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The effects of collecting income taxes on Social Security benefits

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  • Jones, John Bailey
  • Li, Yue

Abstract

Since 1983, Social Security benefits have been subject to income taxation, a provision that can significantly increase the marginal income tax rate for older individuals. To assess the impact of this tax, we construct and calibrate a detailed life-cycle model of labor supply, saving, and Social Security claiming. We find that in a long-run stationary environment, replacing the taxation of Social Security benefits with a revenue-equivalent change in the payroll tax would increase labor supply, consumption, and welfare. From an ex-ante perspective an equally desirable reform would be to make the portion of benefits subject to income taxes completely independent of other income.

Suggested Citation

  • 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.
  • Handle: RePEc:eee:pubeco:v:159:y:2018:i:c:p:128-145
    DOI: 10.1016/j.jpubeco.2018.01.004
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    Cited by:

    1. Elizabeth Lemmon, 2018. "Utilisation of personal care services in Scotland: the influence of unpaid carers," CINCH Working Paper Series 1802, Universitaet Duisburg-Essen, Competent in Competition and Health.

    More about this item

    Keywords

    Social Security; Labor supply; Taxation;

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • I38 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Government Programs; Provision and Effects of Welfare Programs

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