Social Security: Did you know….? 5/17/15

Posted on May 17, 2015 by ScottC

The first Payroll Tax (employee plus employer contributions combined) for old age, survivors, and disability insurance (Social Security) was assessed in 1937 at a rate of 2%. Today’s OASDI tax is more than 600% higher at 12.4%.

In 1966 an additional .7% tax was added to the Payroll Tax for hospital insurance (Medicare). By 2015 that added-on rate had grown by more than 400%, to 2.9%, bringing the full Payroll Tax up to 15.3%, or more than 750% of the original rate.

The maximum income on which the Payroll Tax applied in 1937 was $3,000. In inflation adjusted dollars that would be the equivalent of $49,000 in 2015. The actual maximum income in 2015 is more than twice as high at $118,500.

Doing the math, the maximum annual Payroll Tax amount that anyone in the country would have made in 1937 was $60, or $978 in 2015 dollars. The maximum annual Payroll Tax that anyone in the country actually makes in 2015 is over $18,000.

The expected age at death of a 20 year old in 1937 was less than 70, meaning that the expected SS cost of 20 year old beginning work in 1937 was less than 5 years of payouts. By the time that person actually turned 65 in 2002, his expected age of death had risen to over 80, meaning that the expected number of years of SS payouts had more than tripled to over 15 years.

In 1940 there were nearly 160 workers paying the Payroll Tax for every 1 beneficiary of Social Security. By 1960 that ratio had dropped to 5 workers per beneficiary. By 2010 it was 2.9.

Filed under: social security | 51 Comments »