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Social Security: v58n2p21 | Progressive Tax | Social Security (United States)
This article presents tabulations of the distribution by income decile of taxes and benefits in 1992 under the Old
-Age, Survivors, and Disability Insurance (OASDI) programs. Looking at the population as a whole, average taxes and the share of aggregate taxes paid increase at higher income deciles; tax as a percent of income increases with income except at the highest decile. Average benefits and the share of aggregate benefits received decrease with income except at the highest decile; the benefit as a percent of nonbenefit income decreases steadily with income. Even within specific age groups, there is still a tendency for taxes as a percent of income to increase at all but the highest income levels
and for benefits as a percent of income to decrease.
by David Pattison * On average, persons receiving Social Security benefits tend to have lower current incomes than do persons paying Social Security taxes. This article documents OASDI’s income distributional patterns by dividing the 1992 Current Population Survey population into 10 income deciles and tabulating benefits received and taxes paid by each decile. The benefits and taxes, when compared with non-social Security income, are progressive: as income rises from decile to decile, the ratio of benefits to income falls, and, except at the highest deciles, the ratio of taxes to incqme rises. A large component of the current income distributional pattern is associated with age: the young on average receive more income and pay more taxes; the old on average receive more benefits. However, when benefits and taxes are tabulated for income deciles within specific age groups, a genera1 progressivity is still observable, although it is weaker than that for the population as a whole.
Under OASDI, workers pay contributions in the form of payroll taxes during the years in which they are active members of the labor force. The disability
insurance contributions and the old-age
and survivors insurance contributions are pooled in their respective trust funds and go toward paying disability benefits to disabled workers and their families, oldage benefits to retired workers and their spouses, and benefits to the survivors of deceased workers. Because OASDI contributors must have earnings, and because OASDI beneficiaries tend to have no
:amings or only low earnings, it is expected that contributors on average will have higher incomes than will benefit recipients. The purpose of this article is to document the extent to which OASDI :axes do in fact tend to come from those with high current incomes and OASDI 3enefits tend to go to those with low current incomes. The distributional pat;em is examined by dividing the population into income deciles-10 equally sized groups classified by income-and tabulating OASDI taxes and benefits 3y decile.
*Division of Economic Research, Office of Research and Statistics, Social Security Administration.
The pattern of the distribution of
taxes and benefits between deciles is expected to have a strong association with age: taxes are paid almost entirely by nonelderly workers, found disproportionately in the upper income deciles, while benefits are received mainly by elderly retirees, a group found SocialSecurityBulletin Vol. 58,No. 2 * Summer 1995
disproportionately in the lower income deciles. The net transfer under OASDI from upper income deciles to lower income deciles is thus strongly associated with a transfer from younger persons to older persons in the population. To shed additional light on these distributional patterns, the distribution of OASDI taxes and benefits by income is also tabulated within specific age groups. The focus of this article is on current redistributional patterns of Social Security, using data on one year’s taxes and benefits. Social Security also has important lifetime redistributional aspects; the data used here are of limited relevance for the examination of lifetime redistributions.
The estimates used in this article have been developed from a Bureau of the Census survey file, the March Current Population Survey (CPS), which contains information for the preceding year on earnings, Social Security benefits, and other sources of income (like interest and pension income) for each person in the survey population aged 15 or older. I The tabulations in this article are based on the March 1993 CPS survey for income in 1992. The CPS is used, rather than Social Security administrative data, because Social Security administrative data do not contain information on family income for OASDI taxpayers and beneficiaries. OASDI benefits are one of the types of income surveyed in the CPS. OASDI taxes, on the other hand, are not directly elicited in the survey, but have to be simulated from survey information on wages and self-employment earnings. Using Social Security rules in effect in 1992 for maximum taxable earnings and OASDI tax rates, an OASDI tax is simulated for each earner in the CPS. * The OASDI tax includes both the employee and the employer shares. 3 Several income concepts are used in the article. “CPS income” refers to the Census money income concept used on the CPS, but with some adjustments. 4 Some of the tables use a concept of income before OASDI taxes and transfers, or “pre-0ASDI income,” equal to CPS
income, minus benefits, plus the employer’s share of the OASDI tax. For beneficiaries who do not work, pre-OASDI income is CPS income minus the OASDI benefits. For wage and salary workers with no benefits, pre-OASDI income is CPS income plus the employer’s share of the OASDI tax. For self-employed workers with no benefits, pre-OASDI income is equal to CPS income. In chart 1, a “post-0ASDI” income concept is also used, equal to CPS income minus, for workers, the employee share (and for selfemployed workers, the whole share) of the OASDI tax. There are two ways in which these concepts of income are tabulated: First, “person income” is calculated from each person’s income on the survey file, except for members of married couples, whose person income is set equal to half the couple’s combined income. (OASDI taxes, similarly, are shared between couples in the person income tabulations.) Second, “family income” is calculated as the sum of the income of persons in the survey family. For each income concept, 10 income deciles are determined. The family CPS income deciles are calculated by ranking families according to CPS income (Census “unrelated individuals” are counted as families) and determining the nine income percentiles-the 10th percentile, the 20th percentile, and so on, up to the 90th percentile-that divide the families into 10 groups with equal numbers of families. All families with income less than the 10th percentile are in the bottom decile, all families with income between the 10th and 20th percentile are in the second decile, and so on. Family preOASDI income deciles are determined the same way, reranking the families by pre-OASDI family income and determining the 10th through 90th percentile preOASDI income amounts that divide the reranked families into 10 equal groups. For the person-based CPS income, pre-OASDI income, and post-OASDI income deciles, similar procedures are followed, except that persons, rather than families, are ranked by person income, and the 10th through 90th percentiles are calculated to divide the population into 10 groups with equal numbers of persons. 5
Deciles Across All Ages
