Are There Opportunities to Increase Social Security Progressivity despite Underfunding?

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Abstract

This paper reviews why Social Security fails to lift more aged low-wage workers and people of color out of poverty. It examines the payroll tax and benefit formula and reviews literature about OASDI outcomes by race, gender, and earnings level. It describes how mortality, earnings, disability, childbearing, immigration and emigration, and marriage patterns all differ across U.S. racial/ethnic groups, and highlights the importance of these differences for program outcomes. The paper then uses the DYNASIM model to examine lifetime OASDI redistribution under current law and a trust fund-neutral reform package that would enhance system progressivity and improve outcomes for some vulnerable to retirement poverty.

Social Security

Social Security is a crucial source of income for many elderly Americans, especially low-wage workers, women, and people of color. The program was intended to keep elderly Americans out of poverty, and, for the most part, it is quite effective. However, some individuals, including disproportionate shares of African Americans and Hispanics, continue to fall through the cracks and spend all or part of their retirement in or near poverty.

Social Security's benefit formula provides higher replacement rates for lower earners, yet returns on contributions for many low-wage groups, including African Americans, are not much better than those for higher-wage groups. This paper reviews why Social Security fails to lift more elderly low-wage workers and minorities out of poverty or provide a greater return on their contributions. It first examines the payroll tax and the benefit formula. It then reviews what is known about Social Security outcomes by race, gender, and earnings level. Finally, it describes how mortality, earnings, disability, childbearing, immigration/emigration, and marriage patterns differ significantly across racial and ethnic groups in the United States, and it highlights why these differences are important for Social Security outcomes.

(End of text. The complete article with the table is available in PDF format.

The nonpartisan Urban Institute publishes studies, reports, and books on timely topics worthy of public consideration. The views expressed are those of the authors and should not be attributed to the Urban Institute, its trustees, or its funders.

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