TAXES: Painful New Year's Bite

WITH the first paycheck of the new year, American wage earners face an unpleasant shock: Social Security deductions 35% higher than last year. The surprise will be particularly great for those employees earning more than $9,000 who paid their debt to Social Security early in 1972 and for the past few months had been receiving paychecks free of deductions marked "PICA" (Federal Insurance Contribution Act).

For all wage earners, this year's PICA deductions will be bigger and last longer. Under measures adopted by Congress last year, a worker's Social Security taxes will rise from 5.2% to 5.8% of each paycheck. The money will be taken out of the first $10,800 of his or her pay, v. the first $9,000 last year.

The ceiling rises to $12,000 in 1974.

As a result, someone earning $12,000 annually who paid $468 last year will pay $632 this year and $702 in 1974.

Nor will the escalation stop there. Under the new rules. Social Security benefits—and deductions—will rise as much as 3% annually in 1975 and in future years along with increases in the cost of living. Assuming inflation proceeds at the same pace as in recent years, a $15,000-a-year worker could see his Social Security payments rise from $468 last year to $825 by 1978.

Such increases, signed into law by a President who won many votes by promising to fight any increase in federal taxes, might seem to risk touching off a worker rebellion. Once a minor part of the federal tax system, Social Security levies have become one of the Government's chief revenue raisers.

Collections multiplied 27 times between 1949 and 1971, and this fiscal year Social Security taxes will bring in about two-thirds as much as individual income taxes. In fact, workers have anted up for past increases with scarcely a murmur of protest, and there seems to be little reason to expect anything different now. Arthur Okun, a member of TIME'S Board of Economists, expresses amazement at "the tolerance of the public for higher taxes, as long as they are called Social Security contributions."

"Contribution." The main reason, no doubt, is that Social Security taxes are among the few levies from which the worker expects to get some direct, measurable return—for himself and his family in his retirement years, and for aged parents or other relatives right now. Benefits for the nation's 27 million Social Security recipients are rising 20% this year; the average retired couple will now receive $271 a month, v. $244 last year. In addition, recipients can earn up to $2,100 on their own without losing any benefits; last year the cutoff was $1,680. Widows and widowers will henceforth receive the entire amount of benefits due to a deceased spouse, instead of only 82.5% as in the past. And from 1975 on, recipients will no longer be dependent on the whim of Congress for raises in benefits to keep pace with the cost of living. The 3% maximum annual raise in future years will be automatic.

Even though there is a payoff in benefits, however, Social Security payroll deductions—officially called "contributions," despite the fact that they are compulsory for both full-time and part-time employees—are a regressive tax that hits low-income groups hardest.