How big of a percentage of wages go towards Social Security?
Social Security debate in the United States
Critics of the system, such as Nobel Laureate economist Milton Friedman, have said that Social Security redistributes wealth from the poor to the wealthy. Workers must pay 12.4%, including a 6.2% employer contribution, on their wages below the Social Security Wage Base ($102,000 in 2008), but no tax on income in excess of this amount. Therefore, high earners pay a lower percentage of their total income, resulting in a regressive tax. The benefit paid to each worker is also calculated using the wage base on which the tax was paid. Changing the system to tax all earnings without increasing the benefit wage base would result in the system being a progressive tax.
Social Security (United States)
The current Social Security formula used in calculating the benefit level (primary insurance amount or PIA) is progressive vis-à-vis lower average salaries. Anyone who worked in OASDI covered employment and other retirement would be entitled to both the alternative non-OASDI pension and an Old Age retirement benefit from Social Security. Because of their limited time working in OASDI covered employment the sum of their covered salaries times inflation factor divided by 420 months yields a low adjusted indexed monthly salary over 35 years, AIME. The progressive nature of the PIA formula would in effect allow these workers to also get a slightly higher Social Security Benefit percentage on this low average salary. Congress passed in 1983 the Windfall Elimination Provision to minimize Social Security benefits for these recipients. The basic provision is that the first salary bracket, $0–791/month (2013) has its normal benefit percentage of 90% reduced to 40–90%—see Social Security for the exact percentage. The reduction is limited to roughly 50% of what you would be eligible for if you had always worked under OASDI taxes. The 90% benefit percentage factor is not reduced if you have 30 or more years of "substantial" earnings.
Social programs in the United States
According to the Congressional Budget Office, social programs significantly raise the standard of living for low-income Americans, particularly the elderly. The poorest 20% of American households earn a before-tax average of only $7,600, less than half of the federal poverty line. Social programs increase such households' before-tax income to $30,500. Social Security and Medicare are responsible for two thirds of that increase.
Social Security (United States)
All workers paying FICA (Federal Insurance Contributions Act) and SECA (Self Employed Contributions Act) taxes for forty quarters of credit (QC) or more on a specified minimum income or more are "fully insured" and eligible to retire at age 62 with reduced benefits and higher benefits at full retirement ages, FRA, of 65, 66 or 67 depending on birth date. Retirement benefits depend upon the "adjusted" average wage earned in the last 35 years. Wages of earlier years are "adjusted" before averaging by multiplying each annual salary by an annual adjusted wage index factor, AWI, for earlier salaries. Adjusted wages for 35 years are always used to compute the 35 year "average" indexed monthly salary. Only wages lower than the "ceiling" income are considered in calculating the adjusted average wage. If the worker has fewer than 35 years of covered earnings these non-contributory years are assigned zero earnings. If there are more than 35 years of covered earnings only the highest 35 are considered. The sum of the 35 adjusted salaries (or less if worker has less than 35 years of covered income) times its inflation index, AWI divided by 420 (35 years x 12 months per year) gives the 35-year covered Average Indexed Monthly salary, AIME.
Mandatory spending
Social Security spending has grown relative to the economy. In 1962, before the passage of Medicare and Medicaid, Social Security spending accounted for 13 percent of the total mandatory spending. This was about half of all mandatory spending. In FY 2016, Social Security accounted for 38 percent of mandatory spending. This accounts for about a little more than one third of all mandatory spending and around 4.3 to 4.8 percent of GDP in the US. Social Security has fluctuated around this level since the 1980s. Medicare and Medicaid have taken up an increasingly larger share of mandatory spending.
Social Security debate in the United States
CBO provided estimates regarding various reform alternatives in a July 2014 letter to Senator Orrin Hatch. For example, CBO wrote: "To bring the OASDI [Social Security] program as a whole into actuarial balance through 2087 with the taxable maximum set according to current law [$118,500 in 2015], the combined OASDI payroll tax rate could be permanently increased by about 3.5 percentage points...Under that option, the combined OASDI payroll tax rate would rise from 12.4 percent to 15.9 percent in 2015. Revenues credited to the Social Security trust funds in 2015 would increase by about 28 percent." This would raise taxes for a worker earning $50,000 by about $900 per year.
Social Security debate in the United States
Social Security has collected approximately $2.8 trillion more in payroll taxes and interest than have been paid out since tax collection began in 1937. This surplus is referred to as the Social Security Trust Fund. The fund contains non-marketable Treasury securities backed "by the full faith and credit of the U.S. government". The funds borrowed from the program are part of the total national debt of $18.9 trillion as of December 2015. Due to interest, the Trust Fund will continue increasing through the end of 2020, reaching a peak of approximately $2.9 trillion. Social Security has the legal authority to draw amounts from other government revenue sources besides the payroll tax, to fully fund the program, while the Trust Fund exists. However, payouts greater than payroll tax revenue and interest income over time will liquidate the Trust Fund by 2035, meaning that only the ongoing payroll tax collections thereafter will be available to fund the program.
Social security in Switzerland
Social insurance is mostly financed by direct deductions from individual wages. The contributions are based on an individual's income. They are carried "on a parity basis," half by employers and half by employees. The only exception is health insurance, where income-independent head premiums are paid. In addition, there are also contributions from the public sector, for example old age pensions and disability pensions are financed by 5% from tobacco tax.
Taxation in Latvia
Social security contributions are levied on all employment income and are mandatory for most workers. The employee pays 11% of the wage, while the employer contributes 24.09%. There was no maximum ceiling for social security in year 2013 because of the economic crisis, but the ceiling was reinstated in 2014 at €46,600 of yearly income. The standard rate for VAT is 21%; for medications and heating expenses, a reduced rate of 12% applies. Some goods and services are also exempt from VAT, this include education, medical care, financial transactions and rent.
