The Effects of Collecting Income Taxes on Social Security Benefits

John Jones and Yue Li

No 17-2, Working Paper from Federal Reserve Bank of Richmond

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 increase in the payroll tax would significantly increase labor supply, consumption and welfare. From an ex-ante perspective an even more desirable reform would be to make the portion of benefits subject to income taxes completely independent of other income.

Keywords: Social Security; Labor Supply; Taxation (search for similar items in EconPapers)
JEL-codes: E21 H24 H55 I38 (search for similar items in EconPapers)
Pages: 49 pages
Date: 2017-01-12
New Economics Papers: this item is included in nep-age, nep-dge, nep-mac, nep-pbe and nep-pub
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Citations: View citations in EconPapers (3)

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Related works:
Journal Article: The effects of collecting income taxes on Social Security benefits (2018)
Working Paper: The Effects of Collecting Income Taxes on Social Security Benefits (2017)
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