A Progressivity Index for Social Security

by Andrew G. Biggs, Mark Sarney, and Christopher R. Tamborini
Issue Paper No. 2009-01 (released January 2009)

Text description for Chart 1.
Progressivity of Social Security: Illustrative examples using stylized Lorenz curves

There are three lines on the chart, labeled regressive, progressive, and no redistribution. The horizontal axis is labeled cumulative percentage of total lifetime payroll taxes paid. The vertical axis is labeled cumulative percentage of total lifetime benefits received. Both axes range from zero to 100 in increments of 20. In the chart, all three lines begin at the zero-zero coordinate and end at the 100-100 coordinate.

The no-distribution line is a straight line running from the zero-zero coordinate to the 100-100 coordinate.

The progressive and regressive lines appear as curves bending away from the no-redistribution line. The progressive line curves above the no-redistribution line and the regressive line curves below the no-distribution line. Both curves reach the maximum departure from the no-redistribution line near the 50-50 coordinate.

On the progressive line, individuals who have paid the lowest 20 percent of total taxes receive about 35 percent of the total benefits, those paying the lowest 50 percent of total taxes receive about 70 percent of the total benefits, and those paying the lowest 80 percent of the total taxes receive about 92 percent of the total benefits.

On the regressive line, individuals who have paid the lowest 20 percent of total taxes receive about 5 percent of the total benefits, those paying the lowest 50 percent of total taxes receive about 25 percent of the total benefits, and those paying the lowest 80 percent of the total taxes receive about 57 percent of the total benefits.

Text description for Chart 2.
Progressivity of Social Security for recent retirees: Lorenz Curve for 1941–1945 birth cohort members who survive to claim retirement benefits

There are two lines on the chart, labeled 1941–1945 birth cohort and no redistribution. The horizontal axis is labeled cumulative percentage of total lifetime payroll taxes paid. The vertical axis is labeled cumulative percentage of total lifetime benefits received. Both axes range from zero to 100 in increments of 10. In the chart, both lines begin at the zero-zero coordinate and end at the 100-100 coordinate.

The no-redistribution line is a straight line running from the zero-zero coordinate to the 100-100 coordinate.

The 1941–1945 birth cohort line appears as a curve bending above the no-redistribution line, with a maximum departure from the no-redistribution line near the 40-40 coordinate.

On the 1941–1945 birth cohort line, individuals who have paid the lowest 20 percent of total taxes receive about 30 percent of the total benefits, those paying the lowest 40 percent of total taxes receive about 52 percent of the total benefits, those paying the lowest 60 percent of taxes receive about 70 percent of total benefits, and those paying the lowest 80 percent of the total taxes receive about 86 percent of the total benefits.

Text description for Chart 3.
Progressivity of Social Security compared with stylized alternatives: Lorenz curves for flat-dollar benefit, current-law Social Security, and defined contribution (DC) plan for 1941–1945 birth cohort members who survive to claim retirement benefits

There are three lines on the chart, labeled flat-dollar benefit, Social Security, and defined contribution (DC) plan, which is equivalent to no redistribution. The horizontal axis is labeled cumulative percentage of total lifetime payroll taxes paid. The vertical axis is labeled cumulative percentage of total lifetime benefits received. Both axes range from zero to 100 in increments of 10. In the chart, all three lines begin at the zero-zero coordinate and end at the 100-100 coordinate.

The DC plan line is a straight line running from the zero-zero coordinate to the 100-100 coordinate.

The flat-dollar benefit and Social Security lines both appear as curves bending above the DC plan line. The flat-dollar benefit curve reaches the maximum departure from the DC plan line near the 10-10 coordinate, and the Social Security curve reaches the maximum departure from the DC plan line near the 40-40 coordinate.

On the flat-dollar benefit line, individuals who have paid the lowest 10 percent of total taxes receive about 30 percent of the total benefits, those paying the lowest 50 percent of total taxes receive about 70 percent of the total benefits, and those paying the lowest 80 percent of the total taxes receive about 90 percent of the total benefits.

