The Effects of Collecting Income Taxes on Social Security Benefits

70 Pages Posted: 12 Nov 2016 Last revised: 26 Oct 2017

See all articles by John Bailey Jones

John Bailey Jones

Federal Reserve Bank of Richmond; SUNY at Albany - School of Business

Yue Li

SUNY at Albany, College of Arts and Sciences, Economics

Multiple version iconThere are 2 versions of this paper

Date Written: October 4, 2017

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.

Keywords: Social Security, Labor Supply, Taxation

JEL Classification: E21, H24, H55, I38

Suggested Citation

Jones, John B. and Li, Yue, The Effects of Collecting Income Taxes on Social Security Benefits (October 4, 2017). Available at SSRN: https://ssrn.com/abstract=2868175 or http://dx.doi.org/10.2139/ssrn.2868175

John B. Jones (Contact Author)

Federal Reserve Bank of Richmond ( email )

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HOME PAGE: http://www.albany.edu/~jbjones

SUNY at Albany - School of Business ( email )

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Yue Li

SUNY at Albany, College of Arts and Sciences, Economics ( email )

1400 Washington Avenue
Albany, NY 12222
United States

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