The Excess Burden of the Social Security Payroll Tax

Abstract

The conventional measure of the excess burden of a discrete increase in the rate of either a labor income tax or an excise tax is typically represented by a trapezoid in the supply/demand framework. This article adopts an alternative view of the incremental excess burden due to Mayshar and finds that the excess burden of a discrete increase in the rate of either a labor tax or an excise tax is represented by a triangle plus a rectangle, which is smaller than the conventional trapezoid for labor income taxes but larger than it for excise taxes. The new measure indicates an excess burden for U.S. social security tax (in the labor market alone) that is 10 to 50 percent of what is captured by the traditional trapezoid.