The tabulation by decile of CPS family income of OASDI taxes, benefits, and benefits net of taxes is shown in table 1. In this and the following tables the first (poorest) decile is shown on top, and the 10th (richest) decile is shown on the bottom: income goes up reading down the table. The first column shows the incomes that were calculated to define each decile. The second and third columns show the estimated aggregate OASDI taxes coming from each decile and OASDI benefits going to each decile; the fourth column shows the benefits net of taxes going to each decile. For the population as a whole, more OASDI taxes were paid than benefits received, but for the bottom 6 deciles more benefits were received than taxes paid. Aggregate taxes paid (column 2) rise with each decile. Aggregate benefits received (column 3) rise through the 5th decile and fall from the 5th through the 10th decile. Benefits net of taxes (column 4) rise through the third decile and fall through the remaining deciles. Table 1 shows the percent shares by decile of taxes and benefits in columns 5 and 6. The share of taxes rises across the deciles, from 0.5 percent in the bottom decile to 28.0 percent in the top decile. This strong rise is attributable to a strong association between earnings and income combined with the uniform tax rate on earnings for all earnings less than the maximum taxable earnings. 6 The decile distribution of OASDI benefits has no such pattern. Above the bottom decile, which receives 2.6 percent of aggregate OASDI benefits, the percentage share of benefits rises and then falls. The average taxes and benefits in each decile are shown in table 1, columns 7 through 9. The averages are taken for all families in each decile, including those who do not pay taxes or receive benefits; the average taxes and benefits shown in the table are therefore lower than if the averages were taken only among families with nonzero taxes or benefits. Because the deciles are calculated to have the same number of families in each decile, the
SocialSecurityBulletin Vol. 58,No. 2 Summer 1995
averages in columns 7 through 9 are proportional to the aggregates in columns 2 through 4 and the percent distributions in columns 5 and 6. Columns 10 through 12 of table 1 give the OASDI taxes, benefits, and benefits net of taxes as percents of CPS income. These measures can be used as indications of the progressivity of the taxes and benefits in the context of one year’s taxes and benefits. If the ratio of tax to income rises as income rises, the tax is called progressive; if the ratio falls as income rises the tax is called regressive, and if the ratio stays the same, the tax is calledproportional. The OASDI tax (column 10) is progressive as income rises from the 1st through the 9th deciles, and is regressive between the 9th and 10th deciles. ’ The overall progressivity of the OASDI tax is attributable to the growing proportion of earnings in income as income rises. Many of the families in the bottom deciles have no earnings and therefore pay no OASDI taxes. One of the characteristics of a progressive tax system is that after-tax income will typically be more equally distributed, by some commonly used measures of income inequality, than before-tax income. A proportional tax would have no effect on the inequality of the income distribution, and a regressive tax would leave after-tax income less equally distributed. The concept of
progressivity can be extended to benefits by noting that if the ratio of benefits to income falls (rather than rises) as income rises, after-benefit income will be more equally distributed than before-benefit income. In this article, the term progressive will accordingly be applied to benefits when the ratio of benefits-to-income falls as income rises. According to table 1, column 11, the percentage ratio of benefits to income does fall from the 2nd through the 10th deciles. Over most of the income distribution, therefore, benefits can be considered progressive, supplementing the progressivity of the OASDI taxes. The progressivity of combined OASDI benefits and taxes is measured using the ratio of benefits net of taxes to income. To be considered progressive, this ratio should fall as income rises. (It is possible for either the taxes or the benefits, but not both, to be regressive and yet for the combination, that is, the benefits net of taxes, to be progressive.) Column 12 of table 1, showing net benefits as a percent of family income, indicates that net benefits fall as a percent of income from the second through the ninth deciles, that net benefits as a percent of income are higher in the first decile than in any of the top seven deciles, and that net benefits as a percent of income are lower in the top decile than in any of the bottom eight deciles. On the whole,
therefore, combined OASDI taxes and benefits are progressive, although at the level of detail given by the decile-todecile picture there is a lack of progressivity going from the 1st to the 2nd decile and from the 9th to the 10th decile. The paucity of OASDI benefits in the bottom decile is attributable to Social Security’s success at keeping OASDI beneficiaries out of extreme poverty. Because entitlement to Social Security tends to lift families out of the bottom decile, the bottom decile is populated largely by families not eligible for Social Security benefits. A more useful picture, perhaps, is gained by classifying families according to their pre-OASDI income, which is slightly higher than CPS income for workers (because of the inclusion of the employers’ share of payroll taxes) but lower than CPS income for beneficiaries (because of the exclusion of benefits). The results of tabulating OASDI taxes and benefits according to pre-OASDI income deciles are shown in table 2. For the distribution of taxes (column 5), the picture is little different from that of table 1. For the distribution of OASDI benefits, however (column 6), the picture is strikingly different. The bottom decile now receives 24 percent of aggregate benefits, and the percentage declines through the higher deciles except for a slight rise in the top decile. The bottom
Table 1.-OASDI
taxes and benefits, by family income decile
Aggregateamounts -Percent
Billions of dollars decile
benefit (4) -$25.1 S.9 27.5 28.0 23.2 17.9 8.8 -5.0 -22.2 41.7 -67.4 Taxes Benefits (3 (6) 100.0 100.0 3 2.6 I.5 11.3 3.0 13.0 4.7 13.2 6.5 13.3 8.6 12.4 Il.5 10.8 15.5 9.1 20.2 7.4 28.0 6.9
Averageamounts
As percentof family income
Decileincome range Taxes Benefits (3) (1) (2)
Taxes Benefits benefit (7) (8) (9) $2,823 $2,595 -$228 671 S33 137 427 2,910 2,484 844 3,406 2,563 1,325 3,434 2,109 1,834 3,464 1,630 2,424 3,219 795 3,257 115s 2,802 4,379 2,358 -2,021 5,711 1,921 -3,791 7,928 1,800 -6,128
Net Taxes Benefits benefit (10) (11) (12)
8.0 4.3 5.1 6.6 7.5 7.9 8.2 8.9 9.5 9.6 6.8 7.4 20.9 34.6 26.5 19.4 14.9 11.0 7.6 5.1 3.2 1.6 -0.6 16.6 29.6 19.9 11.9 7.0 2.7 -1.2 -4.4 -6.3 -5.3
$311.1 Total............
Bottom.............. . $I- $6,i$2
1.5 2nd................... $6,263-$10,527
4.7 3rd..................... $10,528$15,199
9.2 4th..................... $15,200-$20,321
14.6 5th.. ................... $20,322-$26,068
6th ..................... $26,069-$32,931
7th ..................... $32,932~$40,898
20.2 26.7 35.8 8th..................... $40,899-$51,844
48.2 9th .................... $51,845~$70,065
62.9 Top.. .................. $70,066 or more
See notes to the tables on page 32.
$286.0 7.4 32.3 37.2 37.8 38.1 3S.4 30.8 26.0 21.1 19.8
five deciles receive more in benefits than they pay in taxes, while the top five pay more in taxes than they receive in benefits. Measured as a percent of pre-OASDI income, benefits (column 11) now show a continuous fall through the full range of deciles, and net benefits as a percent of income (column 12) fall through all but the very top decile.
