Does It Pay Both Spouses to Work?

Studies | Taxes

No. 260
Wednesday, May 14, 2003
by Jagadeesh Gokhale and Laurence J. Kotlikoff


Present Value of the Loss from Forced Participation in Social Security

Table IV - Present Value of the Loss Social Security Imposes on Spouses Earning the Same Income

Because working couples are required to participate in Social Security, they are worse off than they otherwise would be. That is, their lifetime consumption of goods and services is lower than it would be in the absence of Social Security payroll taxes and Social Security benefits.

How much worse off are young couples? Table IV illustrates the lifetime penalty in today's dollars of forced participation in Social Security. As the table shows:

  • A couple in which each spouse earns $10,000 a year can expect to pay almost $60,000 in Social Security taxes over and above any benefits during their lifetimes.
  • The penalty for participating in Social Security is almost six times the wife's annual wage income.

"The penalty from Social Security falls as income rises."

Note that the penalty for Social Security participation rises with income. So a couple in which each earns $80,000 will pay almost twice the lifetime penalty paid by a couple in which each earns $10,000 a year. As a fraction of income, however, the burden of Social Security falls as income rises - reflecting the fact that the burden of Social Security tends to be regressive when all lifetime effects are taken into account.

This is illustrated in Figure IX, which shows the case of a couple in which the husband earns $50,000 a year. Note that:

  • When the wife earns $10,000 a year, the lifetime burden of Social Security is equal to more than three times her annual income.
  • At $100,000 a year, however, the lifetime burden of Social Security is roughly equal to her annual income.
Figure IX - Loss from Forced Participation in Social Security as a Multiple of the Wife's Annual Income

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