Removing the Disincentives in Social Security for Long Careers

22 Pages Posted: 27 Jun 2007 Last revised: 29 Apr 2022

See all articles by Gopi Shah Goda

Gopi Shah Goda

Stanford University

Sita N. Slavov

American Enterprise Institute; Occidental College - Department of Economics

John B. Shoven

Stanford University - Department of Economics; National Bureau of Economic Research (NBER)

Date Written: May 2007

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.

Suggested Citation

Goda, Gopi Shah and Slavov, Sita N. and Shoven, John B., Removing the Disincentives in Social Security for Long Careers (May 2007). NBER Working Paper No. w13110, Available at SSRN: https://ssrn.com/abstract=986960

Gopi Shah Goda (Contact Author)

Stanford University ( email )

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Sita N. Slavov

American Enterprise Institute ( email )

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HOME PAGE: http://www.aei.org/scholar/sita-nataraj-slavov/

Occidental College - Department of Economics ( email )

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John B. Shoven

Stanford University - Department of Economics ( email )

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