Removing the Disincentives in Social Security for Long Careers

Gopi Goda, John B. Shoven and Sita Slavov

No 13110, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Implicit taxes in Social Security, which measure Social Security contributions net of benefits accrued as a percentage of earnings, tend to increase over the life cycle. In this paper, we examine the effects of three potential policy changes on implicit Social Security tax rates: extending the number of years used in the Social Security formula from 35 to 40; allowing individuals who have worked more than 40 years to be exempt from payroll taxes; and distinguishing between lifetime low-income earners and high-income earners who work short careers. These three changes can be achieved in a benefit- and revenue-neutral manner, and create a pattern of implicit tax rates that are much less distortionary over the life cycle, eliminating the high implicit tax rates faced by many elderly workers. The effects of these policies on progressivity and women are also examined.

JEL-codes: H5 J2 (search for similar items in EconPapers)
Date: 2007-05
New Economics Papers: this item is included in nep-age, nep-lab and nep-pbe
Note: AG
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Citations: View citations in EconPapers (7)

Published as Removing the Disincentives in Social Security for Long Careers , Gopi Shah Goda, John B. Shoven, Sita Nataraj Slavov. in Social Security Policy in a Changing Environment , Brown, Liebman, and Wise. 2009

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Chapter: Removing the Disincentives in Social Security for Long Careers (2009)
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