I think the optimal range is 35%-45% in terms of net beneficiaries of tax when you look at the population.
The reason why I pointed out the “quote” regarding Democracy is that once over 50% are net beneficiaries, you are going to run into problems because the majority will keep voting themselves more freebies.
Thats kind of where the UK is today. The US is not as bad, neither is Canada. Both oscillate around the 40-45% mark.
The main reason why the UK is so unbalanced is the NHS. We have massive spending on healthcare with the old/retired paying exactly £0 towards it (which is obviously unsustainable).
Canada is not as bad as the UK for a couple of reasons. Our unfunded state medical plan is not (yet) as comprehensive as the NHS. We still have extensive medical benefits provided under private schemes.
In addition, our contributory state pension plan was put on a sustainable basis in the 1990’s so there is much more advance funding than in the UK, where the funding is non-existent, or in the US, where OASDI funding is inadequate. Those latter schemes will require additional funding to pay the promised benefits.
That’s true. Even if we adjust for inflation, it’s possible for every cohort to be a net taker in real terms if the real tax base is growing.
However, the increase is “modest” as compared to investment returns. Lots of people say they could have much larger benefits if they could have invested their tax dollars.
In that sense, they still see themselves as net payers or at least net even on Social Security.
Is that a problem with tax rates or income distribution?
Suppose we funded a national healthcare program with a flat tax on incomes. Everybody gets the same benefits, but higher income people pay more dollars in taxes.
If incomes are skewed, more than half the people will be net takers from that program.
It’s non-trivial to calculate, but I would compare your Social Security tax paid over the years to what sort of annuity that would have purchased and compare that to your benefit. Like if your Social Security taxes support an annuity of $1,000 a month but your actual Social Security benefit is $1,500 a month then you are receiving a $500 monthly handout from the government. Not $0, but not $1,500 either. So there wouldn’t be enough information from your post to tell, but you’re likely a net contributor.
The United States?
ETA: (Ok, I didn’t look at the graphic. I think Mexico counts as a democracy?)
Again, people on Social Security AND Medicare are “takers” but only to the extent that the taxes they (and their employers) paid aren’t actually sufficient to fund those programs.
Parents of kids in public schools are in a different situation. Those kids are going to grow up to become taxpayers someday and that benefits everyone, particularly non-parents. So I think you get to deduct the PV of the kid’s future tax payments from the cost of his public schooling. So if you’re raising a hellion who is going to wind up in jail that’s pretty different from if you’re raising a kid who is going to grow up and be a productive member of society. Most parents, even low income ones, are probably not net takers on that metric.
Its a straight-forward calculation for an Actuary to make.
Its an index-linked annuity. In the US, you can use various COLA values and calculate an average over your life expectancy at 65 (or 66/67 whenever you choose to retire).
Then compare that against your lifetime FICA contributions.
In the aggregate sense (the cohort of boomers) the amount of FICA they paid in will be less than the SS benefits that they will be receiving (because FICA taxes were a lot lower when they were younger).
The difference there is being financed by the non-retired households (younger non-retired generations).
Great articles. Now try this. I’m assuming you yourself are life actuary.
Take a stationary population. Use any mortality table you feel comfortable with.
In that population, separate out 3 cohorts. Too young to work, working, and too old to work. I’d suggest under age 16, 17 to 68, and over 68. But use whatever you think is best.
Calculate the ratio of the workers to total population. This is your equilibrium or static case.
For extra credit, try and reduce the numerator to allow for disabled people in the workforce. That is a bit harder, since the disability rates increase dramatically over age 55. You might also try and decrement for all those part time workers who mind the households with kids. We need kids.
Now you have a framework to estimate the % we want. What amount of productive capacity does a society need to provide for those 2 non productive cohorts.
If you really want to freak out, see what happens when birth rates fall below replacement levels. That’s the situation in a whole lot of places today. Particularly in the Western developed world.
You can tweak the inputs all you like, the underlying issue remains. The working cohort carries a burden. And hole I appreciate the click bait articles, the Millennials are even larger than the boomers. So this is not a short term problem.
That’s part of the current problem, but not most of it. Longevity is partially offset by the fact that the NRA went up to 66 for the earliest boomers and 67 for the latest boomers.
The bigger problem with financing is fertility. The WWII generation averaged 3 kids per couple, the boomers averaged 2. If the boomers had churned out kids like their parents did, we would have 50% more workers than we currently have and nobody would be worrying about funding SS retirement benefits. (IMO, we’d have plenty of other, more serious issues, but not SS)
Eh, that’s part of it, but not that much. They weren’t “a lot lower”. They’ve been the same since 1990 when baby boomers ranged in age from 20-44. And even in, say, 1982 when the current benefit formula was calculated and baby boomers were 18-36, the FICA tax rate was 86.93% of the current rate.
The far bigger problem is that with how long life expectancies are, the current rate is inadequate to support the current benefit formula.
It would have also helped if the funds had been actively invested in equities, etc., over the decades, as was the case in Canada, to build up a larger trust fund for OASDI. But US politicians may have felt that they should have a say in the choice of individual investments.
