Treasury Releases Sixth in a Series of Social Security Papers

“Treasury today released the sixth and final in a series of papers on Social Security. Issue Brief No. 6 is entitled Social Security Reform: Work Incentives.”

  • “This issue brief on Social Security reform discusses Social Security’s effect on work incentives and the implications for reform. Social Security discourages work effort in much the same way as does an ordinary tax on labor income. As was demonstrated in Treasury’s first three issue briefs, an individual’s lifetime contribution to Social Security has two components: the difference between the value of lifetime taxes and lifetime benefits—lifetime net taxes—and the difference between gross taxes and net taxes—effectively “forced saving” that determines benefit levels. For current and future workers, lifetime net taxes finance the excess of benefits over taxes that have been paid or are promised to earlier generations, an amount estimated to exceed $13.6 trillion; and benefits are financed entirely by forced saving. The net tax component of Social Security contributions discourages work effort in the same way as an ordinary tax—workers pay more in taxes than they expect to receive in lifetime Social Security benefits, and this effectively reduces the return to work. The forced saving component of Social Security contributions would be expected to have little effect on work effort provided that workers understand that this part of Social Security taxes will be returned as future benefits, and provided there is a mechanism in place to ensure that the forced savings are truly set aside to help pay future benefits (as opposed to giving rise to increased current non-Social Security government spending or lower non-Social Security taxes than would be the case without Social Security).”
    • LinkedIn
    Posted in: E-Government, Government Documents
    ➤