Financing Of Social Security

Social Security is financed through a payroll tax paid by both the employer and employee or covered worker. In 2008, for example, the combined tax equaled as much as 15.3 percent of the employee’s wages. The employer and the employee shared the tax equally, each paying half. At present the combined tax rate can be expected to increase in future years. This tax schedule may be increased or otherwise changed by Congress. Monies collected through the tax are deposited in federal trust funds. The basic purpose of the funds is to assure that money will be available to pay those individuals entitled to benefits. The funds are used when tax revenues are not adequate to cover the benefits paid out. Thus, the fund shrinks when benefits exceed tax revenues, and it grows when revenues exceed benefits. However, the assurance that enough money will be available to those individuals who are now or will be entitled to benefits lies more in the federal government’s power to tax than in the size of the trust funds.