Academic journal article Social Security Bulletin

The Distribution of OASDI Taxes and Benefits by Income Decile

Academic journal article Social Security Bulletin

The Distribution of OASDI Taxes and Benefits by Income Decile

Article excerpt

This article presents tabulations of the distribution by income decile of taxes and benefits in 1992 under the Old-Age, Survivors, and Disability Insurance (OASDI) programs. Looking at the population as a whole, average taxes and the share of aggregate taxes paid increase at higher income deciles; tax as a percent of income increases with income except at the highest decile. Average benefits and the share of aggregate benefits received decrease with income except at the highest decile; the benefit as a percent of non benefit income decreases steadily with income. Even within specific age groups, there is still a tendency for taxes as a percent of income to increase at all but the highest income levels and for benefits as a percent of income to decrease.

Under OASDI, workers pay contributions in the form of payroll taxes during the years in which they are active members of the labor force. The disability insurance contributions and the old-age and survivors insurance contributions are pooled in their respective trust finds and go toward paying disability benefits to disabled workers and their families, old age benefits to retired workers and their spouses, and benefits to the survivors of deceased workers. Because OASDI contributors must have earnings, and because OASDI beneficiaries tend to have no earnings or only low earnings, it is expected that contributors on average will have higher incomes than will benefit recipients. The purpose of this article is to document the extent to which OASDI taxes do in fact tend to come from those with high current incomes and OASDI benefits tend to go to those with low current incomes. The distributional pattern is examined by dividing the population into income deciles--10 equally sized groups classified by income--and tabulating OASDI taxes and benefits by decile.

The pattern of the distribution of taxes and benefits between deciles is expected to have a strong association with age: taxes are paid almost entirely by non elderly workers, found disproportionately in the upper income deciles, while benefits are received mainly by elderly retirees, a group found disproportionately in the lower income deciles. The net transfer under OASDI from upper income deciles to lower income deciles is thus strongly associated with a transfer from younger persons to older persons in the population. To shed additional light on these distributional patterns, the distribution of OASDI taxes and benefits by income is also tabulated within specific age groups.

The focus of this article is on current redistributional patterns of Social Security, using data on one year's taxes and benefits. Social Security also has important lifetime redistributional aspects; the data used here are of limited relevance for the examination of lifetime redistributions.


The estimates used in this article have been developed from a Bureau of the Census survey file, the March Current Population Survey (CPS), which contains information for the preceding year on earnings, Social Security benefits, and other sources of income (like interest and pension income) for each person in the survey population aged 15 or older.(1) The tabulations in this article are based on the March 1993 CPS survey for income in 1992. The CPS is used, rather than Social Security administrative data, because Social Security administrative data do not contain information on family income for OASDI taxpayers and beneficiaries.

OASDI benefits are one of the types of income surveyed in the CPS. OASDI taxes, on the other hand, are not directly elicited in the survey, but have to be simulated from survey information on wages and self-employment earnings. Using Social Security rules in effect in 1992 for maximum taxable earnings and OASDI tax rates, an OASDI tax is simulated for each earner in the CPS.(2) The OASDI tax includes both the employee and the employer shares. (3)

Several income concepts are used in the article. …

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