Social Security and SSI as safety nets for the elderly poor

Partial privatization of Social Security is being considered as an integral part of the future Social Security program for American retirees. Because privatization creates uncertainty about the amount of retirement income that future retirees may expect to receive, the issue of a safety net is critical. This article presents the findings from an empirical study that investigated the degree to which the current Social Security and Supplemental Security Income (SSI) programs provide a safety net, separately and in combination, to the elderly poor. The major findings were that the Social Security program not only increases the income statuses of both posttransfer and pretransfer poor elderly people considerably, but that the program also significantly equalizes the distribution of income among them. In addition, the SSI program supplements the Social Security program in establishing an even greater safety net, especially for posttransfer poor elderly people. On the other hand, Social Security benefits make the income disparity among races greater between both posttransfer and pretransfer poor elderly people. Implications for policy are discussed.     

Is Dual Income Costly for Married Couples? An Analysis of Household Expenditures

This study analyzed annual household outlays in the recent Consumer Expenditure Survey to obtain the cost of dual income for married couples. Of the crude differences between two- and one-earner married households in payments and expenditures, the portion reflecting structural differences in demand was obtained through decomposition as the measure of the cost of dual income. We found dual-earner couples’ work-related expenditures diminished fulltime working wives’ net contribution by 1.7 % of their average earning. Greater tax burden and Social Security payments diminished fulltime working wives’ net contribution by additional 2.0 and 3.4 % of their average earnings, respectively. Dual-earner couples contributed more to private pension plans and experienced lower levels of current-period consumption including consumption of market substitutes for housework.     

Redistributing Income and Relative Efficiency

This article considers the relative efficiency of marginally redistributing income from high- to low-income households. Additional spending on a negative income tax is compared with spending on an earnings or a wage subsidy. One set of reforms imposes the same burden on the nonpoor, and another set redistributes the same net benefit to the working poor. Additional spending on a negative income tax is more efficient than spending a similar amount on an earnings subsidy (the Earned Income Tax Credit), for some reforms and parameters. The wage subsidy is the most efficient, independent of parameters or type of reform.     

Trends in the Economic Status of the Aged and the Implications for State Policy

This paper examines recent trends in the economic status of the elderly. Particular attention is given to shifts in the income composition of older households and why these shifts have taken place. It is shown that most of these shifts are attributable, either directly or indirectly, to Social Security and private pension policies. The data also reveal that the income mix of poor older households differs greatly from that of more affluent older households. This has implications for the formulation of policies to improve the economic status of the elderly in poverty. Unfortunately, the current policy environment, characterized by large federal deficits, places severe constraints on developing federal programs to aid poor older persons. Thus, it is likely that state governments will need to take increasing responsibility for programs targeted to the aged poor. The paper concludes by considering the potential effectiveness of such programs.     

WORKERS SHOULD WANT TO PAY MORE FOR SOCIAL SECURITY

One controversial aspect of the current Social Security system has been the relative distribution of its net costs and benefits between employers and workers. Using simple supply and demand analysis, we demonstrate that proponents and opponents of the current system are making arguments that support the position of their adversaries. In particular, proponents of the existing Social Security system should be arguing that workers pay all of the Social Security tax and then some with lower wages, while opponents should be arguing that employers are paying most of the tax. (JEL H55 , D78 )     

THE OPTIMAL TAXATION OF ASSET INCOME WHEN GOVERNMENT CONSUMPTION IS ENDOGENOUS: THEORY,ESTIMATION AND WELFARE

This paper derives the Ramsey optimal fiscal policy for taxing asset income in a model where government expenditure is a function of net output or the inputs that produce it. Extending work by Kenneth L. Judd, I demonstrate that the canonical result that the optimal tax on capital income is zero in the medium to long term is a special case of a more general model. Employing a vector error correction model to estimate the relationship between government consumption and net output or the factor inputs that generate it for the United States between 1948Q1 and 2015Q4, I demonstrate that this special case is empirically implausible, and show how a cointegrating vector can be used to determine the optimal tax schedule. I simulate a version of the model using the empirical estimates to measure the welfare implications of changing the tax rate on asset income, and contrast these results with those generated in a version of the model where government consumption is purely exogenous. The shifting pattern of welfare measurements confirms the theoretical results. I calculate that the prevailing effective tax rate on net asset income in the United States between 1970 and 2014 averaged 0.449. Hence abolishing the tax completely does generate welfare improvements, though only by the equivalent of between 1.103% and 1.616% permanent increase in consumption—well under half the implied welfare benefit when the endogeneity of the government consumption is ignored. The maximum welfare improvement from shifting part of the burden of tax from capital to labor is the equivalent of a permanent increase in consumption of between only 1.491% and 1.858%, and is attained when the tax rate on asset income is lowered to between 0.148 and 0.186. Allowing the tax rate to vary over time raises the maximum welfare benefit to 1.865%. All the results are very robust to a wide range of elasticities of labor supply. (JEL E62, H21, H50)     

Non-minimization of source taxes on labor income: empirical evidence from Germany

The present paper analyzes the choice of tax classes by married couples under the German withholding tax on wage income. Making use of micro data from official tax returns for the year 1998 and conducting simulation analysis, it is shown that more than 20 percent of the observed households do not choose the tax class combination that minimizes withholding. In the second part of the paper, several explanations for this result are discussed. Among those explanations, transaction costs and Pareto-inefficient intrahousehold-decision-making are the most likely.     

