Suppose the real rate of growth of wages subject to Social Security taxes is expected to average 1% per year during the next 40 years. Assume that the Social Security tax rate remains constant, and prove that the average return on Social Security taxes paid into the Social Security trust fund will also be 1%. Why can workers with high incomes expect negative returns on their Social Security taxes during this period?
In the following paragraph, there will be a description of social security tax in terms of collection and repayment of money from employees. There will also be a discussion of the impact of high wages and low wages regarding the rate of return on funds invested in social security taxes.
The social security tax is collected from employees and employers in the form of self-employment tax or payroll tax. This tax is collected for retirement benefit and disability benefits in old age. The tax is collected in percentage rate, which means that higher wage earners have to pay higher tax, while low ...
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