Starting in 1984, up to one-half of social security benefits of taxpayers with incomes above a threshold level are taxable under the federal income tax. Using household data from the Current Population Survey in conjunction with a highly detailed simulation model of the federal income tax, this study provides an ex ante assessment of this new tax. The analysis shows that only 8 percent of all filing units who receive social security benefits will actually face higher tax liabilities, and that although the taxation of social security increases tax burdens of many moderate and high income elderly, they retain their fiscal advantage over nonelderly taxpayers of similar income. Critics of the new tax have charged that the tax system will induce elderly wealthholders to reduce their holdings of tax-exempt bonds, and elderly workers to reduce their labor supply because the marginal tax rate on earnings will be increased. The study demonstrates that neither incentive effect is, in fact, quantitatively important.