Women and Social Security:

This article explores some major assumptions underlying the Social Security system and alternative approaches to rendering the system more economically viable, meeting the income needs of the elderly and/or providing greater equity under its benefit and taxation provisions. It attempts to show that the current structure of Social Security not only reinforces but also exacerbates the underlying economic inequalities in our nation's political economy under the guise of a social insurance program. In addressing selected benefit and taxation issues, the article focuses on how working and older women are faring in the 1990s under the Social Security system. It argues that although the program theoretically is gender neutral, its impact is not. Women, particularly those who are single, are poorly served. The article concludes that a progressive restructuring of the Social Security system itself is imperative if we are to meet the needs of a large percentage of workers, older people, and the economic and social demands of the 1990s and beyond. It also offers some suggestions for such change.     

Women and social security: a progressive approach

This article explores some major assumptions underlying the Social Security system and alternative approaches to rendering the system more economically viable, meeting the income needs of the elderly and/or providing greater equity under its benefit and taxation provisions. It attempts to show that the current structure of Social Security not only reinforces but also exacerbates the underlying economic inequalities in our nation's political economy under the guise of a social insurance program. In addressing selected benefit and taxation issues, the article focuses on how working and older women are faring in the 1990s under the Social Security system. It argues that although the program theoretically is gender neutral, its impact is not. Women, particularly those who are single, are poorly served. The article concludes that a progressive restructuring of the Social Security system itself is imperative if we are to meet the needs of a large percentage of workers, older people, and the economic and social demands of the 1990s and beyond. It also offers some suggestions for such change.     

Social insurance and children: The relationship between Social Security,economic well-being,and family context among child recipients

The relationship between social insurance, which provides families protection against certain risks, and child economic security is understudied. Using the 2004 Survey of Income and Program Participation (SIPP) matched to Social Security Administration benefit records, this article investigates the economic welfare effects of the child component of the US Social Security program. We examine how the poverty rate of child beneficiaries would change, absent Social Security income, and how heavily the family incomes of these children rely on it, by family characteristics. Our findings reveal that Social Security plays an important role in mitigating economic insecurity among children deprived of a wage-earning parent through disability, death, or retirement. Family structure, earnings, and employment status are identified as key factors moderating the effect of Social Security on child recipients’ financial circumstance.     

IN-KIND VERSUS CASH TRANSFERS IN THE PRESENCE OF DISTORTIONARY TAXES

In-kind transfers can Pareto-dominate cash transfers as a means of income redistribution if in-kind transfers and leisure are Hicks substitutes and leisure is a normal good. The result holds when redistributive instruments also include a linear income tax. The paper proves that if the poor receive more in-kind transfers (and the rich less) than what they would choose for themselves then, compared to cash transfers, there will be a higher labor supply by the poor, a lower labor supply by the rich, and higher levels of aggregate pre-tax income and tax revenues.     

Impact of Rising World Rice Prices on Poverty and Inequality in Burkina Faso

Between January 2006 and April 2008, the prices of most agricultural products rose considerably in international markets. Empirical studies show that this spike in world food prices increased the number of poor households in developing countries, but the extent was not the same in all countries. This article assesses the impact of rising rice prices on poverty and income inequality in Burkina Faso, using a methodology based on the concept of compensating variation combined with the net benefit ratio (NBR) developed by Deaton (1989) and a living standard survey (QUIBB, 2003). The results show that higher prices have a negative impact on income and poverty in the regions with a large proportion of households that are net buyers of rice. The poverty rate increases by 2.2 to 2.9 percentage points depending on the assumptions, the increase being higher in urban areas than in rural areas. Rising rice prices also increase income inequality, which increases particularly in urban areas and in relatively rich regions, but decreases in poor regions with a large proportion of rice producers.     

Household Composition and Poverty among Female‐Headed Households with Children: Differences by Race and Residence*

Abstract We examine race and residential variation in the prevalence of female‐headed households with children and how household composition is associated with several key economic well‐being outcomes using data from the 2000 5% Public Use Microdata Sample of the U.S. Census. Special attention is paid to cohabiting female‐headed households with children and those that are headed by a single grandmother caring for at least one grandchild, because these are becoming more common living arrangements among female‐headed households with children. We find that in 2000: (1) cohabiting and grandmother female‐headed households with children comprised over one‐fourth of all female‐headed households with children, (2) household poverty is highest for female‐headed households with children that do not have other adult household earners, (3) earned income from other household members lifts many cohabiting and grandparental female‐headed households out of poverty, as does retirement and Social Security income for grandmother headed households, and (4) poverty is highest among racial/ethnic minorities and for female‐headed households with children in nonmetro compared to central cities and suburban areas.     

