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Opting Out of Social Security: An Idea That's Already Arrived

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  • Richardson, David P.

Abstract

Under current law, workers can partially opt out of Social Security and reduce Medicare tax liability by accepting compensation in forms exempt from payroll taxes. Changing forms of compensation has an ambiguous effect on a worker's lifetime consumption possibilities. With respect to Medicare, all households are better off since they reduce tax contributions to a fixed benefit. For Social Security, the effect is ambiguous since the tax reduction implies future benefit reductions. Analyzing a hybrid reform proposal that requires workers to place exempted earnings and foregone payroll taxes in a personal retirement account, I find that all workers can increase retirement resources.

Suggested Citation

  • Richardson, David P., 2005. "Opting Out of Social Security: An Idea That's Already Arrived," National Tax Journal, National Tax Association;National Tax Journal, vol. 58(3), pages 545-564, September.
    • Handle: RePEc:ntj:journl:v:58:y:2005:i:3:p:545-64
    DOI: 10.17310/ntj.2005.3.15
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    References listed on IDEAS

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    1. James M. Poterba (ed.), 1996. "Tax Policy and the Economy, Volume 10," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262660989, April.
    2. James M. Poterba, 1996. "Tax Policy and the Economy, Volume 10," NBER Books, National Bureau of Economic Research, Inc, number pote96-1.
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    Cited by:

    1. Richardson, David P. & Seligman, Jason S., 2007. "Health Savings Accounts: Will They Impact Markets?," National Tax Journal, National Tax Association;National Tax Journal, vol. 60(3), pages 455-467, September.

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