Wednesday, June 29, 2005

Social Security Surplus Follow Up

I was just looking over the 2005 Social Security Trustees Report and I thought some of the numbers I found there might make an interesting follow up to my earlier post on the Social Security surplus .

At the end of 2004, there were 33 million retired workers and dependents who were receiving benefits, along with 7 million survivors of deceased workers. The Disability Insurance (DI) part of the program was paying benefits to 8 million disabled workers and their dependents. On the revenue side of the program, it is estimated that during 2004 some 157 million people had earnings on which payroll taxes were paid. The Social Security program paid out $493 billion in benefits while taking in $658 billion in revenue. This means the Social Security program took in $165 billion more in revenue from the payroll tax in 2004 than was needed, which is about a 33% excess of revenue over benefits paid.

It is probably difficult for most of us to think in terms of numbers in the millions and billions, so let’s put these numbers for 2004 on an average, per person basis. Each of the 48 million recipients of the Social Security program received, on average, about $10,271 in 2004. Each recipient had about 3.27 workers earning the incomes that generated the money for their benefits received from the Social Security program. Or, each worker covered almost 1/3 of the income paid by the Social Security program to a recipient. On average, in 2004 each worker paying the payroll tax was responsible for about $4191 in payroll tax revenue. Since the payroll tax is split 50%-50% between employer and employee, this means that each worker paid about $2096 out of her salary checks in 2004, while her employer paid another $2096 in payroll tax (an amount the employer might have paid in wages instead of taxes) on her behalf. The $165 billion surplus of payroll tax revenue over program benefits paid translates into an average of $1051 per worker in 2004. Again, this means each worker paid about 33% more than necessary for the Social Security program in the year 2004. If you paid payroll tax in 2004, I would what you would have done with an extra $1000 in spendable income?

We should think of these per person figures as ball park estimates because there are some minor additions to income and minor additions to those who are recipients. For example, some of the revenue comes from taxing 50% of the Social Security benefits paid to recipients who receive more than a certain benefit level, and some of the payments are to the financial interchange with the Railroad Retirement system.

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