Question

6- Which of the following option do you favor for resolving future Social Security deficits? What are the advantages and disadvantages of each option? a. Cutting Social Security benefits b. Raising payroll Taxes C Cutting non Social Security programs d. Raising income taxes

Answer 1

Options that favors resolving future Social Security deficits are:

a) Cutting Social Security benefits

and

b) Raising payroll taxes

Cutting non social security programs and raising income taxes will contribute in decreasing general deficit but not particularly social security deficits.

Cutting Social Security will result in an increase in revenue generated from Social security programs because of reduced costs. The disadvantage is that when benefits are cut for retirees, they will feel deprived by the government.

Raising payroll taxes will increase the revenue generated from Social security programs as the social security funds increase. The disadvantage is that the consumption might decrease causing aggregate demand to fall.

Cutting non social security programs can reduce deficit by reducing government expenditure. The advantage is the benefits do not have to be cut. Retired workers will get the benefits. The disadvantage is that the other benefits such as benefits to the homeless and ill will get reduced.

Raising income taxes will reduce the deficit as the governments is receiving more tax revenues. The disadvantage is that the disposable income of individuals decrease as well. As a result consumption and aggregate demand will decrease.