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Social Security and the U.S. Federal Budget

Summary



Social Security is an important part of the federal budget and influences the national economy. Although Social Security is considered separately during the budget process, the program contributes to the government’s overall effect on the economy.



Social Security programs influence economic growth through their effects on labor supply and national saving. The exact degree of their effects is unclear. Economists generally agree that Social Security benefits reduce the labor supply of older workers. The effect of Social Security taxes on overall labor supply is more ambiguous and depends upon the consumption preferences of individual workers and whether workers perceive the tax merely as a reduction in income or as an increase in wealth. Likewise, the effect of Social Security on national saving is not perfectly understood, although most economists agree it reduces private saving to some extent.

Although there is uncertainty about the exact effect of Social Security on national saving, some economists and policymakers believe it may be possible to use Social Security financing to improve economic growth, particularly if Social Security could be used to increase national saving. However, prefunding retirement benefits does not guarantee that increased saving in one sector of the economy will not be offset by decreased saving in another sector. Many economists and policymakers agree that paying down publicly held debt will help the economy and the government prepare for anticipated increases in expenditures resulting from the aging of the baby boom generation.

JANE L. ROSS SOPHIA WRIGHT LAURA HALTZEL

BIBLIOGRAPHY

BURKHAUSER, R. V., and TURNER, J. A. ‘‘A Time-Series Analysis on Social Security and Its Effect on Market Work of Men at Younger Ages.’’ Journal of Political Economy 4 (1978): 701–714.

COSTA, D. ‘‘Pensions and Retirement: Evidence from Union Army Veterans.’’ Quarterly Journal of Economics 4 (1995): 297–319.

DIAMOND, P. A., and HAUSMAN, J. A. ‘‘Individual Retirement and Savings Behavior.’’ Journal of Public Economics 1/2 (1984): 81–114.

FELDSTEIN, M. S. ‘‘Social Security and Private Saving: Reply.’’ Journal of Political Economy 3 (1982): 630–642.

GULLASON, E. T.; KOLLURI, B. R.; and PANIK, M. J. ‘‘Social Security and Household Wealth Accumulation: Refined Microeconomic Evidence.’’ Review of Economics and Statistics 3 (1993): 548–551.

HAUSMAN, J. A., and WISE, D. A. ‘‘Social Security, Health Status, and Retirement.’’ In Pensions, Labor, and Individual Choice. Edited by David Wise. Chicago, Ill.: The University of Chicago Press, 1985. Pages 159–191.

HURD, M. D., and BOSKIN, M. J. ‘‘The Effect of Social Security Retirement in the Early 1970s.’’ Quarterly Journal of Economics 4 (1984): 767–790.

IPPOLITO, R. A. ‘‘Toward Explaining Early Retirement After 1970.’’ Industrial and Labor Relations Review 5 (1990): 556–569.

President of the United States. Economic Report of the President. Washington, D.C.: Government Printing Office, 2000.

U.S. Social Security Administration. The 2000 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Disability Insurance Trust Funds. Washington, D.C.: 2000.

Additional topics

Medicine EncyclopediaAging Healthy - Part 4Social Security and the U.S. Federal Budget - Social Security’s Financing, Social Security’s Treatment Within The Federal Budget, Social Security’s Effect On The National Economy