The Social Security earnings test reduces a 65-69 year old's benefits at a 33% rate and a 62-64 year old's benefits at a 50% rate once earnings pass a threshold amount among the highest marginal tax rates in the economy. Previous research dismissed the importance of the earnings test, but failed to take advantage of three changes in the earnings test rules over the last twenty years in order to identify its impact. Each change applied to some age groups and not others which make them extremely useful for identifying the effect of tax rules on the labor supply of working beneficiaries. The empirical analysis begins by examining the most unambiguous prediction: beneficiaries should bunch just below the exempt amount, although bunching is not observed in many applications of kinked budget sets. In the Current Population Survey, individuals bunch in substantial numbers just below the convex kink and the bunching shifts with the earnings test rules changes. The shifts in the budget set are then incorporated into a structural model of labor supply to identify income and substitution effects. The estimation yields significant elasticities that suggest considerable deadweight loss suffered by working beneficiaries. Simulations predict a substantial boost to labor supply from eliminating the earnings test, and at a minimal fiscal cost. However, a slight decrease in labor supply is predicted from the recently legislated increase in the exempt amount.
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