Should the Payroll Tax Finance Higher Benefits under OASDI? A Review of the Issues

This paper reviews problems associated with financing a substantially higher level of OASDI benefits. One way of obtaining the additional revenue which would be necessary is through further increases in payroll taxes. This method of financing, however, falls heavily on the working poor. Moreover, some critics argue that payroll taxes are already so high that young workers will not get their money's worth from their social security contributions. A recent analysis has shown that, under reasonable assumptions about growth in earnings, young workers will receive a 4 percent return on both their contributions and the contributions made by their employers. The problem of the burden on the working poor is not so easily dismissed, and the answer probably lies in some use of the general revenues of the Treasury-that is, a mixture of personal and corporate income taxes.