On the Social Security line, individuals who have paid the lowest 10 percent of total taxes receive about 18 percent of the total benefits, those paying the lowest 50 percent of total taxes receive about 60 percent of the total benefits, and those paying the lowest 80 percent of the total taxes receive about 85 percent of the total benefits.

Table equivalent for Chart 4. Progressivity index of current-law Social Security benefits by birth cohort
Birth cohort Current law
progressivity index
1926–1930 0.237
1931–1935 0.195
1936–1940 0.160
1941–1945 0.163
1946–1950 0.142
1951–1955 0.144
1956–1960 0.146
1961–1965 0.148
1966–1970 0.149
1971–1975 0.146
1976–1980 0.138
1981–1985 0.150
1986–1990 0.143
1991–1995 0.138
1996–2000 0.149
2001–2005 0.149
2006–2010 0.148
2011–2015 0.149
2016–2017 0.148
SOURCE: Authors' calculations using Modeling Income in the Near Term (MINT) data.
Table equivalent for Chart 5. Cumulative percentage of total lifetime benefits received by individuals below selected deciles of shared lifetime earnings distribution, by birth cohort
Birth cohort 1st decile 2nd decile 3rd decile 4th decile 5th decile 6th decile 7th decile 8th decile 9th decile
1926–1930 22.2 36.0 47.2 57.2 65.9 73.9 81.4 88.1 94.4
1931–1935 19.8 32.5 43.8 53.9 62.9 71.4 79.5 87.2 94.1
1936–1940 18.1 30.5 41.4 51.3 60.4 69.5 77.9 85.8 93.4
1941–1945 17.8 30.4 41.5 51.7 60.8 69.9 78.1 86.0 93.3
1946–1950 17.0 29.3 40.1 50.1 59.4 68.4 77.1 85.4 93.0
1951–1955 17.1 29.1 40.0 50.1 59.7 68.8 77.4 85.5 93.1
1956–1960 17.0 29.1 39.9 50.1 59.9 68.9 77.6 85.8 93.3
1961–1965 17.0 29.1 40.1 50.2 59.8 69.2 77.9 85.8 93.3
1966–1970 17.4 29.3 39.9 50.0 59.5 69.3 77.9 85.9 93.6
1971–1975 16.6 28.7 40.0 50.0 59.8 69.3 78.3 86.1 93.7
1976–1980 16.5 28.7 39.6 19.4 59.1 68.6 77.4 85.0 93.1
1981–1985 16.4 28.1 40.3 50.1 60.5 69.8 78.5 86.0 93.7
1986–1990 16.9 28.5 39.8 49.5 59.6 68.9 77.7 85.3 93.4
1991–1995 16.8 28.5 39.6 49.7 59.3 69.0 76.9 85.1 93.0
1996–2000 17.1 29.4 40.2 49.8 59.8 69.2 77.8 85.7 93.7
2001–2005 17.2 29.3 40.0 49.8 59.8 69.7 77.9 85.7 93.6
2006–2010 16.6 29.0 39.9 49.6 59.9 69.7 78.3 85.9 93.6
2011–2015 16.6 28.8 39.3 50.2 60.5 70.0 78.1 85.8 93.6
2016–2017 17.0 28.8 39.6 50.2 60.0 69.6 78.1 85.7 93.8
SOURCE: Authors' calculations using Modeling Income in the Near Term (MINT) data.
Table equivalent for Chart 6. Progressivity indices for Social Security auxiliary and work benefits, by birth cohort
Birth cohort Auxiliary benefits Work benefits
1926–1930 48.3 20.7
1931–1935 43.3 16.9
1936–1940 40.5 14.0
1941–1945 40.9 13.8
1946–1950 36.4 12.6
1951–1955 36.7 12.2
1956–1960 34.9 12.6
1961–1965 35.2 12.7
1966–1970 34.1 12.5
1971–1975 31.4 13.5
1976–1980 30.7 15.0
1981–1985 32.3 17.1
1986–1990 30.0 15.6
1991–1995 30.6 15.6