Heidi Hartmann
Social Security provides many advantages as well as disadvantages for women, according to Hartmann's studies. In terms of advantages, it covers everyone (including women) that has worked at least ten years at a salary of $4,360 per year. It provides benefits to wives regardless of whether they have worked for pay or not, former wives (who had at least a ten-year marriage) and for widows. Social Security also is adaptive to inflation processes and does not discriminate against lower or higher earning women workers. Hartmann also makes note of disadvantages of the United States' current social security system that are particular to women. In 2013, Social Security cuts (known as Chained CPI) hurt women more than it helps them. Elderly women rely on Social Security for most of their income, because they have less access to other forms of income such as pensions and savings that men have more access too. Besides the recent cuts to benefits, years when women are caregiving are averaged as zeroes, which drag's down a woman's overall average income. Additionally, there are no benefits to caregiving outside of marriage, whereas the married caregiver can received spousal benefits from Social Security.
Social security in Germany
Unemployed benefit is paid to workers who have contributed at least during 12 months preceding their loss of a job. The allowance is paid for half of the period that the worker has contributed. Claimants get 60% of their previous net salary (capped at the social security ceiling), or 67% for claimants with children. The maximum benefit is therefore 2,964 euros (in 2012).
Nicaraguan Social Security Institute
The social security system provided pension, disability and healthcare benefits to members. The system is funded by employer and employee contributions, amounting to about 5% of GDP in 2016. As of 2017 only about 32% of the work force were members largely due to high levels of informal employment. Pensions become payable at 60 years of age, or 55 for miners and teachers, subject to 750 weeks (about 15 years) of contributions.
Taxation in Slovakia
All employment income is mandated to pay into various social funds by law. In 2016 the rate for the employee is 13.4% and the employer contribution 35.2% of corresponding salary. Maximum monthly income base is 4.290 Euro.
Federal Insurance Contributions Act tax
The Social Security component of the FICA tax is regressive. That is, the effective tax rate regresses, or decreases, as income increases beyond the compensation limit or wage base limit amount. The Social Security component is a flat tax for wage levels under the Social Security Wage Base (see "Regular" employees above). Because no tax is owed on wages above the wage base limit amount, the total tax rate declines as wages increase beyond that limit. In other words, for wage levels above the limit, the absolute dollar amount of tax owed remains constant.
Social Security debate in the United States
Economist Lawrence Summers wrote in August 2016 that raising the Social Security payouts could reduce the savings rate, as the economy faced a post-crisis savings surplus, which was driving down interest rates: "...[A]t current interest rates an increase in pay as you go social security could provide households with higher safe returns than private investments. More generous Social Security would likely reduce the saving rate, thereby raising the neutral interest rate [the rate required to achieve full employment] with no change in budget deficits."
Institute for Women's Policy Research
Women are more likely to rely on Social Security because they have fewer alternative sources of income, often outlive their husbands, and are more likely to be left to rear children when their husbands die or become disabled. Specifically, adult women are 57 percent of all social security beneficiaries aged 65 and older. IWPR produces and disseminates materials to keep women involved on the ongoing Social Security debate and to ensure that women’s concerns are addressed when or if any changes to the system take place.
Taxation in Albania
Social security and health insurance contributions are paid on employment, civil and management income. Contributions is paid on a monthly income, from a minimum of 22,000 to a maximum amount of 95,130. The employees contribution is 9.5% while the employer pays 15%. Health insurance is levied at 1.7% for both employee and employer. The self-employed pay 23% for social security and 7% for health insurance.
Social Security debate in the United States
The Social Security Administration explained in 2011 that historically, an average of roughly 83% of covered earnings have been subject to the payroll tax. In 1983, this figure reached 90%, but it has declined since then. As of 2010, about 86% of covered earnings fall under the taxable maximum.
Social security
A report published by the ILO in 2014 estimated that only 27% of the world's population has access to comprehensive social security.
Social Security Trust Fund
The Social Security Administration collects payroll taxes and uses the money collected to pay Old-Age, Survivors, and Disability Insurance benefits by way of trust funds. When the program runs a surplus, the excess funds increase the value of the Trust Fund. At the end of 2014, the Trust Fund contained (or alternatively, was owed) $2.79 trillion, up $25 billion from 2013. The Trust Fund is required by law to be invested in non-marketable securities issued and guaranteed by the "full faith and credit" of the federal government. These securities earn a market rate of interest.
Social Security (United States)
From 2004 to 2030, the combined spending on Social Security and Medicare is expected to rise from 8% of national income (gross domestic product) to 13%. Two-thirds of the increase occurs in Medicare.
Expenditures in the United States federal budget
Social Security is a social insurance program officially called "Old-Age, Survivors, and Disability Insurance" (OASDI), in reference to its three components. It is primarily funded through a dedicated payroll tax. During 2009, total benefits of $686 billion were paid out versus income (taxes and interest) of $807 billion, a $121 billion annual surplus. An estimated 156 million people paid into the program and 53 million received benefits, roughly 2.94 workers per beneficiary. During 2008, total benefits of $625 billion were paid out versus income (taxes and interest) of $805 billion, a $180 billion annual surplus. An estimated 162 million people paid into the program and 51 million received benefits, roughly 3.2 workers per beneficiary.
Withholding tax
Where the employees are required to pay the tax, it is generally withheld from the payment of wages and paid by the employer to the government. Social insurance tax rates may be different for employers than for employees. Most systems provide an upper limit on the amount of wages subject to social insurance taxes.
Social Security debate in the United States
Immediately after Bush's State of the Union speech, a national poll brought some good news for each side of the controversy. Only 17% of the respondents thought the Social Security system was "in a state of crisis", but 55% thought it had "major problems". The general idea of allowing private investments was favored by 40% and opposed by 55%. Specific proposals that received more support than opposition (in each case by about a two-to-one ratio) were "Limiting benefits for wealthy retirees" and "Requiring higher income workers to pay Social Security taxes on ALL of their wages". The poll was conducted by "USA Today", CNN, and the Gallup Organization.
Social Security (United States)
According to the Social Security website, "The tax rate in the original 1935 law was 1% each on the employer and the employee, on the first $3,000 of earnings. This rate was increased on a regular schedule in four steps so that by 1949 the rate would be 3% each on the first $3,000. The figure was never $1,400, and the rate was never fixed for all time at 1%."
