Social Security and Minorities: Earnings, Disability Incidence,
and Mortality Are Key Factors That Influence Taxes Paid and
Benefits Received (23-APR-03, GAO-03-387).
Although Social Security's benefit and contribution provisions
are neutral with respect to race, ethnicity, and gender, concerns
about the experiences of minority groups under Social Security
focus on whether they benefit less than whites, particularly
because of the shorter life expectancy of blacks. These concerns
are related to the concept of equity, or how benefits compare
with taxes. To gain a thorough understanding of the experiences
of minority populations under Social Security, GAO was asked to
examine (1) what socioeconomic and demographic factors influence
Social Security taxes paid and benefits received and (2) how
different equity measures compare across racial groups. Because
of the current system's projected actuarial deficit, to conduct
this study, GAO made its calculations using three policy
scenarios, each of which achieves 75-year solvency: a payroll tax
increase and a progressive and proportional benefit cut. Further,
GAO used three measures of equity: lifetime benefit-to-tax
ratios, net lifetime benefits, and real internal rates of return.
GAO also examined four birth cohorts: 1931-40, 1941-45, 1946-55,
and 1956-64.
-------------------------Indexing Terms-------------------------
REPORTNUM: GAO-03-387
ACCNO: A06707
TITLE: Social Security and Minorities: Earnings, Disability
Incidence, and Mortality Are Key Factors That Influence Taxes
Paid and Benefits Received
DATE: 04/23/2003
SUBJECT: Federal social security programs
Minorities
Social security benefits
Social security taxes
Comparative analysis
Old Age Survivors and Disability
Insurance Program
Social Security Disability Insurance
Program
Social Security Program
Old-Age and Survivors Insurance Program
******************************************************************
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GAO-03-387
Report to the Ranking Minority Member, Subcommittee on Social Security,
Committee on Ways and Means, House of Representatives
United States General Accounting Office
GAO
April 2003 SOCIAL SECURITY AND MINORITIES
Earnings, Disability Incidence, and Mortality Are Key Factors That
Influence Taxes Paid and Benefits Received
GAO- 03- 387
Lifetime earnings, the incidence of disability, and mortality are three
key factors that influence the taxes individuals pay into the Social
Security system and the benefits they receive. Lifetime earnings factor
directly into the Social Security benefit formula, which is designed to
replace a larger proportion of pre- retirement- covered earnings for low-
income earners than for higher- income earners. Additionally, the
probability of being on the Disability Insurance rolls affects the
expected value of benefits. People who are disabled start receiving
benefits earlier. The third factor, mortality, affects the benefits
received relative to taxes paid because it determines the
number of years a person will pay taxes and receive benefits. Differences
by race in the relationship between taxes paid and benefits received under
Social Security are due mainly to differences in lifetime earnings, the
incidence of disability, and mortality among the groups. In the aggregate,
blacks and Hispanics have higher disability rates and lower lifetime
earnings, and thus as a group tend to receive greater benefits relative to
taxes than whites. However, whites with low lifetime earnings or high
disability rates also receive greater benefits relative to taxes than
their higher- income or nondisabled counterparts. Higher benefits relative
to taxes paid are associated with lower lifetime earnings and higher
disability incidence. Although Social Security*s benefit
and contribution provisions are neutral with respect to race, ethnicity,
and gender, concerns about the experiences of minority
groups under Social Security focus on whether they benefit less than
whites, particularly because of the
shorter life expectancy of blacks. These concerns are related to the
concept of equity, or how benefits compare with taxes. To gain a thorough
understanding of the
experiences of minority populations under Social Security, GAO was asked
to examine (1) what socioeconomic and demographic factors influence Social
Security taxes paid and benefits received and (2) how different equity
measures compare across racial groups.
Because of the current system*s projected actuarial deficit, to conduct
this study, GAO made its calculations using three policy scenarios, each
of which achieves 75- year solvency: a payroll tax increase and a
progressive and proportional benefit cut. Further, GAO used three measures
of
equity: lifetime benefit- to- tax ratios, net lifetime benefits, and real
internal rates of return. GAO also examined four birth cohorts: 1931- 40,
1941- 45, 1946- 55, and 1956- 64. www. gao. gov/ cgi- bin/ getrpt? GAO-
03- 387. To view the full report, including the scope
and methodology, click on the link above. For more information, contact
Barbara D. Bovbjerg at (202) 512- 7215 or bovbjergb@ gao. gov. Highlights
of GAO- 03- 387, a report to the
Ranking Minority Member, Subcommittee on Social Security, Committee on
Ways and Means, House of Representatives
April 2003
SOCIAL SECURITY AND MINORITIES
Earnings, Disability Incidence, and Mortality Are Key Factors That
Influence Taxes Paid and Benefits Received
Page i GAO- 03- 387 Social Security Letter 1 Results in Brief 3 Background
4 Certain Key Factors Influence Racial Groups* Receipt of Social Security
Benefits and Payment of Social Security Taxes 6 Higher Benefits Relative
to Taxes Paid are Associated with Lower
Lifetime Earnings and Higher Disability Incidence 8 Concluding
Observations 15 Agency Comments 16 Appendix I Scope and Methodology 18
Equity Measures 18 Benchmark Policy Scenarios 19 Modeling Income in the
Near Term 24 The Effects of Mortality 26 Appendix II Social Security
Equity Measures 28
Appendix III GAO Contacts and Staff Acknowledgments 64 GAO Contacts 64
Staff Acknowledgments 64 Bibliography 65
Related GAO Products 67
Tables
Table 1: Life Expectancy, by Race 15 Table 2: Expected Number of Years in
Retirement for an Individual, Age 20 in 2001 15 Table 3: Summary of Policy
Scenario Parameters 24 Contents
Page ii GAO- 03- 387 Social Security Figures
Figure 1: OASDI Lifetime Benefit- to- Tax Ratio for Individuals Born
between 1931 and 1940 9 Figure 2: OASDI Median Lifetime Benefit- to- Tax
Ratio for
Individuals Born between 1931 and 1940 10 Figure 3: Percent of Race/
Ethnic Group by Shared Earnings Quintile for Individuals Born between 1931
and 1940 11 Figure 4: Median Lifetime Benefit- to- Tax Ratio for
Individuals Born between 1931 and 1940 12 Figure 5: Percent of MINT3
Sample and Percent of MINT3 Sample Who Are DI Beneficiaries, by Race/
Ethnicity 13 Figure 6: Percent of MINT3 Sample and Percent of MINT3 Sample
Dying before Age 62, by Race/ Ethnicity 14 Figure 7: OASDI Real IRR for
Individuals Born between 1931 and 1940, under the Progressive Benefit Cut
Scenario 28 Figure 8: OASDI Real IRR for Individuals Born between 1931 and
1940, under the Proportional Benefit Cut Scenario 29 Figure 9: OASDI Real
IRR for Individuals Born between 1931 and 1940, under the Payroll Tax
Increase Scenario 30 Figure 10: OASDI Median Lifetime Net Benefits for
Individuals Born between 1931 and 1940, under the Progressive Benefit Cut
Scenario 31 Figure 11: OASDI Median Lifetime Net Benefits for Individuals
Born between 1931 and 1940, under the Proportional Benefit Cut Scenario 32
Figure 12: OASDI Median Lifetime Net Benefits for Individuals
Born between 1931 and 1940, under the Payroll Tax Increase Scenario 33
Figure 13: OASDI Median Lifetime Benefit- to- Tax Ratio for
Individuals Born between 1931 and 1940, under the Progressive Benefit Cut
Scenario 34 Figure 14: OASDI Median Lifetime Benefit- to- Tax Ratio for
Individuals Born between 1931 and 1940, under the Proportional Benefit Cut
Scenario 35 Figure 15: OASDI Median Lifetime Benefit- to- Tax Ratio for
Individuals Born between 1931 and 1940, under the Payroll Tax Increase
Scenario 36 Figure 16: OASDI Real IRR for Individuals Born between 1941
and
1945, under the Progressive Benefit Cut Scenario 37 Figure 17: OASDI Real
IRR for Individuals Born between 1941 and 1945, under the Proportional
Benefit Cut Scenario 38
Page iii GAO- 03- 387 Social Security Figure 18: OASDI Real IRR for
Individuals Born between 1941 and 1945, under the Payroll Tax Increase
Scenario 39 Figure 19: OASDI Median Lifetime Net Benefits for Individuals
Born between 1941 and 1945, under the Progressive Benefit Cut Scenario 40
Figure 20: OASDI Median Lifetime Net Benefits for Individuals
Born between 1941 and 1945, under the Proportional Benefit Cut Scenario 41
Figure 21: OASDI Median Lifetime Net Benefits for Individuals
Born between 1941 and 1945, under the Payroll Tax Increase Scenario 42
Figure 22: OASDI Median Lifetime Benefit- to- Tax Ratio for
Individuals Born between 1941 and 1945, under the Progressive Benefit Cut
Scenario 43 Figure 23: OASDI Median Lifetime Benefit- to- Tax Ratio for
Individuals Born between 1941 and 1945, under the Proportional Benefit Cut
Scenario 44 Figure 24: OASDI Median Lifetime Benefit- to- Tax Ratio for
Individuals Born between 1941 and 1945, under the Payroll Tax Increase
Scenario 45 Figure 25: OASDI Real IRR for Individuals Born between 1946
and
1955, under the Progressive Benefit Cut Scenario 46 Figure 26: OASDI Real
IRR for Individuals Born between 1946 and 1955, for the Proportional
Benefit Cut Scenario 47 Figure 27: OASDI Real IRR for Individuals Born
between 1946 and 1955, under the Payroll Tax Increase Scenario 48 Figure
28: OASDI Median Lifetime Net Benefits for Individuals Born between 1946
and 1955, under the Progressive Benefit Cut Scenario 49 Figure 29: OASDI
Median Lifetime Net Benefits for Individuals
Born between 1946 and 1955, under the Proportional Benefit Cut Scenario 50
Figure 30: OASDI Median Lifetime Net Benefits for Individuals
Born between 1946 and 1955, under the Payroll Tax Increase Scenario 51
Figure 31: OASDI Median Lifetime Benefit- to- Tax Ratio for
Individuals Born between 1946 and 1955, under the Progressive Benefit Cut
Scenario 52 Figure 32: OASDI Median Lifetime Benefit- to- Tax Ratio for
Individuals Born between 1946 and 1955, under the Proportional Benefit Cut
Scenario 53
Page iv GAO- 03- 387 Social Security Figure 33: OASDI Median Lifetime
Benefit- to- Tax Ratio for Individuals Born between 1946 and 1955, under
the
Payroll Tax Increase Scenario 54 Figure 34: OASDI Real IRR for Individuals
Born between 1956 and 1964, under the Progressive Benefit Cut Scenario 55
Figure 35: OASDI Real IRR for Individuals Born between 1956 and 1964,
under the Proportional Benefit Cut Scenario 56 Figure 36: OASDI Real IRR
for Individuals Born between 1956 and 1964, under the Payroll Tax Increase
Scenario 57 Figure 37: OASDI Median Lifetime Net Benefits for Individuals
Born between 1956 and 1964, under the Progressive Benefit Cut Scenario 58
Figure 38: OASDI Median Lifetime Net Benefits for Individuals
Born between 1956 and 1964, under the Proportional Benefit Cut Scenario 59
Figure 39: OASDI Median Lifetime Net Benefits for Individuals
Born between 1956 and 1964, under the Payroll Tax Increase Scenario 60
Figure 40: OASDI Median Lifetime Benefit- to- Tax Ratio for
Individuals Born between 1956 and 1964, under the Progressive Benefit Cut
Scenario 61 Figure 41: OASDI Median Lifetime Benefit- to- Tax Ratio for
Individuals Born between 1956 and 1964, under the Proportional Benefit Cut
Scenario 62 Figure 42: OASDI Median Lifetime Benefit- to- Tax Ratio for
Individuals Born between 1956 and 1964, under the Payroll Tax Increase
Scenario 63
Page v GAO- 03- 387 Social Security Abbreviations
AIME Average Indexed Monthly Earnings DI Disability Insurance IRR Internal
Rates of Return MBR Master Beneficiary Records MINT Modeling Income in the
Near Term MTR Maintain Tax Rates
OASDI Old- Age, Survivors, and Disability Insurance OASI Old- Age and
Survivors Insurance PIA Primary Insurance Amount SER Social Security
Summary Earnings Records SIPP Survey of Income and Program Participation
SSA Social Security Administration
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Page 1 GAO- 03- 387 Social Security April 23, 2003 The Honorable Robert T.
