Suppose the average Social Security benefits in the nation are $12,000 per year. The number of Social Security pension recipients is currently 50 million. There are 150 million workers in the workforce this year and the average taxable wage per worker is $25,000 per year.
a. Calculate the dependency ratio for the nation.
b. Calculate the average replacement rate for Social Security retirees.
c. Calculate the tax rate on wages necessary to pay Social Security benefits this year assuming the system is operating on a pay-as-you-go basis.
d. Suppose the number of retirees is expected to increase to 75 million in the next 10 years while the labor force remains at 150 million. Assuming nothing else changes, calculate the tax rate necessary to pay promised benefits on a pay-as-you-go basis. What can be done to lower this tax rate?