ECONOMIC

effect of covered wage and employment growth, total OASDHI receiptsrose by about $14 billion.By comparison, in 1969 the combined payroll tax rate was 9.6 percentand the maximum amount of earnings subject to the tax was $7,800.From 1969 to 1973 social security taxes and contributions rose by 67 percent,compared to a rise of 39 percent in employee compensation andan increase of about 21 percent in the consumer price index. In 1969contributions for social security represented 20 percent of Federal receipts,and OASDHI benefits accounted for 17 percent of Federal expenditures.In 1973 these ratios had risen to 24 and 23 percent respectively.Rapid growth in the importance of payroll taxes in relation to totaltaxes lowers the elasticity of Federal receipts with respect to income. Theaverage annual earnings of all covered employees were about $8,000 in 1973.Those workers whose annual earnings exceeded the 1973 maximum of$10,800 did not pay more tax when their earnings grew. The periodic increasesthat have been made in the tax ceiling on covered earnings mitigatethe regressive effects of the payroll tax and provide for increased benefits.The latest rise to $13,200 occurred January 1, 1974.BALANCES OF THE FEDERAL BUDGETAs the economy moved towards full utilization of resources from 1971to 1973, the actual Federal budget balance (NIA) rose from a deficit of $22billion to a slight surplus. At the same time, the full-employment budgetbalance increased about one-third as much as the actual balance, or by$8 billion. The smaller rise in the full-employment balance reflects the factthat the actual real rate of growth from 1971 to 1973 exceeded the growthrate of potential GNP, which is used to calculate full-employment revenues.The calculations in this report are based on potential growth rates of 4 percentannually in constant dollars.The traditional calculation of the full-employment budget involves adjustingactual Federal expenditures for those changes in unemploymentbenefits (normally reductions) which would be expected if the economywere operating at 4 percent unemployment. Apart from this adjustment,full-employment expenditures are assumed to be equal to actual expenditures.To estimate Federal receipts at full employment, one must project theshares in full-employment income of taxable personal income, corporateprofits, and wages and salaries. Retrospectively, personal tax and nontaxreceipts at full employment are then calculated, as are corporate profits taxesand contributions for social insurance, by applying the respective average taxrates observed each quarter to the corresponding tax bases in potential GNPmeasured in current dollars. Total potential GNP is used as the tax base forindirect taxes. Prospective calculations also take into account changes in taxlaws scheduled for future years, as well as a gradual rise in the average taxrate on personal incomes, a rise produced by the growth of incomes subjectto progressive rates of taxation.78