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'SUNDAY~ DECEMBER 6, 1959 Prepared in the Research Department of the FEDERAL RESER\/E B/\NI~ OF CLEVELAND Serving the Fourth Federal Reserve District MORE CHANGES IN THE SOCIAL SECURITY PROGRAM More changes in the Social Security program are in store for 1960. Beginning January 1, 1960, workers, employers and the self-employed in occupations covered by Social Security will find themselves making larger contributions to the Retirement, Disability and Survivors Insurance program. (This program along with the unemployment insurance program forms what is commonly referred to as Social Security.) Increases in Tax Rates. For millions of workers with taxable earnings, Social Security contributions will rise in 1960 from 21/2 percent to 3 percent on earnings uptoa maximum of $4,800. Employers will match, dollar for dollar, tlie larger contributions made by employees, raising the total contribution per worker from 5 percent to 6 percent on a maximum earnings base of $4,800. At the same time, the tax on individuals who are selfemployed and in covered employment will increase from 3 3/ 4 percent to 4 1/2 percent on earnings up to a maximum of $4,800. The increases in the Social Security tax just described were provided for in the 1958 amendments to the original Social Security Act of 1935. The amendments also call for further increases of 1/2 percent in the contribution rates of both employers and employees and increases of 3/ 4 percent in the rates for the self-employed, to go into effect every three years up to and including 1969. By 1969, then, the combined contribution per covered worker will amount to 9 percent on earnings up to $4,800, while self-employed individuals will be contributing 6 3/4 percent on a maximum earnings base of $4,800. Reasons for the Increases. The higher tax rates are the result of a number of factors which have influenced the operation of the program. Outstanding is the fact that there has been a four-fold increase in the number of persons receiving benefit payments in the past nine years. An important factor in the economy which has brought about a rise in the number of beneficiaries has been the steady increase in the number of persons in the population age 65 and older. In 1950, about twelve million persons fell in this category. In 1960, however, the retirement age group is expected to total about sixteen million, and in 1970, about nineteen and a half million. These estimates represent increases of approximately 30 percent and 60 percent, respectively, during the ten and twenty year intervals since 1950. The growing number of persons of retirement age in the population has ...oontributed significantly to the four-fold increase in the number of persons receiving Retirement, Disability and Survivors Insurance benefits in the past nine years. Broadcast by Jeanne L. Pierce, Assistant Economist, Federal Re serve Bank of Cleveland, over WGAR, Cleveland, with Charles Day, News Editor, WGAR, Sunday, December 6, at 10:15 p. m. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis The easing of the eligibility requirements for receiving benefit payments has been an even more important factor in accounting for the large increase in recent years in the number of beneficiaries receiving old-age benefits. The ·quarters of coverage required for becoming fully insured, and thus entitled to retirement benefits, have been progressively reduced by amendments in 1939, 1950, I954 and 1956. An important effect of these amendments has been to reduce very sharply the minimum individual contribution necessary to earn retirement benefits. Other amendments have extended coverage to individuals in employments excluded in the original Social Security legislation and to many of the self-employed. The extension of coverage along with the above factors has helped to increase significantly the number of persons qualifying for retirement benefits. Financial Strains on the Trust Fund. The developments just discussed, coupled with the low level of contribution rates which existed in the early 1950's, have resulted in serious financial strains on the Retirement, Disability and Survivors Insurance Trust Fund. The strains have been aggravated by Congressional action raising the over-all level of benefit payments to take account of increases in the price level and in the general level of wages and salaries. In addition, the gradual increase in the average earnings of covered workers has enabled retired workers to qualify for larger benefit payments. This has worked out as a https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis source of financial strain for the Fund, despite the fact that tax receipts have also increased. It was in or der to meet the drains on the Tr ust Fund stemming from the growing dollar volume of benefit payments, that Congress revised upward several times in recent years the contribution schedule of covered workers and employers, and more recently, of self-employed individuals in covered employments. Between 1950 and 1959, the contribution rate was increased from 1 1/2 percent to 2 1/2 percent. During the same period, the maximum earnings base was increased from $3,000 to $4,800. Despite the increase in contributions res ulting from higher tax rates, benefit payments exceeded contributions to the Trust Fund in 195 7 by more than $500 million. Again in 1958 and 1959 the current outgo of the Fund is estimated to exceed current income by about $1 billion. The difference between current contributions and benefit payments in·the past three years has been met by using up part of the Fund's surplus of roughly $22 billion, which was accumulated in the early years of the Social Security program. The increase in contributions scheduled for 1960 is expected to restore the dollar volume of contributions to the Fund to a level above the amount of benefit payments. Thereafter, the higher tax rates are expected to increase current revenues substantially above current benefits, at least according to the projections for the years immediately ahead. Liste n to " Bu si ne ss T rend·s " nex t Sunday at 10':15 p . m.