Employee Rights and Employment Policy Journal

The current method for estimating the Social Security tax expenditure significantly underestimates the revenue losses associated with the special tax benefits for Social Security. This underestimation of the Social Security tax expenditure has some serious policy implications. First, underestimating the costs associated with Social Security distorts the way that policy makers view the need for Social Security reforma nd the mechanisms to be chosen for that reform. Second, underestimating the Social Security tax expenditure relative to the pension tax expenditure invariably results in more pressure to curtail the special tax benefits for pensions and less pressure to curtail the special tax benefits for Social Security.

This article considers how the tax expenditure estimators could estimate the tax benefits associated with Social Security and pensions in more comparable terms. In addition, this article considers the policy implications that would result from making such a change. At the outset, Part II of this article provides an overview of both pensions and Social Security. Part III then explains how the tax expenditures associated with pensions and Social Security are currently estimated and some alternative methods for estimating the costs associated with the special tax benefits for pensions and Social Security. Part IV then discusses some of the policy implications of the current method of estimating the pension and Social Security tax expenditures and policy implications of using alternative, more comparable methods to estimate those tax expenditures. The most important conclusion is that viewing pensions and Social Security in more comparable terms is the best way to help ensure that policymakers develop a coherent national retirement policy