Do Income Taxes Affect the Progressivity of Social Security?

Norma B. CoeZhenya KaramchevaRichard W. Kopcke Alicia H. Munnell

IB#12-3

The brief’s key findings are:

  • Low earners receive much more in Social Security benefits than they pay in Social Security taxes, reflecting the program’s progressive design.
  • The interaction between Social Security provisions and income taxes has little net effect on the program’s progressivity:
    • the exemption of employers’ Social Security contributions from workers’ income taxes makes the system less progressive, but
    • the income taxation of retirees’ Social Security benefits makes the system more progressive.
  • Over time, the income tax effects will add to progressivity because an increasing percentage of retirees will pay taxes on their benefits.