Further, analysis by other organizations also has examined the  experiences of minority groups under Social Security. Certain Key Factors Influence Racial Groups’ Receipt of Social Security Benefits and Payment of Social Security Taxes

A variety of socioeconomic and demographic factors influence the receipt  of Social Security—most significantly, lifetime earnings, the incidence of  disability, and mortality. Lifetime earnings factor directly into the  progressive benefit formula, which replaces a larger proportion of pre- retirement covered earnings for low-income earners than it does for  higher-income earners. Additionally, the probability of being on the  Disability Insurance rolls affects the expected value of benefits. Higher Benefits Relative to Taxes Paid are Associated with Lower Lifetime Earnings and Higher Disability Incidence

Differences by race in the relationship between taxes paid and benefits  received under Social Security are due to differences in lifetime earnings,  the incidence of disability, and mortality between the groups. However, whites with low lifetime earnings and high disability  rates also receive greater benefits relative to taxes than their higher- income and nondisabled counterparts. As a Group, on Average Minorities Accrue Higher Benefits in Relation to the Taxes They Pay

In the aggregate, blacks and Hispanics generally have higher disability  rates and lower lifetime earnings, and thus receive greater benefits relative  to taxes than whites. Additionally, we used three measures of equity–lifetime  benefit-to-tax ratio, net lifetime benefits, and internal rates of return—to  analyze the relationship between Social Security contributions and  benefits under Old-Age, Survivors and Disability Insurance (OASDI), Old- Age and Survivors Insurance (OASI) and Disability Insurance (DI). We also used three benchmark-policy scenarios that restore the 75-year  actuarial balance of the Social Security system–-a payroll tax increase, a  progressive benefit reduction, and a proportional benefit reduction. Three equity measures are used  to determine how groups compare in terms of the taxes they pay and the  benefits they receive under Social Security. These tables are located  on the Bureau’s website at:  http://www.census.gov/population/projections/nation/detail/lt99_10.a  Mortality affects the benefits received relative to taxes paid because it  determines the number of years a person will pay taxes and receive  benefits.
Why GAO Did This Study

Although Social Security's benefit and contribution provisions are neutral with respect to race, ethnicity, and gender, concerns about the experiences of minority groups under Social Security focus on whether they benefit less than whites, particularly because of the shorter life expectancy of blacks. These concerns are related to the concept of equity, or how benefits compare with taxes. To gain a thorough understanding of the experiences of minority populations under Social Security, GAO was asked to examine (1) what socioeconomic and demographic factors influence Social Security taxes paid and benefits received and (2) how different equity measures compare across racial groups. Because of the current system's projected actuarial deficit, to conduct this study, GAO made its calculations using three policy scenarios, each of which achieves 75-year solvency: a payroll tax increase and a progressive and proportional benefit cut. Further, GAO used three measures of equity: lifetime benefit-to-tax ratios, net lifetime benefits, and real internal rates of return. GAO also examined four birth cohorts: 1931-40, 1941-45, 1946-55, and 1956-64.

What GAO Found

Lifetime earnings, the incidence of disability, and mortality are three key factors that influence the taxes individuals pay into the Social Security system and the benefits they receive. Lifetime earnings factor directly into the Social Security benefit formula, which is designed to replace a larger proportion of pre-retirement-covered earnings for low-income earners than for higher-income earners. Additionally, the probability of being on the Disability Insurance rolls affects the expected value of benefits. People who are disabled start receiving benefits earlier. The third factor, mortality, affects the benefits received relative to taxes paid because it determines the number of years a person will pay taxes and receive benefits. Differences by race in the relationship between taxes paid and benefits received under Social Security are due mainly to differences in lifetime earnings, the incidence of disability, and mortality among the groups. In the aggregate, blacks and Hispanics have higher disability rates and lower lifetime earnings, and thus as a group tend to receive greater benefits relative to taxes than whites. However, whites with low lifetime earnings or high disability rates also receive greater benefits relative to taxes than their higher-income or nondisabled counterparts. Higher benefits relative to taxes paid are associated with lower lifetime earnings and higher disability incidence.