ECON101 – Chapter 8: Social Security and Other Entitlements

Flashcards cover key definitions, principles, and policy details on Social Security, taxes, and recent U.S. economic legislation from ECON101 Chapter 8 lecture notes.

What is the main distinguishing characteristic between social insurance and public assistance programs?

A. Social insurance covers the entire eligible population, whereas public assistance is limited to people who are needy.
B. Social insurance is funded by general income taxes, while public assistance is funded by payroll taxes.
C. Social insurance provides short-term support, whereas public assistance offers long-term financial stability.
D. Social insurance is administered at the state level, while public assistance is federally managed.

The correct answer is A. Social insurance systems, like Social Security, are designed for the general eligible population (e.g., all workers who contribute), while public assistance programs, such as SNAP or TANF, are means-tested and specifically target individuals who demonstrate financial need.

How are most Social Security benefits in the United States typically financed?

A. Through dedicated government bonds and investments from a reserve fund.
B. Through payroll taxes paid jointly by current workers and their employers.
C. Solely through general income tax revenues collected by the federal government.
D. Primarily through voluntary contributions from program beneficiaries.

The correct answer is B. Social Security is a 'pay-as-you-go' system where current benefits are predominantly funded by the dedicated payroll taxes (FICA contributions) collected from current workers and their employers.

Which principle suggests that a social insurance program like Social Security should guarantee a minimum floor of income for everyone, aiming to prevent destitution rather than strictly rewarding individual contributions?

A. The principle of social adequacy.
B. The principle of individual equity.
C. The principle of economic efficiency.
D. The principle of fiscal responsibility.

The correct answer is A. The principle of social adequacy emphasizes that a social insurance program should provide a basic standard of living or a minimum floor of income for all beneficiaries, ensuring a sufficient safety net for those covered.

What principle underlies the idea that taxpayers who contribute more financially into the Social Security system should, in turn, receive proportionally higher benefits upon retirement or disability?

A. The principle of social adequacy.
B. The principle of individual equity.
C. The principle of progressive taxation.
D. The principle of universal coverage.

The correct answer is B. The principle of individual equity holds that the amount of benefits an individual receives should be directly related to their contributions or the taxes they've paid into the system, reflecting a fair return on their investment.

If a specific tax policy mandates that an individual earning 10,000 pays 10% of their income in taxes, while an individual earning 100,000 pays only 2% of their income in taxes, what type of tax system is being described?

A. A progressive tax.
B. A regressive tax.
C. A proportional tax.
D. A value-added tax.

The correct answer is B. A regressive tax system places a greater relative burden on lower-income individuals because the tax rate decreases as the taxpayer's income increases. In this example, the 10,000 income is taxed at 10%, while the 100,000 income is taxed at only 2%.

Why is the Social Security program in the United States commonly characterized as a “pay-as-you-go” system?

A. Because individual workers accumulate their full contributions in personal retirement accounts until they retire.
B. Because benefits are adjusted based on the economic productivity of retired individuals.
C. Because current benefits paid to retirees are directly financed by the payroll taxes collected from today’s working population.
D. Because the program relies solely on interest earned from a vast, accumulated trust fund.

The correct answer is C. A 'pay-as-you-go' system means that the contributions collected from the current generation of workers are immediately used to fund the benefits of the current generation of retirees and other beneficiaries, rather than accumulating funds for each individual's future benefits.

How is the Social Security replacement rate precisely defined, and what does it measure?

A. It is the ratio of a retiree’s annual Social Security benefit to their earnings in their last year of work, indicating the proportion of pre-retirement income replaced.
B. It is the total dollar amount of Social Security benefits received over an individual's entire retirement period.
C. It represents the percentage of the U.S. population that is actively receiving Social Security benefits.
D. It is the rate at which Social Security's trust fund is being replenished by new contributions each year.

The correct answer is A. The replacement rate is a crucial metric that indicates how effectively Social Security benefits preserve a retiree's pre-retirement living standard. A higher replacement rate means a larger portion of their previous earnings are covered by benefits.

Jane earned 30,000 in her final working year before retirement. She is now receiving 15,000 annually in Social Security benefits. Based on these figures, what is Jane's Social Security replacement rate?

A. 25%
B. 33%
C. 50%
D. 75%

The correct answer is C. The replacement rate is calculated by dividing the annual benefit by the last year's earnings: (rac{$15,000}{$30,000}) imes 100\% = 50\%.

Among the following government programs, which one is a definitive example of public assistance, characterized by eligibility based on demonstrated financial need rather than prior contributions?

A. Medicare, providing health insurance for seniors.
B. Food stamps (Supplemental Nutrition Assistance Program - SNAP).
C. Social Security Disability Insurance (SSDI).
D. Unemployment Insurance benefits.

