If we had no system of social insurance, we would still have to meet somehow the costs of unemployment, old age, sickness, or the death of the family wage earner. In the long run all of us help in one way or another to pay for the kinds of social security our particular community offers against these hazards. We may pay directly through state or federal pay-roll taxes, or indirectly through general levies in support of public welfare services, or again directly through contributions to private charitable agencies.

Who pays for our present social insurance program?

In all but four states, employers pay the full cost of unemployment insurance. In Alabama, California, New Jersey, and Rhode Island, employees contribute too. The basic tax rate is 3 percent of taxable pay rolls, although in most states the rate of contribution is reduced for employers who have good employment records (experience rating).

The cost of old-age and survivors insurance is shared equally by employers and employees. The contribution rate is 1 percent of taxable pay rolls from employers and 1 percent or taxable wages from employees. If the present law remains unchanged this rate will increase in 1949 to 3 percent from employers and 3 percent from employees.

Adding the cost of these two programs—unemployment insurance and old-age and survivors insurance—together, we see that both programs in 1949 will cost employers 6 percent of their taxable pay rolls and employees 3 percent of their taxable wages.

Cost of an expanded social insurance program

It is very hard to figure out how much social security will cost in the years to come. First, we would have to know how high our national income will be, how many old people we will have, how many dependent children, how much unemployment, and other facts difficult to foresee. Second, we would have to know in advance what kinds of laws Congress is going to pass regulating our social security system.

If our social insurance program were expanded and liberalized, what would such a program cost? Here’s a table of estimated costs for a “reasonably” adequate program:

Unemployment insurance benefits would cost about 2 percent of covered pay rolls.

Temporary disability benefits would cost about 1 percent of covered pay rolls.

Health insurance disbursements would cost about 3 percent of covered pay rolls.

Old-age, survivors, and permanent disability insurance would cost about 2 percent of covered pay rolls.

Current costs of all these programs would total about 8 percent of pay rolls.

Of course, the table of costs above assumes “reasonably” high employment and “reasonably” adequate benefits. Also, costs of the old-age and survivors insurance program would rise as the number of old people in the population increased.

If such an expanded and liberalized program were put into effect and financed on a current basis, the cost might be borne equally by employers and employees, with each contributing 4 percent. As costs increased, the rate could be increased, or a government contribution, raised from general revenues, might be decided upon to meet part or all of the additional cost.

If, on the other hand, it was decided to finance an expanded program on a long-run rather than a current basis, contribution rates from employers and employees could be set from the beginning at 5 percent or 6 percent each.

A 12 percent tax on wages—6 percent from employers and 6 percent from employees—is a large contribution and would add up to a lot of money. Too much money, some people say, to spend on social insurance.

Does this mean that the United States cannot afford a decent system of social insurance for the unemployed and for those who cannot work? The answer usually given is the other way around—that even a nation as rich as we are cannot afford to have too many of its citizens unable to work or out of a job.

From EM 5: Why Do We Have a Social Security Law? (1946)