Tuesday, April 9, 2013

The Effect of Family Structure on Taxes Paid/Benefits Received In Social Security and Medicare for Gen-X Workers

This chart projects the benefits received relative to the taxes collected for three types of Generation-X families under the current structure of Social Security and Medicare. 

Family Structure
Medicare Benefits/Taxes

Social Security Benefits/Taxes
Combined Benefits/Taxes
Two-Earner Married (each $44,600[4])
$664,000/$180,000 =3.68:1
$703,000 plus marginal survivor benefit[1] /$808,000 =0.87[2]+Sm:1

$1,367,000 plus marginal survivor benefit/$988,000 =1.38+Sm:1
Sole Breadwinner Married (one $44,600)
$664,000/$90,000 =7.37:1
$564,000 plus nonearner survivor benefit[3] /$404,000 =1.40+Sne: 1

$1,228,000 plus nonearner survivor benefit/$494,000 =2.48+Sne:1
Single Woman and Single Man (each $44,600[4])
$664,000/180,000 =3.68:1
$703,000/$808,000 =0.87:1[2]

Two cautions in viewing this data: 

(A)   This chart does NOT incorporate the current projection that the Social Security Trust Fund will be able to pay only 75% of benefits in 2030, and any likelihood (however small) that the federal government will not make some of these payments as projected.

(B)   I am not sure if this data includes both the employee and employer side of the payroll tax.  As I noted in a previous post, although one-half the tax is administratively collected from the employer, in economic effect, the employee pays both sides of the tax as the employer typically reduces the employee's wage or salary by the amount of the tax.  


(a) Based on hypothetical workers with specific work histories and longevity characteristics who were born in 1965 and retire in 2030.  This is the beginning of Generation X.

(b) All numbers are 2012 dollars with a 2% net present value discount for future benefits.

(c) Affordable Care Act changes in Medicare reimbursement rates are included.

(d) Greater average longevity of women is assumed based on empirical data, although this may be being distorted by (i) the effect of men not taking equal responsibility for child care, including bias in the federal tax and benefits system against this (a longer life span in men has been correlated with taking responsibility for child care), and (ii) bias against preventive care for men in ACA, health care system generally and in men's average behavior.  (See discussion in Proposal for Affordable Care Act Reform.)

[1] Each surviving spouse of a ten-year two-earner marriage gets his/her own benefit stepped up on survivorship to the extent the deceased spouse's benefit exceeding the surviving spouse's benefit.  The marginal survivor benefit in this marriage of equal earners would be zero. "Sm" means this marginal survivor benefit of an earning spouse. 
[2] The reason that the benefits exceed taxes paid in is because Social Security benefits are progressive and there is no property-capital-earner tax in Social Security to support the progressivity so all the progressivity is subsidized by average and higher wage workers.
[3] Each nonearner survivor of a ten-year marriage to a sole breadwinner receives a survivor benefit equal to the full retirement benefit of the sole breadwinner (but loses the spousal 50% supplement)."Sne" means this survivor benefit of the nonearning spouse. 
[4] If each earner earned $22,300, the ratio of benefits received to taxes collected would be larger because of the progressivity in benefits in both programs.