The Effects of Collecting Income : Taxes on Social Security Benefits

Jones, John Bailey GND; Li, Yue

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.

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CINCH working paper series

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Jones, J.B., Li, Y., 2017. The Effects of Collecting Income: Taxes on Social Security Benefits. CINCH working paper series. https://doi.org/10.17185/duepublico/70968
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