax!decwrl!ucbvax!fagin From: fagin@ucbvax.ARPA (Barry Steven Fagin) Newsgroups: net.politics Subject: Some numbers on Social Security Message-ID: <9222@ucbvax.ARPA> Date: Sun, 21-Jul-85 23:45:55 EDT Article-I.D.: ucbvax.9222 Posted: Sun Jul 21 23:45:55 1985 Date-Received: Wed, 24-Jul-85 07:25:39 EDT References: <213@investor.UUCP> <257@ubvax.UUCP> Reply-To: fagin@ucbvax.UUCP (Barry Steven Fagin) Distribution: net Organization: University of California at Berkeley Lines: 103 Summary: Here's some stats on the rate of return of Social Security The following figures are taken from a study by the Cato Institute, a libertarian think tank located in Washington D.C. The upshot of the study is that Social Security is an raw deal for those now entering the workforce; it suggests a plan for meaningful reform without benefit cuts or tax increases. Social Security Real Rates of Return for Different Family Combinations 1) Single worker, earns maximum income, -1.5% never marries, no children 2) Married couple, both spouses earn -1.0% maximum incomes, two children 3) Married couple, one spouse earns -0.5% maximum income, other earns average income, two children 4) Married couple, one spouse earns -0.5% maximum income, other earns low income, two children 5) Married couple, one spouse earns 0.0% maximum income, two children 6) Single worker, earns average income, 0.0% never marries, no children 7) Married couple, both spouses earn +0.5% average incomess, two children 8) Married couple, one spouse earns +1.0% average income, other earns low income, two children 9) Married couple, one spouse earns +1.5% average income, two children 10) Married couple, both spouses earn low +1.5% incomes, two children 11) Single worker, earns low income, never +1.5% marries, no children 12) Married couple, one spouse earns low +2.75% income, two children Some definitions: Low income workers were assumed to earn a salary each year for their entire career equivalent to the minimum wage today. Average income workers were assumed to earn the average wage in Social Security-covered employment each year for their entire career. Maximum income workers were assumed to earn the maximum Social Security-taxable income each year for their entire career. Low income workers were assumed to be 18 in 1983, average-income workers to be 22, and maximum incomce workers to be 24. Nonworking spouses were assumed to be the same age as their working spouses. Married couples were assumed to be married in 1983, to have one child when the oldest worker reached 26, and to have another when the oldest worker reached 28. All workers were assumed to retire at age 67, which will be the normal Social Security retirmenet age for thesse workerss under current law. All other assumptions were taken from the Alternative IIB sset of assumptions in the 1983 Annual Report of the Board of Trustees for Social Security's trust funds. The kind of Social Security reform Cato suggests involves "allowing workers to contribute to their IRAs each year an amount up to 20 percent of their Social Security retirement taxes, in addition to any other amounts they may contribute under current law. Instead of the usual IRA income tax deduction for these contributions, however, workers would receive a dollar-for-dollar income tax *credit* equal to the amount of such contributions. Workers would also have the right to direct their employers to contribute up to 20 percent of the employer share of the{ tax to the workers' IRAs, with each employer again receiving a full income tax credit for these amounts." The study goes into a lot more detail, suggesting that this idea be eventually expanded to allow workers to decide how much to rely on their "Super-IRA's" and how much on Social Security. It notes that since the tax credit would be taken againt income taxes rather than payroll taxes, Social Security revenues would continue to flow into the program for today's elderly. Other advantages include a potential 25% decrease in federal spending, greater freedom of choice in income disposal, increased job creation and economic growth as payroll taxes are reduced, and an increased savings rate. For more details, write: Cato Policy Report 224 Second Street SE Washington, DC 20003 -- Barry Fagin @ University of California, Berkeley