Tuesday, January 27, 2009

A Progressivity Index for Social Security Retirement Benefits

The definition of a progressive tax structure is one that imposes proportionately greater taxes on the rich than the poor. A progressive government benefit program is one that benefits the poor to a proportionately greater extent than the rich. The Social Security Administration has now released a Progressivity Index for the Social Security retirement benefit program.

The progressivity index compares the distribution of the present value of lifetime benefits to the distribution of the present value of lifetime taxes. ...Results indicate that Social Security is modestly progressive on a lifetime basis; currently, the program lies approximately halfway between paying a benefit directly proportional to lifetime taxable earnings and paying a flat dollar benefit to each retiree.

Although the program’s progressivity has declined in recent decades, it is projected to remain roughly constant in the future, according to the index. Overall, the paper extends previous research by introducing a comprehensive, easy-to-understand summary measure that can evaluate Social Security’s progressivity among current and future retirees or as a result of policy changes.

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