Micromeasures of Social Security's Financial Condition

Jagadeesh Gokhale

in Social Security

Published by University of Chicago Press

Published in print April 2010 | ISBN: 9780226300337
Published online February 2013 | e-ISBN: 9780226300368 | DOI:
Micromeasures of Social Security's Financial Condition

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Demographic and Economic Micro Simulation (DEMSIM's) micro simulation provides the means for evaluating the impact of Social Security's current rules and alternative reforms in terms of their effects on particular population groups—distinguished by race, gender, birth cohort, and earnings level. This chapter is concerned with these “micromeasures” and how different types of Social Security participants would be fiscally treated, on average, under the program's rules and changes to them. Evaluating an individual's “fiscal treatment” under Social Security amounts to comparing lifetime payroll taxes relative to lifetime benefits received, where the evaluation is related to that person's lifetime earnings. The key measure of “fiscal treatment” used is the lifetime net tax rate. This measure shows the excess taxes paid during the person's lifetime relative to lifetime labor earnings. The lifetime net tax rate measure focuses on the effects of payroll taxes and benefits relative to earnings over individuals' entire lifetimes—rather than on the more popular measure of the program's income replacement rate at the time of retirement. The rationale for adopting the lifetime net tax rate measure in preference to the replacement rate measure is detailed.

Keywords: Social Security; micromeasures; lifetime net tax rate; financial condition; fiscal treatment

Chapter.  9260 words. 

Subjects: Public Economics

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