'Changes in the OASI Benefit Distribution Under Various Social Security Reform Alternatives,' and 'Tax Expenditures and Employee Benefits: Estimates From the FY 2007 Budget'

April 2006, Vol. 27, No. 4
Paperback, 12 pp.
PDF, 455 kb
Employee Benefit Research Institute, 2006

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Executive Summary

Changes in the OASI Benefit Distribution Under Various Social Security Reform Alternatives


How Social Security benefit cuts would affect recipients by benefit level: This article examines changes in the distribution of Old-Age and Survivors Insurance (OASI) benefits (the primary Social Security program) resulting from various widely discussed Social Security reform alternatives. It focuses on five alternatives: Current-law benefits; gradually reducing benefits; increasing the normal retirement age; adopting “progressive price indexing,” which would affect upper-income beneficiaries more than lower-income ones; and a combination of raising the retirement age and progressive price indexing.


Social Security’s role in reducing elderly poverty: Social Security is the primary source of income for Americans age 65 or older, and almost the only source of income for the poor elderly. Any changes to Social Security that would reduce benefits in order to eliminate future projected deficits could have a dramatic effect on the percentage of elderly living below the poverty level.


Percentage with benefits below poverty: The percentage of beneficiaries with benefits below poverty is projected to decrease dramatically in the future due to assumed real growth in wages, which is passed along in higher benefits. Consequently, even with benefit cuts large enough to eliminate Social Security’s projected financial deficit, the percentage of beneficiaries below poverty is projected to decline.


 


Tax Expenditures and Employee Benefits: Estimates From the FY 2007 Budget


Required by Congress: The president is required to provide a list of “tax expenditures” (federal tax revenue forgone due to preferential provisions) be included in the budget. The concept of “tax expenditures” has always been controversial, particularly as it counts both “tax deferred” programs (where tax revenue ultimately will be collected) and “tax exempt” ones (where no revenue will ever be collected).


Benefits account for the largest share: For the next fiscal year (2007), all employee benefit-related tax expenditures ($313.170 billion) will account for 37.4 percent of the $837.068 billion tax expenditures in the budget. Tax-favored employment-based health insurance benefits will account for the largest tax expenditure presented in the budget (17.5 percent of the total) followed by employment-based retirement plans (11.0 percent of the total amount).