Implicit Taxes on Work from Social Security and Medicare
AbstractImplicit taxes are present in many government programs and can create substantial work disincentives. The implicit tax created by Social Security is the payroll tax used to fund the retirement portion of Social Security minus the present value of the incremental retirement benefits associated with the earnings. While the payroll tax is always 10.6%, the implicit tax varies over a worker’s career because additional earnings translate nonlinearly into additional retirement benefits. We show that workers at the start of their careers experience lower implicit tax rates, as the increase in benefits from additional work is relatively large. However, workers who are closer to retirement earn little or no additional benefit from additional work. The main implicit tax in Medicare lies in the Medicare as Secondary Payer (MSP) policy, which requires Medicare to be a secondary payer for Medicare-eligible workers whose employers offer a health plan and have 20 or more employees. Thus, affected workers effectively forgo the Medicare benefits that they would have received if they had not been working. We investigate a combination of policies that can reduce average implicit tax rates on older workers by as much as 45%.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoArticle provided by University of Chicago Press in its journal Tax Policy and the Economy.
Volume (Year): 25 (2011)
Issue (Month): 1 ()
Pages: 69 - 88
Contact details of provider:
Web page: http://www.journals.uchicago.edu/TPE/
Other versions of this item:
- Gopi Shah Goda & John B. Shoven & Sita Nataraj Slavov, 2010. "Implicit Taxes on Work from Social Security and Medicare," NBER Chapters, in: Tax Policy and the Economy, Volume 25, pages 69-88 National Bureau of Economic Research, Inc.
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- John Laitner & Daniel Silverman, 2006. "Consumption, Retirement, and Social Security: Evaluating the Efficiency of Reform with a Life-Cycle Model," Working Papers wp142, University of Michigan, Michigan Retirement Research Center.
- Jonathan Gruber & Kosali Simon, 2007. "Crowd-Out Ten Years Later: Have Recent Public Insurance Expansions Crowded Out Private Health Insurance?," NBER Working Papers 12858, National Bureau of Economic Research, Inc.
- Gopi Shah Goda & John B. Shoven & Sita Nataraj Slavov, 2007.
"Removing the Disincentives in Social Security for Long Careers,"
NBER Working Papers
13110, National Bureau of Economic Research, Inc.
- Gopi Shah Goda & John B. Shoven & Sita Nataraj Slavov, 2009. "Removing the Disincentives in Social Security for Long Careers," NBER Chapters, in: Social Security Policy in a Changing Environment, pages 21-38 National Bureau of Economic Research, Inc.
- Gopi Shah Goda & John Shoven & Sita Slavov, 2009.
"A Tax On Work For The Elderly: Medicare As A Secondary Payer,"
08-60, Stanford Institute for Economic Policy Research.
- Gopi Shah Goda & John B. Shoven & Sita Nataraj Slavov, 2007. "A Tax on Work for the Elderly: Medicare as a Secondary Payer," NBER Working Papers 13383, National Bureau of Economic Research, Inc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Journals Division).
If references are entirely missing, you can add them using this form.