by James A. Dorn
This article appeared in Investor's Business Daily on August 20, 2010.
When President Obama told the nation last week that Social Security could be put on a sound basis with minor changes, he forgot to tell Americans about the real costs of that system.
Initially, the costs were low: The combined payroll tax rate was only 2% on a wage base of up to $3,000, for a maximum tax of $60 per year. Although the tax was legally split between workers and employers, the incidence of the tax (the effective burden) has always been on workers in terms of lower net wage rates.
Today, workers pay an effective payroll tax of 12.4% for Old Age, Survivors and Disability Insurance on earnings up to $106,800, for a maximum tax of $13,243.20 a year. That tax rate and the cap will continue to increase as the number of retirees grows relative to the working population.
Read the rest at Cato.org.
James Dorn is vice president for academic affairs at the Cato Institute in Washington, D.C., and editor of the Cato Journal.
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