Social Security debate in the United States
A range of other proposals have been suggested for partial privatization, such as the 7.65% Solution. One, suggested by a number of Republican candidates during the 2000 elections, would set aside an initially small but increasing percentage of each worker's payroll tax into a fund, which the worker would be allowed to invest in securities. Another eliminated the Social Security payroll tax completely for workers born after a certain date, and allowed workers of different ages different periods of time during which they could opt to not pay the payroll tax, in exchange for a proportional delay in their receipt of payouts.
Taxation in Portugal
All employment income is subject to social security contributions. The employee's contribution is 11% of the salary, while the employer's contribution is 23.75% of the salary There is no income ceiling. The contribution covers pension, unemployment, health and care insurance.
Payroll tax
In 2018, the Swedish social security contribution paid by the employer is 31.42 percent, calculated on top of the employee's salary. The percentage is lower for old employees. The other type of Swedish payroll tax is the income tax withheld (PAYE), which consists of municipal, county, and, for higher income brackets, state tax. In most municipalities, the income tax comes to approximately 32 percent, with the two higher income brackets also paying a state tax of 20 or 25 percent respectively. The combination of the two types is a total marginal tax effect of 52 to 60 percent.
Social Security debate in the United States
President Ronald Reagan stated in October 1984: "Social Security has nothing to do with the deficit...Social Security is totally funded by the payroll tax levied on employer and employee. If you reduce the outgo of Social Security that money would not go into the general fund to reduce the deficit. It would go into the Social Security trust fund. So, Social Security has nothing to do with balancing a budget or erasing or lowering the deficit."
Social Security Wage Base
For the Old Age, Survivors and Disability Insurance (OASDI) tax or Social Security tax in the United States, the Social Security Wage Base (SSWB) is the maximum earned gross income or upper threshold on which a wage earner's Social Security tax may be imposed. The Social Security tax is one component of the Federal Insurance Contributions Act tax (FICA) and Self-employment tax, the other component being the Medicare tax. It is also the maximum amount of covered wages that are taken into account when average earnings are calculated in order to determine a worker's Social Security benefit.
Social Security (United States)
The portion of taxes collected from the employee for Social Security are referred to as "trust fund taxes" and the employer is required to remit them to the government. These taxes take priority over everything, and represent the only debts of a corporation or LLC that can impose personal liability upon its officers or managers. A sole proprietor and officers of a corporation and managers of an LLC can be held personally liable for non-payment of the income tax and social security taxes whether or not actually collected from the employee.
Self-employment
The self-employment tax in the United States is typically set at 15.30%, which is roughly the equivalent of the combined contributions of the employee and employer under the FICA tax. The rate consists of two parts: 12.4% for social security and 2.9% for Medicare. The social security portion of the self-employment tax only applies to the first $110,100 of income for the 2012 tax year. There is no limit to the amount that is taxable under the 2.9% Medicare portion of the self-employment tax.
Social Security (United States)
The combined tax rate of these two federal programs is 15.30% (7.65% paid by the employee and 7.65% paid by the employer). In 2011–2012 it temporarily dropped to 13.30% (5.65% paid by the employee and 7.65% paid by the employer).
Federal Insurance Contributions Act tax
In 2004, the Center on Budget and Policy Priorities stated that three-quarters of taxpayers pay more in payroll taxes than they do in income taxes. The FICA tax is considered a regressive tax on income with no standard deduction or personal exemption deduction. The Social Security portion of the tax is imposed on the first $117,000 in 2014, $118,500 in 2015 and 2016, $127,200 in 2017, and $128,400 in 2018. The FICA tax is not imposed on investment income such as rental income, interest, or dividends.
Social security in Australia
A controversial decision by the Labor party in 2006 and 2013, to transfer sole parents to the lower Newstart payment, has placed sole parents well below the poverty line. Welfare groups have reported these parents, 82.3% of which are women (ABS 2011), are turning to prostitution (because of the cash in hand options), have given up their education and are sleeping in their cars. This decision was made as an incentive for parents to seek work, as 57% of primary residential mothers work and 70% of primary residential fathers work (ABS 2011). With one quarter of single parent households headed by a single parent being 896,542 families (17.7% male & 82.3% female, ABS 2011)
Income tax in the United States
The United States social insurance system is funded by a tax similar to an income tax. Social Security tax of 6.2% is imposed on wages paid to employees. The tax is imposed on both the employer and the employee. For 2011 and 2012, the employee tax has been reduced from 6.2% to 4.2%. The maximum amount of wages subject to the tax for 2009, 2010, and 2011 was/is $106,800. This amount is indexed for inflation. A companion Medicare Tax of 1.45% of wages is imposed on employers and employees, with no limitation. A self-employment tax in like amounts (totaling 15.3%, 13.3% for 2011 and 2012) is imposed on self-employed persons.
Primary Insurance Amount
The Primary Insurance Amount (abbreviated PIA), is a component of Social Security provision in the United States. Eligibility for receiving Social Security benefits is contingent upon the recipient: (i) having worked for at least 10 (noncontiguous) years and (ii) having paid the Federal Insurance Contributions Act (FICA) tax up to a maximum taxable earnings threshold. For the purposes of the United States Social Security Administration, PIA is used as the beginning point in calculating the annuity payment of benefits that is provided to an eligible recipient each month during retirement until the recipient's death. Generally, the more a person pays into the Social Security Trust Fund during their life, the higher their PIA will be. However, specific rules in its computation may deviate from this general rule.
Social Security Wage Base
The Congressional Budget Office considers the employer share of taxes to be passed on to employees in the form of lower wages than would otherwise be paid, and counts them as part of the employees’ tax burden. Self-employed individuals pay the entire amount of applicable tax.
Social Security (United States)
Benefits are funded by taxes imposed on wages of employees and self-employed persons. As explained below, in the case of employment, the employer and employee are each responsible for one half of the Social Security tax, with the employee's half being withheld from the employee's pay check. In the case of self-employed persons (i.e., independent contractors), the self-employed person is responsible for the entire amount of Social Security tax.
