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THE TREATMENT OF MARRIED WOMEN BY THE SOCIAL SECURITY
RETIREMENT PROGRAM
Andrew G. Biggs, Gayle L. Reznik, and Nada O. Eissa
CRR WP 2010-18
Date Submitted: October 2010
Date Released: November 2010
Center for Retirement Research at Boston College
Hovey House
140 Commonwealth Avenue
Chestnut Hill, MA 02467
Tel: 617-552-1762 Fax: 617-552-0191
http://crr.bc.edu
Andrew G. Biggs is a resident scholar at the American Enterprise Institute (AEI). Gayle L.
Reznik is with the Office of Retirement Policy, Office of Retirement and Disability Policy,
Social Security Administration (SSA). Nada O. Eissa is an associate professor of Public Policy
and Economics at Georgetown University (GU). The research reported herein was pursuant to a
grant from the U.S. SSA funded as part of the Retirement Research Consortium (RRC). The
findings and conclusions expressed are solely those of the authors and do not represent the
opinions or policy of SSA, any agency of the federal government, the RRC, AEI, GU, or Boston
College.
© 2010, by Andrew G. Biggs, Gayle L. Reznik, and Nada O. Eissa. All rights reserved. Short
sections of text, not to exceed two paragraphs, may be quoted without explicit permission
provided that full credit, including © notice, is given to the source.
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About the Center for Retirement Research
The Center for Retirement Research at Boston College, part of a consortium that includes
parallel centers at the University of Michigan and the National Bureau of Economic Research,
was established in 1998 through a grant from the Social Security Administration. The Center’s
mission is to produce first-class research and forge a strong link between the academic
community and decision makers in the public and private sectors around an issue of critical
importance to the nation’s future. To achieve this mission, the Center sponsors a wide variety of
research projects, transmits new findings to a broad audience, trains new scholars, and broadens
access to valuable data sources.
Center for Retirement Research at Boston College
Hovey House
140 Commonwealth Avenue
Chestnut Hill, MA 02467
phone: 617-552-1762 fax: 617-552-0191
e-mail: crr@bc.edu
http://crr.bc.edu/
Affiliated Institutions:
The Brookings Institution
Massachusetts Institute of Technology
Syracuse University
Urban Institute
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Abstract/Policy Abstract
It is generally accepted that the Social Security program pays women a higher average ratio of
lifetime benefits to lifetime taxes than it does men. Social Security’s progressive benefit structure
and annuity payment combine with women’s lower average earnings and longer average life
spans to provide women with more favorable treatment on a lifetime basis. This more favorable
treatment does not necessarily imply that women are presented with stronger incentives to
participate in the labor force and contribute to Social Security than are men. If anything, Social
Security does the opposite. The auxiliary benefit provisions, including spousal and widow’s
benefits, mean that many women do not receive higher benefits in return for their contributions
than they would have received had they never worked or contributed to the program. In this
paper, we calculate two measures of treatment by Social Security using the SSA’s Modeling
Income in the Near Term (MINT) micro-simulation model: the net tax rate, which reflects the net
value of Social Security taxes and benefits as a percentage of lifetime earnings; and the
generated net tax rate, which represents the net value of benefits received in return for a
participant’s taxes relative to lifetime earnings. While women pay low and even negative average
net taxes to Social Security, their generated net tax rates are higher and often equal the full
statutory tax rate. Men, by contrast, pay higher net tax rates but lower generated net tax rates, as
their earnings may generate additional benefits for their spouse or survivor. The work incentives
presented by Social Security may differ significantly from those implied by measures of overall
treatment by the program.
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Introduction
The distributional effects of the Social Security program have long been of interest to
policy analysts and policymakers, alike. The existing body of work shows the program
redistributes across income and demographic characteristics (race and gender). More recent
analyses have benefited from the increased sophistication of microsimulation models of the
Social Security population.
