Social Security's Treatment of Postwar Americans

Steven Caldwell, Melissa Favreault, Alla Gantman, Jagadeesh Gokhale, Thomas Johnson

NBER Working Paper No. 6603
Issued in June 1998
NBER Program(s):Public Economics

Social Security faces a major long-term funding crisis. A 38 or greater percentage increase in the systems' tax rate is needed to meet current benefit payments on an ongoing basis. Tax increases of this magnitude or comparable benefit cuts would significantly worsen what is already a very bad deal for postwar Americans. This paper uses CORSIM -- a dynamic micro simulation model -- and SOCSIM -- a detailed Social Security benefit calculator -- to study this deal. The study finds that baby boomers will, under current law, lose roughly 5 cents of every dollar they earn to the OASI program in taxes net of benefits. For today's children the figure is 7 cents. Measured as a proportion of their lifetime labor incomes, the middle class are the biggest losers, but measured in absolute dollars, the rich lose the most. Out of every dollar that postwar Americans contribute to the OASI system, 74 cents represent a pure tax. The system treats women better than men, whites better than non-whites, and the college educated better than the non-college educated. While the system has been partially effective in pooling risk across households, it offers postwar cohorts internal rates of return on their contributions that are quite low. Those born right after World War II will earn, on average, a 2.4 percent real rate of return. Those born in the early 1970's will average about a 1 percent real rate of return, and those born at the end of this decade will average essentially a zero rate of return.

download in pdf format
   (4424 K)

email paper

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w6603

Published: Social Security's Treatment of Postwar Americans, Steven Caldwell, Melissa Favreault, Alla Gantman, Jagadeesh Gokhale, Thomas Johnson, Laurence J. Kotlikoff. in Tax Policy and the Economy, Volume 13, Poterba. 1999

Users who downloaded this paper also downloaded* these:
Rotemberg and Woodford t0233 An Optimization-Based Econometric Framework for the Evaluation of Monetary Policy: Expanded Version
Bhattarai and Whalley w6712 The Division and Size of Gains from Liberalization of Service Networks
Bekaert and Harvey w6669 Capital Flows and the Behavior of Emerging Market Equity Returns
Boskin, Kotlikoff, Puffert, and Shoven w1891 Social Security: A Financial Appraisal Across and Within Generations
Caldwell, Favreault, Gantman, Gokhale, Johnson, and Kotlikoff Social Security's Treatment of Postwar Americans
NBER Videos

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email:

Contact Us