Social Security Growth Versus Income Tax Reform: An Analysis of Progressivity and Horizontal Equity in the Federal Tax System in the 1980s.

The substantial reductions in individual income tax rates that have characterized the 1980s have been accompanied by continued growth in the social security tax. In this study, data from the IRS Individual Tax Model File and the Arthur Young/University of Michigan Taxpayer Panel is used to simulate the effects of tax law changes in this decade on progressivity and horizontal equity in the combined distribution of income and social security taxes. The results suggest that the regressive effects of increases in the social security tax have dominated the progressive effects of individual income tax reform during this decade. With regard to horizontal equity, the results indicate that social security tax growth has contributed to the general increase in horizontal equity resulting from the Tax Reform Act of 1986.