Matsui Ranking Minority Member
Subcommittee on Social Security Committee on Ways and Means House of
Representatives
Dear Mr. Matsui: In 2002, the Social Security program paid out
approximately $454 billion in retired worker, dependent, survivor, and
disability insurance benefits to about 46.4 million recipients. 1
Protecting against loss of earnings due to disability, retirement, and
death, the social insurance program is an important source of retirement
income security for both minority and nonminority workers and their
families. While approximately 18 percent of white retirees aged 65 and
older rely on Social Security as their only
source of retirement income, about 38 percent of minority retirees aged 65
and older rely on it to the same extent. 2 However, the Social Security
Administration*s (SSA) projections suggest that the trust funds that
finance Old- Age, Survivors, and Disability Insurance (OASDI) will begin
running cash deficits in 2018 and will be exhausted by 2042; thus, the
program in its current form is unsustainable in the long term. 3 Although
Social Security*s benefit and contribution provisions are neutral with
respect to race, ethnicity, and gender, concerns about the
1 The numbers of beneficiaries are for the month of December 2002, while
the benefit amounts given are amounts paid during 2002. 2 The racial/
ethnic groups examined in this study are Hispanics, non- Hispanic blacks,
and
non- Hispanic whites; we use the terms Hispanics, blacks, and whites when
referring to these groups, respectively. We use the term minorities to
refer to Hispanics and blacks and nonminorities to refer to whites. Due to
data limitations, the Asian, Native Hawaiian/ Pacific Islander, and
American Indian/ Alaska Native racial/ ethnic groups were excluded from
our sample. 3 Each year the Board of Trustees of the Federal Old- Age,
Survivors and Disability
Insurance trust funds report in detail on the funds* current status and
their projected condition over the next 75 years. The current information
on the financial condition of OASDI funds is based on the intermediate
assumptions of the 2003 Trustees Report. Examined separately, the Old- Age
and Survivors Insurance trust fund is projected to be exhausted by 2044,
and the Disability Insurance trust fund by 2028.
United States General Accounting Office Washington, DC 20548
Page 2 GAO- 03- 387 Social Security experiences of minority groups under
Social Security focus on whether they benefit less than whites from the
Social Security system, particularly
because of their shorter life expectancies. These concerns are related to
the concept of equity, or how benefits compare with taxes. To gain a
thorough understanding of the experiences of minority populations under
Social Security, you asked us to examine (1) what socioeconomic and
demographic factors influence Social Security taxes paid and benefits
received and (2) how different equity measures compare across racial
groups.
Because of the current system*s projected actuarial deficit, we made our
calculations using three policy scenarios, each of which achieves 75- year
solvency* a payroll tax increase and two benefit- reduction only
benchmarks. 4 The benefit- reduction- only benchmarks gradually phase in
reductions from 2005 to 2035; the reductions are accomplished by changing
the parameters of the benefit formula in various ways to achieve either
progressive or proportional reductions. The proportional benefit cut
reduces the benefit formula factors proportionally across all earnings
levels, while the progressive benefit cut reduces the benefit formula
factors by smaller scales for lower earners. To conduct our analyses, we
asked SSA*s Office of Policy to apply the three scenarios to the latest
version of its microsimulation model, Modeling Income in the Near Term
(MINT3). The MINT3 model includes some dependent and survivor
beneficiaries, such as current and divorced spouses, as well as widows,
but does not include child beneficiaries. The model does, however, control
for the exclusion of children. 5 The MINT3 examines four birth cohorts:
1931- 40, 1941- 45, 1946- 55, and 1956- 64. In our analysis, we used three
measures of equity* the extent to which returns are commensurate with
contributions: lifetime benefit- to- tax ratios, net lifetime benefits
(benefits minus taxes), and real internal rates of return. 6 For our
equity measures,
4 SSA*s Office of the Chief Actuary provided long- range estimates of the
effects that each of these benchmarks would have on the financial status
of the OASDI program, using the intermediate assumptions of the 2001
Trustees Report. The MINT3 model incorporates economic and demographic
assumptions of both the 2002 and the 2001 Trustees Reports. See appendix I
for a detailed discussion of the benchmarks. 5 Aged parents and widowed
mothers and fathers also are excluded from the MINT3
analysis, and these exclusions also are controlled for in the model. 6
Contributions to the social security system are not investments. Rates of
return are calculated by determining what rate of interest would set
contributions equal to the benefits received. In this report, we focus on
the benefit- to- tax ratio. See appendix II for a detailed presentation of
the other equity measures.
Page 3 GAO- 03- 387 Social Security we use the *shared* concept of
benefits and earnings, which incorporates some spousal taxes and benefits
along with those of the individual worker.
For ease of exposition, this report focuses on one birth cohort and one
equity measure: the 1931- 40 birth cohort and the lifetime benefit- to-
tax ratio. 7 We conducted our work between January 2002 and April 2003 in
accordance with generally accepted government auditing standards. A more
detailed discussion of our scope and methodology appears in appendix I.
Lifetime earnings, the incidence of disability, and mortality are three
key factors that influence the taxes individuals pay into the Social
Security system and the benefits they receive. Lifetime earnings factor
directly into Social Security*s progressive benefit formula, which
replaces a larger proportion of covered earnings for low- income earners
than it does for higher- income earners when an insured event (death,
disability, or retirement) occurs. Additionally, the probability of being
on the Disability Insurance (DI) rolls affects the expected value of
benefits. People who are disabled start receiving benefits earlier and pay
taxes for fewer years. The third factor, mortality, affects the benefits
received relative to taxes paid because it determines the number of years
a person will pay taxes and whether and for how long an individual
receives benefits.
Differences by race in the relationship between taxes paid and benefits
received under Social Security are due mainly to differences in lifetime
earnings, the incidence of disability, and mortality among the groups. In
the aggregate, blacks and Hispanics have higher disability rates and lower
lifetime earnings, and thus as a group tend to receive greater benefits
relative to taxes than whites. However, whites with low lifetime earnings
or high disability rates also receive greater benefits relative to taxes
than their higher- income or nondisabled counterparts. Higher benefits
relative
to taxes paid are associated with lower lifetime earnings and higher
disability incidence.
7 The results are similar across cohort groups, but not across equity
measures. See appendix II for a detailed presentation of the cohorts and
the equity measures. Results in Brief
Page 4 GAO- 03- 387 Social Security Title II of the Social Security Act,
as amended, establishes the Old- Age, Survivors, and Disability Insurance
program, which is generally known as
Social Security. The program provides cash benefits to retired and
disabled workers and their dependents and survivors. The Congress designed
Social Security benefits, at least implicitly, with a focus on replacing
lost wages. 8 Because the program is financed on a modified payas- you- go
basis, payroll tax contributions of those currently working are
transferred to current beneficiaries. Current beneficiaries include
insured workers who are entitled to retirement or disability benefits, and
their dependents, as well as survivors of deceased insured workers. The
progressive benefit structure effectively provides greater insurance
protection relative to contributions to earners with lower wages than to
high- wage earners. Workers become eligible when they have enough quarters
of coverage under Social Security, (i. e., quarters of the year with
earnings from which Social Security taxes are deducted); they and their
employers pay payroll taxes on those covered earnings to finance benefits.
9 In 2002, 153 million people had earnings covered by Social Security, and
46.4 million people received approximately $454 billion in OASDI benefits.
Social Security was originally an old- age retirement program. However,
the Social Security Amendments of 1939 added two new categories of
benefits: dependent benefits paid to the spouse and minor children of a
retired worker, and survivor benefits paid to the family after the death
of a covered worker. In calendar year 2002, about 10 million people
received approximately $106 billion in survivor and dependent benefits.
Further, the amount of Old- Age and Survivors Insurance (OASI) benefits
paid in 2002 totaled $388 billion for 39 million recipients. Established
in 1956, Social Security Disability Insurance provides monthly
payments to eligible workers with disabilities who are under the normal
retirement age and to their dependents. 10 To be eligible for DI benefits
as
8 The original formula, as well as subsequent modifications, computed
benefits as a percentage of wages covered under the program in a way that
favors lower earners. 9 In general, a worker needs 40 quarters of coverage
to be eligible for retirement benefits. For workers who become disabled or
die before age 62, the number of quarters of coverage required for
eligibility depends on their age at the time the worker is disabled or
dies.
