Do Income Taxes Affect the Progressivity of Social Security?
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.