The correct answer is B. Food stamps, officially known as the Supplemental Nutrition Assistance Program (SNAP), is a clear example of public assistance because eligibility is determined by income and assets (i.e., need), unlike social insurance programs which are based on contributions.

Which major piece of federal legislation, enacted in 2017 and significantly impacting tax policy, did then-President Donald Trump publicly advocate for and sign into law?

A. The 2017 Tax Cuts and Jobs Act, significantly reforming the tax code.
B. The American Rescue Plan of 2021, providing COVID-19 relief.
C. The Affordable Care Act (ACA), expanding health insurance coverage.
D. The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.

The correct answer is A. The Tax Cuts and Jobs Act of 2017 was a significant legislative achievement for the Trump administration, enacting a comprehensive overhaul of the U.S. tax code, primarily reducing corporate and individual income tax rates.

What is currently recognized as the largest social insurance program in the United States, providing a broad range of benefits including retirement, disability, and survivor's insurance?

A. Medicare, providing health insurance for the elderly and disabled.
B. Social Security, covering retirement, disability, and survivor benefits.
C. Medicaid, providing health coverage for low-income individuals and families.
D. Unemployment Insurance, offering temporary aid to laid-off workers.

The correct answer is B. Social Security is the largest social insurance program in the U.S., providing retirement, disability, and survivor benefits to millions of Americans based on their covered earnings.

Why are gaps in survivorship benefits in social security systems often disproportionately considered a women’s issue?

A. Women are generally not eligible to receive survivorship benefits under current laws.
B. Survivorship benefits are only available to female spouses, not male spouses.
C. The formula for calculating survivorship benefits inherently disadvantages women.
D. Women tend to earn less over their lifetimes, live longer, and are more likely to spend time out of the paid workforce for caregiving, impacting their own and their spouse's potential benefits.

The correct answer is D. These socio-economic factors collectively contribute to women often having lower lifetime earnings and fewer qualified years of work, leading to potentially smaller or no individual benefits, making them more reliant on survivor benefits and more vulnerable to gaps if their spouse's benefits are insufficient or non-existent.

Which major reform was enacted in 1983 for the Social Security program, primarily aimed at improving its long-term financial solvency?

A. Social Security benefits became fully progressive, with higher earners paying a higher percentage of their income.
B. The program transitioned from a 'pay-as-you-go' system to a fully funded individual accounts system.
C. The normal retirement age (NRA) for eligibility for full benefits was gradually increased for future retirees.
D. All cost-of-living adjustments (COLAs) for benefits were permanently frozen to save program funds.

The correct answer is C. The 1983 amendments gradually increased the full retirement age from 65 to 67, aiming to improve the long-term financial stability of the Social Security program in response to demographic changes and funding challenges.

When the Social Security tax is referred to as a “matching tax,” what specific characteristic does this imply?

A. The government matches every dollar of an individual's contribution with federal general revenue funds.
B. Only individuals who contribute to a 401(k) plan have their Social Security contributions matched.
C. Both the employee and their employer are legally required to pay an equal percentage share of the Social Security tax on the employee’s earnings.
D. The tax rate automatically adjusts to match the inflation rate each year.

The correct answer is C. For Social Security (FICA) taxes, both the employee and the employer pay an identical percentage of the employee's wages, up to the annual taxable earnings limit, thus 'matching' each other's contributions.

What is the primary, fundamental purpose that is shared by both private insurance (e.g., auto, health, life insurance) and social insurance programs (e.g., Social Security, Medicare)?

A. To generate substantial profits for the administering entities.
B. To provide benefits only to individuals with high net worth.
C. To completely eliminate all financial risk for every individual in society.
D. The pooling and spreading of financial risk among a large group of participants.

The correct answer is D. Both private and social insurance mechanisms fundamentally operate on the principle of pooling (or spreading) risk across a large group. This allows many individuals to contribute small amounts to cover the potentially large and unpredictable losses of a few, thus mitigating individual financial exposure to specified risks like illness, accident, or old age.

In economic and financial contexts, how is the term “earnings” primarily distinguished from the broader term “income”?

A. Earnings include all forms of received money, while income only refers to money saved.
B. Earnings are specifically money received from working or employment, while income encompasses earnings plus all other sources of money received (e.g., investments, benefits, pensions).
C. Income refers to pre-tax money, while earnings refer to post-tax money.
D. Earnings are only relevant for low-income individuals, whereas income applies to all income brackets.

The correct answer is B. Earnings specifically refer to compensation received from employment or self-employment (e.g., wages, salaries, business profits), whereas income is a broader category that includes earnings plus other financial receipts such as interest from investments, dividends, rental income, pensions, and government benefits.

