Tuesday, March 22, 2011

Who Gets More Than They Paid Into Social Security

From "Is Social Security Middle-Class Welfare?" By Andrew G. Biggs:
The problem with Social Security isn’t that it’s welfare to the middle class of the future; it’s welfare to the middle class of the past. Until recently, Social Security was a very good deal for most participants and an insanely good deal for others. When a pay-as-you-go program like Social Security starts, it can pay benefits to people who didn’t pay into the program for very long. These folks make out like bandits. Moreover, Congress has increased benefits over time, sweetening the pot even more.

As the chart above shows, throughout much of Social Security’s life the net tax rate paid by the average participant was negative, meaning that they received more in benefits than they paid in taxes, even after accounting for interest. For someone retiring in 1950 Social Security was like receiving an extra 3 percent in lifetime earnings; for someone retiring in 1972, the true sweet spot, Social Security was like getting a 6 percent boost in lifetime income.
Read the complete article here.

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