Taxation in Argentina
Taxes connected to wages are consisted only from social security. There is no payroll tax in Argentina. The social security system is financed by employer contribution of 17% or 21% of payroll and 14% contribution by employee. The health care works the same but with 6% contribution by employer and 3% by employee. Self-employed individuals must pay their own contribution monthly and it is a fixed amount.
Social Security debate in the United States
The CBO projected in 2010 that an increase in payroll taxes ranging from 1.6%–2.1% of the payroll tax base, equivalent to 0.6%–0.8% of GDP, would be necessary to put the Social Security program in fiscal balance for the next 75 years. In other words, raising the payroll tax rate to about 14.4% during 2009 (from the current 12.4%) or cutting benefits by 13.3% would address the program's budgetary concerns indefinitely; these amounts increase to around 16% and 24% if no changes are made until 2037. The value of unfunded obligations under Social Security during FY 2009 was approximately $5.4 trillion. In other words, this amount would have to be set aside today such that the principal and interest would cover the shortfall over the next 75 years. Projections of Social Security's solvency are sensitive to assumptions about rates of economic growth and demographic changes.
Social Security (United States)
The largest component of OASDI is the payment of retirement benefits. These retirement benefits are a form of social insurance that is heavily biased toward lower paid workers to make sure they do not have to retire in relative poverty. With few exceptions, throughout a worker's career, the Social Security Administration and the Internal Revenue Service (IRS) keeps track of his or her earnings and requires Federal Insurance Contribution Act, FICA or Self Employed Contribution Act, SECA, taxes to be paid on the earnings. The OASI accounts plus trust funds are the only Social Security funding source that brings in more than it sends out.
Social Security debate in the United States
On February 2, 2005, Bush made Social Security a prominent theme of his State of the Union Address. In this speech, which sparked the debate, it was Plan II of CSSS's report that Bush outlined as the starting point for changes in Social Security. He outlined, in general terms, a proposal based on partial privatization. After a phase-in period, workers currently less than 55 years old would have the option to set aside four percentage points of their payroll taxes in individual accounts that could be invested in the private sector, in "a conservative mix of bonds and stock funds". Workers making such a choice might receive larger or smaller benefits than if they had not done so, depending on the performance of the investments they selected.
Taxation in the United States
Payroll taxes are imposed by the federal and all state governments. These include Social Security and Medicare taxes imposed on both employers and employees, at a combined rate of 15.3% (13.3% for 2011 and 2012). Social Security tax applies only to the first $106,800 of wages in 2009 through 2011. However, benefits are only accrued on the first $106,800 of wages. Employers must withhold income taxes on wages. An unemployment tax and certain other levies apply to employers. Payroll taxes have dramatically increased as a share of federal revenue since the 1950s, while corporate income taxes have fallen as a share of revenue. (Corporate profits have not fallen as a share of GDP).
Wage share
In economics, the wage or labor share is the part of national income, or the income of a particular economic sector, allocated to wages (labor). It is related to the capital or profit share, the part of income going to capital,
which is also known as the K–Y ratio.
The labor share is a key indicator for the distribution of income.
Social Security debate in the United States
Payroll tax rates were cut during 2011 and 2012 as a stimulus measure; these cuts expired at the end of 2012. The Social Security Trustees estimated the amounts at $222 billion total; $108 billion in 2011 and $114 billion in 2012. Transfers of other government funds made the program "whole" as if these tax cuts had not occurred.
Social Security debate in the United States
Liberals argue that government has the obligation to provide social insurance, through mandatory participation and broad program coverage. During 2004, Social Security constituted more than half of the income of nearly two-thirds of retired Americans. For one in six, it is their only income. Liberals tend to defend the current program, preferring tax increases and payment modifications.
Income tax in the United States
Employers and employees must also pay Social Security tax, the employee portion of which is also to be withheld from wages. Withholding of income and Social Security taxes are often referred to as payroll tax.
Social Security (United States)
Some federal, state, local and education government employees pay no Social Security but have their own retirement, disability systems that nearly always pay much better retirement and disability benefits than Social Security. These plans typically require vesting—working for 5–10 years for the same employer before becoming eligible for retirement. But their retirement typically only depends on the average of the best 3–10 years salaries times some retirement factor (typically 0.875%–3.0%) times years employed. This retirement benefit can be a "reasonably good" (75–85% of salary) retirement at close to the monthly salary they were last employed at. For example, if a person joined the University of California retirement system at age 25 and worked for 35 years they could receive 87.5% (2.5% × 35) of their average highest three year salary with full medical coverage at age 60. Police and firemen who joined at 25 and worked for 30 years could receive 90% (3.0% × 30) of their average salary and full medical coverage at age 55. These retirements have cost of living adjustments (COLA) applied each year but are limited to a maximum average income of $350,000/year or less. Spousal survivor benefits are available at 100–67% of the primary benefits rate for 8.7% to 6.7% reduction in retirement benefits, respectively. UCRP retirement and disability plan benefits are funded by contributions from both members and the university (typically 5% of salary each) and by the compounded investment earnings of the accumulated totals. These contributions and earnings are held in a trust fund that is invested. The retirement benefits are much more generous than Social Security but are believed to be actuarially sound. The main difference between state and local government sponsored retirement systems and Social Security is that the state and local retirement systems use compounded investments that are usually heavily weighted in the stock market securities—which historically have returned more than 7.0%/year on average despite some years with losses. Short term federal government investments may be "more" secure but pay much lower average percentages. Nearly all other federal, state and local retirement systems work in a similar fashion with different benefit retirement ratios. Some plans are now combined with Social Security and are "piggy backed" on top of Social Security benefits. For example, the current Federal Employees Retirement System, which covers the vast majority of federal civil service employees hired after 1986, combines Social Security, a modest defined-benefit pension (1.1% per year of service) and the defined-contribution Thrift Savings Plan.
Employees' State Insurance
For all employees earning or less per month as wages, the employer contributes 4.75% and the employee contributes 1.75%, total share 6.5%. This fund is managed by the ESI Corporation (ESIC) according to rules and regulations stipulated there in the ESI Act 1948, which oversees the provision of medical and cash benefits to the employees and their family. ESI scheme is a type of social security scheme for employees in the organised sector.
