Social Security Financing

Report Outline
Concern over fairness of system
Development of U.S. Social Security
Currents of Social Security Reform
Special Focus

Concern over fairness of system

Financing of Benefits Voted in Election Year

The Social security system, which not so long ago seemed to be a sacred cow among federal programs, is becoming a target of public skepticism and criticism. Many complain that the present system is not providing economic security for those who need it; others find fault with the method of financing as excessively burdensome for low wage earners and unfair to an entire generation now at work who may be paying far more into the system than they can expect to get back.

Social Security beneficiaries today exceed 28 million, approximately one of every eight Americans. Their demands for more money and the election-year response of politicians have brought the financing issue into sharp focus. A 20 per cent increase in benefits voted by Congress took effect this month and will be included in benefit checks delivered to Social Security beneficiaries on Oct. 3. As a result, the annual expenditure for Old Age, Survivors and Disability Insurance (OASDI)—as the Social Security program is formally known—is expected to rise from $43.2 billion in 1972 to $59 billion in 1975. In addition, beginning in 1975, benefits will automatically be adjusted upward whenever the Consumer Price Index goes up more than 3 per cent a year.

To finance the benefits, payments are made into Social Security trust funds by 93 million employees and self-employed persons, plus employers. Many will pay considerably more during the next two years, beginning Jan. 1, 1973. After 1974 and until 1986, under terms of present law, further increases will affect only persons earning more than $12,000 a year—and only then to compensate for cost-of-living increases in benefits. The tax rate will remain at 5.5 per cent until 1986, when it inches up to 5.6; in 1993 it will rise another notch to 5.7. Future projections of payroll taxation are complicated, however, by a bill (HR 1) pending in Congress to provide further Social Security benefits. Nation's Business,the magazine of the U.S. Chamber of Commerce, reported in its September 1972 issue that enactment of the bill “could add an annual $5 billion in benefits and make inevitable still further increases in payroll taxes.” The magazine calculated that a $12,000-income individual could be taxed $714 rather than $660 a year by 1974.