SOCIAL SECURITY: Up Every Year

Congress has lately made two additions to the brief list of certainties in American life. Social Security benefits will go up automatically in every year that there is significant inflation—and the Social Security taxes paid by many middle-and higher-income workers will rise in every year that there is no full-scale depression. Those are the effects of two little-noticed escalator clauses tucked into the Social Security bill that President Nixon grudgingly signed on July 1.

The clauses were overshadowed in public discussion by the immediate benefits and tax boosts written into the law. Beginning in September, benefits paid to the 27 million Social Security recipients will rise 20% ; the average retired couple will get $271 a month, v. $224 now. The increase is four times as large as Nixon had proposed, and it will add more than $4 billion to the fiscal 1973 deficit. The President had to sign, though, because Congress tied the bill to an extension of the debt ceiling; a veto would have left the Government unable to write any checks.

Social Security taxes next year will be taken out of the first $10,800 of a worker's pay, and in 1974 out of the first $12,000, way up from the first $9,000 now. The tax rate will rise too, but only from 5.2% to 5.5%. Result: anyone earning $12,000 a year will pay $468 this year, $594 next year and $660 in 1974. But he will not really feel this bite until late 1973—almost a year after the elections. This year deductions from his paycheck stop at the end of September; next year they will continue through late November, and in 1974 they will go on all year.

When the escalators begin operating in 1975, they will change the system fundamentally. From then on, benefits will be lifted automatically to match any rise in consumer prices of 3% a year or more. That change will do away with the necessity for periodic congressional wrangles over how much to increase benefits. It will also give the elderly, widows and disabled people new and valuable protection against inflation. On the other hand, it may speed up inflation.

From 1975 on, also, the amount of earnings on which Social Security taxes are levied will go up every year in line with the general rise of wages in the economy. The taxable wage base could easily reach $ 15,000 by 1978, and $20,000 sometime in the 1980s. Over the years, this change could drastically shift the impact of Social Security taxes, which in the past have hit hardest at low-paid workers. Unless Congress changes the law, taxes on people earning $12,000 a year or less will not go up at all after 1974, but many people who make more can expect to pay more every year. The $15,000-a-year worker who pays $468 this year could be shelling out $825 in 1978. That is a fair sample of the kind of tax boosts likely to hit the middle class in the next four years, whoever is elected in November. Government spending has simply outrun the revenue-raising capacity of the tax system, and something—or rather someone—has to give.