Abstract
The U.S. Social Security retired worker benefit calcula- tion is based on the average of the highest 35 years of each individ- ual's earnings; thus , payroll taxes for people with flat or declining earnings can effectively become a pure tax near the end of their working careers. Individuals who still have zero or low-earning years being factored into their high-35 calculation face much lower (even negative) effective tax rates if they work additional years. In this paper , administrative earnings data are used to measure the distribution of effective payroll tax rates across and within age, sex, and lifetime earnings groups. The estimates are somewhat sensi- tive to assumptions about discounting, controlling for differential mortality, and whether to focus on all earners or just earners at the end of their primary careers. A budget-neutral change in tax and benefit formulas is shown to significantly flatten the pattern of effective tax rates.
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