Wage share
Often the capital share and labor share are assumed to sum to 100%, so that each can be deduced from the other. For example, the Bureau of Labor Statistics defines the labor share in a given sector ("LS") as the ratio of labor compensation paid in that sector ("C") to current dollar output ("CU"), ie. "LS = C / CU". The non-labor or capital share ("NLS") is defined as 1 − "LS".
Social Security Administration
SSA is headquartered in Woodlawn, Maryland, just to the west of Baltimore, at what is known as Central Office. The agency includes 10 regional offices, 8 processing centers, approximately 1300 field offices, and 37 Teleservice Centers. , about 60,000 people were employed by SSA. Headquarters non-supervisory employees of SSA are represented by American Federation of Government Employees Local 1923. Social Security is the largest social welfare program in the United States. For 2014, the net cost of Social Security was $906.4 billion, an amount corresponding to 21% of US Federal Government expenditures.
Totalization agreements
In 1935, Congress passed the Social Security Act. The act established a taxpayer-funded old-age pension. In the 1960s, Congress established Medicare, which provides taxpayer-funded health insurance to the elderly. In order to finance Social Security and Medicare, Congress passed the Federal Insurance Contributions Act, also known as FICA. Under FICA tax policy as of December 2017, the act mandates 3 different types of payroll taxes that employees have withheld from their paychecks: a 6.2% Social Security tax, a 1.45% Medicare tax, and, starting in 2013, a 0.9% Medicare tax for workers who make over $200,000 a year. Additionally, employers have to match any Social Security and Medicare taxes that their employees pay. All that totals to roughly a 12% Social Security tax and a 3% Medicare tax as a percentage of an employee's base paycheck.
Social Security (United States)
A separate payroll tax of 1.45% of an employee's income is paid directly by the employer, and an additional 1.45% deducted from the employee's paycheck, yielding a total tax rate of 2.90%. There is no maximum limit on this portion of the tax. This portion of the tax is used to fund the Medicare program, which is primarily responsible for providing health benefits to retirees.
United States federal budget
Mandatory spending is expected to continue increasing as a share of GDP. This is due in part to demographic trends, as the number of workers continues declining relative to those receiving benefits. For example, the number of workers per retiree was 5.1 in 1960; this declined to 3.0 in 2010 and is projected to decline to 2.2 by 2030. These programs are also affected by per-person costs, which are also expected to increase at a rate significantly higher than economic growth. This unfavorable combination of demographics and per-capita rate increases is expected to drive both Social Security and Medicare into large deficits during the 21st century. Unless these long-term fiscal imbalances are addressed by reforms to these programs, raising taxes or drastic cuts in discretionary programs, the federal government will at some point be unable to pay its obligations without significant risk to the value of the dollar (inflation). By one estimate, 70% of the growth in these entitlement expenses over the 2016-2046 period is due to healthcare.CBO reported that net interest on the public debt was approximately $240 billion in FY2016 (6% of spending), an increase of $17 billion or 8% versus FY2015. A higher level of debt coincided with higher interest rates. During FY2012, the GAO reported a figure of $245 billion, down from $251 billion. Government also accrued a non-cash interest expense of $187 billion for intra-governmental debt, primarily the Social Security Trust Fund, for a total interest expense of $432 billion. GAO reported that even though the national debt rose in FY2012, the interest rate paid declined. Should interest rates rise to historical averages, the interest cost would increase dramatically.
Progressivity in United States income tax
When an individual's Social Security benefit is calculated, income in excess of each year's Social Security Tax wage base amount is disregarded for purposes of the calculation of future benefits. Although some lower income individuals pay a proportionately higher share of payroll taxes than do higher income individuals in terms of the "effective tax rate", the lower income individuals also receive a proportionately higher share of Social Security benefits than do some higher income individuals, since the lower income individuals will receive a much higher income replacement percentage in retirement than higher income individuals affected by the Social Security tax wage base cap.
Payroll tax
In addition to income tax withheld employees and employers in Germany must pay contributions to finance social security benefits. The social security system consist of four insurances, for which the contribution will be (nearly) equally shared between employer and employee (old age insurance, unemployment insurance, health insurance and nursing care insurance). Contributions are payable only on wages up to the social security threshold:
In addition there are some insurance which are covered by the employer only (accident insurance, insolvency insurance, contribution to the maternity allocation, contribution for sick pay allocation for small companies). 
The following table shows employee and employer contributions by category for the year 2015.
Sweden
On average, 27% of taxpayer's money in Sweden goes to education and healthcare, whereas 5% goes to the police and military, and 42% to social security.
Social VAT
Social VAT is the earmarking of a defined amount of VAT revenues to finance social security. The shift from taxing labour to taxing consumption in order to finance social security is based on several premises.
Social Security (United States)
During working years, the low wage worker is eligible for the Earned Income Tax Credit (FICA refunds) and federal child credits and may pay little or no FICA tax or Income tax. By Congressional Budget Office (CBO) calculations the lowest income quintile (0–20%) and second quintile (21–40%) of households in the U.S. pay an average income tax of −9.3% and −2.6% and Social Security taxes of 8.3% and 7.9% respectively. By CBO calculations the household incomes in the first quintile and second quintile have an average Total Federal Tax rate of 1.0% and 3.8% respectively. Higher income retirees will have to pay income taxes on 85% of their Social Security benefits and 100% on all other retirement benefits they may have.
Social Security Wage Base
Note that although self-employed individuals pay 12.4%, this is mitigated two ways. First, half of the amount of the tax is reduced from salary before figuring the tax (you don't pay Social Security tax on the tax your employer pays for you.) Second, the "employer" half is an adjustment to income on the front page of Form 1040.
Social VAT
Several countries have switched social security funding from payroll taxation or social security contributions on salaries and wages towards consumption taxation funding.
Income tax in the United States
Effective tax rates are typically lower than marginal rates due to various deductions, with some people actually having a negative liability. The individual income tax rates in the following chart include capital gains taxes, which have different marginal rates than regular income. Only the first $118,500 of someone's income is subject to social insurance (Social Security) taxes in 2016. The table below also does not reflect changes, effective with 2013 law, which increased the average tax paid by the top 1% to the highest levels since 1979, at an effective rate of 33%, while most other taxpayers have remained near the lowest levels since 1979.
