Social Security Penalizes Women Who Work, Pay Taxes

Dual-Earner Taxes Far Exceed Extra Benefits

WASHINGTON, D.C.(April 9, 2002) -- While Social Security is ideal for married women who stay home, it penalizes women who work and pay taxes, according to research presented today by the National Center for Policy Analysis (NCPA) at a policy briefing held at the Cato Institute in Washington, D.C. on "Social Security and Women."

A woman can earn Social Security benefits on her own contributions or claim benefits on her husband's contributions. "If she claims benefits through her husband, she gets nothing for all the payroll taxes she's paid," explained Celeste Colgan, NCPA senior fellow and director of the Women in the Economy project. "Even if she claims on her own work, the net benefit isn't much more than if she'd never worked." For example:

  • A married two-earner couple, both with a high school education, will pay 74 percent more taxes than a single-earner couple yet receive only 14 percent more retirement benefits.
  • Among college grads, a two-earner couple will pay 88 percent more taxes, but receive only 20 percent more benefits.

The NCPA research also shows that Social Security adversely affects divorced women. "Divorce is especially acute for a woman because if she is married less than ten years, she is not entitled to any benefits," Colgan said. A woman married for ten years or more is entitled to full benefits based on her ex-husband's contributions.

In addition, Colgan said the life insurance aspect of Social Security does not behave like real life insurance at all. A woman with two children receives a monthly benefit check equal to about 60 percent of her late husband's wage income if she stays home with the children. This benefit continues until the children reach age 16. The children also get benefit checks, which continue until they reach 18.

However, if the woman decides to enter the work force, she faces a severe earnings penalty in the form of reduced benefits; in 2002, she will lose one dollar in benefits for every two dollars of earnings above $11,280. This benefits reduction amounts to a 50 percent tax on labor market income!

"Women have an enormous stake in ensuring that reforms fit their lives, because Social Security discourages them from becoming self-sufficient," Colgan concluded.