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Why do social security and medicare pose problems for the federal government budget?

A. The worker-to-retiree ratio is increasing.
B. The number of sick people is rising too quickly.
C. Payroll taxes are capped and cannot be raised.
D. The number of retirees is decreasing.
E. The life expectancy of retirees is increasing.

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Kristelle Balando
Kristelle BalandoLv10
27 Aug 2020

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Related questions

3) The chapter states that the elderly population in the US isgrowing more rapidly than the total population. In particular, thenumber of workers is rising slowly, while the number of retirees isrising quickly. Concerned about the future of Social Security, somemembers of Congress propose a "freeze" on the program

A) If total expenditures were frozen, what would happen to benefitsper retiree? To tax payments per workers? (assume that socialsecurity taxes and receipts are balanced in each year)

B) If benefits per retiree were frozen, what would happen to totalexpenditures? To tax payments per workers?

C) If tax payments per worker were frozen, what would happen tototal expenditures? To benefits per retiree?

D) What do your answers to part (A) (B) and (C) imply about thedifficult decisions faced by policymakers

The social security system has been, according to some, in danger of collapse and insolvency for some time now. Since 1950 the number of workers supporting one retiree has fallen from 16.5 to 3 while the tax assessed against wages has increased from 1% of income up to $3,000.00 to 6.5% of the first $106,800.00 plus 1.45 % of all earnings for Medicare. The taxes are assessed against both the employee and the employer. It is expected the number of workers supporting one retiree will continue to fall and that taxes will probably have to be raised as well as the age at which a retiree can receive benefits. Discuss the following proposals advanced to “solve” the looming economic crisis concerning social security:

(A.) Privatization of social security

(B.) Means testing

(C.) Elimination of cost of living adjustments

A number of empirical studies suggest that labor demand is elastic while labor supply is very inelastic. Assume too that payroll taxes (SS plus Medicare) are 15.3 percent and legislated to be paid half by the employees and half by the employer.

a) What would happen to worker wages if payroll taxes were eliminated?

b) What would happen to employment costs paid by firms if payroll taxes were eliminated?

c) What would happen to producer and worker surplus if payroll taxes were eliminated? Which measure is relatively more sensitive to payroll taxes? Why?

d) Why might workers not want payroll taxes eliminated?

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