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Smoking: taxing health and Social Security

  • Brian S. Armour
  • M. Melinda Pitts

Cigarette smoking is costly in terms of not only its effects on smokers' health but also the direct and indirect financial costs it imposes on smokers and their families. For instance, premature death caused by smoking may redistribute Social Security income in unexpected ways that affect behavior and reduce the economic well-being of smokers and their dependents. ; This article examines the effects of smoking-attributable mortality on the net marginal Social Security tax rate (NMSSTR)—the difference between the statutory payroll tax rate and the present value of future benefits to which a covered worker is entitled. ; The analysis shows that smokers, as a result of shorter life expectancies, incur a higher NMSSTR than nonsmokers. This higher tax rate could have implications for both labor supply behavior and the Social Security System's funding. ; The authors note that smoking status should be considered in assessing Social Security legislative proposals designed to reduce system inequities or promote social adequacy—in particular, amendments designed to reduce poverty among young widows and widowers. Failure to take smoking status into account may unintentionally promote behavior that is detrimental to health.

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Article provided by Federal Reserve Bank of Atlanta in its journal Economic Review.

Volume (Year): (2007)
Issue (Month): Q 3 ()
Pages: 27-41

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Handle: RePEc:fip:fedaer:y:2007:i:q3:p:27-41:n:v.92no.3
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  1. Gary V. Engelhardt & Jonathan Gruber, 2004. "Social Security and the Evolution of Elderly Poverty," NBER Working Papers 10466, National Bureau of Economic Research, Inc.
  2. Feldstein, Martin & Samwick, Andrew A., 1992. "Social Security Rules and Marginal Tax Rates," National Tax Journal, National Tax Association, vol. 45(1), pages 1-22, March.
  3. Alan L. Gustman & Thomas L. Steinmeier, 2002. "The New Social Security Commission Personal Accounts: Where Is the Investment Principal?," NBER Working Papers 9045, National Bureau of Economic Research, Inc.
  4. Martin Feldstein & Jeffrey B. Liebman, 2001. "Social Security," NBER Working Papers 8451, National Bureau of Economic Research, Inc.
    • Feldstein, Martin & Liebman, Jeffrey B., 2002. "Social security," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 4, chapter 32, pages 2245-2324 Elsevier.
  5. John B. Shoven & Jeffrey O. Sundberg & John P. Bunker, 1987. "The Social Security Cost of Smoking," NBER Working Papers 2234, National Bureau of Economic Research, Inc.
  6. Brittain, John A, 1972. "The Incidence of the Social Security Payroll Tax: Reply," American Economic Review, American Economic Association, vol. 62(4), pages 739-42, September.
  7. Brian S. Armour & M. Melinda Pitts, 2004. "Incorporating Insurance Rate Estimates and Differential Mortality into the Net Marginal Social Security Tax Rate Calculation," Public Finance Review, , vol. 32(6), pages 588-609, November.
  8. 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 457-75, July.
  9. David R. Weir & Robert J. Willis & Purvi A. Sevak, 2002. "The Economic Consequences of Widowhood," Working Papers wp023, University of Michigan, Michigan Retirement Research Center.
  10. Brian S. Armour & M. Melinda Pitts, 2002. "Incorporating insurance rate estimates and differential mortality into net marginal Social Security tax rate calculations," Working Paper 2002-29, Federal Reserve Bank of Atlanta.
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