Economy of Iran
Employees between the age of 18 and 65 years are covered by the social security system with financing shared between the employee (7% of salary), the employer (20–23%) and the state, which in turn supplements the employer contribution up to 3%. Social security applies to self-employed workers, who voluntarily contribute between 12% and 18% of income depending on the protection sought. Civil servants, the regular military, law enforcement agencies, and IRGC have their own pension systems.
Expenditures in the United States federal budget
In the long-run, expenditures related to Social Security, Medicare, and Medicaid are growing considerably faster than the economy overall as the population matures. The Congressional Budget Office (CBO) estimates that Social Security spending will rise from 4.8% of GDP in 2009 to 6.2% of GDP by 2035, where it will stabilize. However, the CBO expects Medicare and Medicaid to continue growing, rising from 5.3% GDP in 2009 to 10.0% in 2035 and 19.0% by 2082. CBO has indicated healthcare spending per beneficiary is the primary long-term fiscal challenge. Further, multiple government and private sources have indicated the overall expenditure path is unsustainable.
Social Security (United States)
The analogy to insurance, however, is limited by the fact that paying FICA taxes creates no legal right to benefits and by the extent to which Social Security is, in fact, funded by FICA taxes. During 2011 and 2012, for example, FICA tax revenue was insufficient to maintain Social Security's solvency without transfers from general revenues. These transfers added to the general budget deficit like general program spending.
Social Security (United States)
In 2007, the Social Security Trustees suggested that either the payroll tax could increase to 16.41 percent in 2041 and steadily increased to 17.60 percent in 2081 or a cut in benefits by 25 percent in 2041 and steadily increased to an overall cut of 30 percent in 2081.
Social Security (United States)
The 2011 annual report by the program's Board of Trustees noted the following: in 2010, 54 million people were receiving Social Security benefits, while 157 million people were paying into the fund; of those receiving benefits, 44 million were receiving retirement benefits and 10 million disability benefits. In 2011, there will be 56 million beneficiaries and 158 million workers paying in. In 2010, total income was $781.1 billion and expenditures were $712.5 billion, which meant a total net increase in assets of $68.6 billion. Assets in 2010 were $2.6 trillion, an amount that is expected to be adequate to cover the next 10 years. In 2023, total income and interest earned on assets are projected to no longer cover expenditures for Social Security, as demographic shifts burden the system. By 2035, the ratio of potential retirees to working age persons will be 37 percent—there will be less than three potential income earners for every retiree in the population. At this rate the Social Security Trust Fund would be exhausted by 2036.
Defined benefit pension plan
For example, the United States Social Security system is a funded program. It is funded through a payroll tax (FICA) that is paid by employees and employers. The proceeds of this tax are paid into the Social Security Trust Funds which had a balance of $2,804,858 million as of July 2014. The funding status of US Social Security is reviewed annually by the Social Security Office of the Chief Actuary. A report on the status of US Social Security is issued annually by the Social Security Trustees, projecting funding needs out 75 years.
Social Security (United States)
The disability insurance (DI) taxes of 1.4% are included in the OASDI rate of 6.2% for workers and employers or 12.4% for the self-employed. Outgo of $140.3 billion while having income of only $109.1 billion means the disability trust fund is rapidly being depleted and may require either revisions on what "disabilities" are included/allowed/defined as, fraud minimization or tax increases.
The Path to Prosperity
Social Security receives no changes in the proposal compared to the baseline. The CBO states that "spending on that program is projected to be relatively stable as a share of GDP from 2030 forward."
Welfare
Government pension payments are financed through an 18.5% pension tax on all taxed incomes in the country, which comes partly from a tax category called a public pension fee (7% on gross income), and 30% of a tax category called employer fees on salaries (which is 33% on a netted income). Since January 2001 the 18.5% is divided in two parts: 16% goes to current payments, and 2.5% goes into individual retirement accounts, which were introduced in 2001. Money saved and invested in government funds, and IRAs for future pension costs, are roughly 5 times annual government pension expenses (725/150).
The United Kingdom has a long history of welfare, notably including the English Poor laws which date back to 1536. After various reforms to the program, which involved workhouses, it was eventually abolished and replaced with a modern system by laws such as National Assistance Act 1948.
Social Security (United States)
Social Security is funded primarily through payroll taxes called Federal Insurance Contributions Act tax (FICA) or Self Employed Contributions Act Tax (SECA). Tax deposits are collected by the Internal Revenue Service (IRS) and are formally entrusted to the Federal Old-Age and Survivors Insurance Trust Fund and the Federal Disability Insurance Trust Fund, the two Social Security Trust Funds. With a few exceptions, all salaried income, up to an amount specifically determined by law (see tax rate table below), is subject to the Social Security payroll tax. All income over said amount is not taxed. In 2018, the maximum amount of taxable earnings was $128,400.
Social security in Sweden
Social security in Sweden is one of the parts of the Swedish welfare system and consists of various social insurances handled by the National Agency for Social Insurance (Swedish; Försäkringskassan), and also welfare given out on a need basis by local municipalities. They are the main conduits for redistribution of approximately 48% of the Swedish GDP in the form of taxed income.
Social Security Wage Base
The pension compensation nondiscrimination laws (Internal Revenue Code Section 401(a)(4)) require that qualified pension plans not discriminate in benefits, rights and features in favor of "highly compensated employees" (in 2007, the threshold is $100K of 2006 gross pay including bonuses and overtime). Because Social Security provides a progressive benefit formula and stops taxation at the SSWB, pension plans may "integrate" benefits or contributions according to a wage base, frequently at a fraction (e.g. 50%) of the SSWB.
Payroll
Very often you can hear people using FICA in their terminology. FICA stands for the Federal Insurance Contributions Act and the FICA tax consists of both Social Security and Medicare taxes. As we explained earlier both parties pay half of these taxes. Employees pay half, and employers pay the other half. Social Security and Medicare taxes are paid both by the employees and the employers. In summary together both halves of the FICA taxes add up to 15.3 percent.
