How Does the Personal Income Tax Affect the Progressivity of OASI Benefits?

TitleHow Does the Personal Income Tax Affect the Progressivity of OASI Benefits?
Publication TypeReport
Year of Publication2011
AuthorsCoe, NB, Karamcheva, Z, Kopcke, RW, Munnell, AH
Series TitleCenter for Retirement Research at Boston College Working Papers
Document NumberWP#2011-21
InstitutionCenter for Retirement Research at Boston College
CityBoston, MA
KeywordsMethodology, Public Policy, Social Security

This study calculates the impact of federal income taxes on the progressiveness of the Old Age and Survivors Insurance (OASI) program. It uses the Health and Retirement Study (HRS) data linked with the Social Security Earnings Records to estimate OASI contributions and benefits for individuals and households, before and after income taxes, for three birth cohorts. It uses two measures of progressivity: redistribution by decile (the difference between the share of total benefits received and the share of total taxes paid) and effective progression (the change in the Gini coefficient). Under both measures, the results without the income tax confirm previous findings: Social Security is progressive on an individual basis, but that progressivity is dramatically cut when one calculates it on a household basis. Adding income taxes could make the program either more or less progressive. On the one hand, the tax treatment of contributions makes the system even less progressive than generally reported. On the other hand, the taxation of benefits makes it more progressive. The net result is that adding the personal income tax to the analysis makes Social Security more progressive than without taxes, on both the individual and household bases. Importantly, however, the impact of taxation on redistribution increases significantly among younger cohorts. Under current law, the Social Security system becomes more progressive over time.


Copyright - Copyright Social Science Research Network Dec 2011 Language of summary - English ProQuest ID - 913272802 Last updated - 2012-01-02 Place of publication - Rochester Corporate institution author - Coe, Norma B; Karamcheva, Zhenya; Kopcke, Richard; Munnell, Alicia DOI - 2551228401; 66534181; 79688; 10.2139/ssrn.1970311; 1970311

Endnote Keywords

Public policy/social security/Gini coefficient/taxation/income tax

Endnote ID


Citation Key5922