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The Marginal Social Security Tax on Labor

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  • Edgar K. Browning

    (Texas A&M University)

Abstract

The effective marginal tax rate on labor income under the social security payroll tax can be less than the statutory rate because additional earnings are associated with higher future benefits. This article develops a theoretical analysis of the determinants of the effective marginal tax rate for an unfunded social security system and applies the analysis to the U.S. system. It concludes that the effective marginal tax rate is only slightly lower than the statutory rate for most workers, except for those who retire in the start-up phase of the system.

Suggested Citation

  • Edgar K. Browning, 1985. "The Marginal Social Security Tax on Labor," Public Finance Review, , vol. 13(3), pages 227-251, July.
    • Handle: RePEc:sae:pubfin:v:13:y:1985:i:3:p:227-251
    DOI: 10.1177/109114218501300301
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    References listed on IDEAS

    as
    1. Roger H. Gordon, 1983. "Social Security And Labor Supply Incentives," Contemporary Economic Policy, Western Economic Association International, vol. 1(3), pages 16-22, April.
    2. Farber, Henry S, 1978. "Individual Preferences and Union Wage Determination: The Case of the United Mine Workers," Journal of Political Economy, University of Chicago Press, vol. 86(5), pages 923-942, October.
    3. Heckman, James J, 1976. "A Life-Cycle Model of Earnings, Learning, and Consumption," Journal of Political Economy, University of Chicago Press, vol. 84(4), pages 11-44, August.
    4. Michael D. Hurd & John B. Shoven, 1985. "The Distributional Impact of Social Security," NBER Chapters, in: Pensions, Labor, and Individual Choice, pages 193-222, National Bureau of Economic Research, Inc.
    5. Michael J. Boskin & Marcy Avrin & Kenneth Cone, 1983. "Modeling Alternative Solutions to the Long-Run Social Security Funding Problem," NBER Chapters, in: Behavioral Simulation Methods in Tax Policy Analysis, pages 211-246, National Bureau of Economic Research, Inc.
    6. Alan S. Blinder & Roger H. Gordon & Donald E. Wise, 1980. "Reconsidering the Work Disincentive Effects of Social Security," NBER Working Papers 0562, National Bureau of Economic Research, Inc.
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    Cited by:

    1. Andrew Mitrusi & James M. Poterba, 2001. "The Changing Importance of Income and Payroll Taxes on US Families," NBER Chapters, in: Tax Policy and the Economy, Volume 15, pages 95-120, National Bureau of Economic Research, Inc.
    2. Brian S. Armour & M. Melinda Pitts, 2007. "Smoking: taxing health and Social Security," Economic Review, Federal Reserve Bank of Atlanta, vol. 92(Q 3), pages 27-41.
    3. Gahvari, Firouz & Beach, Randy, 2016. "On the optimal linkage of social security benefits to payroll taxes," Research in Economics, Elsevier, vol. 70(1), pages 110-121.
    4. Dillon Alleyne, 2007. "The Evolution of Jamaica’s Tax Burden," Public Finance Review, , vol. 35(1), pages 150-171, January.
    5. Louis Kaplow, 2006. "Myopia and the Effects of Social Security and Capital Taxation on Labor Supply," NBER Working Papers 12452, National Bureau of Economic Research, Inc.
    6. Brian S. Armour & M. Melinda Pitts, 2002. "Incorporating insurance rate estimates and differential mortality into net marginal Social Security tax rate calculations," FRB Atlanta Working Paper 2002-29, Federal Reserve Bank of Atlanta.
    7. Andrew Mitrusi & James Poterba, 2000. "The Distribution of Payroll and Income Tax Burdens, 1979-1999," NBER Working Papers 7707, National Bureau of Economic Research, Inc.
    8. Brian S. Armour & M. Melinda Pitts, 2004. "Incorporating Insurance Rate Estimates and Differential Mortality into the Net Marginal Social Security Tax Rate Calculation," Public Finance Review, , vol. 32(6), pages 588-609, November.
    9. Stephenson, E. Frank, 1998. "Average marginal tax rates revisited," Journal of Monetary Economics, Elsevier, vol. 41(2), pages 389-409, April.
    10. Parry, Ian, 2000. "Comparing the Marginal Excess Burden of Labor, Gasoline, Cigarette and Alcohol Taxes: An Application to the United Kingdom," RFF Working Paper Series dp-00-33-rev, Resources for the Future.

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