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The Economics of Social Security

In: Business and Management

Submitted By simonae
Words 336
Pages 2
Special Topic 2
The Economics of Social Security
Critical Analysis Questions 1,3,4,5,6

Social Security is not based on the same principles as private insurance. Private insurance and pension programs invest the current payments of customers in buildings, farms, or other real assets. These real assets generate income that allows the insurance company to fulfill its future obligations to its customers. Social Security taxes current workers and uses the revenues to finance benefits for existing retirees.

Social Security has been a good deal for present and past retirees, however, it is not a good deal for today’s middle aged and younger workers. Those who retired in the 196’s and 1970’s received real benefits of three or four times the amount that they paid into the system, which is way better than if they had invested the funds privately. Future retirees can expect to earn a real rate of return of about 2 percent more on their Social Security tax dollars, which is way less than what they would earn from personal investments. I believe today, we should be permitted to invest our Social Security tax dollars.

Because of the shorter life expectancy of blacks, the Social Security system adversely affects their economic welfare. Compared with Whites and Hispanics, blacks are far more likely to pay a lifetime of payroll taxes and then die without receiving much in the way of benefits. On the other hand, Social Security is favorable to Hispanics because of their above average life expectancy and the progressive nature of the benefit formula. As a result, Hispanics derive a higher return than whites and substantially higher than blacks.

I do not believe that the Social Security system promotes income equality because Social Security is a payroll tax and it is taxed on wages over $400 per month. If you are self-employed you have to pay both shares, yours plus…...

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