Distribution Pre-OASDI
by Person Income Deciles
To extract patterns of OASDI taxes and benefits for different age groups, it is useful to shift the unit of analysis from families to persons. The use of person income, rather than family income, has two effects. First, the income of members of couples is halved, tending to move couples down in the income distribution relative to nonmarried individuals. Second, the incomes of multiple subunit families are split up, reranking some of the family subunits down in the income distribution relative to individuals or single-unit families. In particular, a substantial fraction of the elderly in the population who live with their adult children will be treated as units on their own, with, typically, much lower incomes than when combined with the rest of the Census family. 8 Table 2.-OASDI 7
Nevertheless, although the average pre-OASDI income per unit is lower under the new definition, the percentiles that define the income deciles also shift downward, so that the distribution of OASDI taxes and benefits by decile is similar to that calculated for families. Table 3 for persons ranked by pre-OASDI person income corresponds to table 2 for pre-OASDI family income; the percent distribution of taxes and benefits (columns 5 and 6) is similar in the two tables. The person definition of units will be used for the remainder of this article. y Much of the distribution by income decile of OASDI taxes and benefits can be attributed to patterns of income by age. Table 4 tabulates persons by 5-year age groups (with all persons 80 or older put into one age group), giving the average pre-OASDI income, taxes, and benefits for each age group along with the percent in each age group paying OASDI taxes or receiving OASDI benefits. The percent paying taxes (column 6) is high from the 20’s through the early 50’s then falls to very low values in the late retirement ages. Average incomes and average taxes paid rise through the late 40’s and then fall. The percent receiving benefits (column 7) is low through the pre-retirement ages, then rises in the late 50’s and early 60’s to 90 percent or more for every
group aged 65 or older; the averagebenefit by age group (column 4) showsa similar pattern. Much of the observed progressivity in OASDI taxes and benefits with respectto pre-OASDI income can be attributed to the fact that incomesare, on average, higher during the agesin which OASDI taxes are paid and lower during the ages in which benefits are received. Progressivity in OASDI taxes would be observed even if the OASDI tax were applied to all earningsat a uniform rate, because the higher income decileswould contain a progressively higher proportion of taxpaying earnersand a lower proportion of nontaxpaying beneficiaries. Similar considerationsapply to benefits: there are few aged personsin the upper deciles, and many in the lower deciles, sothat the averagebenefit per decile, the sharereceived by decile, and the average benefit asa percent of income would be higher in the lower deciles even if every beneficiary received the samebenefit. But not all of the observedprogressivity can be attributed to agepatterns. At any given age in the pre-retirement years, it is possiblethat nonworkers relying on sourcesof income other than earnings will be more commonly found in the lower deciles, which would generate progressivity in the OASDI tax below the
taxes and benefits, by family pre-OASDI income decile
Aggregateamounts / Averageamounts As percentof family pre-OASDIincome
Decile Total. .~.i., Bottom., ;;.__.._ $0~$2,22$ 2nd .,.........,... .“__ $2,227~$6,959 3rd .II_.___ $6,960~$12,163 4th .._.._~. !12,164-$17,882
De’:l;F m
$311.1 $286.0 -$25.1
.2 1.9 6.6 13.1 20.2 27.4 36.6 49.7 65.7 89.7 67.2 46.5 40.0 32.7 24.6 20.6 17.0 14.6 9.8 12.4 67.0 44.5 33.3 19.6 4.5 -6.8 -19.6 -35.1 -55.9 -77.3 100.0 .l .6 2.1 4.2 6.5 8.8 11.8 16.0 21.1 28.8 100.0 23.5 16.3 14.0 11.4 8.6 7.2 5.9 5.1 3.4 4.4 $2,823 15 177 601 1,189 1,834 2,491 3,331 4,516 5,973 8,149 $2,595 6,105 4,226 3,630 2,970 2,240 1,873 1,547 1,325 893 1,128 -$228 6,090 4,049 3,029 1,781 405 -618 -1,784 -3,191 -5,080 -7,02 1 8.3 2.5 3.9 6.4 8.0 8.7 8.9 9.2 9.7 9.8 6.9 7.6 1,064.4 93.3 38.4 19.9 10.6 6.7 4.3 2.8 1.5 1.0 -0.7 1,061.9 89.4 32.1 11.9 1.9 -2.2 -4.9 -6.9 -8.3 -5.9
Top ..._.~..._.~.. $72,098 or more ~,.. See otes the blt?:s on page 32. n to ti
‘ jth..... ...__....., .,,. < 617,883-$24,512
6th.. .1.. ‘624,j13-$3 1,758 7th .... . .. ... ~.~.;~.. ! 3 1,759-$40,876 6 8th..._.._.,.,,..,i..._.‘640,877-$52,842 9th..._.._....,.,__. ‘652,843-$72,097 no..
taxable maximum. Benefits, which at those ages are paid to disabled workers and their families and to the survivors of deceased workers, are also likely to be more commonly found in the lower deciles, generating progressivity in benefits as a percent of income. In the transitional ages when some persons are retired and some are not, taxes will be associated with nonretirement and the upper deciles, benefits with retirement and the lower deciles. Finally, in the age groups when most persons are retired, although it would not be surprising to find that average benefits increase with nonben-efit income, it seems unlikely that benefits as a percent of income would increase, because the Social Security benefit formula is designed to pay higher benefits, but not proportionately higher, to those with higher average earnings histories. Even if there is a positive correlation between average earnings before retirement and non-Social Security income after retirement, leading to a positive correlation during retirement between benefits and nonbenefit income,we would expect the relationship between benefits and nonbenefit income to be progressive, with the ratio of benefits to nonbenefit income falling as nonbenefit income rises. The final tabulations for this article, accordingly, look at the distributions of OASDI taxes and benefits by agespecific, pre-OASDI income distributions. Income-receiving persons are divided into 5-year age groups and income percentiles are calculated for each age group. An overall picture of the effects of OASDI on the income distribution by age can be obtained by comparing the pre-OASDI and post-OASDI percentiles (tables 5 and 6). The lOth, 50th, and 90th percentiles are plotted in chart 1. In charts 1 and 2, the horizontal axis, showing age, is adjusted to reflect the number of persons in each age interval, so that each inch on the horizontal axis represents an approximately equal number of persons. At older ages, when much of each age cohort is deceased, the age intervals shrink accordingly. The impact of OASDI benefits on the income distribution at older ages can
be seen clearly in chart 1. The relative difference is most dramatic in the bottom deciles. The 10th percentile of preOASDI income is zero for the group aged 70-74 or older, meaning that at least 10 percent of persons aged 70 or older have no income other than OASDI benefits. When OASDI benefits are added and taxes subtracted, the strong decline in incomes with age is ameliorated, and the decline in incomes with age among Chart I.--Age-specific Incomes
persons at the reranked 10th percentile is eliminated. Using the age-specific, pre-OASDI income percentiles, each age group is divided into 10 age-specific deciles, and for each age-specific decile in each age group the average taxes, benefits, and net benefits ( tables 7,8, and 9) and taxes, benefits, and net benefits as a percent of pre-OASDI income (tables 10, 11, and 12) are tabulated.