1996–2000 28.5 16.4
2001–2005 29.8 15.7
2006–2010 27.6 16.2
2011–2015 29.5 16.5
2016–2017 25.3 15.7
SOURCE: Authors' calculations using Modeling Income in the Near Term (MINT) data.
Table equivalent for Chart 7. Net benefits as a percentage of lifetime wages by birth cohort and earnings quintile
Birth cohort Bottom quintile 2nd quintile 3rd quintile 4th quintile Top quintile
1931–1935 11.7 7.3 5.3 3.5 1.3
1936–1940 12.4 6.4 4.1 3.0 0.7
1941–1945 11.7 5.5 3.6 2.0 -0.2
1946–1950 11.5 5.0 2.8 1.3 -0.6
1951–1955 11.5 4.9 2.7 1.0 -0.8
1956–1960 11.7 4.5 2.4 0.7 -1.3
SOURCE: Smith, Toder, and Iams (2003).
Table equivalent for Chart 8. Percentage of retirees who claimed Disability Insurance benefits prior to retirement, by selected birth cohort
Birth cohort Percent
1931–1935 0.4
1936–1940 1.2
1941–1945 1.9
1946–1950 3.5
1951–1955 5.9
1956–1960 8.6
SOURCE: Authors' calculations using Modeling Income in the Near Term (MINT) data.
Table equivalent for Chart 9. Net benefits as a percentage of lifetime wages for nondisabled retirees, by birth cohort and earnings quintile
Birth cohort Bottom quintile 2nd quintile 3rd quintile 4th quintile Top quintile
1931–1935 14.16235 6.337606 2.921391 0.706645 -1.14279
1936–1940 10.71107 3.714741 1.150446 -0.58548 -2.12479
1941–1945 9.257679 2.41852 -0.15368 -1.74587 -3.26489
1946–1950 7.663261 1.114125 -1.07747 -2.37612 -3.58096
1951–1955 7.065951 0.945317 -1.435 -2.51094 -4.0481
1956–1960 7.389889 0.692422 -1.41233 -2.6444 -4.28859
SOURCE: Authors' calculations using Modeling Income in the Near Term (MINT) data.
Table equivalent for Chart 10. Progressivity indices of current-law Social Security benefits and 3 alternative policy options, by birth cohort
Birth cohort PI 38 comp yrs Tax max 90 Current law
1926–1930 0.235 0.235 0.238 0.237
1931–1935 0.194 0.194 0.195 0.195
1936–1940 0.159 0.159 0.160 0.160
1941–1945 0.163 0.163 0.163 0.163
1946–1950 0.142 0.141 0.143 0.142
1951–1955 0.151 0.142 0.149 0.144
1956–1960 0.159 0.143 0.154 0.146
1961–1965 0.170 0.146 0.163 0.148
1966–1970 0.177 0.146 0.170 0.149
1971–1975 0.181 0.142 0.177 0.146
1976–1980 0.184 0.136 0.170 0.138
1981–1985 0.200 0.147 0.193 0.150
1986–1990 0.202 0.139 0.184 0.143
1991–1995 0.207 0.135 0.179 0.138
1996–2000 0.226 0.146 0.192 0.149
2001–2005 0.232 0.145 0.189 0.149
2006–2010 0.236 0.144 0.187 0.148
2011–2015 0.246 0.145 0.192 0.149
2016–2017 0.250 0.144 0.187 0.148
SOURCE: Authors' calculations using Modeling Income in the Near Term (MINT) data.
NOTES: PI = using progressive indexing for future benefits; 38 comp yrs = increasing to 38 the number of work years used to calculate benefits; Tax max 90 = increasing the taxable maximum wage so that 90 percent of total earnings are subject to taxes.