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Incorporating insurance rate estimates and differential mortality into net marginal Social Security tax rate calculations

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  • Brian S. Armour
  • M. Melinda Pitts

Abstract

This paper extends the literature on net marginal tax rates created by the Social Security program by including variations in both the probability of being eligible to receive benefits and income-related life expectancy. The previous literature has found that women incur a lower net marginal tax rate because they have longer life expectancies. The results presented in this paper indicate that including variations in eligibility for benefits partially reverses this result by increasing net marginal Social Security tax rates for older women. In addition, the existing literature has shown that low-income households pay lower net marginal tax rates because the benefit formula is progressive. Including variations in life expectancy reduces, but does not eliminate, this result. This implies that differential mortality increases the net marginal Social Security tax rates incurred by low-income households. These results are important from a policy standpoint given the gender differences in poverty among the population over age sixty-five and the current debate on the future of the Social Security system.

Suggested Citation

  • 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.
    • Handle: RePEc:fip:fedawp:2002-29
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    References listed on IDEAS

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    1. Garrett, Daniel M, 1995. "The Effects of Differential Mortality Rates on the Progressivity of Social Security," Economic Inquiry, Western Economic Association International, vol. 33(3), pages 457-475, July.
    2. Roger H. Gordon, 1983. "Social Security And Labor Supply Incentives," Contemporary Economic Policy, Western Economic Association International, vol. 1(3), pages 16-22, April.
    3. Feldstein, Martin & Samwick, Andrew A., 1992. "Social Security Rules and Marginal Tax Rates," National Tax Journal, National Tax Association;National Tax Journal, vol. 45(1), pages 1-22, March.
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    5. Phillip B. Levine & Olivia S. Mitchell & John W. Phillips, "undated". "Worklife Determinants of Retirement Income Differentials Between Men and Women," Pension Research Council Working Papers 99-19, Wharton School Pension Research Council, University of Pennsylvania.
    6. Brittain, John A, 1972. "The Incidence of the Social Security Payroll Tax: Reply," American Economic Review, American Economic Association, vol. 62(4), pages 739-742, September.
    7. Edgar K. Browning, 1985. "The Marginal Social Security Tax on Labor," Public Finance Review, , vol. 13(3), pages 227-251, July.
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    Cited by:

    1. 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.
    2. Amy Rehder Harris & John Sabelhaus, 2005. "How Does Differential Mortality Affect Social Security Finances and Progressivity? Working Paper 2005-05," Working Papers 16493, Congressional Budget Office.
    3. Julian P. Cristia, 2007. "The Empirical Relationship Between Lifetime Earnings and Mortality: Working Paper 2007-11," Working Papers 19096, Congressional Budget Office.

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    Keywords

    Social security; Insurance; Poverty; Taxation;
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