10 In 1956, the Social Security Act was amended to provide benefits to
disabled workers aged 50- 64 and disabled adult children. Over the next 4
years, Congress broadened the scope of the program, permitting disabled
workers under age 50 and their dependents to
qualify for benefits, and eventually disabled workers at any age could
qualify. Background
Page 5 GAO- 03- 387 Social Security an adult, a person must have enough
quarters of covered earnings 11 and must be unable to perform any
substantial gainful activity by reason of a
medically determinable physical or mental impairment that is expected to
result in death or that has lasted or can be expected to last for a
continuous period of at least 12 months. 12 As with retired worker
benefits, disability benefits are funded by payroll taxes paid by covered
employees and their employers. In calendar year 2002, about 7.2 million
individuals
received approximately $65.6 billion in DI benefits. 13 Our previous work
on Social Security includes research on the effects of Social Security
reform on women, the disability insurance program, the effects of
increasing the retirement age, and adequacy issues associated with the
program. See our related products section for a listing of our previous
work in this area.
Further, analysis by other organizations also has examined the experiences
of minority groups under Social Security. Incorporating both different
earnings and life expectancies of the racial/ ethnic groups, some
of the research has focused on the relative importance of Social Security
for minorities. 14 Others have suggested that blacks benefit less than
whites under the current system and that both blacks and Hispanics would
11 The eligibility requirements for DI are different from the requirements
for OASI. 12 Work activity is generally considered substantial and gainful
if the person*s earnings exceed a particular level established by statute
and regulations. 13 These numbers do not include adult disabled children
who are dependents of deceased or retired workers, disabled widows and
widowers, or disabled parents, who receive their disability benefits from
the Old- Age and Survivors Insurance program. About $5.7 billion were paid
out of the program*s trust fund to these beneficiaries. 14 See Steve Goss,
*Problems with *Social Security*s Rate of Return: A Report of the Heritage
Center for Data Analysis*,* Deputy Chief Actuary, Social Security
Administration, memorandum, February 4, 1998; Alexa Hendley and Natasha
Bilimoria, *Minorities and Social Security: An Analysis of Racial and
Ethnic Differences in the Current Program,*
Social Security Bulletin 62( 2), 1999; and Kilolo Kijakazi *The Importance
of Social Security to People of Color and Women,* Center on Budget and
Policy Priorities, July 2001, and *African Americans, Hispanic Americans,
and Social Security: The Shortcomings of the Heritage Foundation Reports,*
October 1998.
Page 6 GAO- 03- 387 Social Security experience higher returns under a
system that incorporated individual accounts. 15 Following the analysis of
Cohen, Steuerle and Carasso, 16 our analysis takes
a broader approach to the measurement of Social Security. We analyze data
on the overall program, OASDI, as well as the component programs, OASI and
DI.
A variety of socioeconomic and demographic factors influence the receipt
of Social Security* most significantly, lifetime earnings, the incidence
of disability, 17 and mortality. Lifetime earnings factor directly into
the progressive benefit formula, which replaces a larger proportion of
preretirement covered earnings for low- income earners than it does for
higher- income earners. Additionally, the probability of being on the
Disability Insurance rolls affects the expected value of benefits.
Finally, mortality determines the number of years an individual will
receive benefits and pay taxes and, therefore, the total benefits
received.
One key factor affecting the level of Social Security benefits is
earnings. The calculation of Social Security benefits is designed to
replace a larger proportion of the earnings of lower earners than it does
for higher earners. Thus, the benefit formula is progressive. For example,
workers who retire at the normal retirement age in 2003 with scaled, low
lifetime covered earnings will have benefits that replace approximately 56
percent of their
15 See William W. Beach and Gareth G. Davis, *Social Security*s Rate of
Return,* Heritage Foundation, January 1998, and *Social Security*s Rate of
Return for Hispanic Americans,* Heritage Foundation, March 1998; and
Michael Tanner, *Disparate Impact: Social Security
and African Americans,* CATO Institute, February 2001. 16 See Lee Cohen,
C. Eugene Steuerle and Adam Carasso, *The Effects of Disability Insurance
on Redistribution Within Social Security by Gender, Lifetime Earnings,
Education, and Race,* Fifteenth Annual Conference of the National Academy
of Social Insurance, January 2003; *The Effects of Disability Insurance on
Redistribution Within Social Security by Gender, Lifetime Earnings,
Education, and Race,* Fifty- Fifth Annual Scientific Meeting of the
Gerontological Society of America, November 2002; *The Effects of
Disability Insurance on Redistribution Within Social Security by Gender,
Education, Race, and Income,* Fourth Annual Joint Conference for the
Retirement Research
Consortium, May 2002; and *Social Security Redistribution by Education,
Race, and Income: How Much and Why,* Third Annual Conference of the
Retirement Research Consortium, May 2001.
17 The disability incidence rate is the probability that a worker enters
the DI rolls in a given year; it is defined as the number of people who
are DI- entitled divided by the number of people who are DI- insured.
Certain Key Factors Influence Racial Groups* Receipt of
Social Security Benefits and Payment of Social Security Taxes
Page 7 GAO- 03- 387 Social Security earnings. Workers with scaled, medium
lifetime earnings will have about 42 percent of their earnings replaced,
and workers with lifetime earnings at the maximum taxable level will have
approximately 30 percent
replaced. 18 The probability of becoming disabled also affects the
expected value of Social Security benefits. DI recipients start drawing
Social Security earlier and simultaneously see their tax liability
reduced; in general, they will receive greater benefits in relation to the
taxes they pay. DI benefits are based on the same formula as OASI
benefits, so that benefits for lowincome workers replace a larger
proportion of their earnings. The average age of disabled workers is
approximately 50. 19 Disability trends will have a significant effect on
future Social Security
program costs as the Baby Boom generation ages. The highest rates of
disability incidence within the DI program occur from age 50 to 65.
Because of changing demographics, the number of DI beneficiaries is
expected to more than double over the next 75 years, from the current 7.2
million to more than 16 million. 20 Finally, mortality rates determine the
expected number of years a person
will contribute taxes and receive benefits and, therefore, the amount of
total benefits received. 21 For example, if a nondisabled person dies
before retirement, that individual*s benefit- to- tax ratio is expected to
be lower
18 Information on replacement ratios applies to individuals who retire at
the normal retirement age. Persons retiring at the early eligibility age
will have a different benefit calculation. The payment of taxes is
contingent upon being alive and not being disabled.
19 Mortality rates for persons with disabilities differ from, and
generally are higher than, those for the nondisabled population. 20 The
number of OASI beneficiaries is also expected to more than double over the
next 75 years, from the current 39 million to more than 97 million.
21 Mortality is reflected in life expectancy.
Page 8 GAO- 03- 387 Social Security than the ratio for an individual who
lives to receive retirement benefits. 22 Individuals who die before
retirement will no longer make contributions to the Social Security
program. However, they may have dependents who
would benefit from the survivor portion of the program. Differences by
race in the relationship between taxes paid and benefits received under
Social Security are due to differences in lifetime earnings, the incidence
of disability, and mortality between the groups. In the aggregate, blacks
and Hispanics have higher disability rates and lower lifetime earnings,
and thus receive greater benefits relative to taxes than whites. However,
whites with low lifetime earnings and high disability rates also receive
greater benefits relative to taxes than their higherincome and nondisabled
counterparts. Because blacks have higher mortality than whites, their
ratio of benefits to taxes may be lower in comparison, but this depends,
in part, on whether they have survivors. 23 Although blacks die younger
than whites, and may receive fewer years of
retirement benefits, they may also leave survivors who receive benefits
for more years than their white counterparts.
In the aggregate, blacks and Hispanics generally have higher disability
rates and lower lifetime earnings, and thus receive greater benefits
relative to taxes than whites. Figure 1 presents the median lifetime
benefit- to- tax ratio for the 1931- 40 birth cohort.
22 We conducted separate examinations of OASDI, along with the OASI and DI
components of the Social Security program for each of the four birth
cohorts. We did not conduct a separate analysis of the Old- Age Insurance
component of the program, which partly explains why our results differ
from some researchers. For example, the Old- Age Insurance, or retirement,
portion of Social Security is highly dependent on life expectancy and
excludes dependents and survivor benefits, and in general, minority groups
experience shorter life expectancies than whites. Therefore, when examined
under the Old- Age
Insurance component of the program, some minority groups, blacks in
particular, would experience lower equity measures relative to whites.
Additional information on differing mortality patterns is provided in
appendix I. 23 Although the available evidence on mortality suggests that
the life expectancy for
Hispanics is higher than it is for whites, the accuracy of these estimates
is questionable. For example, researchers note that it is difficult to
construct precise life tables for Hispanics because there is a tendency to
misclassify the race/ ethnicity of Hispanics on the death certificates.
Higher Benefits Relative to Taxes Paid
are Associated with Lower Lifetime Earnings and Higher
Disability Incidence As a Group, on Average Minorities Accrue Higher
Benefits in Relation to the Taxes They Pay
Page 9 GAO- 03- 387 Social Security Figure 1: OASDI Lifetime Benefit- to-
Tax Ratio for Individuals Born between 1931 and 1940
Note: Calculations are made using the 2001 Trust Fund discount rate under
the payroll- tax- increase scenario.
However, these aggregate differences by race are small, for example,
compared to the differences between high and low earners within racial
groups. The aggregate results are affected by other factors that vary by
race, such as lifetime earnings, disability incidence, and mortality. 24
24 The net benefit and the benefit- to- tax ratio measures both depend on
the choice of
discount rate used. We use the historical and projected trust fund yields
for this analysis.
Ratio 0.0 0.5
1.0 1.5
Hispanic Black, non- Hispanic
White, non- Hispanic
Source: SSA*s MINT3 dataset.
Race/ ethnic group
Page 10 GAO- 03- 387 Social Security When examined by earnings quintiles,
those in the lowest earnings quintile experience a higher benefit- to- tax
ratio relative to those in the upper quintiles. This finding is true
across all birth cohorts we examined, which
cover people from 1931- 64, and the three policy scenarios we examined.
Figure 2 presents OASDI*s lifetime median benefit- to- tax ratios
experienced by individuals in the 1931- 40- birth group for different
earnings
categories under the payroll- tax increase scenario. Those in the lowest
quintile, regardless of race, have a higher benefit- to- tax ratio than
those in the upper quintiles because the benefit calculation replaces a
higher
proportion of their earnings compared with higher earners. 25 Figure 2:
OASDI Median Lifetime Benefit- to- Tax Ratio for Individuals Born between
1931 and 1940 Note: Calculations are made using the 2001 Trust Fund
discount rate under the payroll- tax- increase
scenario.
