Americans' Dependency on Social Security
According to a recent estimate by Gokhale and Smetters (2005), the present value difference between the U.S. government’s projected future expenditures and its projected future tax receipts exceeds $60 trillion. Closing this enormous fiscal gap requires a variety of different tax increases and expenditure reductions. In this paper we examine how potential Social Security benefit cuts would impact the wellbeing of different American households. Specifically, we examine the living standard impacts of immediate and permanent 30 percent and 100 percent cuts in Social Security benefits. We examine cuts of these magnitudes to illustrate the dependency of the population on Social Security and to help policymakers calibrate the cost to Americans of this form of policy adjustment. The extent of current and future living standard reductions in response to announcements of future Social Security benefit cuts depends on the age of the household, when the cuts are announced, the size of the cuts, and the income of the household. Social Security benefit cuts of 30 percent, if announced when a household is about to retire, can lead to retirement living standard reductions ranging from roughly one tenth to one third depending on the household’s income. These reductions in living standard are substantially reduced if the household learns at younger ages about the benefit cuts and, consequently, has a longer time period over which to adjust.
|Date of creation:||Sep 2006|
|Date of revision:|
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- Jagadeesh Gokhale & Kent Smetters, 2005.
"Measuring Social Security’s Financial Problems,"
wp093, University of Michigan, Michigan Retirement Research Center.
- Francisco J. Gomes & Laurence J. Kotlikoff & Luis M. Viceira, 2012.
"The Excess Burden of Government Indecision,"
in: Tax Policy and the Economy, Volume 26, pages 125-163
National Bureau of Economic Research, Inc.
- Francisco J. Gomes & Laurence J. Kotlikoff & Luis M. Viceira, 2007. "The Excess Burden of Government Indecision," NBER Working Papers 12859, National Bureau of Economic Research, Inc.
- Laurence J. Kotlikoff & Francisco J. Gomes & Luis M. Viceira, 2010. "The Excess Burden of Government Indecision," Boston University - Department of Economics - Working Papers Series WP2010-014, Boston University - Department of Economics.
- Francisco Gomes & Laurence Kotlikoff & Luis Viceira, 2006. "The Excess Burden of Government Indecision," Working Papers wp123, University of Michigan, Michigan Retirement Research Center.
- Francisco J. Gomes & Laurence J. Kotlikoff & Luis M. Viceira, 2007. "The Excess Burden Of Government Indecision," Boston University - Department of Economics - Working Papers Series WP2007-004, Boston University - Department of Economics.
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