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Consumption, Retirement, and Social Security: Evaluating the Efficiency of Reform with a Life-Cycle Model
by John P. Laitner and Daniel Silverman
WP 2006-142
  • We analyze a simple reform aimed at alleviating the labor-supply distortions of the current Social Security program. After a long vesting period (e.g., 34 years of contributions) workers would no longer face the OASI payroll tax., potentially increasing wages by 10.6 percent.
  • Lost revenues to the system would be made up by a small increase in the payroll tax during the vesting period.
  • Under this scenario, retirement ages could rise by nearly a year on average and additional gains accruing to society from extra income taxes due to longer careers could average another $3000 per household.