Social Security and Individual Equity

The compulsory nature of social security makes it possible for income to be distributed within and across beneficiary cohorts. Focusing on the Federal Social Security system, encompassing OASDI and Medicare, this volume examines the equity and adequacy criteria that serve as standards for determining how payroll tax revenues are to be distributed. Social Security distributes cash benefits to retired and disabled workers in accordance with past taxable earnings, and the book describes and evaluates the procedures for determining each worker's earnings-related benefit base. The benefit base serves as a standard of individual equity. Primary worker payments are determined by applying a cohort-specific benefit formula to the benefit base of each worker. The benefit formula includes a rate structure with a progressive tilt, resulting in a higher benefit-to-earnings ratio for workers with lower prior earnings. Other features of the benefit structure adjust benefits to allow for age at entitlement and presence of eligible dependents or survivors. This book examines all of these features from an individual equity perspective.

The authors also use equity considerations to provide a framework for examining the disability determination process and the current procedure for financing the Hospital Insurance and Supplementary Medical Insurance components of Medicare. In conclusion, the authors contrast the existing system with alternatives that would conform more closely with an actuarial standard. They also conclude with a discussion of the effects of the impending OASI trust fund surplus on successive generations of beneficiaries.

CHARLES W. MEYER is professor of economics at Iowa State University. His most recent book is Social Security: A Critique of Radical Reform Proposals (1987).

NANCY WOLFF is assistant professor in the Department of Urban Studies and Community Health at Rutgers University. She was formerly an assistant professor in the Department of Preventive Medicine at the University of Wisconsin. She is the author of Income Redistribution and the Social Security Program (1987) and of several articles on the Social Security system.