Is the Social Security program in the United States designed to cover only low-income people, functioning primarily as a welfare program for the needy?

A. Yes, Social Security is a means-tested public assistance program solely for individuals below the poverty line.
B. Yes, but only for low-income individuals who have never worked.
C. No, it is exclusively for high-income earners who contribute significantly to the system.
D. No, it covers the entire eligible working population, irrespective of their income level, as a social insurance program based on contributions.

The correct answer is D. Social Security is a universal program that covers the vast majority of the U.S. workforce, regardless of their income level. It is funded by contributions from all eligible workers and provides benefits to them and their families, not just the low-income population, making it a social insurance program rather than a means-tested public assistance program.

In a genuine pay-as-you-go system, such as the U.S. Social Security system, how are the taxes collected from current workers utilized?

A. They are invested in individual, segregated accounts for each worker, which accumulate until their retirement.
B. They are primarily used to pay down the national debt before being distributed as benefits.
C. They are stored in large, centralized vaults and only drawn upon when economic conditions are favorable.
D. They are used almost immediately to pay the benefits of current retirees and other program beneficiaries.

The correct answer is D. In a pay-as-you-go system, current contributions are immediately disbursed to current beneficiaries. Funds are not individually saved; rather, there is an ongoing transfer of wealth from the working generation to the retiree generation.

How is the Social Security tax rate formally defined?

A. The total annual dollar amount collected for the Social Security trust fund from all taxpayers.
B. The specified percentage of an individual's taxable wage base that is collected to finance the Social Security program.
C. The ratio of Social Security beneficiaries to the total number of contributors in a given year.
D. The average annual growth rate of the Social Security trust fund's investment portfolio.

The correct answer is B. The Social Security tax rate (part of FICA) specifies the percentage of an individual's earnings, up to an annual taxable wage base limit, that is withheld from their paycheck and matched by their employer to fund the program.

Which of the following was a key component or initiative included in the 2021 American Rescue Plan, a significant legislative package enacted to address the impacts of the COVID-19 pandemic?

A. Direct individual stimulus checks, enhanced unemployment benefits, and substantial aid to state and local governments.
B. Comprehensive reform of the U.S. Social Security system, including changes to the normal retirement age.
C. A widespread public-private partnership focused on developing new energy infrastructure across the country.
D. The establishment of a universal basic income program for all adult citizens.

The correct answer is A. The American Rescue Plan was a comprehensive COVID-19 relief package, directly providing financial aid to individuals, businesses, and state/local governments, among other initiatives, to mitigate the economic impact of the pandemic.

How do the 2021 physical infrastructure bill and the human infrastructure bill primarily differ in their investment focus?

A. The physical infrastructure bill targets investments in tangible assets like roads, bridges, and broadband, while the human infrastructure bill focuses on investments in human capital such as education, childcare, and workforce development.
B. The physical infrastructure bill is funded by federal taxes, while the human infrastructure bill is solely funded by state taxes.
C. The physical infrastructure bill is designed for immediate job creation, whereas the human infrastructure bill is for long-term social welfare.
D. The physical infrastructure bill primarily benefits urban areas, while the human infrastructure bill exclusively benefits rural areas.

The correct answer is A. Physical infrastructure refers to tangible assets like transportation networks, utilities, and communication systems, while human infrastructure focuses on investing in people's health, education, and skills. Both are intended to enhance overall national productivity.

What is the principal method of funding for the majority of Social Security benefits paid out in the United States?

A. General tax revenues collected from federal income taxes.
B. Funds borrowed from international financial organizations.
C. Revenue generated from tariffs and import duties.
D. Payroll taxes, often referred to as FICA contributions.

The correct answer is D. Payroll taxes, specifically the FICA (Federal Insurance Contributions Act) contributions (which include Social Security and Medicare taxes), are the primary and dedicated funding source for the vast majority of Social Security benefits.

What is the fundamental overarching purpose behind a nation making significant investments in both human infrastructure and physical infrastructure?

A. To increase national productivity and economic growth by improving the quality of the labor force and providing better tools and systems for workers.
B. To directly reduce the national debt by creating more tax revenue from new infrastructure projects.
C. To shift all economic activity from the private sector to government-controlled industries.
D. To eliminate the need for any form of taxation by making infrastructure self-sufficient.

The correct answer is A. Investments in human capital (e.g., education, healthcare, childcare) enhance the skills, health, and productivity of the labor force. Investments in physical capital (e.g., roads, bridges, technology) provide better tools and environments for workers and businesses. Both types of investment are critical for fostering long-term economic growth and increasing the nation's overall productive capacity.