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The Labor Supply Effects of Taxing Social Security Benefits

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  • Timothy F. Page
  • Karen Smith Conway

Abstract

In 1983, federal and state governments began taxing the social security benefits of high-income elderly. We develop a conceptual model and use 1981–1986 Current Population Survey data to estimate the policy’s labor supply effects. Our estimates suggest that the approximate 20 percent reduction in benefits for the highest income individuals led to a two to five percentage point increase in their labor force participation. Using 2008 data, we show that failing to index the taxation thresholds for inflation, adding a second set of thresholds in 1993, and removing the earnings test in 2000 all substantially magnify the policy’s scope.

Suggested Citation

  • Timothy F. Page & Karen Smith Conway, 2015. "The Labor Supply Effects of Taxing Social Security Benefits," Public Finance Review, , vol. 43(3), pages 291-323, May.
    • Handle: RePEc:sae:pubfin:v:43:y:2015:i:3:p:291-323
    DOI: 10.1177/1091142113508428
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    References listed on IDEAS

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    2. Jones, John Bailey & Li, Yue, 2018. "The effects of collecting income taxes on Social Security benefits," Journal of Public Economics, Elsevier, vol. 159(C), pages 128-145.

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