Social Security: Distribution of Benefits and Taxes Relative to Earnings Level

Under the current Social Security benefit formula, retired workers receive benefits that equal about 50 percent of pre-retirement earnings for a low-wage worker but only about 30 percent for a relatively high-wage worker. Factors other than earnings also influence the distribution of benefits, including the program's provisions for disabled workers, spouses, children, and survivors. Changes in the program over time also affect the distribution of benefits across generations. Social Security faces a long-term structural financing shortfall. Program changes to address that shortfall could alter the way Social Security's benefits and revenues are distributed across the population and affect the income security of millions of Americans. To gain a better understanding of the distributional effects of potential program changes, the Chairman and Ranking Minority Member of the Senate Special Committee on Aging asked us to address (1) how to define and describe "progressivity," that is, the distribution of benefits and taxes with respect to earnings level, when assessing the current Social Security system or proposed changes to it; (2) what factors influence the distributional effects of the current Social Security program; and (3) what would be the distributional effects of various reform proposals, compared with alternative solvent baselines for the current system.