25 Differing mortality rates for each of the racial/ ethnic groups are
incorporated in the analysis. Individuals with Low
Lifetime Earnings Receive Higher Social Security Benefits Relative to
Taxes Than Individuals with High Lifetime Earnings
Ratio 0 0.5
1.0 1.5
2.0 2.5
Highest Fourth Third Second Lowest Earnings quintile
White, non- Hispanic Black, non- Hispanic Hispanic Source: SSA*s MINT3
dataset.
Page 11 GAO- 03- 387 Social Security Figure 3 shows that approximately 38
percent of Hispanics are in the lowest- earnings quintile, while about 35
percent of blacks and 17 percent
of whites are. Moreover, about 9 percent of Hispanics are in the
highestearnings quintile; the corresponding percentages for blacks and
whites are 11 percent and 22 percent, respectively. (See fig. 3.) Because
minorities are over- represented in the lowest earnings quintile and
under- represented in the highest quintile, they sometimes have higher
benefit- to- tax ratios
than whites.
Figure 3: Percent of Race/ Ethnic Group by Shared Earnings Quintile for
Individuals Born between 1931 and 1940 0
5 10
15 20
25 30
35 40
Z Y X Highest Lowest Percent
Earnings quintile
White, non- Hispanic Black, non- Hispanic Hispanic Source: SSA*s MINT3
dataset.
Page 12 GAO- 03- 387 Social Security In general, groups who are more
likely to be disabled receive greater OASDI benefits relative to taxes
paid than those who are not disabled. As
shown in figure 4, low- income individuals, particularly blacks, achieve
higher benefit- to- tax ratios under OASDI (when the disability program is
included) than under OASI.
Figure 4: Median Lifetime Benefit- to- Tax Ratio for Individuals Born
between 1931 and 1940
Note: Calculations are made using the 2001 Trust Fund discount rate, under
the payroll- tax increase scenario.
This is because in addition to having lower lifetime earnings than whites,
blacks are more likely to be on DI than whites or Hispanics. As shown in
figure 5, blacks make up 10.3 percent of the sample, but 16.9 percent of
the DI beneficiaries, while Hispanics make up about 8.4 percent of the
sample, and 10.1 percent of DI beneficiaries. Whites are the only group to
make up a smaller percent of DI beneficiaries than of the whole sample.
Disability Insurance Yields
Higher Benefits Relative to Taxes for Individuals Who Are Low Earners Than
for Individuals Who Are High Earners
Ratio Earnings quintile
White, non- Hispanic Black, non- Hispanic Hispanic Source: SSA*s MINT3
dataset.
0.0 0.5
1.0 1.5
2.0 2.5
Highest Lowest Ratio
OASI OASDI 0.0 0.5
1.0 1.5
2.0 2.5
Highest Lowest
Page 13 GAO- 03- 387 Social Security Figure 5: Percent of MINT3 Sample and
Percent of MINT3 Sample Who Are DI Beneficiaries, by Race/ Ethnicity
The relationship between mortality and the ratio of benefits to taxes for
an individual is more complicated than it is for lifetime earnings and the
incidence of disability. In general, mortality rates affect the expected
number of years a person will contribute taxes and receive benefits and,
therefore, the amount of total benefits received. For individuals who die
before they retire, the benefit- to- tax ratio is expected to be lower
than for individuals who live to receive retirement benefits. Mortality
rates among different racial groups suggest that blacks are more likely to
die before receiving a retirement benefit than their Hispanic or white
counterparts. 26 26 We selected age 62 as a reference age because a
substantial proportion of individuals
begin receiving retirement benefits at the early retirement age. For
example, approximately 47 percent of men and 51 percent of women start
receiving benefits at age 62, while about 19 percent of all workers begin
receiving retirement benefits between ages 63 and 64. The average age of
retirement is 63. 7. Mortality Rates of the
Different Racial Groups Are Relevant to the Receipt of Social Security
Benefits
0 10
20 30
40 50
60 70
80 90
Z Y X Hispanic Black White Percent
Race/ ethnicity
Percent of MINT3 sample Percent of MINT3- DI beneficiaries Source: SSA*s
MINT3 dataset.
Page 14 GAO- 03- 387 Social Security (See fig. 6.) Though blacks make up
about 10.3 percent of our sample, over 16 percent of those dying before
age 62 are black. 27 Figure 6: Percent of MINT3 Sample and Percent of
MINT3 Sample Dying before
Age 62, by Race/ Ethnicity
Those not dying, or becoming disabled, before receiving a retirement
benefit continue to make contributions to the program while in covered
employment. Census data show that Hispanics and whites have a greater
life expectancy than blacks, as shown in table 1. 28 27 Some of these
individuals may have received disability benefits. 28 Life expectancy at
age 62 for men is 22 for Hispanics, 17 for blacks, and 18 for whites. Life
expectancy at age 62 for women is 25 for Hispanics, 20 for blacks, and 22
for whites. The 2001 life tables are located on the Census Bureau*s
website: http:// www. census. gov/ population/ projections/ nation/
detail/ lt99_ 10. a
0 10
20 30
40 50
60 70
80 90
Z Y X Hispanic Black White Percent
Race/ ethnicity
Percent of MINT3 sample Percent of MINT3 sample dying by age 62 Source:
SSA*s MINT3 dataset.
Page 15 GAO- 03- 387 Social Security Table 1: Life Expectancy, by Race
White, nonHispanic
Black, nonHispanic Hispanic
Male 75 69 77 Female 80 76 84 Source: Bureau of the Census. Note: Life
expectancy is calculated from birth. The life tables used are 2001
projections.
Moreover, because of the differential life expectancies and the
probabilities of survival beyond retirement age, on average, whites and
Hispanics can expect to receive more years of benefits than blacks. (See
table 2.)
Table 2: Expected Number of Years in Retirement for an Individual, Age 20
in 2001 White, non- Hispanic Black,
non- Hispanic Hispanic
Male 16 12 19 Female 20 17 23 Source: Bureau of the Census. Note:
Retirement is defined to begin at age 62, the earliest age of eligibility.
Expected number of years in retirement is calculated by multiplying (1)
the probability that an individual age 20 in 2001, survives to age 62 and
(2) the life expectancy at age 62. The life tables used are 2001
projections.
While those who live longer have a greater benefit- to- tax ratio, those
who die may leave survivors who would benefit from the survivor portion of
the program. 29 On the basis of our review, three factors are key in
determining the
amount of Social Security benefits received relative to taxes paid*
lifetime earnings, disability incidence, and mortality. Social Security is
intended to insure workers and their families against lost wages due to
disability,
retirement, or death, and the benefit structure is designed to afford
greater protection to low earners. In general, minorities benefit more
from these protections because, disproportionately, they are low earners
and also
29 Of the nearly 1.9 million children receiving survivor benefits in 2001,
the SSA reports that approximately 23 percent are black and less than 68
percent are white. Put another way, 47 percent of blacks receiving
survivor benefits are children, compared with 22 percent of whites. Thus,
blacks are disproportionately represented in the category of children
receiving benefits as survivors of deceased workers. Concluding
Observations
Page 16 GAO- 03- 387 Social Security have a greater likelihood of
receiving disability benefits. Because of their lower life expectancies,
blacks gain the most advantage from disability or
survivors* benefits while, due to their higher life expectancies,
Hispanics receive retirement benefits for a longer period and, therefore,
receive higher lifetime benefits. As a group, blacks gain from Social
Security*s
progressive benefit formula, the early retirement option, and
comprehensive insurance plans. Hispanics also gain from the progressive
benefit formula, and they have the ability to gain more from Social
Security*s annual cost- of- living adjustment because they live longer.
Given the long- run financial problems facing Social Security,
policymakers are considering a variety of potential reforms to make the
system sustainable. Reforms that do so by tying benefits more directly to
contributions may affect the progressivity of the system and are likely to
disproportionately affect equity for minorities as measured in this
report. Further, disability, survivors*, and dependents* benefits also
could be affected by any changes to the structure of the program. The
choices the Congress will make to restore Social Security*s long- term
solvency and sustainability could affect the distributional effects of the
program. Thus, if progressivity remains one of the important goals for the
program, the debate over system reforms should consider the extent to
which the specific reforms might alter that progressivity, as it is likely
to
have a disproportionate impact on minorities, absent other, mitigating,
changes.
We provided a draft of this report to SSA and the Bureau of the Census.
SSA provided technical comments, which we have incorporated where
appropriate. We are sending copies of this report to SSA and Census. We
will also make
copies available to others on request. In addition, the report will be
available at no charge on GAO*s Web site at http:// www. gao. gov. Agency
Comments
Page 17 GAO- 03- 387 Social Security If you have any questions concerning
this report, please contact me at (202) 512- 7215. See appendix III for
other contacts and staff
acknowledgments. Sincerely yours,
Barbara D. Bovbjerg Director, Education, Workforce and Income Security
Issues
Appendix I: Scope and Methodology Page 18 GAO- 03- 387 Social Security
This appendix provides more details about our analysis of the taxes paid
and benefits received by minority and nonminority participants in the
Social Security program. To conduct our assessment, we examined three
socioeconomic and demographic factors that are relevant to racial groups*
receipt of Social Security benefits* earnings, the disability incidence
rate, and mortality. Additionally, we used three measures of equity*
lifetime benefit- to- tax ratio, net lifetime benefits, and internal rates
of return* to analyze the relationship between Social Security
contributions and benefits under Old- Age, Survivors and Disability
Insurance (OASDI), OldAge and Survivors Insurance (OASI) and Disability
Insurance (DI). Further, we examined four birth cohorts of Social Security
beneficiaries: individuals born during the Depression, 1931- 40; those
born during WWII, 1941- 45; the early Baby Boomers, 1946- 55, and the late
Baby Boomers, 1956- 64.
We also used three benchmark- policy scenarios that restore the 75- year
actuarial balance of the Social Security system*- a payroll tax increase,
a progressive benefit reduction, and a proportional benefit reduction. 1
These scenarios were applied to the microsimulation model, Modeling Income
in the Near Term 2 (MINT3) to determine the relationship between taxes
paid
and benefits received from the program. Social Security*s Office of the
Chief Actuary has scored the benchmark policy scenarios using the
intermediate assumptions of the 2001 Trustees Report.
