A new study suggests that taxpayers may be willing to accept a larger share of the burden required to reform the Social Security system as their concern about the future sustainability of the Social Security worsens, but only when there are high levels of concern.

But their willingness to accept a larger share of the burden does not begin until participants' concerns reach a very high level. “Prior to reaching that very high level of concern, the data...indicate there is no change in [people's] willingness to accept a larger share of the burden," write the study's co-authors, James J. Maroney, Cynthia M. Jackson, Timothy J. Rupert, and Yue (May) Zhang, all of Northeastern University. The study appears in the Journal of the American Taxation Association, a publication of the American Accounting Association.

"Given the urgency of this problem, our results may provide some guidance to policy makers as they consider possible reforms to the Social Security system and how to communicate the need for these reforms to taxpayers,” wrote the study’s co-authors. “While this information may heighten taxpayers' concern about the sustainability of the system, it also appears to increase their acceptance of traditionally unpopular reform measures." 

Accrual-basis information might also be featured, they add, in "the annual benefits statement ('Your Social Security Statement') sent to workers, so as to alert taxpayers about the financial condition of the Social Security fund."

The study notes that the Federal Accounting Standards Advisory Board, which promulgates accounting standards for the  U.S. government, proposed in 2006 that, along with the traditional cash-flow approach, accrual accounting be required for social insurance programs (accruals being non-cash items such as accounts payable or receivable). Even though the proposal elicited the support of the American Institute of CPAs, the FASAB reversed its position two years later, which leads the professors to wonder whether "this reversal was due to political concerns about the large deficits that would be shown if the federal government were to report under the accrual basis for the Social Security and Medicare programs."

"The crux of our study is that people could very well respond to a clear and forthright presentation of this problem much as they have responded in the past to such national crises as wars or natural disasters," said Professor Rupert.

The new study consists of an experiment involving 159 undergraduate and graduate accounting students, "an important group to examine," in the researchers' words, "because it is likely that family and friends would seek their expertise and guidance to help them understand potential tax reform measures." Subjects were randomly divided into three groups as part of a project, they were told, "to study taxpayers' opinions about the Social Security system and taxpayers' attitudes about potential changes to the Social Security system."

About one third of the participants, the cash-basis group, was informed that the system's cash income for the previous year (2009) was $805 billion, that benefits and other costs were $625 billion, and that assets in the Social Security trust fund at year's end was $2,419 billion.

Another third of the study participants, the accrual-basis group, was informed that income was $805 billion, expenses were $1.7 trillion, and the system's unfunded-benefit obligation at year's end was $18.5 trillion.

The final third of the participants, the control group, was not given specifics about the previous year's finances but simply was asked to make financial assessments and respond to reform proposals based on their knowledge of Social Security.

All participants were provided with several paragraphs from the sustainability information furnished by the trustees' annual report which conveys the financial adequacy of the current system over the next 10 years and its inadequacy over the next 75 years.

The study found that the accrual-basis group was not only more concerned about the system than the two other groups but was considerably more favorable to increasing the Social Security tax rate. On a scale of 1 (strongly disagree with increasing the rate) to 7 (strongly agree), the accrual-basis participants averaged 4.35, which was about 25% higher than the mean for the control group (3.51) and about 20% higher than the mean for the cash-basis group (3.64).

The accrual-basis group was considerably more willing to assume the burden for financially strengthening the system than the two other groups were. This was determined by gauging their approval, on a scale of 1 to 7, for two proposals that required them to sacrifice (increase the Society Security tax rate and raise the retirement age for future retirees) and two proposals that required their elders to sacrifice (reduce benefits for current retirees and tax Social Security at the same rate as private pensions). When mean approvals for the last two proposals were subtracted from those of the first two proposals, the remainder was 1.47 for the accrual-basis group compared to 0.25 for the cash-basis group and minus 0.06 for the control group, a statistically significant difference between the first group and each of the other two.

Increased concern over the system's future fosters increased willingness to self-sacrifice only up to a point. Most accepting were the 44 participants whose concern about the system's future was 6 on a scale of 1 to 7. Their willingness to sacrifice their own interest was not only a lot higher than that of participants who were less concerned but marginally higher that of the 52 participants who rated their concern at the maximum level of 7.

In conclusion, the professors put it this way: "Participants in our study appear to be exhibiting self-sacrificing behavior rather than self-interested behavior as their concern about Social Security's sustainability increases...However, we also find that as the participants' concern...reaches an extremely high level, their willingness to accept a larger share of the burden needed to reform the Social Security system begins to decline. Our finding is also consistent with [the] suggestion that when a crisis is believed to be so overwhelming as to induce feelings of helplessness, it may lead to self-interested behavior. If self-interested behavior does arise, Congress may need to act very soon to reform the Social Security and Medicare systems before younger taxpayers begin to believe the system is beyond repair."

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