Beginning Jan 1, social security will take a bigger tax bite out of the earnings of workers and add to labor costs of their employers, causing new inflationary pressures on a faltering economy.
Millions of Americans will have less to spend in a time of rising costs, and still higher prices may result from businesses passing along their increased production expenses.
The rate that workers and employers must pay will go up from the 6.13 percent each paid in 1980 to 6.65 percent. Although this might appear to be a small upward nudge, it is one of the biggest jumps ever in the social security tax and , for the average worker, it is likely to mean a dollar or two les each week in take-home pay.
Changes in the tax also will raise the maximum on which the tax must be paid from $25,900 a year to $29,700.
The news is better for those already retired and drawing benefits: They will be able to earn more without losing part of their benefits. Those aged 65 to 71 will be able to earn $5,500 (an increase from $5,000) and recieve full social security payments monthly. Those under 65 may earn $4,080 (up from $3,720) without forfeiting any benefits. Under social security, those on benefit rolls lose $1 in benefits for every $2 earned beyond the meager limits. Those 72 or older may earn any amount without reductions.
Most workers will be affected only by the increase in the tax rates. Only 10 percent of all covered workers are in the group subject to the higher maximum -- those earning between $25,900 and $29,700 a year.
Typically, an auto worker with a $10.50-an-hour wage earns $420 for a 40-hour week. Under the 1980 social security rate, his tax was $25.75 a week; beginning Jan. 1 his deduction will be $27.93 -- or $2.18 more. A retail clerk employed for $3.40 an hour and working 40 hours would earn $136 a week, for which $8.34 was deducted for social security in 1980 and $9 a week will be deducted in 1981.
That same auto worker would have $1,452.36 deducted from his pay (at 1980 wages) in 1981, an increase of $113.36.
The clerk would have to pay $468 in social security taxes in 1981, up $34.32. Any reduction of spendale income becomes a basis for additional wage demands by workers and their unions, and this can be expected in 1981.
The weekly tax increase for an auto company with 11,000 workers on the payroll will be $23,980 in 1981 and, potentially, for the year as a whole it will mean $1,246,960. For an employer with the financial problems of a Chrysler Corporation, this could be another crucial cost increase at a time of difficult moves to cut costs to the bone.
Efforts were made in Congress during 1980 to postpone, rescind, or reduce scheduled increases in the social security taxes Jan. 1.Labor backed the tax moves, with substantial support. The efforts failed largely because of growing worries about the long-term security of the social security system.