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For example, such analyses have showed favorable treatment of
married women by the Social Security program. Married women have lower average-lifetime
earnings than both men and single women, and therefore benefit from the progressivity of the
benefit formula. They also tend to have longer-than-average life spans, and therefore benefit
from the annuity structure of benefit payments. Finally, married women – and divorced women
who had a previous marriage that lasted at least 10 years – are eligible to receive Social Security
spousal and survivors benefits, likely increasing their benefit payments above those based on
their own earnings records.
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All of these factors combine to provide married women with a better “money’s worth”
from Social Security than many other demographic groups. Money’s worth measures often
include the internal rate of return, the ratio of lifetime benefits to lifetime taxes, and the net tax
rate, which equals the net of taxes and benefits as a percentage of lifetime earnings.
There has also been increased attention in recent years to the work incentives presented to
different demographic and age groups by the Social Security program. Social Security is funded
by a 12.4 percent tax on earned income up to an annual maximum (currently $106,800) that
increases with average wage growth each year. The tax is split evenly between employers and
employees, though there is a general consensus that employees bear most or all of the tax
through reduced wages.
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Unlike most other federal taxes, however, there is a fairly direct link between Social
Security payroll taxes paid and benefits received. The terminology of Social Security
“contributions” is useful, because a tax that directly generates a benefit should not affect labor
supply incentives in the same way as a “pure tax” for which no direct benefits are received. The
1
For instance, see Gustman and Steinmeier, 2000; Smith, Toder and Iams, 2004.
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Cohen, Steuerle and Carasso, 2004.
3
For instance, Congressional Budget Office (2005) states, “Public finance theorists generally agree that the
employer’s share of [payroll] taxes is passed on to workers in the form of lower wages. CBO follows that
assumption and treats payroll taxes as if employees paid both shares.”
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relevant measure from the point of view of labor supply incentives is the net-of-benefits tax rate,
often referred to as the “net tax rate.”
Recent research has focused on work incentives along various margins, in which the link
between contributions, earnings, and benefits is examined in greater detail.
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These margins
include annual hours worked (intensive response); participation in the labor force in a given
year (extensive response); or, labor force participation on a lifetime basis by the spouse with the
lower-earning potential. In many or most cases, overall treatment by Social Security as measured
by traditional money’s worth measures accurately reflects the Social Security program’s
marginal incentives to work.. Among single individuals, for instance, lower-income earners can
expect a higher ratio of lifetime benefits to lifetime taxes – and thus a lower net tax rate – than
high-income earners.
Among married couples –particularly women – however, lifetime money’s worth
measures may not present a full picture of the incentives presented by the Social Security
program. This disjoint occurs because of the presence of auxiliary benefits – specifically, spousal
and widow’s benefits – in which one individual may claim benefits off the earnings record of a
second individual. In these cases, higher individual earnings may not result in greater benefits,
thereby weakening incentives to work and increasing effective net tax rates. Many married
women fall into this category. Others, however, gain from this benefit structure. In cases where
one’s earnings generate benefits both for that individual and for a spouse (or, on a delayed basis,
for a widow), effective net tax rates may be significantly lower than those implied by traditional
money’s worth measures.
In this analysis, we use a microsimulation model of the Social Security population,
augmented by historical and projected data, to analyze the impact of Social Security’s auxiliary
benefit provisions on the work incentives of married women. The Social Security
Administration (SSA)’s Modeling Income in the Near Term (MINT) model allows for detailed
analysis of the earnings, benefits, and demographic characteristics of individuals participating in
the Social Security program. Using MINT data, we calculate both statutory net-tax rates, and a
measure we term the "generated" net-tax rate. The generated rate reflects the net Social Security
tax rate based upon a wife’s own tax contributions during her working life. The generated and
statutory net-tax rates differ because of spousal and widow benefits.
4
See Goda, Slavov and Shoven (2007); Butrica et al (2004); Reznik, Weaver and Biggs (2009).
