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- Title
Mending but Not Ending Social Security: The Individual Accounts Plan.
- Authors
Gramlich, Edward M.
- Abstract
The article reports that the numbers projected by the Social Security Trustees' Report of 1995 indicating inadequate Trust Funds by 2030 reflect two deeper pension saving issues for the United States. The United States has an aging population, with people living longer and not having enough babies to stabilize the population share of young people. This means that the dependency ratio, d, is steadily rising, from about .29 today to about .56 by the end of the 75-year forecast period. According to the PAYG identity, if nothing is done to aggregate replacement rates the payroll tax rate must rise steadily to pay for the existing defined benefit social security plan. Another property of a pay-as-you-go (PAYG) system is that the equilibrium real rate of return on worker contributions equals the rate of growth of the economy's real wage base real wages times number of workers. The interaction between these two issues sets up a difficult problem in political economics. Taxes could be raised or replacement ratios cut to keep the system in long-term PAYG balance.
- Subjects
UNITED States; SOCIAL security taxes; OLD age assistance; PAYROLL tax; TRUSTS &; trustees; CAPITAL investments
- Publication
Benefits Quarterly, 1997, Vol 13, Issue 3, p25
- ISSN
8756-1263
- Publication type
Article