The history of Social Security is a vicious cycle of overextension followed by raised taxes. For decades, expansions were financed with temporary surplus funds, setting the stage for later tax increases.
The situation has worsened as Social Security fund surpluses have been spent to cover the federal deficit. This year alone, nearly $l00 billion intended for Social Security will he used to cover overspending in other areas.
At its start in 1935, the Old Age and Survivors Insurance tax had a rate of 2% on only the first $3,500 of income — with 1% paid by the employer and a 1% payroll deduction. That gave rise to the term “payroll tax.”
The payroll tax was increased 13 times in the course of 60 years. And the amount of income subject to the tax, often called the earnings base, has notched up 26 times.
Right now, payroll taxes — which today include Social Security, disability and Medicare — total 15.3% on the first $65,400 of income, with the 2.9% Medicare tax applied to all income with no cap. Fully 71% of American workers pay more in payroll taxes than in income taxes.
The pattern for 40 years, from the program’s inception until the late ’70s, had been for Congress to expand benefits and, almost as often, to boost the tax burden to keep the system solvent.