The Social Security program addresses the twin goals of individual equity
and social adequacy. Equity 3 refers to how benefits compare with taxes;
adequacy refers to the level and certainty of benefits provided to
retirees, 1 For a detailed description of the development of these policy
scenarios, see U. S. General
Accounting Office, Social Security: Program*s Role in Helping Ensure
Income Adequacy,
GAO- 02- 62 (Washington, D. C.: Nov. 30, 2001). Although these scenarios
ensure solvency for the next 75 years, they do not achieve *sustainable
solvency,* solvency beyond the 75- year period. 2 Information on the MINT3
model is provided in a separate section of this appendix. 3 Our equity
measures employ the shared concept of benefit and earnings. For taxes,
shared refers to the full measure of taxes paid as a single person (before
marriage) and half of the
taxes paid by both spouses during marriage. For benefits, shared includes
half the benefits paid to the couple while both spouses survive plus the
full benefit paid to the surviving spouse. Although certain dependent
benefits are excluded from the analysis, the *shared* concept does capture
some survivor benefits. The section on the MINT model provides a
more detailed explanation. Both lifetime benefit/ lifetime tax ratio and
the net lifetime benefits discount taxes and benefits to 2000 dollars.
Appendix I: Scope and Methodology
Equity Measures
Appendix I: Scope and Methodology Page 19 GAO- 03- 387 Social Security the
disabled, dependents, and survivors. Three equity measures are used to
determine how groups compare in terms of the taxes they pay and the
benefits they receive under Social Security. The equity measures we used
were the ratio of lifetime benefits to lifetime taxes, net lifetime
benefits, and real internal rates of return. The ratio of lifetime
benefits to lifetime taxes presents information on the relationship
between the value of taxes paid and the value of benefits received. The
ratio compares the interestadjusted value of lifetime benefits with
lifetime taxes. Net lifetime benefits are benefits minus taxes over the
course of an individual*s lifetime; net lifetime benefits also are
interest adjusted. Internal rates of return (IRR) for Social Security
reflect the constant discount rate that equates the present discounted
value of taxes with the present discounted value of benefits. 4 According
to current projections of the Social Security trustees for the
next 75 years, revenues will not be adequate to pay full benefits as
defined under current law. Therefore, estimating future Social Security
benefits should reflect that actuarial deficit and account for the fact
that some combination of benefit reductions and revenue increases will be
necessary to restore long- term solvency. To illustrate a full range of
possible outcomes, we use previously developed policy scenarios 5 that
would achieve 75- year solvency either by only increasing payroll taxes or
by only reducing benefits. These policies have been scored by the Social
Security Administration*s Office of the Chief Actuary.
We use only one tax- increase- only benchmark policy scenario because
policies that only increase payroll tax rates have no effect on benefits.
Our tax- increase- only benchmark raises payroll tax rates immediately (in
2002). We increase OASI and DI taxes separately by the amount of the
actuarial deficit of each fund. It results in the smallest tax rate in
2077 of those we considered and spreads the tax burden most evenly across
generations; this is the primary basis for our selection. The later that
taxes
4 Equity is only one of Social Security*s objectives. The program*s
insurance features inherently place great emphasis on helping ensure that
beneficiaries have adequate income; without its built- in income transfers
across and within birth groups, Social Security would provide identical
rates of return on contributions.
5 See U. S. General Accounting Office, Social Security: Program*s Role in
Helping Ensure Income Adequacy, GAO- 02- 62 (Washington, D. C.: Nov. 30,
2001). Benchmark Policy
Scenarios Tax Increase Only Policy
Appendix I: Scope and Methodology Page 20 GAO- 03- 387 Social Security are
increased, the higher the tax rate needed to achieve 75- year solvency,
and in turn the higher the tax burden on later taxpayers and lower on
earlier taxpayers. Alternative approaches to increasing revenues could
have very different effects on individual equity.
We use two benefit- reduction benchmarks for our analysis. Both
benefitreduction benchmarks take the form of reductions in Social
Security*s Primary Insurance Amount (PIA) formula factors; they differ in
the relative size of those reductions across the three factors, which are
90, 32, and 15 percent under current law. Each benchmark has three
dimensions of specification: scope, phase- in period, and the factor
changes themselves.
When workers retire, become disabled, or die, Social Security uses their
lifetime earnings records to determine each worker*s PIA, on which the
individual*s benefit and any dependent and survivor benefits are based.
PIA is the result of two elements* the Average Indexed Monthly Earnings
(AIME) and the benefit formula. The AIME for a retired worker is
determined by taking the 35 highest earnings years in the lifetime
earnings record, indexing them, and taking the average. The AIME for
disabled workers is based on fewer years of earnings. To determine the
PIA, AIME is then applied to a step- like formula, shown here for 2001.
PIA = 90% * (AIME1 = $561) + 32% * (AIME2 > $561 and = $3381) + 15% *
(AIME3 > $3381), where AIMEi is the applicable portion of AIME. The PIA is
the basic monthly benefit, unless it is further adjusted based on early
and delayed retirement, the spouse*s benefit, and other factors.
For our analysis, we want the benefit reductions in our benchmarks to
apply very generally to all types of benefits, including disability and
survivor benefits as well as old- age benefits. Our objective is to find
policies that achieve 75- year solvency while reflecting the
distributional effects of the current program as closely as possible.
Therefore, it would not be appropriate to reduce some benefits and not
others. If disabled and Benefit- Reduction Only Policies
Scope
Appendix I: Scope and Methodology Page 21 GAO- 03- 387 Social Security
survivor benefits were not reduced at all, reductions in other benefits
would be deeper than shown in this analysis.
We selected a phase- in period that begins with those reaching age 62 in
2005 and continues for 30 years. We chose this phase- in period to achieve
a balance between two competing objectives: minimizing the size of the
ultimate benefit reduction and minimizing the size of each year*s
incremental reduction to avoid notches and unduly large incremental
reductions. Since later birth cohorts are generally agreed to experience
lower rates of return on their contributions already under current law,
minimizing the size of the ultimate benefit reduction would minimize
further reductions in later cohorts* rates of return. The smaller each
year*s reduction, the longer it will take for benefit reductions to
achieve solvency
and in turn, the deeper the eventual reductions will have to be. However,
the smallest possible ultimate reduction would be achieved by reducing
benefits immediately for all new retirees by over 10 percent; this would
create a *notch* however, that is, create some marked inequities between
beneficiaries close to each other in age.
Our analysis shows that a 30- year phase- in should produce incremental
annual reductions that would be of lesser size and thus avoid significant
notches. Therefore, it would be preferable to longer phase- in periods,
which would require deeper ultimate reductions. In addition, we believe it
is appropriate to delay the first year of the benefit reductions for a few
years because those within a few years of retirement would not have had
adequate time to adjust their retirement planning if the reductions
applied immediately. The Maintain Tax Rates (MTR) benchmark in the 1994-
96 Advisory Council Report also provided for a similar delay. 6 Each of
our benefit- reduction benchmarks are variations of changes in PIA
formula factors and all are special cases of the following generalized
form, where Fi represents the 3 PIA formula factors, which are 90, 32, and
15 percent under current law.
6 Advisory Council on Social Security: Report of the 1994- 1996 Advisory
Council on Social Security, Vols. 1 and 2. (Washington, D. C.: Jan. 1997).
Phase- in Period
Defining the Primary Insurance Amount Formula Factor Reductions
Appendix I: Scope and Methodology Page 22 GAO- 03- 387 Social Security y x
i i
t i t weight y weight x F F F = + ) ( 2001 1 where
t = the year of the factor, x = constant proportional benefit reduction, y
= constant *subtractive* benefit reduction, and weight x and weight y
determine the relative effects of x and y and sum to 1.
Our potential benchmarks can now be described as follows:
Proportional Offset: weight x = 1 and weight y = 0. The value of x is
calculated to achieve 75- year solvency, given the chosen phase- in period
and scope of reductions. The formula specifies that the proportional
reduction is always taken as a
proportion of the base- year factor value rather than the prior year. This
maintains a constant rate of benefit reduction from year to year. In
contrast, taking the reduction as a proportion of the prior year*s factor
value implies a decelerating of the benefit reduction over time because
the prior year*s factor gets smaller with each reduction. To achieve the
same
level of 75- year solvency, this would require a greater proportional
reduction in earlier years because of the smaller reductions in later
years.
The proportional offset hits lower earners especially hard because the
constant x percent of the higher formula factors results in a larger
percentage reduction over that segment of the formula, while the higher
formula factors apply to the lower earnings segments of the formula. For
example, in a year when the cumulative size of the proportional reduction
has reached 10 percent, the 90- percent factor would then have been
reduced by 9 percentage points, the 32- percent factor by 3.2 percentage
points, and the 15- percent factor by 1.5 percentage points. As a result,
earnings below the first bendpoint would be replaced at 9 percentage
points less than current law, while earnings above the second bendpoint
would be replaced at only 1.5 percentage points less than current law.
Still, the proportional offset is easily described as a constant
percentage reduction of current law benefits for everyone. In the example,
Appendix I: Scope and Methodology Page 23 GAO- 03- 387 Social Security
beneficiaries of all earnings levels would have their benefits reduced by
10 percent.
Progressive Offset: weight x = 0 and weight y = 1. The value of y is
calculated to achieve 75- year solvency, given the chosen phase- in period
and scope of reductions. This offset results in equal percentage point
reductions in the formula
factors, by definition, and subjects earnings across all segments of the
PIA formula to the same reduction. Therefore, the offset avoids hitting
lower earners especially hard as the proportional offset does.
As it happens, this offset produces exactly the same effect as the offset
we used in our 1990 analysis of a partial privatization proposal. 7 In
that analysis, we were charged with finding a benefit reduction that would
leave the redistributive effects of the program unchanged while allowing a
diversion of 2 percentage points of contributions into individual
accounts. We calculated these benefit reductions by computing the Social
Security annuity value of the balance of a hypothetical account that
earned interest
on the diverted contributions at the rate of return for each individual*s
cohort as a whole. We demonstrated the distributional neutrality of this
benefit reduction by showing that if all individuals earned exactly the
cohort rate of return on their individual accounts, then their income
under the proposal from Social Security and the new accounts would be
exactly the same as under current law.
The hypothetical account approach to reducing benefits must be translated
into our PIA factor changes because such a reduction is proportional to
AIME, not to PIA. The contributions to a hypothetical account are
proportional to earnings. Therefore, a benefit reduction based on such an
account would also be proportional to earnings; that is
Benefit reduction = y *AIME Therefore, the new PIA would be PIA new =90% *
AIME1 + 32% * AIME2 + 15% * AIME3 - y * AIMET
7 See U. S. General Accounting Office, Social Security: Analysis of a
Proposal to Privatize Trust Fund Reserves, GAO/ HRD- 91- 22 (Washington,
D. C.: Dec. 12, 1990).
Appendix I: Scope and Methodology Page 24 GAO- 03- 387 Social Security
Where AIMEi is the applicable portion of AIME and AIMET is the total AIME.
