Word: pay-as-you-go
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...problem lies with the "pay-as-you-go" nature of the existing system. In the current system, the federal government collects payroll taxes from worker and firms and immediately uses the money to pay benefits to current retiree. During the past 50 years, this system functioned effectively for three reasons. First, there were a higher number of workers per current retiree. Second, workers' real wages kept rising, and therefore, so did the federal government's payroll tax revenue. Third, Congress repeatedly increased the payroll tax rate (in the past 50 year, it has gone from 2 percent to 12.4 percent...
...students learn in Ec 10, a fully-funded system has two important advantages over a pay-as-you-go system. First, it has a positive effect on national saving and economic growth. In the pay-as-you-go system, no savings occurs in the Social Security system. Payroll taxes are used to finance current consumption by retirees. Moreover, the expectation of future Social Security benefits discourages workers from saving some of their income for retirement. In the fully-funded system, savings accumulates in each individual's account. Savings is important because it fuels investment in plant and equipment. Additional plant...
...household consisting of two 30-year-old working parents with children. In today's dollars, that couple will pay approximately $320,000 in payroll taxes over their lifetime, and will receive $450,000 in benefits during their retirement. This represents an annual rate of return of 1.23 percent. In other words, the Social Security system is equivalent to a bank account that yields 1.23 percent annually after adjusting for inflation. But remember--no such account exists in our pay-as-you-go system! On the other hand, if the couple had, placed that $320,000 in a tax-deferred account...
Moynihan said he and Senator Bob Kerrey (D-Neb.) would soon unveil "The Social Security Solvency Act of 1998," calling for a 10-year, $800 billion cut in payroll taxes and the introduction of a "pay-as-you-go" system that would take in only as much money as the system needed in a given year...
America's pay-as-you-go Social Security system takes in more money through Taxes than it doles out to current recipients, and the extra money is stored in a trust fund. Budget allocations for federal spending make use of the yearly additions to this accumulated revenue...