Social Security taxes: the details
The Social Security tax is called FICA, after the Federal
Insurance Contributions Act (1939). It is a payroll tax, as opposed
to an income tax, because it is levied only on wages and not on
other income.
As of 1999--Legally, half (7.65%) of the tax is paid
by the employee, and half by the employer. (Self-employed workers pay the
full 15.3% of earnings up to $72,600 and 2.9% for earnings beyond $72,600.)
This provision makes no difference, however, to the economic incidence
of the tax, which is not affected by the legal incidence.[econ]
Typically the tax is "withheld" from the employee's wages and remitted
to the government by the employer.
Technically, the Social Security tax consists of
two taxes:
-
OASDI ("old-age, survivors, and disability insurance"), 12.4% of all wages
up to $72,600 (this last figure, the "taxable earnings base" is adjusted
yearly for inflation--last year it was $68,400).
-
HI ("hospital insurance"; i.e., Medicare), 2.9% of all wages (no upper
limit).
Thus, wages up to $72,600 are taxed at 15.3% (OASDI+HI)
while wages past $72,600 are taxed at 2.9% (HI only). [s]
Furthermore, the government separates OASDI tax receipts
into two categories, OASI and DI. In fiscal year 1998, the government collected
-
$366b in Federal Old-Age and Survivors Insurance taxes (OASI) [s];
-
$58b in Federal Disability Insurance (DI) [s]
-
$122b in Federal Hospital Insurance (HI) [s,
p. 31]
Thus OASDI constituted $424b (25%) and HI $122b (7%) out of total government
receipts of $1.72t. In comparison, individual income taxes netted $829b
(48%) and corporation income taxes netted $189b (11%) [s].
Besides the fact that both government programs are labeled "OASI," there
is no connection between OASI taxes and OASI spending; ditto for DI and
HI.
Source: 1998 World Almanac, pp. 107, 717.
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This page maintained by Steven
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