by Liqun Liu, Andrew J. Rettenmaier, Thomas R. Saving
National Center for Policy Analysis
July 17, 2014
When workers consider the retirement benefits they expect from Social Security, they must also consider the taxes paid during their working years. Average-wage workers retiring today have paid more Social Security taxes than they will receive in benefits, so their net benefits are negative. Given that current taxpayers subsidize current retirees, as the ratio of retirees to workers grows, the burden on taxpayers will grow as well. Workers can escape the higher tax rates necessary to fund the current program if they are willing to retire later, and take slightly lower benefits when they do so. Done properly, these reforms could result in workers gaining net positive lifetime benefits from Social Security. This is preferable to raising taxes, as current debt levels make reducing the federal budget a critical long-term project, and collecting higher taxes would inevitably produce welfare loss.