income percentiles, 1992-lOth,
50th, and 90th percentiles
$5O,OOcl
15 20 25 30 35 40 Age 45 50 55 60 65 70 75 80
58, No. 2
The average taxes and benefits, by ageand pre-OASDI income decile, for the lst, 4th, 7th, and 10th decilesare plotted as four separategraphs in chart 2, with the vertical dimension representing average dollar amounts. The vertical scalewithin each graph is the same. Becausethe vertical dimension represents average dollar amounts, and the horizontal dimension indicates-because of the adjustmentof the age axis-numbers of
persons, the ureas in this chart give an indication of aggregate dollar amounts. In the top decile, the arearepresenting taxes paid, although it doesnot reach quite ashigh asthe arearepresenting benefits received, is spreadover an age range representinga considerably larger number of persons,indicating that much more is being paid in OASDI taxes by personsin the top age-specificdeciles during the pre-retirement years than is
Chart 2.--Average taxes and benefits by pre-OASDI income decile and age, 1992
Pre-OASBI person income decile
10th 0 tax benefit
I 35 &le
being received in OASDI benefits by personsin the top age-specific deciles during the retirement years. Moving down the deciles in chart 2, two patterns are evident: the average tax during the working years gets smaller in the lower deciles, dwindling almost to nothing for the bottom decile, and substantial amountsof benefits are paid at pre-retirement agesin the lower income deciles. In the bottom age-specific decilesthere is no age at which taxes exceed benefits. When taxes are measuredasa percent of pre-OASDI income (table IO), the progressive relationship found in the overall population is diminished within specific age groups. The tax is progressive through the bottom deciles,but tends to be roughly proportional in the fifth through ninth deciles before falling off in the top decile. The average tax ( table 7) continues to rise with income at all ages (the one exception, in the 75-79 age group, can be attributed to the small sample of workers in that age group). Average OASDI benefits (table 8) in the pre-retirement agesstart at relatively high values in the lowest decile, then fall as income rises,although there are exceptions to the general pattern at someages and incomedeciles. Measured as a percent of income, the fall from the lowest decile is quite sharpbecauseof the useof pre-OASDI income, which is near zero in the lowest decile, in the denominator of the percentagecalculation (table 11). Most of the occasionalexceptions to the progressivity of benefits at specific ages can be attributed to the small samplesize of OASDI benefit recipients in the upper decilesat pre-retirement ages. At older agesthe benefit as a percent of income still falls with increasingincome. The average OASDI benefits themselves,however, show no strong correlation with pre-OASDI income even though, as mentioned earlier, it would not be surprising if there were such a correlation. It can be seenfrom chart 2 that, while the lowest decile receives more benefits throughout the pre-retirement agesthan any of the higher deciles,and while average benefits increaseearlier in the lower deciles,by the time of late retirement (ages70 or older) there is no clear increasewith income in the average
58. No. 2
benefit. This lack of strong correlation is a puzzle that remains to be explained. There are several possible nonexclusive explanations. The link between preretirement earnings and postretirement benefits might have been weakened by the relatively low maximum taxable earnings that existed during part of the working career of many of those now retired. The presumed link between
pre-retirement earnings and postretirement non-OASDI income might be subject to considerable individual variation in savings or pension behavior or investment returns, which would weaken the correlation. Finally, any indirect link between OASDI benefits and non-OASDI income might be partly counteracted if persons with high Social Security benefits are better able to retire
or to spend down non-OASDI sources of income. lo The age-specific effects on net benefits (average net benefits, table 9, and net benefits as a percent of income, table 12) are equal to the effects on benefits minus the effects on taxes. At younger ages, the strong progressivity of the benefits going from the bottom decile to the second and third deciles reinforces the weak progres-
Table 4 .-OASDI
taxes and benefits, by person pre-OASDI income decile
Decide in~~~~~~~~~~ Decile Total............. Bottom.............. . 2nd .................... 3rd.....................
4th.. ................... 5th.. ................... 6th ..................... 7th ..................... 8th ..................... 9th.. ................... Top.. ..................
(5; 76.3 53.3 42.7 34.9 23.7 17.0
(1) $0~$1,;;; $1,224~$4,166 !$4,167-$ 7,322
$7,323-$10,976
(2; (3) (4) $311.1 $286.0 -$25.1
.3 2.6 6.8 13.4 76.0 50.7 35.9 21.5 2.5 -12.6 -27.7 -41.7 -55.7 -74.8
100.0 .l
.8 2.2 4.3 6.8 9.5 12.6 16.0 20.2 27.4
(6) loo.0
26.7 18.6 14.9 12.2 8.3 5.9 4.1 2.8 2.5 3.7
3,955 2,765 2,213 1,812
3,941 2,630 1,860 1,117
7.6 1,205.l
6.2 7.6 8.5
38.6 19.9 9.5
%10,977-$14,958 21.2 314,959-$19,117 29.6 319,118-$23,821 39.3
$23,822-$29,688 $29,689-$39,638 $39,639 or more 49.8 62.8
1,098 1,534
2,040 2,580 3,260 4,417
1,229 881
606 417 369 544
130 -653
-1,434 -2,163 -2,890 -3,874
9.6 9.7 9.6 6.8
Table 1.--Pre-OASDI
person income, taxes, and benefits, by age group
Averagedollar amount over all persons agegroup’ in Numberof persons (in millions)
pre-~~~ $19,430
3,272 10,705 18,243 21,998 25,373 27,074 27,365 28,150 24,435 19,162 13,262 9,821 8,509 6,624
A\;?
taxi $1,610
Fi $1,480
323 40 85 127 189 217 288 429 817 2,730 6,261 6,943 7,610 7,315
~~rc~~ -$13015 75 74 86 90 91 91 91 89
87 79 62 32 19 10 5 22
Age All per&ns.
15-19 .... ~...~_~;I1~ 20-24.. _. . 25-29 ..... ..... ..... .. 30-34... . .. . . .. I~ 35-39 .....“I.... 40-44.. . . . 4549.. ,._. _.~..,~_.... SO-54 __........_.... 55-59 60-64.. ..;.n 65-69 .. ... . .i ..” _. 70-74 . _“..“n. .“. 7579..... (.,..“”
10 17 20 23 22
1,868 2,177 2,329 2,410 2,219 2,425 1,771 1,122 406 190 92 42
-1,783 -2,049 -2,140 -2,192
16 13 11 11 10 9 6 7
-1,790 -2,137
-953 1,608 S9855 6,753 7,517 7,273
80 or older...,.
