The growth of fringe benefits : implications for social security

Relative to cash pay, fringe benefits' have increased phenomenally during the past three decades. Although the official social security projections include the assumption that this phenomenal rate of growth will continue, no attention has been paid to the implications such growth is likely to have for long-range deficits in the social security trust fund . The projections assume that employer costs for fringe benefits will increase faster than cash wages at an annual compound rate of 0.4 percent, the average annual rate during 1950-80, over the entire 75-year period after 1980 . Thus, the ratio of fringes to total compensation would rise from 15 .8 percent in 1980 to 37.8 percent in the year 2055, and conversely, cash pay would decline from 84.2 percent to 62.2 percent.'Any increase in fringes relative to workers' cash pay (taxable payroll) is very important because such pay is the tax base that finances social security . Fringes accepted in lieu of taxable pay reduce this base, and boost the percentage of taxable payroll required for paying benefits . When scheduled social security taxes (as a percentage of taxable payroll) are less than scheduled benefit payments (also as a percentage of taxable payroll), a deficit results, which is the current situation . Ultimately, there-