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Class Notes 041408 Social Security Tax and Benefit Basics

Class Notes 041408 Social Security Tax and Benefit Basics -...

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4/14/08 Social Security 4 lectures: 1. Tax and benefit basics. Use example earner spreadsheets from project 2. Aggregate social security budgets; projections & concepts 3. Framework for analyzing social security tying together individual tax & benefit aspects with macro budget; discuss uncertainty 4. Proposed reform, including specific project reforms Social Security Basics Pay tax when working, get benefits when retired/disabled Been around since 1935, disability added in 1951 OASI —Old Age, Survivor’s Insurance o Usual retirement benefit o Covers workers and dependents Spouse can get 50% Widow/widower gets 100% Retirement age o Earliest 62 o “normal” 66, (67 for us) o Oldest 70 Amount adjusted based on when you retire: (actuarial adjustment) DI =disability adjustment
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Unformatted text preview: o Qualify after 5 years o Given DI ruling, get normal benefits • OASDI Taxes (FICA) o 6.2% each employer/employee up to $102,000 (2008, rises) o Self employed pay 12.4% • Is Social Security regressive? 12.4% up to 108k 0% after o Benefit only based on earnings up to $108k also, o Turns out, very progressive . • OASDI Benefit o Best way to show is through example o Benefit is based on your average lifetime earnings, adjusted for inflation and real wage growth o Benefit rises with average earnings, but at a declining rate When is a tax not a tax? • When the government takes something away from you and gives you back the same amount • Present-Value ratio INSERT FIGURE A FROM NOTES...
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