’ Average is taken over all persons in age group with nonzero See notes to the tables on page 32.
CPS income.
Table 5.---Age-specific pre-OASDI person income percentiles .__-Percentile 20th 15-19 .........~..I, 20-24.. I.. _. 25-29 .i... .. . . 30-34... 35-39 ..~...._._. 40-44.... . . 6,049 5,853 45-19 .... .. .. ... SO-54 _.,......_,... 4,646 3,014 55-59 _......_,....I 60-64.. i. 1,011 69 65-69 ..... .._.... 70-74.. i. 0 0 75-79 ..... .. 0 80 or older...... -__-.-~_... .~ See notes to tbe tables on page 32. $4,167 413 3,372 7,623 ’ 9,271 10,462 11,180 10,846 9,245 7,180 3,936 1,406 727 289 48 30th $7,323 827 5,082 10,344 ’ 12,870 14,348 15,323 15,297 13,610 11,292 6,805 3,214 1,975 1,132 520 -40th $10,977 1,296 6,768 13,399 ’ 16,174 18,117 19,254 19,931 17,786 15,144 9,714 5,089 3,659 2,294 1,228 50th $14,959 2,033 8,639 16,269 ’ 19,312 21,507 22,978 23,709 21,833 18,889 13,339 7,275 5,440 3,909 2,388 T $19,118 2,751 10,688 19,447 22,699 25,155 27,029 27,827 26,163 23,018 16,975 9,928 7,341 5,799 3,916 ____ 70th $23,822 3,761 13,315 22,811 26,426 29,240 31,386 32,656 3 1,220 27,545 21,763 13,276 10,404 8,140 6,180 80th $29,689 5,147 16,632 27,282 30,836 34,663 37,481 39,157 38,086 33,894 28,221 18,501 14,821 12,446 9,610
-_~--. 90th $39,639 7,635 21,651 33,466 39,417 44,457 46,518 50,327 49,628 45,933 39,757 28,650 22,672 19,897 17,510 -___
Table 6.-Age-specific --.~-.---T~-.L--15-19 ,.__....,.... 20-24.. _. _, 25-29 ..... ..... ... 30-34 .. .. ..... ... 4044 .“. 4549 .._...,,_...,, 50-54.. ._,,. ,., 55-59 ...I_,,.__.,._ 60-64.. _. , _. 70-74.. . 75-79 .. . ... .....__ 80 or older......
post-OASDI person income percentiles .~__ -______--..
Percentile 40thl jOthi ‘_60th/--$15,082 2,047 7,931 14,542 17,392 19,376 20,817 21,546 20,090 17,954 15,345 14,102 12,671 11,990 10,347 ___ $18,404 2,738 9,724 17,477 20,309 22,509 24,272 25,208 23,789 21,469 18,505 16,590 14,979 14,144 12,087
80th $27,427 5,350 14,957 24,303 27,836 31,418 33,798 35,543 34,524 31,421 27,975 23,733 21,751 20,659 IS,23 1 $36,358 7,796 19,333 29,780 35,247 40,147 42,167 45,919 44,961 42,567 38,095 32,99 1 29,797 28,593 25,580
7otl/
$3,568 139 1,527 4,219 5,250 5,825 6,267 6,199 5,386 5,040 5,062 5,823 5,679 5,529 5,268
$6,497 529 3,155 7,142 8,568 9,672 10,548 10,386 9,248 8,169 7,650 7,707 7,46 1 7,163 6,600
$9,157 898 4,620 9,508 11,670 13,136 14,202 14,364 12,754 11,401 10,115 9,673 9,159 8,493 7,711
$12,036 1,431 6,284 12,119 14,396 16,402 17,516 18,107 16,384 14,695 12,653 11,866 10,887 10,198 8,950
$22,444 3,872 11,908 20,329 23,541 26,320 28,302 29,676 28,278 25,613 22,586 19,582 17,697 16,648 14,412
Table 7.-Average
OASDI tax, by age and age-specific pre-OASDI decile
Pre-OASDI Bottom 2nd $335 15 195 470 639 721 739 755 550 285 80 6 2 0 0 3rd $353 52 355
851 1,107 1,232 1,260
dwile 6th $1,534 218 987
4th $696 91 513
jth $1,098 154 715
1,572 1,822
T-~------$2,040 288 1,263 2,284 2,601 2,770 2,983 2,971 2,775 2,196 1,278 373 158 54 14
SGg $2,580 416 1,593 2,675 3,013 3,261 3,402 3,514 3,223 2,644 1,868 527
9tq $3,260 577 2,057 3,173 3,694 4,015 4,212 4,266 4,055 3,330 2,270 804 352 152 92
All ages........ / 15-19 T.. ...... ....’ 20-24 ,.,..,___.I_. I.1. 25-29 .......I........i... 30-34 ,........,” .,.~ 35-39 ,.,..,,.. 4044 “.” 4549 .........ll.ll....l. 50-54.. “.. 55-59 60-64 ..I. . i.. 65-69 ._..... 70-74 ,,,..,....” .. . i. 75-79 ,....,___.I__.._.. 80 or older.. ..l.l.....
$14 0 45 126 157 207 202 179 112 38 2
1,496 1,623
1,262 1,041 751 251 37 12 2 1
1,710 1,421 1,075 407 85 36 7
2,356 1,882 1,370 656 158 64 26 4
2,245 2,432 2,524 2,580 2,294 1,745 921 227 104 56 9
Top $4,417 1,281 3,030 4,481 5,020 5,036 5,010 4,921 4,865 4,302 3,527 1,857 993 546 272
Note: Age-specific deciles are given in table 5. “.-UI ages” row is from table 3, using whole population Also see notes to the tables on page 32.
Table S.-Average
OASDI benefit, by age and age-specific pre-OASDI decile
Bottom $3,955
Age All ages..::.
2nd $2,765
3rd $2,213
4th $1,812 201 26 40 109 140 82 254 454 656 3,688 6,504 6,917 7,43 1 6,970
Pre-OASDI 5th $1,229 187 3 26 44 91 89 123 180 638 2,786 6,896 7,074 7,198 7,335
decile 6th $881 247 13 40 79 77 97 94 120 469 2,400 6,856 7,129 7,484 7,436
7th $606 276 4 16 6 53 57 57 34 309 2,069 6,852 7,344 7,802 7,050 8th I----7x $417 214 3 1 17 51 48 61 134 234 1,194 5,772 7,198 8,112 7,639 222
15-19.. ...........
20-24 ................... 25-29 ................... 30-34.. ................. 35-39.. ................. 40-44.. ................. 45-49 ................... 50-54 ................... 55-59.. ................. 60-64 ................... 65-69.. ................. 70-74 ................... 75-79.. ................. 80 or older ..........
