The Payroll Taxes and Social Security

Abstract

The social security system encompasses a broad group of compulsory public and negotiated private quasi insur ances which protect workers against the economic risks of death, old age, disability, and unemployment. The various parts of this system cover from 25 per cent to 95 per cent of all workers. And the combined revenues of the public and private programs are around 25 billion dollars per year. There are two ap proaches to an analysis of the economic stability effects of this system, a cash flows approach and a tax incidence approach. Analyzed on a cash flows basis, social security has had very slight influence on economic stability. Analyzed from an inci dence point of view, social security programs have been slightly inflationary. But because of the similarity of the propensities to consume in the various income strata, this influence is negli gible. Hopes that alternative methods of financing might make the social security system into an effective instrument of coun tercyclical fiscal policy are largely groundless for several rea sons. The institutional complexity of the system, the basic purposes which it serves, and the size of the federal budget all preclude significant changes in financing.