Unemployment benefits
The system is financed by contributions from employees and employers. Employees pay 1.5% of their gross salary below the social security threshold and employers pay 1.5% contribution on top of the salary paid to the employee. The contribution level was reduced from 3.25% for employees and employers as part of labour market reforms known as Hartz. Contributions are paid only on earnings up to the social security ceiling (2012: 5,600 EUR).
Social protection in France
The funding by the tax "assigned taxes" constitutes a growing share of Social Welfare (nearly 21% in 2007, excluding transfers). This increase responds to the need not to weigh the financing of social benefits solely on labor income, and distinguish the financing of benefits under the National Solidarity and those of insurance. The "assigned taxes" are fiscal resources allocated to the financing of social benefits. They include:
Social Security debate in the United States
This article concerns proposals to change the Social Security system in the United States. Social Security is a social insurance program officially called "Old-age, Survivors, and Disability Insurance" (OASDI), in reference to its three components. It is primarily funded through a dedicated payroll tax. During 2015, total benefits of $897 billion were paid out versus $920 billion in income, a $23 billion annual surplus. Excluding interest of $93 billion, the program had a cash deficit of $70 billion. Social Security represents approximately 40% of the income of the elderly, with 53% of married couples and 74% of unmarried persons receiving 50% or more of their income from the program. An estimated 169 million people paid into the program and 60 million received benefits in 2015, roughly 2.82 workers per beneficiary. 
Reform proposals continue to circulate with some urgency, due to a long-term funding challenge faced by the program as the ratio of workers to beneficiaries falls, driven by the aging of the baby-boom generation, expected continuing low birth rate, and increasing life expectancy. Program payouts began exceeding cash program revenues (i.e., revenue excluding interest) in 2011; this shortfall is expected to continue indefinitely under current law.
Federal Medical Assistance Percentages
Pursuant to Section 1905(b) of the Social Security Act, the Secretary of Health and Human Services calculates the Federal Medical Assistance Percentages each year. This calculation is based upon a formula which compares individual state income to the continental United States income in order to determine ratios the federal government will utilize in assisting each state under the Act. This section also provides that no state's ratio will go lower than 50% or higher than 83%.
Taxation in Sweden
27% of taxpayer money in Sweden go to education and healthcare, whereas 5% go to the police and military, and 42% to social security.
Social Security Act 1938
The Social Security Act (as intended) became one of the main issues at the 1938 election campaign. Savage had used the act to set the agenda for the election which he thought would virtually guarantee Labour victory. Indeed, Labour was decisively re-elected increasing its share of the votes by 10% from 45 to 55 percent, though it actually did not gain any extra seats. As predicted, the expense to fund the scheme was high. It was estimated to cost £17.85 million in its first year, up from just £7.5 million per-annum spent on the previous social services.
Social Security debate in the United States
CBO estimated in 2010 that removing the cap on the payroll tax (i.e., making all income subject to the flat payroll tax rate) would fully fund the program for 75 years. Removing the cap on income over $250,000 only (i.e., a "donut" in the tax code) would address about 75% of the program shortfall over 75 years.
Expenditures in the United States federal budget
Since recommendations of the Greenspan Commission were adopted in the early 1980s, Social Security payroll taxes have exceeded benefit payments. In FY2008, Social Security received $180 billion more in payroll taxes and accrued interest than it paid out in benefits. This annual surplus is credited to Social Security trust funds that hold special non-marketable Treasury securities. The Social Security surplus reduces the amount of U.S. Treasury borrowing from the public, as the surplus funds may be used for other government purposes. The total balance of the trust funds was $2.4 trillion in 2008 and is estimated to reach $3.7 trillion by 2016. At that point, payments will exceed payroll tax revenues, resulting in the gradual reduction of the trust funds balance as the securities are redeemed against other types of government revenues. By 2037, according to some estimates, the trust funds will be exhausted. Under current law, Social Security payouts would be reduced by 24% at that time, as only payroll taxes are authorized to cover benefits.
Social Security (United States)
According to a 1936 pamphlet on the Social Security website, the federal government promised the following maximum level of taxation for Social Security, "... beginning in 1949, twelve years from now, you and your employer will each pay 3 cents on each dollar you earn, up to $3,000 a year. That is the most you will ever pay."
Social Security debate in the United States
During 2015, payroll taxes were levied on the first $118,500 of income; earnings above that amount were not taxed. Approximately 6% of workers earned over this amount in 2011. Because of this limit, people with higher incomes pay a lower percentage of tax than people with lower incomes; the payroll tax is therefore a regressive tax.
Social welfare in Luxembourg
Luxembourg has an extensive welfare system. It comprises a social security, health, and pension funds. The labor market is highly regulated, and Luxembourg is a corporatist welfare state. Enrollment is mandatory in one of the welfare schemes for any employed person. Luxembourg's social security system is the Centre Commun de la Securite Sociale (CCSS). Both employees and employers make contributions to the fund at a rate of 25% of total salary, which cannot eclipse more than five times the minimum wage. Social spending accounts for 21.8% of GDP.
Social Security (United States)
In 2005, Dr. Williams wrote, "Had Congress lived up to those promises, where $3,000 was the maximum earnings subject to Social Security tax, controlling for inflation, today's $50,000-a-year wage earner would pay about $700 in Social Security taxes, as opposed to the more than $3,000 that he pays today."
Payroll tax
In France statutory payroll tax only covers employee and employer contributions to the social security system. Income tax deductions from the payroll are voluntary and may be requested by the employee, otherwise employees are billed 2 mandatory income tax prepayments during the year directly by the tax authority (set at 1/3 of the prior year's final tax bill). Employee payroll tax is made up of assigned taxes for the three branches of social security system and includes both basic and supplementary coverage. Different percentages apply depending on thresholds that are multiples of the social security earnings ceiling (in 2012 = 36,372 euro per year).