In turn,
PIA new =( 90% - y) * AIME1 + (32% - y) * AIME2 + (15% - y) * AIME3 Thus,
the reduction from a hypothetical account can be translated into a change
in the PIA formula factors.
Because this offset can be described as subtracting a constant amount from
each PIA formula factor, it is reasonably transparent, especially in
comparison to describing it as a hypothetical account offset. Table 3
summarizes the features of our policy scenarios.
Table 3: Summary of Policy Scenario Parameters Annual PIA factor reduction
(percentage point) Ultimate PIA factor (2035) percent
Policy scenario Phase- in period 90- percent
factor 32- percent factor 15- percent
factor 90- percent factor 32- percent
factor 15- percent factor
Tax increase only 2002 0.00 0.00 0.00 90.00 32.00 15.00 Proportional
benefit reduction 2005- 2035 0.71 0.25 0.12 68.10 24.21 11.35 Progressive
benefit reduction 2005- 2035 0.32 0.32 0.32 80.11 22.11 5.11 Source: SSA*s
Office of the Chief Actuary.
Modeling Income in the Near Term (MINT) is a detailed microsimulation
model developed jointly by the Social Security Administration, the
Brookings Institution, RAND, and the Urban Institute (the version used in
this report, MINT3, was published in June 2002). The base data sets used
in the model are 1990- 93 panels of the Census Bureau*s Survey of Income
and Program Participation (SIPP), matched to Social Security Summary
Earnings Records (SER) and Master Beneficiary Records (MBR). The SER
contains earnings histories for the years 1951 to 1999. MINT uses data on
the matched files for individuals in the 1931 to 1965 birth cohorts to
project their incomes. 8 MINT3 projects marital change, Social
Securitycovered work and earnings, disability, retirement income, and
death for a SIPP subsample. The sample consists of 69,612 SIPP respondents
from the 1990- 93 surveys who were born between 1931 and 1964. Marriage,
divorce,
8 For a complete description of the MINT model and projections see The
Urban Institute,
Final Report: Modeling Income in the Near Term: Revised Projections of
Retirement Income Through 2020 for the 1931- 1960 Birth Cohorts, June
2002. Modeling Income in
the Near Term
Appendix I: Scope and Methodology Page 25 GAO- 03- 387 Social Security and
re- marriage are projected with hazard models allowing up to nine
marriages, although after retirement, only one re- marriage is allowed.
Marital status is projected for each respondent until death. Work and
earnings are taken from the SER, and earnings are projected from 2000 to
2031. Spouse earnings are also based on the SER. Earnings of missing
spouses are imputed from similar survey respondents, and complete earnings
histories are imputed for respondents who did not report a Social Security
number. The MINT model provides SSA with the capability to assess the
distributional impact of changes to the Social Security program.
MINT projects earnings histories for persons in the sample who have not
yet completed their careers. MINT also projects the year of initial
receipt of Social Security benefits and benefit amounts, in addition to
other
sources of retirement income including pensions, asset income, and
earnings of working Social Security beneficiaries.
Methodologically, we chose MINT3 for this report for its capability to
project marital changes, Social Security- covered work and
earnings, disability, retirement, and mortality; its ability to
prospectively assess and model various Social Security
programmatic alternatives; its ability to examine a large portion of the
Social Security population
(those born between 1931 and 1964, in the current analysis); and its
ability to examine various subgroups, notably by race and ethnicity; and
its use as a policy tool already employed by SSA; While the MINT model
provides data that are well- suited to our analysis, there are some
shortcomings of those data as well. First, the model excludes a number of
dependent and survivor beneficiaries in the projections of benefits that
are received on a primary insured worker*s record. Among the excluded
groups are children of disabled, retired, or deceased workers. 9 In order
to correct for this omission, SSA reduced the OASI and DI tax rates* both
historical and prospective* by the
9 Other excluded groups include aged parents and widowed mothers and
fathers.
Appendix I: Scope and Methodology Page 26 GAO- 03- 387 Social Security
percentage of program expenditures that were paid to those excluded
beneficiaries. 10 As noted earlier, in our analysis, we use the *shared*
measure of OASDI
taxes and benefits. For this measure, during years in which the individual
is unmarried* either as a beneficiary or as a payroll taxpayer* the full
measure of the individual*s taxes paid or benefits received (regardless of
whose earnings those benefits are based upon) is counted. While the
individual is married, the taxes or benefits counted are half of the sum
of the individual*s total payroll taxes or benefits plus the spouse*s
total payroll taxes or benefits. 11 The U. S. Census Bureau, under the
Department of Commerce, publishes
population projections for the United States. Mortality assumptions are
represented as life tables for selected calendar years from 1999 to 2100
and are published by age, gender, race, and Hispanic origin. We used the
published 2001 life tables for the non- Hispanic white, non- Hispanic
Black, and Hispanic populations to determine the number of years an
individual, age 20 in 2001, could expect to receive benefits. These tables
are located
on the Bureau*s website at: http:// www. census. gov/ population/
projections/ nation/ detail/ lt99_ 10. a
Mortality affects the benefits received relative to taxes paid because it
determines the number of years a person will pay taxes and receive
benefits. Furthermore, mortality rates affect individuals* lifetime
earnings and their incidences of disability. Finally, mortality affects
the amount of benefits paid to survivors of deceased workers.
10 The tax reductions were the same across race/ ethnic groups, which may
introduce bias in our results. Blacks account for only about 10 percent of
the total OASDI caseload, but they account for approximately 22 percent of
child beneficiaries. Furthermore, while average
benefits for blacks relative to whites is approximately 85 percent and 90
percent for retired workers and disabled workers, respectively, the ratio
is about 78 percent for surviving children. Thus, a race- blind reduction
in that tax rate for omitting child beneficiaries would artificially lower
the measures of generosity of OASDI for blacks relative to whites since
there are relatively fewer white children beneficiaries than black
children beneficiaries. On the other hand, the fact that white surviving
children receive higher benefits, on average, than black surviving child
beneficiaries offsets this effect to some degree.
11 Since MINT tracks some but not all past and future family relationships
and the benefits that are due those individuals, the shared measure does
not account for all taxes and benefits connected to each earnings record.
However, we relied on the recommendation of
SSA*s Office of Policy that the shared measures most closely match taxes
paid and benefits received. The Effects of
Mortality
Appendix I: Scope and Methodology Page 27 GAO- 03- 387 Social Security
Incorporating survivors who have a right to benefits on the decedent*s
social security record complicates the impact of mortality on our
measures of social security benefits relative to taxes paid. For example,
dependent children and their surviving parents may begin to receive
survivor benefits. Aged (60 years or older) widows may begin to receive
benefits, or they may experience a change in the amount of benefits they
receive, as well as a change in whether the benefits are based on their
own or their deceased spouses* earnings.
As noted above, Hispanics generally have the lowest mortality rates and
blacks have the highest. Earlier work using the MINT3 model shows that, in
practice, higher mortality tends to lower our measures of benefits
relative to taxes. 12 Internal rates of return for blacks and Hispanics
fall further than those for whites when examining the effects of
incorporating actual mortality patterns.
12 The Cohen, Steuerle, and Carasso (2001) study uses the MINT2 model
under current law.
Appendix II: Social Security Equity Measures Page 28 GAO- 03- 387 Social
Security For the median lifetime net benefits and the benefit- to- tax
ratio, calculations are made using the 2001 trust fund discount rate, and
the
dollar figures reported are in 2000 dollars. The two dominant results that
the following figures reveal are that the lowest income quintile group
always has higher values of the three equity measures than does the
highest income quintile group and that earlier birth cohort groups
generally have higher values than do later birth cohort groups.
Figure 7: OASDI Real IRR for Individuals Born between 1931 and 1940, under
the Progressive Benefit Cut Scenario
Note: Calculations are made using the inflation rates assumed under the
intermediate assumption of the 2001 Trustees Report.
Appendix II: Social Security Equity Measures
Percent 0
1 2
3 4
5 6
7 Highest Fourth Third Second Lowest Earnings quintile
White, non- Hispanic Black, non- Hispanic Hispanic Source: SSA*s MINT3
dataset.
Appendix II: Social Security Equity Measures Page 29 GAO- 03- 387 Social
Security Figure 8: OASDI Real IRR for Individuals Born between 1931 and
1940, under the Proportional Benefit Cut Scenario
Note: Calculations are made using the inflation rates assumed under the
intermediate assumption of the 2001 Trustees Report.
Percent 0
1 2
3 4
5 6
7 Highest Fourth Third Second Lowest Earnings quintile
White, non- Hispanic Black, non- Hispanic Hispanic Source: SSA*s MINT3
dataset.
Appendix II: Social Security Equity Measures Page 30 GAO- 03- 387 Social
Security Figure 9: OASDI Real IRR for Individuals Born between 1931 and
1940, under the Payroll Tax Increase Scenario Note: Calculations are made
using the inflation rates assumed under the intermediate assumption of
the 2001 Trustees Report.
Percent 0
1 2
3 4
5 6
7 Highest Fourth Third Second Lowest Earnings quintile
White, non- Hispanic Black, non- Hispanic Hispanic Source: SSA*s MINT3
dataset.
Appendix II: Social Security Equity Measures Page 31 GAO- 03- 387 Social
Security Figure 10: OASDI Median Lifetime Net Benefits for Individuals
Born between 1931 and 1940, under the Progressive Benefit Cut Scenario
Note: Calculations are made using the effective interest rates assumed to
be earned by the OASDI
Trust Funds under the intermediate assumption of the 2001 Trustees Report.
-40 -30
-20 -10
0 10
20 30
40 50
Highest Fourth Third Second Lowest 2000 dollars (in thousands)
Earnings quintile
White, non- Hispanic Black, non- Hispanic Hispanic Source: SSA*s MINT3
dataset.
Appendix II: Social Security Equity Measures Page 32 GAO- 03- 387 Social
Security Figure 11: OASDI Median Lifetime Net Benefits for Individuals
Born between 1931 and 1940, under the Proportional Benefit Cut Scenario
Note: Calculations are made using the effective interest rates assumed to
be earned by the OASDI Trust Funds under the intermediate assumption of
the 2001 Trustees Report.