231 476 786 675
70 118 110 399
16 92 89 107
1,387 2,096 3,025 4,915 6,219 6,498 7,115 7,108
528 659 1,213 4,469 6,352 6,933 7,086 7,118
269 424 1,317 . 3,593 6,611 7,073 7,461 7,153
21 19 19 30 48 95 183 1,160
$544 156 20 19 9 39 18 59 96 129
6,513 8,025 7,766
5,095 6,819 8,345 7,552
Note: Age-specific deciles are given in table 5. “All Aso see notes to the tables on page 32.
ages” row is from table 3, using whole population
Table 9.--Average
OASDI net benefit. bx age and age-specific pre-OASDI
Pre-OASDI
decile -$653 30 -974 -1,834 -2,166 -2,355 -2,427 -2,486 -2,173 -1,276 1,480 6,629 7,024 7,428 7,428
drciles.
All ages. 15-19 ..“... 20-24. 25-29 30-34 ,,.. 35-39 ._.. 4044.. 45-49 50-54... .._ 55-59 ,..,.,,.,,. .._ 60-64. ._. 65-69. ._._ 70-74.. 75-79 ..___._ _. 80 or older.. I. “. “.
Note: Also Age-specific deciles see notes to the tables
$3,941 1,424 186 351 628 468 855 1,208 1,984 2,987 4,913 6,218 6,498 7,115 7,108
are given on page 32.
$2,630 178 -125 -352 -529 -322 -217 -228 110 928 4,390 6,346 6,93 1 7,086 7,118
in table 5. “AI
$1,860 88 -339 -759 -1,017 -1,125 -1,086 -993 -616 566 3,342 6,574 7,061 7,458 7,153
ages” row
$1,117 111 -487 -1,150 -1,387 -1,484 -1,602 -1,456 -968 -419 3,281 6,419 6,881 7,424 6.969
$130 33 -712 -1,546 -1,778 -1,969 -2,045 -2,033 -1,702 -732 2,129 6,738 7,010 7,173 7.331
-12 -1,260 -2,268 -2,595 -2,717 -2,926 -2,914 -2,74 1 -1,887 790 6,478 7,186 7,748 7,037
Sthl -$2,163 -.-__--$2,890 -355 -202 -1,590 -2,047 -2,674 -3,151 -2,997 -3,675 -3,210 -3,996 -3,354 -1,182 -3,452 -4,218 -3,961 -3,089 -2,410 -3,147 -674 -1,110 5,245 4,667 7,012 6,161 8,029 7,872 7,608 7,674
Top -$3,874 1,125 -3,010 4,462 -5,011 -4,998 -4,991 -4,862 4,769 4,172 -2,472 3,237 5,825 7,799 7,280
is from table
Table IO.--0ASDI tax as percent of pre-OASDI income, by age and age-specific pre-OASDI income decile -I ~~ ~~-..--~
Age All ages ~~ -I 15-19 ..,......_ 20-24 25-29.. 30-34 35-39 .,_ ___ 4044 4549 ...“. ., .“... ‘: 50-54 55-59. __.... 60-64.. ._ 65-69 70-74 75-79 ..,.
’ Deciles Note: ;\lso in which Age-specific set: note:
Bottomi ~ 1 ~ 1 ! i 1 ~ ~-.4.4 2.2 7.0 6.1 6.2 6.8 6.6 6.7 5.8 3.7 1.0 (1) (I) (1)
2ndl 5.1 6.7 7.7 7.9 8.8 8.9 8.6 8.9 7.9 5.5 3.3 .9 .7
irT-?th 6.2 8.3 8.3 9.4 9.9 9.9 9.4 9.5 9.1 8.1 4.7 1.7 .9 .3 .3
Pre-OASDI income decile 5thl --T---7tl,l-8.5 9.1 9.3 10.6 10.3 10.4 10.1 9.9 9.5 8.1 5.7 2.6 1.4 .8 .2
8+~~~~~?<9.6 9.0 10.5 10.9 10.6 10.2 10.2 9.8 9.7 8.7 6.7 3.3 1.8 .8 .3 9.7 9.3 10.6 10.7 10.6 10.3 10.0 9.8 9.4 8.6 7.5 3.4 1.5 .8 .4 9.6 9.2 10.8 10.6 10.7 10.3 10.1 9.7 9.4 8.5 6.9 3.5 1.9 1.0 .7
bob 6.8 9.9 10.0 10.0 8.6 6.8 6.4 6.0 5.5 5.2 4.9 3.0 2.3 1.3 .8
80r.et(‘er :I- ~~ T--~ ..~ ml, :-L1 ..~~
all or most incomes deales to the tables are gix-en on page are zero. in table 32.
7.6 8.6 8.6 10.0 10.3 10.0 9.7 9.6 9.1 8.2 4.9 2.1 1.3 .4 .l .________~
9.1 9.1 10.2 10.5 10.7 10.4 10.1 10.0 9.5 8.4 6.1 2.6 1.7 1.2 .3
5. “Al
row is from table
Social Security Bulktin
Vol. 58. No. 2 Sunltner 1995
Table 11 .-OASDI
benefit as percent of pre-OASDI income, by age and age-specific pre-OASDI income decile
Pre-OASDI income decile 6th 5.2 10.3 .I .2 .4 .3 .4 .4 2:; 15.9 79.9 113.0 155.5 236.5 7thl 2.8 8.6 .O .l .O .2 .2 7 ..l 1.2 10.8 59.8 84.2 113.9 141.4 ~-8th 1.6 4.8 .O .O .l .2 .l .2 .4 .8 4.8 36.9 57.7 80.5 98.0 -~-~ 9th 1.1 3.6 .I .l .l .O .I .I .2 .5 3.5 24.0 35.9 51.1 59.5 Top 0.8
Bottom 1,205.l (1) 35.9 23.1 30.7 22.4 34.6 51.7 109.1 297.5 (1) 2nd 103.2 86.7 2.8 2.0 1.5 4.9 6.1 6.2 9.5 23.3 186.4 951.2 (1) (1) 3rd 38.6 22.3 .4 1.0 .8 .9 1.3 2.0 3.7 14.2 66.7 292.7 537.2 (1) (1) 4th 19.9 19.2 .4 .3 .7 .9 1:: 2.9 5.0 44.7 157.3 249.9 448.1 833.1 5th 9.5 11.0 .O .2 .2 :i .6 .9 3.8 24.1 113.0 158.2 232.0 417.6
Age All ages ........ 15-19.................. 20-24.. ............. “_, 25-29.. ............ .... 30-34.. ................. 35-39.. ................. 4044.. ................. 45-49 .................. 50-54. .................. 55-59.. ................. 60-64.. ................. 65-69.. ................. 70-74.. ................. 75-79.. ................. 80 or older ............
r Deciles in which incomes are so small that the percentage ratio is greater than 1,000.