Aging,Health, and Social Policy:

Seven major turning points in the evolution of U.S. aging policy are identified and reviewed: (1) the Social Security Act (2) the Great Society (3) the federalization of Old Age Assistance (4) the enactment of comprehensive social services (5) Social Security improvements (6) New Federalism, and (7) medical cost-containment policies under Medicare and Medicaid. In the 1980s, significant and growing problems of uninsurance and underinsurance for health care have re-emerged. Simultaneously, state Medicaid programs are characterized by their increasing variation and inequities, while there has been a decline in access for the poor. The future of aging policy will be decided in the context of four socio-demographic realities: (1) population aging (2) trends in mortality and morbidity (3) the relationship between income and health, and (4) aging as a woman's issue. The article concludes with a call for a recommitment to the public interest and to public solutions which affirm that health care is an inalienable right.     

IMMIGRANT NETWORKS AND THE TAKE‐UP OF DISABILITY PROGRAMS: EVIDENCE FROM THE UNITED STATES

We examine the role of ethnic networks in disability program take‐up among working‐age immigrants in the United States. Controlling for country of origin and area of residence fixed effects, immigrants residing amid a large number of co‐ethnics are more likely to receive disability payments when their ethnic groups have higher take‐up rates. Differences in satisfying the work history or income and asset requirements of the disability programs explain part of this relationship, but social norms also play an important role. Information sharing appears influential for Supplemental Security Income take‐up but not for Social Security Disability Income. (JEL J61, H55, I18)     

THE WELFARE IMPACT OF TRADE LIBERALIZATION

This paper analyzes the distributional welfare impact of trade liberalization reforms on heterogeneous households. We develop a static applied general equilibrium model, and using a Social Accounting Matrix and Household Expenditure Survey, we calibrate it to match Slovenian data. We simulate the case of Slovenia joining the EU and quantify its welfare impact on households that differ in terms of age, income, and education. Additionally, we compare this benchmark case with two alternative scenarios: (1) a free trade agreement between Slovenia and the EU and (2) a custom union arrangement where tariff revenues are rebated proportionally to the households. We find that while trade liberalization leads to falling consumer prices, increased production in the export sectors, and aggregate welfare gains, the differentiated welfare impacts across heterogeneous households vary in their degrees. (JEL D58, F14, F15)     

The political viability of a negative income tax

This paper offers three propositions relating to the political viability of the negative income tax. One, despite its work disincentive, a majority of households would support a linear income tax that makes cash payments to low income households. However two, when government consumption is sufficiently high, a majority would favor a proportional tax over such a tax. Three, under certain conditions, a majority of households will prefer public provision of a private good or an in-kind transfer to a negative income tax. These latter two propositions offer an explanation for the public's apparent distaste for widespread cash transfers. Received: 17 September 1999/Accepted: 21 April 2000     

True positives and false alarms in the detection of tax evasion

The probability of errors in tax returns has not been modeled explicitly before. However, corrections on individual tax returns, made by the fiscal authorities, may be related both to tax evasion and to errors made by the taxpayers. The probabilities of detecting tax evasion (true positives) and errors in tax returns (partly interpreted as false alarms) are specified and parametrized by variables known from the literature. In an empirical survey, the response to a questionnaire has been combined with information from the tax administration regarding tax returns. Taxpayers' willingness and ability to conceal income from the tax authorities are key factors with respect to tax evasion. Furthermore, the model enables the estimation of tax evasion probability, given the level of education and the opportunity to conceal income. The probabilities of tax evasion and errors could be explained to some extent.     

Income Adequacy and Social Security Differences Between the Foreign‐Born and U.S.‐Born1

This paper projects retirement income and Social Security taxes and benefits among the foreign‐born and U.S.‐born in the United States. Focusing on the Depression and the late baby boom birth cohorts, we find that foreign‐born persons have higher poverty rates than the U.S.‐born, and as a group do not receive higher lifetime net benefits from Social Security than do the U.S.‐born. However, persons from the late baby boom cohort who immigrated after 1969 have higher projected rates of return in Social Security than do U.S.‐born persons of the same birth cohort.     

Public support for social security

This article reports the results of a nationally representative survey of 1,209 Americans that examines their support for Social Security and six other major social welfare programs. It probes the extent to which members of the public are willing to demonstrate their support, the differences in support among population subgroups, and the extent to which perceptions of Social Security and Social Security recipients predict overall support for Social Security. The authors find high levels of support among members of the public, including a willingness both to write letters to congress members and to pay higher taxes. Some groups of citizens—especially blacks and those who classify themselves as liberals—are more supportive than others, but the differences are not great and contribute little toward explaining the variance in support. The perceptions that the program makes a worthwhile contribution to society and that recipients have no alternative sources of income other than Social Security contribute the most toward predicting overall support for Social Security.