a. If total expenditures (Social security) were frozen, what would happen to benefits per retiree? To tax payments per worker? (Assume that social security taxes and receipts are balanced in each year)
b. If benefits per retiree were frozen, what would happen to total expenditures? To tax payments per worker?
c. If tax payments per worker were frozen, what would happen to total expenditures? To benefits per retiree?
d. What do your answers to parts a, b, and c imply about the difficult decisions faced by policymakers?
you will need to make some assumptions about whether the retiree population is growing, shrinking, or remaining constant relative to the working population. A likely assumption is that the retiree population is growing faster than the working population.
So then, just think logically about each situation.
a. If total expenditures (Social security) were frozen, the benefits per retiree would likely decrease over time. This is because as the retiree population grows faster than the working population, the frozen expenditures would need to be spread over a larger number of retirees. As a result, each retiree would receive a smaller share of the frozen total expenditures.
To calculate the exact impact, you would need to know the current number of retirees and the rate at which the retiree population is growing. Once you have this information, you can divide the frozen total expenditure by the number of retirees to determine the benefits per retiree.
b. If benefits per retiree were frozen, the total expenditures would likely increase over time. This is because as the retiree population grows faster than the working population, the frozen benefits would need to be provided to a larger number of retirees.
To calculate the exact impact, you would need to know the current number of retirees and the rate at which the retiree population is growing. Once you have this information, you can multiply the frozen benefits by the number of retirees to determine the total expenditures.
c. If tax payments per worker were frozen, the total expenditures would likely exceed the tax payments over time. This is because as the retiree population grows faster than the working population, the frozen tax payments would not be sufficient to cover the increasing expenditures.
To calculate the exact impact, you would need to know the current number of workers and the rate at which the retiree population is growing. Once you have this information, you can multiply the frozen tax payments by the number of workers to determine the total tax payments. If the total tax payments are less than the total expenditures, it would result in a shortfall.
d. The answers to parts a, b, and c suggest that policymakers face difficult decisions when it comes to managing social security. They need to consider factors like the growth rate of the retiree population, the financial sustainability of the system, and the impact on individual retirees and workers.
With a growing retiree population, policymakers need to balance the needs of retirees with the ability to sustain the system in the long term. Freezing total expenditures could result in decreasing benefits per retiree, which may not adequately support retirees' financial needs. On the other hand, freezing benefits per retiree may lead to increasing total expenditures and potential strain on the funding of the system. Similarly, freezing tax payments per worker could lead to a deficit between total expenditures and tax revenues.
Policymakers must carefully evaluate the trade-offs involved in each scenario and consider alternative solutions to ensure the financial stability and fairness of the social security system.