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Sylvain Catherine
@sc_cath
🧵🚨Accepted paper🧪 with
@mjmill611
(Harvard) and
@NatashaRSarin
(Yale) Existing studies paint an incomplete picture of trends in wealth inequality in the US. When Social Security is properly accounted for, wealth inequality has not really increased over the past three decades.
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David Watson 🥑
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Sylvain Catherine
@sc_cath
2⃣ American workers contribute 12.4% of their earnings towards Social Security. In exchange, they expect to receive benefits when they retire. In 2024, the avg benefit reached $1,907/month. For a new retiree, the current market price for a similar life annuity is above $300,000.
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Sylvain Catherine
@sc_cath
3⃣ We estimate the value of future retirement benefits and add the accrued share to the wealth of households in the Fed's Survey of Consumer Finances. After recomputing the evolution of the top 1% and 10% wealth shares since 1989, we find no substantial increase in inequality.
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Sylvain Catherine
@sc_cath
4⃣ Because Social Security pays far into the future, its present value depends a lot on the level of interest rates. Just like other long-term assets. Rates fell substantially since 1989. Consequently, the aggregate value of Social Security claim rose from $7 to $39 trillions.
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Sylvain Catherine
@sc_cath
5⃣ Nowadays, accrued benefits represent roughly half of the wealth of the bottom 90% of Americans. We correct the findings of previous studies that ignored Social Security and find its inclusion to flattens documented trends in wealth inequality.
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Sylvain Catherine
@sc_cath
6⃣ While there is no increase in the share of the top 1%, we still find a slightly upward trend in the share of the top 0.1%. So inequality may have risen within the top 1%, even if the top 1% overall has a similar share of wealth as in 1989.
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Sylvain Catherine
@sc_cath
7⃣ Of course, Social Security faces financing problems. Thus, it is not certain benefits will be paid. This figure represents estimates from the Social Security actuaries showing the share of benefits that will be payable without increasing payroll taxes.
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Sylvain Catherine
@sc_cath
8⃣ We believe that an increase in taxes is the most likely political outcome. Nonetheless, even if we assume that benefits will be cut, we still conclude that taking Social Security into account changes trends in wealth inequality substantially.
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Chris Pope
@CPopeHC
Alternative headline: "Social Security responsible for most of increase in wealth inequality by crowding out private savings?"
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Sylvain Catherine
@sc_cath
No that's not our reading. It's more about portfolios than substitution effects in savings rate. A big chunk is the rise of market wealth inequality is caused by interest rate going down, which increased the value of stocks and private business. That's the long term assets of the
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pontesmanny1
@pontesmanny1
Several assets are hidden!and counting them would make society be more egalitarian! Social Security, Medicare, pension assets and I believe even retirement assets (401K and 403B)
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Sylvain Catherine
@sc_cath
The SCF starts in 1989. That being said, there was no increase in wealth inequality in the 1980s: it went down up to 1985 then started going up. So we're maybe missing 3 or 4 years of the upward cycle by starting in 1989.
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Sanjuro 𓅃
@DrMechagodzilla
So previous reports that the top 1% in the US has more wealth now than the middle class are largely untrue because those reports did not take into effect the annuity value of Social Security? Therefore tax changes since the 80’s haven’t concentrated more wealth into the elite?
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Vankous
@vankous
It would be interesting to see the shares/absolute values for wealth in the lowest percentiles (eg bottom 10%, bottom 20%
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DHinrio
@DHinrio
With respect, this paper misses the point. Treating hypothetical future welfare entitlements as equivalent to wealth may make sense to economists, but it makes little sense for everyone else.
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Tim Hayes
@thayeswealthadv
Did you add the present value of the future dividends, interest, etc., to the wealth like you did to calculate the present value of the social security income stream? Also, social security usually does not pass to beneficiaries as wealth does.
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