2 Deciles in which all or most incomes are zero.
Note: Age-specific decides are given in table 5. “All ages” row is from table 3, using whole population Also see notes to the tables on page 32.
Table 12.-OASDI
Age / All ages ........ 15-19.. ................. 20-24. .................. 25-29.. ................. 30-34 ................... 35-39.. ................. 4044.. ................. 4549.. ................. 50-54.. ................. 55-59.. ................. 60-64.. ................. 65-69 ................... 70-74.. ................. 75-79 ................... 80 or older.. ..........
net benefit as percent of pre-OASDI income, by age and age-specific pre-OASDI decile
Pre-OASDI Bottom I/ 1,200.8 (1) 28.9 17.0 24.6 15.5 28.0 45.1 103.3 293.8 (1) 2ndl I 98.1 80.0 -4.9 -5.9 -7.3 -4.0 -2.5 -2.7 1.6 17.9 183.1 950.3 (1) (1) 3rdl 1 32.5 14.0 -7.9 -8.4 -9.1 -9.0 -8.1 -7.4 , -5.4 6.1 62.0 291.1 536.3 (1) (1) 4th/ 12.2 10.5 -8.2 -9.6 -9.5 -9.1 -9.2 -8.2 -6.2 -3.2 39.8 155.2 248.7 447.7 833.0 5th
income decile 6thj -3.9 1.2 -10.0 -10.2 -10.3 -10.1 -9.7 -9.6 -9.0 -6.1 9.8 77.3 111.4 154.4 236.1 7th -6.7 4 -1015 -10.8 -10.6 -10.0 -10.0 -9.7 -9.6 -7.5 4.1 56.6 82.4 113.1 141.1 T----8.1 -4.5 -10.6 -10.7 -10.5 -10.1 -9.8 -9.6 -9.0 -7.9 -2.7 33.6 56.2 79.7 97.6 9th -8.5 -5.7 -10.8 -10.5 -10.6 -10.2 -10.0 -9.6 -9.2 -8.0 -3.4 20.5 34.0 50.2 58.8 Top -6.0
(2) 0) (2) (2)
1.0 1.9 -9.3 -10.4 -10.0 -10.0 -9.7 -9.3 -8.6 4.3 18.5 110.5 156.8 231.2 417.4
’ Deciles in which incomes are so small that the percentage ratio is greater than 1,000. * Deciles in which all or most incomes are zero. Note: Age-specific deciles are given in table 5. “All ages” row is from table 3, using whole population Also see notes to the tables on page 32.
sivity of the tax in the bottom deciles. In the upper deciles at younger ages the near absence of benefits causes the net benefit pattern to reflect the approximate proportionality of the tax at those ages in the third through the ninth deciles. Going from the 9th to the 10th decile, the net benefit as a percent of income is, like the tax, regressive. At the older ages, the relative absence of OASDI taxes causes the net benefit pattern to reflect the pattern of benefits at those ages, progressive at all income levels. OASDI taxes and benefits, then, continue to have a slight progressive effect even within specific age groups, although not as large an effect as when looking at all ages combined. The l-year cross-sectional data cannot be pushed much farther than this; in particular, they cannot be used to answer questions of the progressivity of lifetime OASDI taxes and benefits relative to lifetime income. Such questions can be settled conclusively only through detailed studies of lifetime histories of incomes and benefits (see the article by Leimer in this issue for an introduction to such studies). The observed progressivity of current OASDI net benefits at each age, however, is suggestive of a progressive relation between lifetime net benefits and lifetime incomes.
aged persons, the OASDI tax is weakly progressive, except at higher incomes. OASDI benefits are received primarily by persons in the lower income deciles. Again, this is partly an age effect: the old-age beneficiaries, who are the preponderant recipients of benefits, are also preponderantly found in the lower deciles. But there is a marked progressivity found even at specific ages. Among persons of working age,the target populations insured under OASDIdisabled workers, their families, and the families of deceased workers-are much more likely to be found in the lower deciles, so that in the lower deciles average benefits as well as the ratio of benefit to nonbenefit income will be higher. Among persons in the transitional ages between work and retirement, benefits are associated not only with disability or early survivorship but also with earlier retirement, again leading to higher average benefits, and a higher ratio of benefit to nonbenefit income, in the lower income deciles. Finally, among retirement-aged persons, although there is no longer a decline in average benefits as nonbenefit income rises, there is still a strong decline in benefits as a percent of nonbeneftt income.
Persons and families whose CPS incomes are zero or negative are excluded from the percentile calculations and decile tabulations for tables I, 2, 3: IO, 11, 12 and tables 5, 6, 7, 8, and 9. It is possible, however, to have positive OASDI taxes or benefits and still have a negative CPS income; such families or persons, while excluded from the tabulation by decile, are included in the “total” line in tables I, 2, and 3. Persons or families with only Social Security income will have a positive CPS income but a pre-OASDI income of zero. Such units are included in the pre-OASDI percentile calculations and decile tabulations for tables 2, 3, IO, 11, and 12 and tables 5, 6, 7, 8, and 9, as well as in the “total” line in tables 2 and 3. A very small number of persons or families have a positive CPS income but a negative pre-OASDI income. These units, unlike the units with a zero pre-OASDI income, are excluded from the pre-OASDI percentile calculations and decile tabulations for tables 2, 3, 10, I I, and I2 and tables 5, 6, 7, 8, and 9. They are included in the “total” line in tables 2 and 3. For the age-specific pre-OASDI person income deciles at ages 70 or older-for which the 10th percentile is zero dollarssome of the persons with pre-OASDI incomes of zero are randomly assigned to the 2nd decile, rather than the I st, in order to arrive more closely at an even division into IO percent of persons in each income decile.
Board of Trustees, Federal Old-Age and Survivors Insurance and Disability Insurance Trust Funds. 1994 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Disability Insurance Trust Funds. Communication to the 103rd Cong., 2nd sess., 1994. H. Dot. 231. Leimer, Dean R. “A Guide to Social Security Money’s Worth Issues.“Social Security Bulletin, Vol. 58, No. 2 (Summer), pp. 3-20 (this issue). Pattison, David, and David E. Harrington. 1993. “Proposals to Modify the Taxation of Social Security Benefits.” Social Security Bulletin, Vol. 56, No. 2 (Summer), pp. 3-21. Wixon, Bernard, Benjamin Bridges, Jr. , and David Pattison. 1987. Policy Analysis through Microsimulation: The STATS Model.” Social Security Bulletin, Vol. 50, No. 12 (December), pp. 4-12.
