NCPA - National Center for Policy Analysis

How Social Security Penalizes Education

January 18, 2001

Individuals with more education are likely to do worse under Social Security than those with less education, according to a new NCPA study. Since a person's level of education is a good predictor of lifetime income, the study compares estimated tax payments to Social Security benefits workers of various ages and education levels can expect to receive.

Using a computer model, Texas A&M University researchers found those with less education receive a higher rate of return than those with more education.

For today's 25-year olds, on average:

  • A male high school graduate can expect to pay $32,667 more in Social Security taxes than he will receive in Social Security benefits over his lifetime, in current dollars.
  • However, a male college graduate can expect to pay $63,363 more in Social Security taxes than he receives in Social Security benefits over his lifetime -- and if he has a graduate degree, the loss grows to $93,170.
  • Thus, compared to a high school education, Social Security imposes about a $60,000 tax on graduate degrees.
  • Compared to a bachelor's degree, Social Security imposes about a $30,000 tax on graduate degrees.

Actually, according to the study, the present value of Social Security is negative for most current workers regardless of age or education; but those with less education lose less than those with more education. How any particular individual is affected also depends on such factors as life expectancy, marital status, number of children and the life expectancy of a spouse.

Source: Liqun Liu and Andrew J. Rettenmaier (Private Enterprise Research Center, Texas A&M University), "Social Security and Education," NCPA Policy Report No. 240, January 2001.

 

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