Social Security and the Fairness of the US Tax System

Abstract

There have been recurring arguments over time that taxes paid by wage earners for Social Security are regressive and hence unfair. The argument is further made that if these taxes are included in the calculation of the overall income tax burden, they make the income tax in the United States regressive (and hence unfair) as well. The purpose of this paper is to address both of those arguments: whether it is appropriate to combine it with the incometax when assessing progressivity, and whether the Social Security system itself is unfair. Much of the literature on taxation –popular, political, and academic –makes repeated references to whether a given tax structure is “fair” or not. Fairness in taxation, although never clearly defined on an objectively measurable basis, is generally thought to be based at least on a progressive tax structure. A critical question in the current discussion is whether this progressivity is in all cases “fair” and desirable, irrespective of the nature of the tax being imposed.This paper argues that combining general income taxes with Social Security taxes in order to assess the overall “fairness” of the tax structure is inappropriate and that the Social Security program imposes unfair taxes on some taxpayers.