A comparison of Social Security taxes and Federal income taxes, 1980-90.

In recent years, with the implementation of the tax rate increases and ad hoc earnings base increases included in the 1977 amendments to the Social Security Act, many observers have noted that Social Security taxes (for the Old-Age and Survivors Insurance (OASI), Disability Insurance (DI), and Hospital Insurance (HI) programs combined) now exceed Federal income taxes for many families. A comparison of Social Security taxes and Federal income taxes for selected years from 1937, the first year of Social Security taxes, through 1980 was presented in the July 1981 issue of the Social Security Bulletin. l This note extends that analysis through 1990. One should note that there is no inherent reason for Social Security taxes to be lower (or higher) than Federal income taxes. In many ways, these two forms of taxation are not comparable. Social Security taxes may be *By Bruce D. Schobel, Office of the Actuary, Social Security Administration. t Bruce D. Schobel, “A Comparison of Social Security Taxes and Federal Income Taxes,” Social Security Bulletin, July 1981, pages 30-31. considered as payments for social-insurance protection (although this aspect should not be emphasized to the extent that such taxes are viewed as purchasing benefits on an individual-equity basis). Federal income taxes may be considered as payments for most other services and benefits provided by the Government. Tables l-4 present a comparison of estimated Social Security employee taxes and Federal income taxes for workers at three earning levels-low, average, and maximum-for the years 1980-90. These amounts of future taxes were estimated both for single workers and for married workers with nonworking spouses. In all cases, no additional dependents were assumed to be present, all income was assumed to be earned in covered employment, and the standard deduction was assumed to be taken. The low earnings level is defined as earnings equal to one-half of the national average wage, as used for purposes of wage indexing. The average level is defined as earnings equal to the national average wage. The maximum earnings level is defined as earnings equal to the taxable earnings base in each year. For future years, these earnings amounts were projected on the basis of the Alternative II-B assumptions of the 1981 OASDI Trustees Report.