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Economics

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The chapter states that the elderly population in the United States is growing more rapidly than the total population. In particular, the number of workers is rising slowly, while the number of retirees is rising quickly. Concerned about the future of Social Security, some members of Congress propose a “freeze” on the program.

If tax payments per worker were frozen, what would happen to total expenditures? To benefits per retiree?

I would think by the use of the word frozen that tax payment would be fixed and in that case total expenditures would be fixed and benefits per retiree would be fixed, as well. Is this correct?

No, not correct. If the PAYMENTS per employee were fixed, with the number of employees relative to the number of retirees decreasing, then the money available per retiree (and their payments) would have to drop.

Total expenditures would rise with the number of workers, which continues to increase in this country mainly as a result of legal and illegal immigration, but expenditures would not rise as fast as the retired population.

So the benefits per retiree, being that expenditures would not rise as fast as the retired population, would be on the decline, true or not?

True.

  • Economics -

    If the number of retirees was rising and total expenditures were frozen, then benefits per retiree would decline over time. Because the number of workers is rising, albeit slowly, tax payments per worker would decline slowly over time.
    If benefits per retiree were frozen, total expenditures would rise quickly, along with the number of retirees. To pay for the increased expenditures, tax payments per worker would rise because the number of workers isn’t growing as rapidly as the number of retirees.
    If tax payments per worker were frozen, total expenditures would rise slowly, at the same rate as the growth rate of the number of workers. Because the number of retirees is rising more rapidly, benefits per retiree would decline over time. See Section: The Federal Government.

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