Question

Suppose the average Social Security benefits in the nation are $12,000 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 $25,000 per year.

Suppose the number of Social Security recipients increase to 100 million in 20 years, while the number of workers decreases to 100 million. Assuming nothing else changes, calculate the tax rate on wages necessary to pay Social Security benefits in 20 years on a pay-as-you-go basis.

Show the calculations used to determine the tax rate in the previous problem.

Answer 1

Ans:-

Total social security pension paid in the next 20 years = 100 million X $ 12,000

Total social security pension paid in the next 20 years = $ 1,200,000,000,000

Total average taxable wages in the next 20 years = 100 million X $ 25,000

Total average taxable wages in the next 20 years = $ 2,500,000,000,000

$ 2,500,000,000,000 X Tax rate = $ 1,200,000,000,000

Tax rate = 48 %