-40 -30
-20 -10
0 10
20 30
40 50
Highest Fourth Third Second Lowest 2000 dollars (in thousands)
Earnings quintile
White, non- Hispanic Black, non- Hispanic Hispanic Source: SSA*s MINT3
dataset.
Appendix II: Social Security Equity Measures Page 33 GAO- 03- 387 Social
Security Figure 12: OASDI Median Lifetime Net Benefits for Individuals
Born between 1931 and 1940, under the Payroll Tax Increase Scenario Note:
Calculations are made using the effective interest rates assumed to be
earned by the OASDI
Trust Funds under the intermediate assumption of the 2001 Trustees Report.
-40 -30
-20 -10
0 10
20 30
40 50
Highest Fourth Third Second Lowest 2000 dollars (in thousands)
Earnings quintile
White, non- Hispanic Black, non- Hispanic Hispanic Source: SSA*s MINT3
dataset.
Appendix II: Social Security Equity Measures Page 34 GAO- 03- 387 Social
Security Figure 13: OASDI Median Lifetime Benefit- to- Tax Ratio for
Individuals Born between 1931 and 1940, under the Progressive Benefit Cut
Scenario Note: Calculations are made using the effective interest rates
assumed to be earned by the OASDI
Trust Funds under the intermediate assumption of the 2001 Trustees Report.
Ratio 0 0.5
1.0 1.5
2.0 2.5
Highest Fourth Third Second Lowest Earnings quintile
White, non- Hispanic Black, non- Hispanic Hispanic Source: SSA*s MINT3
dataset.
Appendix II: Social Security Equity Measures Page 35 GAO- 03- 387 Social
Security Figure 14: OASDI Median Lifetime Benefit- to- Tax Ratio for
Individuals Born between 1931 and 1940, under the Proportional Benefit Cut
Scenario
Note: Calculations are made using the effective interest rates assumed to
be earned by the OASDI Trust Funds under the intermediate assumption of
the 2001 Trustees Report.
0 0.5
1.0 1.5
2.0 2.5
Highest Fourth Third Second Lowest Ratio
Earnings quintile
White, non- Hispanic Black, non- Hispanic Hispanic Source: SSA*s MINT3
dataset.
Appendix II: Social Security Equity Measures Page 36 GAO- 03- 387 Social
Security Figure 15: OASDI Median Lifetime Benefit- to- Tax Ratio for
Individuals Born between 1931 and 1940, under the Payroll Tax Increase
Scenario
Note: Calculations are made using the effective interest rates assumed to
be earned by the OASDI Trust Funds under the intermediate assumption of
the 2001 Trustees Report.
0 0.5
1.0 1.5
2.0 2.5
Highest Fourth Third Second Lowest Ratio
Earnings quintile
White, non- Hispanic Black, non- Hispanic Hispanic Source: SSA*s MINT3
dataset.
Appendix II: Social Security Equity Measures Page 37 GAO- 03- 387 Social
Security Figure 16: OASDI Real IRR for Individuals Born between 1941 and
1945, under the Progressive Benefit Cut Scenario
Note: Calculations are made using the inflation rates assumed under the
intermediate assumption of the 2001 Trustees Report.
0 1
2 3
4 5
6 7
Highest Fourth Third Second Lowest Percent
Earnings quintile
White, non- Hispanic Black, non- Hispanic Hispanic Source: SSA*s MINT3
dataset.
Appendix II: Social Security Equity Measures Page 38 GAO- 03- 387 Social
Security Figure 17: OASDI Real IRR for Individuals Born between 1941 and
1945, under the Proportional Benefit Cut Scenario
Note: Calculations are made using the inflation rates assumed under the
intermediate assumption of the 2001 Trustees Report.
0 1
2 3
4 5
6 7
Highest Fourth Third Second Lowest Percent
Earnings quintile
White, non- Hispanic Black, non- Hispanic Hispanic Source: SSA*s MINT3
dataset.
Appendix II: Social Security Equity Measures Page 39 GAO- 03- 387 Social
Security Figure 18: OASDI Real IRR for Individuals Born between 1941 and
1945, under the Payroll Tax Increase Scenario Note: Calculations are made
using the inflation rates assumed under the intermediate assumption of
the 2001 Trustees Report.
0 1
2 3
4 5
6 7
Highest Fourth Third Second Lowest Percent
Earnings quintile
White, non- Hispanic Black, non- Hispanic Hispanic Source: SSA*s MINT3
dataset.
Appendix II: Social Security Equity Measures Page 40 GAO- 03- 387 Social
Security Figure 19: OASDI Median Lifetime Net Benefits for Individuals
Born between 1941 and 1945, under the Progressive Benefit Cut Scenario
Note: Calculations are made using the effective interest rates assumed to
be earned by the OASDI
Trust Funds under the intermediate assumption of the 2001 Trustees Report.
-120 -100
-80 -60
-40 -20
0 20
40 Highest Fourth Third Second Lowest 2000 dollars (in thousands)
Earnings quintile
White, non- Hispanic Black, non- Hispanic Hispanic Source: SSA*s MINT3
dataset.
Appendix II: Social Security Equity Measures Page 41 GAO- 03- 387 Social
Security Figure 20: OASDI Median Lifetime Net Benefits for Individuals
Born between 1941 and 1945, under the Proportional Benefit Cut Scenario
Note: Calculations are made using the effective interest rates assumed to
be earned by the OASDI Trust Funds under the intermediate assumption of
the 2001 Trustees Report.
-120 -100
-80 -60
-40 -20
0 20
40 Highest Fourth Third Second Lowest 2000 dollars (in thousands)
Earnings quintile
White, non- Hispanic Black, non- Hispanic Hispanic Source: SSA*s MINT3
dataset.
Appendix II: Social Security Equity Measures Page 42 GAO- 03- 387 Social
Security Figure 21: OASDI Median Lifetime Net Benefits for Individuals
Born between 1941 and 1945, under the Payroll Tax Increase Scenario Note:
Calculations are made using the effective interest rates assumed to be
earned by the OASDI
Trust Funds under the intermediate assumption of the 2001 Trustees Report.
-120 -100
-80 -60
-40 -20
0 20
40 Highest Fourth Third Second Lowest 2000 dollars (in thousands)
Earnings quintile
White, non- Hispanic Black, non- Hispanic Hispanic Source: SSA*s MINT3
dataset.
Appendix II: Social Security Equity Measures Page 43 GAO- 03- 387 Social
Security Figure 22: OASDI Median Lifetime Benefit- to- Tax Ratio for
Individuals Born between 1941 and 1945, under the Progressive Benefit Cut
Scenario
Note: Calculations are made using the effective interest rates assumed to
be earned by the OASDI Trust Funds under the intermediate assumption of
the 2001 Trustees Report.
0 0.2
0.4 0.6
0.8 1.0
1.2 1.4
1.6 1.8
Highest Fourth Third Second Lowest Ratio
Earnings quintile
White, non- Hispanic Black, non- Hispanic Hispanic Source: SSA*s MINT3
dataset.
Appendix II: Social Security Equity Measures Page 44 GAO- 03- 387 Social
Security Figure 23: OASDI Median Lifetime Benefit- to- Tax Ratio for
Individuals Born between 1941 and 1945, under the Proportional Benefit Cut
Scenario
Note: Calculations are made using the effective interest rates assumed to
be earned by the OASDI Trust Funds under the intermediate assumption of
the 2001 Trustees Report.
0 0.2
0.4 0.6
0.8 1.0
1.2 1.4
1.6 1.8
Highest Fourth Third Second Lowest Ratio
Earnings quintile
White, non- Hispanic Black, non- Hispanic Hispanic Source: SSA*s MINT3
dataset.
Appendix II: Social Security Equity Measures Page 45 GAO- 03- 387 Social
Security Figure 24: OASDI Median Lifetime Benefit- to- Tax Ratio for
Individuals Born between 1941 and 1945, under the Payroll Tax Increase
Scenario Note: Calculations are made using the effective interest rates
assumed to be earned by the OASDI
Trust Funds under the intermediate assumption of the 2001 Trustees Report.
0 0.2
0.4 0.6
0.8 1.0
1.2 1.4
1.6 1.8
Highest Fourth Third Second Lowest Ratio
Earnings quintile
White, non- Hispanic Black, non- Hispanic Hispanic Source: SSA*s MINT3
dataset.
Appendix II: Social Security Equity Measures Page 46 GAO- 03- 387 Social
Security Figure 25: OASDI Real IRR for Individuals Born between 1946 and
1955, under the Progressive Benefit Cut Scenario
Note: Calculations are made using the inflation rates assumed under the
intermediate assumption of the 2001 Trustees Report.
0 1
2 3
4 5
6 7
Highest Fourth Third Second Lowest Percent
Earnings quintile
White, non- Hispanic Black, non- Hispanic Hispanic Source: SSA*s MINT3
dataset.
Appendix II: Social Security Equity Measures Page 47 GAO- 03- 387 Social
Security Figure 26: OASDI Real IRR for Individuals Born between 1946 and
1955, for the Proportional Benefit Cut Scenario
Note: Calculations are made using the inflation rates assumed under the
intermediate assumption of the 2001 Trustees Report.
0 1
2 3
4 5
6 7
Highest Fourth Third Second Lowest Percent
Earnings quintile
White, non- Hispanic Black, non- Hispanic Hispanic Source: SSA*s MINT3
dataset.
Appendix II: Social Security Equity Measures Page 48 GAO- 03- 387 Social
Security Figure 27: OASDI Real IRR for Individuals Born between 1946 and
1955, under the Payroll Tax Increase Scenario Note: Calculations are made
using the inflation rates assumed under the intermediate assumption of
the 2001 Trustees Report.
0 1
2 3
4 5
6 Highest Fourth Third Second Lowest Percent
Earnings quintile
White, non- Hispanic Black, non- Hispanic Hispanic Source: SSA*s MINT3
dataset.
Appendix II: Social Security Equity Measures Page 49 GAO- 03- 387 Social
Security Figure 28: OASDI Median Lifetime Net Benefits for Individuals
Born between 1946 and 1955, under the Progressive Benefit Cut Scenario
Note: Calculations are made using the effective interest rates assumed to
be earned by the OASDI
Trust Funds under the intermediate assumption of the 2001 Trustees Report.
-120 -100
-80 -60
-40 -20
0 20
40 Highest Fourth Third Second Lowest 2000 dollars (in thousands)
Earnings quintile
White, non- Hispanic Black, non- Hispanic Hispanic Source: SSA*s MINT3
dataset.
