NCPA - National Center for Policy Analysis

The Economic Drain Of Social Security Taxes

February 15, 1999

A study from the National Association of Manufacturers reveals that Social Security payroll taxes are taking a toll on the nation's gross domestic product (GDP) and jobs.

Since 1983, those taxes have climbed from 10.8 percent of workers' wages to 12.4 percent. What would have happened if payroll taxes had stayed at the 1983 rate?

  • NAM says that GDP would be $80 billion higher today.
  • There would also be 800,000 more jobs today -- because consumer spending and business investment would have increased.
  • NAM's report notes that higher taxes discourage people from working and -- since employers pay half those taxes -- the cost of labor increases.
  • Higher labor costs, in turn, raise the natural rate of unemployment.

Granted, the economy is surging ahead now at almost full employment. But economists question what will happen at the next downturn.

Source: Jim Christie, "Social Security Taxes Take a Toll on Both Jobs and Growth," Investor's Business Daily, February 16, 1999.


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