When lawmakers established Social Security in 1935, they intended the program to provide for elderly individuals without adequate sources of income, based upon a progressive benefits schedule for such individuals. In their new book, Income Redistribution from Social Security, Don Fullerton, the Addison Baker Duncan Centennial Professor of Economics at the University of Texas-Austin, and Brent Mast, a statistician at the U.S. Department of Justice, assess wealth redistribution under Social Security and find that the system may actually be more regressive than progressive, redistributing income from the poor to the rich.

As the administration and Congress explore proposals to keep Social Security financially solvent--the Social Security Administration expects the trust fund to be depleted by 2041 if no reform is undertaken--Fullerton and Mast argue that policymakers must first determine whether the system is progressive or regressive, and the authors analyze factors that affect income redistribution within the system.

Currently, Social Security tax liability is based upon three considerations: whether an individual's job is covered by Social Security, the Social Security tax rate, and the amount of income subject to taxation. Many have pointed to at least one aspect of the system as regressive--the average tax rate declines once a taxpayer's income rises above the cap on taxable income.

Fullerton and Mast consider additional factors affecting the measure of redistribution: income-related mortality, differing measures of income (lifetime versus annual, household or individual, total earnings versus those just below the cap), the coverage and rate of the Social Security tax, the discount rate (or real value of benefits at any given time), the retirement age, the choice of cohort analyzed, and behavioral effects (such as choosing how much to earn, how much to save, and when to retire).