For people with lower than average earnings, the
ratio of the lifetime benefits they receive from Social
Security to the lifetime payroll taxes they pay for the
program is higher than it is for people with higher
average earnings. In that sense, the Social Security
system is progressive. For people in the bottom fifth of
the earnings distribution, the ratio of benefits to taxes
is almost three times as high as it is for those in the top
fifth.
The benefits paid to retired workers, which account
for about three-quarters of total benefits, are also
progressive, but less progressive than Social Security
benefits overall. The Social Security benefit formula is
designed to provide beneficiaries who had lower lifetime
earnings with monthly benefits that are higher, as
a percentage of their lifetime average earnings, than
those received by higher-earning beneficiaries. That
progressivity in the benefit formula is only partly offset
by the fact that higher-earning individuals tend to live
longer and thus collect benefits longer.
The benefits paid to disabled workers and to the dependents
and survivors of Social Security participants
are by their nature generally paid to individuals with
lower lifetime earnings. Disabled-worker and auxiliary
benefits together account for only about a quarter of
total benefits, but they account for most of the differences
in the benefit-to-tax ratio across the earnings distribution.
Therefore, analyses that consider the entire
Social Security system will generally find more overall
progressivity than studies that focus only on retired
workers. Disabled-worker benefits are still progressive,
but less so, when measured by a method that approximates
their insurance value to all workers rather than
one that considers only the benefits actually paid.
