January 6, 1973
Page 431
SOCIAL SECURITY PAYROLL TAX
Mr. MUSKIE. Mr. President, in the 92nd Congress Senator MONDALE and I introduced legislation to revise the financing of the social security system in order to make the payroll tax a progressive levy, by providing for personal exemptions and low-income allowances while removing the ceiling on earned income that is taxed. The changes Congress enacted last year in social security benefits – and the new, higher tax rates adopted to cover those increased payments – make such improvements in the payroll tax even more urgent now.
We plan to introduce new legislation shortly to accomplish these important aims. Meanwhile, I believe the Senate can gain understanding of the issues involved by reading the thoughtful article published in the New York Times of January 3 by Louis Hollander, vice president of the Amalgamated Clothing Workers of America. As he notes, the payroll tax now violates the fundamental principle of sound tax policy and bears no relationship to ability to pay.
Further, the new rates hit hardest at low- and middle-income workers. The tax on a $12,000 salary will be 50 percent higher in 1974 than it was in 1972.
I recommend Mr. Hollander's article to my colleagues and ask unanimous consent that it be printed in the RECORD.
There being no objection, the article was ordered to be printed in the RECORD, as follows:
REFORM IN SOCIAL SECURITY
(By Louis Hollander)
The 92nd Congress has done a commendable job by putting into effect two legislative measures that boost Social Security benefits by 20 per cent and contain some important improvements in the Social Security and Medicare programs sorely needed by our aged and disabled citizens.
However, the nature of the payroll-tax increases required to finance these improvements raises a most serious question that merits the closest attention of the incoming 93rd Congress.
The inadequacies of our Social Security financing structure – the increasing reliance on the regressive payroll tax that falls most heavily on low- and moderate-income workers – add a new dimension to the problem that offsets our priorities for tax reform.
The bill recently signed by the President presents a $5.3-billion tax bill to the American people. This tax boost would be in addition to a $7-billion tax bill rise already scheduled to go into effect Jan. 1 to pay for the 20 per cent across-the-board Social Security benefit increase voted by Congress
The total cost of these improvements will be raised by increasing the payroll tax on 96 million employed persons from the present 5.2 per cent to 5.85 per cent in 1973 and 6.05 per cent in 1978, together with an increase in the wage base from this year's $9,000 to $10,800 in 1973 and $12,000 in 1974.
For the individual low- and middle-income worker, this dramatic increase in the payroll tax means substantial reduction in his take-home pay. For a wage earner with a $12,000 wage income, his Social Security tax will increase in a one-year period from $468 in 1972 to $631.80 in 1973, or 35 per cent, and to $702 in 1974, or 50 per cent.
Such enormous increase in payroll tax not only means a substantial cut into the living standards of the average worker but also intensifies and increases the unfairness and regressiveness basically inherent in such a tax. As is well known the tax is a constant percentage of earnings up to the ceiling but then becomes a smaller and smaller fraction as earnings increase with no personal exemptions, no deductions and no low-income allowance.
Thus the tax violates the fundamental principle of sound tax policy and bears no relationship to ability to pay. For instance, increasing the tax rate to 5.85 would mean for a family of four with one wage earner in the $3,000-$4,000 bracket about a 9 per cent increase and for a family earning $10,000 a 3.4 per cent increase in Federal taxes, but it would increase taxes for a family earning $50,000 by only four-tenths of 1 per cent and for a family in the $100,000 bracket by one-tenth of one per cent.
Moreover, the law treats even families of the same income level differently by taxing them unequally. A family with total earnings of $18,000 earned equally by the husband and wife pays twice as much in payroll taxes as does a family in the same income bracket with one earner. At any given level of family earnings below the ceiling a single-earner family receives larger benefits than does the multi-earner family.
The regressive nature of the Social Security tax can be relieved in two ways by a higher wage base – raised substantially more than through recent actions of Congress – and by use of general revenues.
The recently enacted wage-base ceilings, though a step in the right direction, are still inadequate inasmuch as they leave a substantial fraction of covered payrolls outside the pale of taxation.
About 95 per cent of the persons in the Social Security program had their full earnings covered when the program first began. It would take a wage base in excess of at least $15,000 to cover the same proportion today. The program should cover the total earnings of the overwhelming majority of workers so that their benefits, which are based on covered earnings only, will be better related to what they have actually earned.
However, since raising the tax base to $15,000 alone would not provide sufficient funds for needed benefit improvements we must also look to general tax revenues as a most feasible and sensible supplementary source of funds.
There are of course a variety of other alternatives, such as total removal of the ceiling on wages, refunding the payroll tax paid on wages of workers with incomes below the poverty level, introduction of personal exemptions and so on, but neither of these fragmentary remedies is sufficient to infuse into Social Security enough money needed to deal with the economic plight of our aged and disabled without placing an unfair burden on the low-wage worker. The logical and preferable source of this money is a regular contribution to the Social Security Trust Funds from the general revenues of the Federal Government, the only remedy able to make it a truly social insurance system with the society as a whole assuming responsibility it does not now undertake.