The OASDI system of taxes and benefits has a substantial redistributive impact on current incomes that is summarized here. OASDI taxes are paid primarily by persons in the upper income deciles. Although specified as a proportional tax on earnings up to the maximum taxable earnings, the OASDI tax is progressive relative to income because an increasing proportion of income is attributable to earnings as income increases. Many persons with no earnings in the lower deciles are the retired aged, so that the overall progressivity of the OASDI tax is partly attributable to an age effect: the relatively young workers who pay the tax tend to have higher incomes than the relatively old retirees who receive the benefits and as nonworkers are exempt from the tax. Nevertheless, even among working-
Acknowledgments:The author would like to thank Ben Bridges, Dean Leimer, and Daniel Radner for their numeroushelpful comments.
’ The annual March CPS is a source for official statistics on poverty and on family and person income. * The simulation of wage and selfemployment taxes is done using the Simulated Tax and Transfer System (STATS) micro-simulation program (described in Wixon, and others, 1987). The simulation includes a determination, using industry and occupation codes on the CPS, of whether each worker’s earnings are covered, and, if covered, of the OASDI tax applied to the worker’s earnings. For
self-employment earnings, the self-employment tax is calculated; for wage and salary earnings, both the employee and employer portions are calculated. ’ For distributional analysis of the effects of OASDI taxes, it is necessary to allocate the burden of both the employee and employer portions of the OASDI payroll tax. The simplest procedure is to assume that each worker bears a burden equal to the combined employee and employer taxes on his or her carnings. Some of the burden of the combined portions might not be borne directly through reductions in each worker’s earnings net of tax, but might be borne more indirectly through, for example, higher prices on consumption goods, the distributional effects of which often would be harder to estimate. Many economists have concluded, however, that the assumption that the combined burden is borne by the worker is plausibly close to the truth. ’ For various reasons, average and aggregate income on the CPS do not exactly match corresponding averages or aggregates calculated from other sources of data. In the data tabulated in this article, adjustments are made to some income components based on comparisons in past years between average incomes on Federal income tax returns and average incomes on tax returns simulated on the CPS. These adjustments are described in the appendix to Pattison and Harrington (1993). The adjustments have small effects on the distributions reported in this article, but do not affect the qualitative nature of the results. In addition, a set of small scaling adjustments is made to align the CPS-derived aggregate OASDI taxes and benefits with the historical aggregates for 1992. The aggregates used for alignment are the calendar year contributions and benefit payments for the combined operations of the OASI and DI Trust Funds, from the 1994 Annual Report of the Board of Trustees. The aggregate amounts were $3 11.1 billion in contributions and $286.0 billion in benefit payments. (The OASDI funds in 1992 received $25 billion more in contributions than was paid out in benefits.) To align the simulation aggregates with the administrative aggregates, two adjustments are made. First, all tabulation weights are scaled up by 4.11 percent; this uniform scaling of weights has no effect on averages or on percent distributions. Second, all OASDI taxes are scaled up by 0.78 percent, and all OASDI benefits are scaled down by 0.78 percent; these small adjustments are designed to bring aggregate taxes and benefits into alignment with minimal effect on average
incomes; the adjustments should have only small effects on the distribution of taxes or benefits. The purpose of these adjustments is to improve the net benefit estimates by aligning the aggregate tax and benefit estimates with reliable aggregate information. ’ For the family income percentile calculations and tabulations by decile, families whose CPS incomes are zero or negative are excluded. For the person income percentile calculations, adult units (single persons or married couples) whose CPS incomes are zero or negative are excluded, as are children under age 15. (If a child under age I5 is receiving OASDI benefits, and there is an adult in the household receiving the benefits on the child’s behalf, the CPS includes the child’s benefit income in the income of that adult.) Families or persons whose CPS income is entirely made up of OASDl benefits, and who therefore have a positive CPS income but a prc-OASDI income of zero, are included in the pre-OASDJ income percentile calculations and decilc tabulations. but the very small number of families or persons with positive CPS incomes but negative preOASDI incomes are excluded from the preOASDI income percentile calculations and decile tabulations, ’ The maximum taxable earnings in 1992 was $55,500. This lies within the 9th decile for family income and the 10th decile for person income, no matter which way family or person income is measured-CPS income, pre-OASDI income, or post-OASDI income. ’ The OASDI tax is sometimes called a regressive tax, because the tax as a percent of covered earnings is proportional, or nonprogressive, for earnings up to the maximum taxable earnings, and is regressive above it. Distributional analysis, however, measures the ratio of taxes to total income, taxable and nontaxable, rather than the ratio to the tax base used on the nominal tax schedule that defines the tax. A uniform sales tax on food, for example, while nominally defined as a proportional tax on food expenditures, would in the broader sense used in distributional analysis be considered a regressive tax, since the ratio of food expenditures to income falls as income rises. * For example: If a widow aged 70 with an income of $8,000 lives with her married daughter, whose income together with that of her husband’s is $40,000, the three would be classified under the family definition as one family with an income of$48,000, but under the person definition as three persons with incomes of $8,000. $20,000, and $20.000.
‘) Neither the family nor the person measure of income is fully satisfactory for determining a person’s economic status. When comparing couples with individuals, the person measure will understate the wellbeing of couples rclativc to individuals, since it does not take into account the economizing that a couple is able to achieve; the family measure, on the other hand, overstates the well-being of couples relative to individuals, The most widely used method of adjusting family incomes for family size, the Census family poverty line, was explicitly tailored to reflect economies of size for individuals and couples living at incomes near poverty and may therefore be inappropriate for use over the whole income distribution. When comparing persons who live on their own with persons who live with other members of their families. other problems arise. The person measure used here takes into account neither the household economies of living in a larger household nor the possible sharing of income among the subfamilies of the extended family The use of family income, on the other hand. would cause aged persons who are forced to economize by moving in with their children to be considered better off than aged persons who still have sufficient income to live on their own. Person income is used in this article because it allows a straightforward tabulaion of OASDI taxes and benefits by age of person. “’ To the extent that workers who expect higher than average benefits feel they need to make less than average provision for nonOASDI retirement income, the use of preOASDI income in retirement as a measure of income is weakened. It seems unlikely, however, that the tendency for workers with higher earnings to save more for retirement would be overcome by a tendency to compcnsate for higher OASDI benefits by reducing other savings. Nevertheless, this is one reason why studies of cross-sectional data like this article can only give suggestive indications of the lifetime consequences of OASDI taxes and benefits; definitive conclusions can be reached only through the study of life histories of earnings and savings.
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