User talk:Nazarranjha

Wikipedia entry on social security USA tells us that due to demographic changes, the social security Trust Fund will be exhausted and it will not be able to provide full benefits. The taxes will be able to meet the requirements of the benefits up to the level of 74% to 78%. This will result in the increase of the payroll tax up to 16.4% in 2041 and in 2081 it may touch the level of 17.6%. On the other hand, it can be achieved by reducing the benefits by 25% in 2041 and a steady increase this cut by 30% in 2081. These are the only cost and benefit analysis given by the Wikipedia. There can be many other solutions to this problem in order to maintain the current system (Rosen and Gayer 2008): 1. Raising the maximum taxable earning levels. At present the limit is $106, 800. But if the cap is lifted and it includes all the income then it will be able to tackle the problem of increasing benefits by more increase in the revenues. Another way can be that lift the cap on the taxable income but do not increase the benefits. Cost will be for high income earning people to pay more and benefit will be solvency of the social security will be ensured(Rosen and Gayer 2008). 2. Increasing retirement age. Because the life expectancy has increased and there is hope that it will increase more then it requires that the retirement age may also be increased. If the retirement age is increased to 68 it will increase the payroll tax by 0.52 percentage point but it still falls far short of required 3.5 percentage point increase in payroll tax. The cost will be more working years and less leisure and benefit will be that payroll tax will be slightly low(Rosen and Gayer 2008). 3. Reducing cost of living adjustment: At present, a retiree’s benefit is each year increased by the cost of living measured in CPI. According to some economists the CPI overestimates the price increases so it is appropriate to adjust benefits less than CPI (Boskin et al., 1998). If the benefits adjustments is delinked from CPI and it will reduce cost of living and the reduction in cost of living will increase benefits by 0.79 dollar for every dollar reduced(Rosen and Gayer 2008). 4. Changing of the benefit formula(Rosen and Gayer 2008): At present, AIME is calculated on the average of 35 years of earnings, as discussed earlier, if the retirement is increased to 68 then the average for calculation of AIME may be increased to 38 years earnings. It will decrease the lifetime earnings and it will decrease the benefits. This would increase the payroll tax by 0.26 percentage points. Another variant of this can be, now AIME uses the indexing based on average wage growth for 35 years but if it was based on CPI then it will also reduce the benefits. It will help in sustainable solvency because the wages tend to rise more as compared to prices. In order to help the poor, the lowest income 30% of the retirees may be given benefits based on wage indexing and all the rest on price indexing or the mix of both indexes(Rosen and Gayer 2008). Reference: 1. Rosen, Harvey S., and Gayer, Ted, Public Finance, 8th edition, McGraw Hill companies, 2008.