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Issues in Future Financing of Social Security

2 min readBy: TF Staff

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Research Publication No. 11

Debate over the Social Security Amendments of 1967 raised anew many basic problems in the nature of programs and the financing principles involved. This debate seems more likely to grow, rather than subside, as the level of social insurance taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. es increases.

The economic effects of social insurance taxes were analyzed in a previous Tax Foundation publication, “Economic Aspects of the Social Security Tax.” That study examined differential effects of payroll taxA payroll tax is a tax paid on the wages and salaries of employees to finance social insurance programs like Social Security, Medicare, and unemployment insurance. Payroll taxes are social insurance taxes that comprise 24.8 percent of combined federal, state, and local government revenue, the second largest source of that combined tax revenue. es on various industries, possible effects on employment of unskilled labor, discrimination among various categories of people, and the effects on aggregate levels of employment.

The purpose of the present project is to review the principles that have guided social security financing in the past, and to analyze selected alternatives or revisions that are being proposed or debated. The study does not make recommendations or draw conclusions on the net balance of advantages or disadvantages of any of these proposals. Neither is it intended to suggest that the present system necessarily should be substantially revised. Maintaining the existing system is one course of “action” and one alternative that is specifically examined. The very uncertainties and difficulties of new proposals, such as general revenue financing of a portion of Old Age, Survivors, and Disability Insurance, are a strong argument against change in the existing system, which has been developed through years of debate and experience.

George A. Bishop, Director of Federal Affairs Research, had primary responsibility for the drafting of this study.