Appendix II: Social Security Equity Measures Page 50 GAO- 03- 387 Social
Security Figure 29: OASDI Median Lifetime Net Benefits for Individuals
Born between 1946 and 1955, under the Proportional Benefit Cut Scenario
Note: Calculations are made using the effective interest rates assumed to
be earned by the OASDI Trust Funds under the intermediate assumption of
the 2001 Trustees Report.
-120 -100
-80 -60
-40 -20
0 20
40 Highest Fourth Third Second Lowest 2000 dollars (in thousands)
Earnings quintile
White, non- Hispanic Black, non- Hispanic Hispanic Source: SSA*s MINT3
dataset.
Appendix II: Social Security Equity Measures Page 51 GAO- 03- 387 Social
Security Figure 30: OASDI Median Lifetime Net Benefits for Individuals
Born between 1946 and 1955, under the Payroll Tax Increase Scenario Note:
Calculations are made using the effective interest rates assumed to be
earned by the OASDI
Trust Funds under the intermediate assumption of the 2001 Trustees Report.
-140 -120
-100 -80
-60 -40
-20 0
20 40
Highest Fourth Third Second Lowest 2000 dollars (in thousands)
Earnings quintile
White, non- Hispanic Black, non- Hispanic Hispanic Source: SSA*s MINT3
dataset.
Appendix II: Social Security Equity Measures Page 52 GAO- 03- 387 Social
Security Figure 31: OASDI Median Lifetime Benefit- to- Tax Ratio for
Individuals Born between 1946 and 1955, under the Progressive Benefit Cut
Scenario Note: Calculations are made using the effective interest rates
assumed to be earned by the OASDI
Trust Funds under the intermediate assumption of the 2001 Trustees Report.
0 0.2
0.4 0.6
0.8 1.0
1.2 1.4
1.6 Highest Fourth Third Second Lowest Ratio
Earnings quintile
White, non- Hispanic Black, non- Hispanic Hispanic Source: SSA*s MINT3
dataset.
Appendix II: Social Security Equity Measures Page 53 GAO- 03- 387 Social
Security Figure 32: OASDI Median Lifetime Benefit- to- Tax Ratio for
Individuals Born between 1946 and 1955, under the Proportional Benefit Cut
Scenario
Note: Calculations are made using the effective interest rates assumed to
be earned by the OASDI Trust Funds under the intermediate assumption of
the 2001 Trustees Report.
0 0.2
0.4 0.6
0.8 1.0
1.2 1.4
1.6 Highest Fourth Third Second Lowest Ratio
Earnings quintile
White, non- Hispanic Black, non- Hispanic Hispanic Source: SSA*s MINT3
dataset.
Appendix II: Social Security Equity Measures Page 54 GAO- 03- 387 Social
Security Figure 33: OASDI Median Lifetime Benefit- to- Tax Ratio for
Individuals Born between 1946 and 1955, under the Payroll Tax Increase
Scenario Note: Calculations are made using the effective interest rates
assumed to be earned by the OASDI
Trust Funds under the intermediate assumption of the 2001 Trustees Report.
0 0.2
0.4 0.6
0.8 1.0
1.2 1.4
1.6 Highest Fourth Third Second Lowest Ratio
Earnings quintile
White, non- Hispanic Black, non- Hispanic Hispanic Source: SSA*s MINT3
dataset.
Appendix II: Social Security Equity Measures Page 55 GAO- 03- 387 Social
Security Figure 34: OASDI Real IRR for Individuals Born between 1956 and
1964, under the Progressive Benefit Cut Scenario
Note: Calculations are made using the inflation rates assumed under the
intermediate assumption of the 2001 Trustees Report.
0 1
2 3
4 5
6 Highest Fourth Third Second Lowest Percent
Earnings quintile
White, non- Hispanic Black, non- Hispanic Hispanic Source: SSA*s MINT3
dataset.
Appendix II: Social Security Equity Measures Page 56 GAO- 03- 387 Social
Security Figure 35: OASDI Real IRR for Individuals Born between 1956 and
1964, under the Proportional Benefit Cut Scenario
Note: Calculations are made using the inflation rates assumed under the
intermediate assumption of the 2001 Trustees Report.
0 1
2 3
4 5
6 Highest Fourth Third Second Lowest Percent
Earnings quintile
White, non- Hispanic Black, non- Hispanic Hispanic Source: SSA*s MINT3
dataset.
Appendix II: Social Security Equity Measures Page 57 GAO- 03- 387 Social
Security Figure 36: OASDI Real IRR for Individuals Born between 1956 and
1964, under the Payroll Tax Increase Scenario Note: Calculations are made
using the inflation rates assumed under the intermediate assumption of
the 2001 Trustees Report.
0 1
2 3
4 5
6 Highest Fourth Third Second Lowest Percent
Earnings quintile
White, non- Hispanic Black, non- Hispanic Hispanic Source: SSA*s MINT3
dataset.
Appendix II: Social Security Equity Measures Page 58 GAO- 03- 387 Social
Security Figure 37: OASDI Median Lifetime Net Benefits for Individuals
Born between 1956 and 1964, under the Progressive Benefit Cut Scenario
Note: Calculations are made using the effective interest rates assumed to
be earned by the OASDI
Trust Funds under the intermediate assumption of the 2001 Trustees Report.
-200 -150
-100 -50
0 50
Highest Fourth Third Second Lowest 2000 dollars (in thousands)
Earnings quintile
White, non- Hispanic Black, non- Hispanic Hispanic Source: SSA*s MINT3
dataset.
Appendix II: Social Security Equity Measures Page 59 GAO- 03- 387 Social
Security Figure 38: OASDI Median Lifetime Net Benefits for Individuals
Born between 1956 and 1964, under the Proportional Benefit Cut Scenario
Note: Calculations are made using the effective interest rates assumed to
be earned by the OASDI Trust Funds under the intermediate assumption of
the 2001 Trustees Report.
-160 -120
-80 -40
0 40
Highest Fourth Third Second Lowest 2000 dollars (in thousands)
Earnings quintile
White, non- Hispanic Black, non- Hispanic Hispanic Source: SSA*s MINT3
dataset.
Appendix II: Social Security Equity Measures Page 60 GAO- 03- 387 Social
Security Figure 39: OASDI Median Lifetime Net Benefits for Individuals
Born between 1956 and 1964, under the Payroll Tax Increase Scenario Note:
Calculations are made using the effective interest rates assumed to be
earned by the OASDI
Trust Funds under the intermediate assumption of the 2001 Trustees Report.
-180 -160
-140 -120
-100 -80
-60 -40
-20 0
20 40
Highest Fourth Third Second Lowest 2000 dollars (in thousands)
Earnings quintile
White, non- Hispanic Black, non- Hispanic Hispanic Source: SSA*s MINT3
dataset.
Appendix II: Social Security Equity Measures Page 61 GAO- 03- 387 Social
Security Figure 40: OASDI Median Lifetime Benefit- to- Tax Ratio for
Individuals Born between 1956 and 1964, under the Progressive Benefit Cut
Scenario Note: Calculations are made using the effective interest rates
assumed to be earned by the OASDI
Trust Funds under the intermediate assumption of the 2001 Trustees Report.
0 0.2
0.4 0.6
0.8 1.0
1.2 1.4
1.6 Highest Fourth Third Second Lowest Ratio
Earnings quintile
White, non- Hispanic Black, non- Hispanic Hispanic Source: SSA*s MINT3
dataset.
Appendix II: Social Security Equity Measures Page 62 GAO- 03- 387 Social
Security Figure 41: OASDI Median Lifetime Benefit- to- Tax Ratio for
Individuals Born between 1956 and 1964, under the Proportional Benefit Cut
Scenario
Note: Calculations are made using the effective interest rates assumed to
be earned by the OASDI Trust Funds under the intermediate assumption of
the 2001 Trustees Report.
0 0.2
0.4 0.6
0.8 1.0
1.2 1.4
1.6 Highest Fourth Third Second Lowest Ratio
Earnings quintile
White, non- Hispanic Black, non- Hispanic Hispanic Source: SSA*s MINT3
dataset.
Appendix II: Social Security Equity Measures Page 63 GAO- 03- 387 Social
Security Figure 42: OASDI Median Lifetime Benefit- to- Tax Ratio for
Individuals Born between 1956 and 1964, under the Payroll Tax Increase
Scenario Note: Calculations are made using the effective interest rates
assumed to be earned by the OASDI
Trust Funds under the intermediate assumption of the 2001 Trustees Report.
0 0.2
0.4 0.6
0.8 1.0
1.2 1.4
Highest Fourth Third Second Lowest Ratio
Earnings quintile
White, non- Hispanic Black, non- Hispanic Hispanic Source: SSA*s MINT3
dataset.
Appendix III: GAO Contacts and Staff Acknowledgments
Page 64 GAO- 03- 387 Social Security Alicia Puente Cackley, (202) 512-
7022 Gretta L. Goodwin, (202) 512- 7952 In addition to those named above,
the following individuals made
significant contributions to this report: Brendan Cushing- Daniels and
Patrick DiBattista, Education, Workforce, and Income Security Issues;
Joseph Applebaum, Robert Parker, Joan Vogel, and Grant Mallie, Applied
Research and Methods; Jeffrey Baldwin- Bott, International Affairs and
Trade; Richard Burkard and Roger Thomas, General Counsel; and Lee Cohen,
the Social Security Administration. Appendix III: GAO Contacts and Staff
Acknowledgments GAO Contacts Staff Acknowledgments
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Related GAO Products Page 67 GAO- 03- 387 Social Security Social Security:
Analysis of Reform Models Developed by the President*s Commission to
Strengthen Social Security. GAO- 03- 310. Washington,
D. C.: January 15, 2003.
Social Security: Program*s Role in Helping Ensure Income Adequacy.
GAO- 02- 62. Washington, D. C.: November 30, 2001.
Social Security Reform: Potential Effects on SSA*s Disability Program and
Beneficiaries. GAO- 01- 35. Washington, D. C.: January 24, 2001.
Social Security: Issues in Comparing Rates of Return with Market
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Social Security Reform: Implications of Raising the Retirement Age.
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Social Security and Minorities: Current Benefits and Implications of
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Social Security Reform: Different Approaches for Addressing Program
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Security Reform: Implications for Women*s Retirement Income.
GAO/ HEHS- 98- 42. Washington, D. C.: December 31, 1997. Related GAO
Products
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