What Is the Effective Social Security Tax on Additional Years of Work?
AbstractThe U.S. Social Security retired worker benefit calculation is based on the average of the highest 35 years of each individual's earnings; thus, payroll taxes for people with flat or declining earnings can effectively become a pure tax near the end of their working careers. Individuals who still have zero or low–earning years being factored into their high–35 calculation face much lower (even negative) effective tax rates if they work additional years. In this paper, administrative earnings data are used to measure the distribution of effective payroll tax rates across and within age, sex, and lifetime earnings groups. The estimates are somewhat sensitive to assumptions about discounting, controlling for differential mortality, and whether to focus on all earners or just earners at the end of their primary careers. A budget–neutral change in tax and benefit formulas is shown to significantly flatten the pattern of effective tax rates.
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Bibliographic InfoArticle provided by National Tax Association in its journal National Tax Journal.
Volume (Year): 60 (2007)
Issue (Month): 3 (September)
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- Liebman, Jeffrey & Luttmer, Erzo E. P. & Seif, David G., 2009.
"Labor Supply Responses to Marginal Social Security Benefits: Evidence from Discontinuities,"
Working Paper Series, Harvard University, John F. Kennedy School of Government
rwp09-003, Harvard University, John F. Kennedy School of Government.
- Liebman, Jeffrey B. & Luttmer, Erzo F.P. & Seif, David G., 2009. "Labor supply responses to marginal Social Security benefits: Evidence from discontinuities," Journal of Public Economics, Elsevier, Elsevier, vol. 93(11-12), pages 1208-1223, December.
- Jeffrey B. Liebman & Erzo F.P. Luttmer & David G. Seif, 2008. "Labor Supply Responses to Marginal Social Security Benefits: Evidence from Discontinuities," NBER Working Papers 14540, National Bureau of Economic Research, Inc.
- Liebman, Jeffrey B. & Luttmer, Erzo F.P. & Seif, David G., 2009. "Labor Supply Responses to Marginal Social Security Benefits: Evidence from Discontinuities," Scholarly Articles, Harvard Kennedy School of Government 4481678, Harvard Kennedy School of Government.
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