NCPA - National Center for Policy Analysis

Two-Earner Couples Pay More

May 14, 2003

Going to work, earning a living, and spending one's earnings over time affects a variety of taxes and government benefits -- not just in the current year, but in all future years. Earning more today will also affect your future Social Security benefits and the federal income tax assessed on those benefits.

In order to sort through all of the effects, authors Jagadeesh Gokhale and Laurence J. Kotlikoff consider a hypothetical two-earner couple at various levels of income. They conclude that 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. Specifically:

  • 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 they can expect to receive.
  • The penalty for participation in Social Security is almost six times the wife's annual wage income.

The penalty for Social Security participation rises with income. 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 Social Security tends to be regressive when all lifetime effects are taken into account.

Social Security does not exist in isolation. It is one of a number of government programs that reduce the rewards from working and producing.

Source: Jagadeesh Gokhale and Laurence J. Kotlikoff, "Does It Pay Both Spouses to Work?" Policy Report No. 260, May 14, 2003, National Center for Policy Analysis.

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