Social protection in France
The CSG enabled to ease the burden of social security contributions on wages, to promote a way of funding consistent with the widespread use of Social Security benefits, and to force all household incomes to contribute (e.g. income from work but also property), contrary to social contributions. His return is important (75 billion euros) and represents almost two-thirds of taxes allocated to social protection (65%). The CSG is currently the second most important tax in France, after the VAT.
Social Security debate in the United States
Increasing unemployment due to the subprime mortgage crisis of 2008–2010 has significantly reduced the amount of payroll tax income that funds Social Security. Further, the crisis also caused more to apply for both retirement and disability benefits than expected. During 2009, payroll taxes and taxation of benefits resulted in cash revenues of $689.2 billion, while payments totaled $685.8 billion, resulting in a cash surplus (excluding interest) of $3.4 billion. Interest of $118.3 billion meant that the Social Security Trust Fund overall increased by $121.7 billion (i.e., the cash surplus plus interest). The 2009 cash surplus of $3.4 billion was a significant reduction from the $63.9 billion cash surplus of 2008.
Social Security (United States)
However, according to the Social Security website, by the year 2008, the tax rate was 6.2% each for the employer and employee, and the maximum income level that was subject to the tax was $102,000 raising the bar to $6,324 maximum contribution by both employee and employer (total $12,648).
History of Social Security in the United States
Most women and minorities were excluded from the benefits of unemployment insurance and old age pensions. Job categories that were not covered by the act included workers in agricultural labor, domestic service, government employees, and many teachers, nurses, hospital employees, librarians, and social workers. The act also denied coverage to individuals who worked intermittently. These jobs were dominated by women and minorities. For example, women made up 90 percent of domestic labor in 1940 and two-thirds of all employed black women were in domestic service. Exclusions exempted nearly half of the working population. Nearly two-thirds of all African Americans in the labor force, 70 to 80 percent in some areas in the South, and just over half of all women employed were not covered by Social Security. At the time, the NAACP protested the Social Security Act, describing it as "a sieve with holes just big enough for the majority of Negroes to fall through."
Social Security Trust Fund
According to the Social Security Trustees, who oversee the program and report on its financial condition, program costs are expected to exceed non-interest income from 2010 onward. However, due to interest (earned at a 3.6% rate in 2014) the program will run an overall surplus that adds to the fund through the end of 2019. Under current law, the securities in the Trust Fund represent a legal obligation the government must honor when program revenues are no longer sufficient to fully fund benefit payments. However, when the Trust Fund is used to cover program deficits in a given year, the Trust Fund balance is reduced. By 2034, the Trust Fund is expected to be exhausted. Thereafter, payroll taxes are projected to only cover approximately 79% of program obligations.
Social Security (United States)
For self-employed workers (who technically are not employees and are deemed not to be earning "wages" for federal tax purposes), the self-employment tax, imposed by the Self-Employment Contributions Act of 1954, codified as Chapter 2 of Subtitle A of the Internal Revenue Code, , is 15.3% of "net earnings from self-employment." In essence, a self-employed individual pays both the employee and employer share of the tax, although half of the self-employment tax (the "employer share") is deductible when calculating the individual's federal income tax.
Living wage
Other contemporary accounts have taken up the theme of externalities arising due to a lack of living wage. Muilenburg and Singh see welfare programs, such as housing and school meals, as being a subsidy for employers that allow them to pay low wages. This subsidy, taking the form of an externality, is of course paid for by society in the form of taxes. This thought is repeated by Grimshaw who argues that employers offset the social costs of maintaining their workforce through tax credits, housing, benefits and other wage subsidies. The issue was raised during the Democratic party primary election of 2016 in the United States, when presidential candidate Bernie Sanders mentioned that "struggling working families should not have to subsidise the wealthiest family in the country", and therefore, implied that the large retailer Walmart, who is owned by the wealthiest family in the country, was not paying fair wages and was being subsidised by taxpayers.
Middle Class Tax Relief and Job Creation Act of 2012
The Social Security tax rate would have increased from 4.2% to 6.2%, had the bill not passed. The rate would have applied to the first $110,100 in income. However, under the Senate version of the bill, the temporary tax cut applied to only one-sixth of that income amount, or $18,350, since the income would have to be earned in the first two months of 2012. Under the House version, persons earning far more than $110,100 a year would have received the full benefit in the two months.
Progressivity in United States income tax
Other taxes in the United States have a less progressive structure or a regressive structure, and legal tax avoidance loopholes change the overall tax burden distribution. For example, the payroll tax system (FICA), a 12.4% Social Security tax on wages up to $117,000 (for 2013) and a 2.9% Medicare tax (a 15.3% total tax that is often split between employee and employer) is called a regressive tax on income with no standard deduction or personal exemptions but in effect is forced savings which return to the payer in the form of retirement benefits and health care. The Center on Budget and Policy Priorities states that "three-fourths" of U.S. taxpayers pay more in payroll taxes than they do in income taxes.
Wealth inequality in the United States
However, according to the federal reserve, "For most households, pensions and Social Security are the most important sources of income during retirement, and the promised benefit stream constitutes a sizable fraction of household wealth" and "including pensions and Social Security in net worth makes the distribution more even". A September 2017 study by the Federal Reserve reported that the top 1% owned 38.5% of the country's wealth in 2016.
Social Security Trust Fund
However, even right-leaning politicians have been inconsistent with the language they use when referencing Social Security. For example, Bush has referred to the system going "broke" in 2042. That date arises from the anticipated depletion of the Trust Fund, so Bush's language "seem[s] to suggest that there's "something" there that goes away in 2042." Specifically, in 2042 and for many decades thereafter, the Social Security system can continue to pay benefits, but benefit payments will be constrained by the revenue base from the 12.4% FICA (Social Security payroll) tax on wages. According to the Social Security trustees, continuing payroll tax revenues at the rate of 12.4% will enable Social Security to pay about 74% of promised benefits during the 2040s, with this ratio falling to about 70% by the end of the forecast period in 2080.
Taxation in Greece
The basic social security contributions amount to the 27.1% of total income (after VAT paid, qualified expenses deducted and before income tax paid).
This number can broken down to 20.0% for public pension funding and 7.1% for the public health system.