When the Social Security tax went up two-tenths of 1 per cent at the start of this year, there were wails from all directions. The tax was too high; it was driving out capital investment, discouraging employment.
But compared to workers in many European countries, Americans have had it easy and will continue to do so even under the new rate.
For example, the maximum Social Security tax paid by a U.S. worker was $965 in 1977 and will be $1,071 this year.
In Germany, by contrast, the highest such tax in 1977 was $2,800 - and in Holland it was $3,000.
The employer rates in some countries were even higher. But economists say it isn't at all clear that they have proved a brake on European though they could if they rise further.
According to U.S. Social Security Administration figures, in 1977 the U.S. Social Security tax was 5.85 percent each for the worker and his emplyer, levied on the first $16,500 of the worker's wage. (The employer also paid about 4 percent in addition under separate programs for unemployment insurance and workmen's compensation.)
That meant that the maximum tax for the highest-paid worker was $965 for the year. This year, the rate is 6.05 percent on the first $17,700 of earnings, a maximum of $1,071.
In West Germany, on the other hand, the social security tax rate for a worker was 16.2 percent in 1977 and for his boss, 17.7 percent, levied on the first $17,258 or earnings. In Holland, the worker rate was 21.6 percent and the employer rate 27 percent on the first $15,500 of earnings.
In France, the 1977 worker rate was 9 percent, the boss's was 35.4 percent. In Sweden, the combined 1978 employer-employee impost was 31 percent, most paid by the boss.
In some countries, individual or corporate income taxes are lower than in the U.S., making it easier for citizens and businesses to bear the high social security tax burden.
However, when taxes of all types are taken into account - income taxes, corporate, Social Security, transfer property - the overall U.S. burden is substantially less than most Western European countries. Figures published by the Organization for Economic Cooperation and Development show that in 1975, taxes at all levels of government equaled about 30 percent of U.S. gross domestic product - compared with 37 percent for France, 35 percent for Germany and about 46 to 47 percent for Sweden and the Netherlands. The gap has been about the same for at least the last decade.
The higher social security taxes in Western Europe, supplemented in many cases by general treasury income tax revenues (16 percent in Germany), permit governments there to provide far broader and more comprehensive protections.
For instance, where the United States has Social Security health insurance only for persons over 65 or long-term disabled persons, the European systems provide medical coverage for persons of all ages. This includes temporary sick pay - including 14 weeks of pregnancy pay for an employed woman. France and Germany also both provide children's allowances - a payment to the family for each child - to supplement income.
Still, even if non-social security programs such as welfare and charity medical care and veterans' benefits are factored in, most of the developed European nations are paying a large percentage of their annual gross national product for publicly finance social welfare programs than the United States.
According t calculations made some years ago by Max Herlick, chief of the Social Security comparative studies staff, the United States was using 11 percent of GNP on all government-financed social welfare programs in 1971 - compared with 22 percent for Sweden and the Netherlands and about 19 percent for Germany and France. The U.S. figure for 1976 was still only 14.5 percent.
(For many U.S. workers, gaps in publicly financed health and retirement benefits are filled at least in part by private employe health insurance and pension systems. Thus, in 1974, nearly three-quarters of U.S. workers were covered by some form of private employe hospital insurance, but this is still far less coverage than under European governmental systems. In 1975, only 7 million retired persons in the United States wer receiving private pensions.)
There has been soe talk on Capitol Hill, where there is now a powerful dirve to roll back further Social Security tax increases that Congress approved only last year, that the higher levels impending under existing law might prove a brake on long-term economic brake. But leading economists to discount this possibility at the levels being talked about here. They point out that despite their higher social security an overall tax burdens, Germany and several other European countries have maintained growth rates, over the past decade and more, usually equalling and often exceeding that of the United States.
There is agreement that in the short run, higher Social Security taxes can add to employer costs of production and thereby have an inflationary impact.
But Edward Denison, a Brookings Institution fellow who is considered one of the nation's top specialists in economic growth, said in an interview, "I don't think it [Social Security increase] is going to be terribly crippling" to long-term U.S. growth. "I don't think another point or two would be a major brake on growth," Denison said. [TEXT OMITTED FROM SOURCE]for all taxes combined, 30 percent of gross domestic product, is probably still low enough to take some increase without retarding growth. "The U.S. has not reached a level where taxation is a big brake on growth," said Denison.
He said taxation as a retardant of growth didn't seem to be a big issue in Germany either, where the overall tax burden as a percent of GDP is 32 percent.
But he said Swedish economists had told him they were quite concerned that the overall taxation rate of 46 to 47 percent or more for all taxes combined might be the limit. "At the levels of a few years age (there) it didn't seem to be a damaging but they may have reached a level where is it," he said.
Denison said many factors aside from the tax load influence growth - increases in government regulation, the overall balance of the economy changing age distributions and the like.
Corrade Pirzio-Biroli, economic counselor the the European Economi Community staff here, also stresses that many factors aside from taxes influences growth, adding, "In some cases the question is what you do with the [tax] money." He said in Germany there appears to be little feeling that the overall tax rates are damaging long-term growth, but "the feeling of many is that in Scandinavia and Holland the tax rates are becoming so high it is so discouraging economic activity." He pointed out that the overall U.S. rate is substantially lower.
Rudolph Penner, director of tax policy studies fo the American Enterprise Institute and a former top economist under President Ford, also stressed that there is a multiplicity of factors that affect growth and taxes is only one of them.
He said the solution to the future growth of U.S. Social Security taxes might be to scale down the growth of future real benefits - but absent that, he felt the payroll tax would remain a good way to finance Social Security.
John Palmer, a Social Security specialist at Brookings, said Social Security increases scheduled for future years probably wouldn't have much effec on long-term growth. "It's difficult to say that the changes are going to make or break the economy, the western European experience is an example of that," he said, but like others, said there might be a short-term inflationary impact from the new Social Security taxes.
Congress, under pressure from disgruntled workers and business, may yet roll back the scheduled tax increases. If so, the already light U.S. taxes will remain among the lowest of all industrial nations.