DISENTANGLING THE ANNUITY FROM THE REDISTRIBUTIVE ASPECTS OF SOCIAL SECURITY IN THE UNITED STATES*

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Abstract
In the United States, the life‐cycle relationship between initial Social Security contributions and subsequent benefits causes the effect of Social Security on income distribution to be overestimated in a single‐period analytical framework. By separating the annuity from the redistributive aspects of Social Security we provide a life‐cycle framework for measuring its net effect on redistribution. To this point in its history, we find all income classes have received positive net life‐cycle income transfers and, in an absolute sense, upper‐income groups have done at least as well as lower‐income groups. This suggests a reason for the near‐universal support of Social Security by past generations, as well as the controversy which now surrounds it. As it becomes apparent to younger cohorts of taxpayers that many of them will be net losers, it is inevitable that Social Security will be subject to the same controversy as other welfare programs which attempt to redistribute income.

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