Assuming the system is operating on pay-as-you-go basis

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Suppose the average Social Security benefits in the nation are $14,000 per year. The number of Social Security pension recipients is currently 50 million. There are 150 million workers in the workforce this year and the average taxable wage per worker is $30,000 per year.

1. Calculate the tax rate on wages necessary to pay Social Security benefits this year assuming the system is operating on a pay-as-you-go basis.

2. Suppose the number of retirees is expected to increase to 75 million in the next twenty years while the labor force is expected to increase to 160 million. Assuming nothing else changes, calculate the tax rate necessary to pay promised benefits on a pay-as-you-go basis. What can be done to lower this tax rate?

Reference no: EM13838024

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