The Social Security Program of the United States is the government insurance program for retirees, disabled, and survivors. It is one of the most extensive Government Spending programs and affects the majority of its population. Hence, it is a macroeconomic statistic, and changes in the same results a significant impact on its citizens. An insight into the Social Security Rates and how it affects the individual and the economy as a whole can help us understand the monetary structure of the United States.
What is Social Security Rate For Employees?
The Social Security Program (SSP) is managed by the Social Security Administration (SSA) of the United States. The SSA is a federal agency and defines the SSP as a protection program against income loss due to retirement, disability, or death. The Social Security Program is officially called the Old-Age, Survivors, and Disability Insurance (OASDI) program.
The funds collected by the SSP are divided between two funds, namely the Old-Age and Survivors Insurance (OASI) and Disability Insurance (DI) Trust Funds. Retired workers and their families, or survivors (ex: wife of an expired husband) receive benefits from the OASI funds. The DI trust funds provide benefits to the disabled and their families. The benefits are paid out monthly to the eligible people.
The Social Security Programs receives its funds primarily from the currently active employees enrolled in the program, employers, and as well as self-employed citizens. The funds received at present are not stored for the future, instead, they are utilized to pay out for the currently eligible retirees. The cycle goes on, and it means the current employee pays out for the already retired people, and when the employee himself retires would be paid out through funds collected from the paying employees at that time.
Apart from the employee, employer, and self-employed, funds receive income from investments and interests on investments, and taxations of benefits. For the year 2020, the Social Security Rate is 12.4%, which is evenly divided amongst the employer and the employee. Hence, the employee pays 6.2% of their income. Generally, It is deducted monthly from their income. On the other hand, the self-employed people like small shop owners or freelancers are subject to pay the full 12.4% themselves.
The benefits apply to people who have enrolled and have paid for a minimum of ten years. The retirement age at which they are eligible for collecting their pension is 62, while people who wait longer, like the age of 66 or 70, receive higher and better benefits accordingly. The Social Security Tax has a cap limit of $137,700, above which the earned income is not subject to the tax deduction.
How can the Social Security Rate For Employees numbers be used for analysis?
Since the Social Security deductions are directly taken out from the gross salary, it directly affects the Personal Consumption Expenditure (PCE) and thereby Consumer Spending. Both of these are macroeconomic indicators bearing high significance in terms of currency market volatility. Suppose the taxes increase, Consumer Spending decreases, which can drive the economy into a recession. Consumer spending makes up two-thirds of the United State’s GDP.
The program collects from millions of people and pays out to millions of people. The transactions are in billions of dollars every year. Any change in the percentage is bound to affect a large chunk of the country’s population directly. Hence, the changes in the rates are less frequent over the years and change only during significant policy reforms.
The regressive nature is often criticized, meaning the more affluent section of the society ends up paying lesser than the lower-income bracket people due to the tax cap limit. Also, the model of the Social Security Program is a cause of worry for many as the increased life expectancy and the diminishing worker-to-retiree ratio will ultimately result in depletion of funds soon.
As the population stops to grow, and more people retire than the number of people actively working will ultimately force the Government to either raise taxes or retirement age-limit or decrease benefits. None of those above options is favorable, and the Government needs to plug this gap in funds sooner than later.
Impact on Currency
The Social Security Rate for the employees is revised every year. Most of the time, it tends to remain constant and changes only in small incremental steps over a few years at a time. Therefore, the volatility induced in the currency markets is negligible unless significant changes occur. Above all, the changes would be priced into the market through news updates long before official statistics are published. Hence, Social Security Rate for employees is a low-impact indicator and can be overlooked for more frequent statistics in the currency markets.
The Social Security tax rates for both the employee and employer are provided by the Social Security Administration of the United States on its official website. The historical figures of the same are also available. The OECD (Organization for Economic Co-operation and Development) also maintains the tax rates for employees of its member countries on its official website.
Sources of Social Security Rate For Employees
Social Security Rates for employees is available on the Social Security Administration website.
Social Security Rates for employees is also available on the OECD’s official website.
Social Security Rates for employees (similar policies with different names) across the world can be found in Trading Economics.
How Social Security Rate For Employees Announcement Affects The Price Charts
For employees, the social security tax is deducted through payroll withholding by the employer. This rate is split in half between the employee and the employer. Since the social security rate in the US is 15.3 %, an employee contributes 7.65% of their earnings up to $137,700.
The screengrab below shows the current social security rate for companies in the US from Trading Economics.
The latest review of the US social security rate was on October 10, 2019, at 4.00 PM ET, and the press release can be accessed here.
USD/CAD: Before Employee Social Security Rate Release October 10, 2019, just before 4.00 PM ET
As can be seen on the above 15-minute chart, the USD/CAD pair was trading on a neutral trend before the news release. This trend is shown by the candles forming around an already flat 20-period Moving Average. This trend signifies relative market inactivity at this time.
USD/CAD: After Employee Social Security Rate Release October 10, 2019, at 4.00 PM ET
After the news release, no market volatility is observed. The US/CAD pair forms a 15-minute “Shooting Star” candle. Afterward, the pair struggled to alter the trading pattern with the candles attempting to cross below the 20-period Moving Average but subsequently continued trading in the previously observed neutral pattern.
USD/JPY: Before Employee Social Security Rate Release October 10, 2020, just before 4.00 PM ET
Before the news release, the USD/JPY market is on a weak uptrend. The pair can be seen struggling to maintain this trend as observed by multiple bearish spikes. The pair adopts a downtrend 30 minutes before the news release.
USD/JPY: After Employee Social Security Rate Release October 10, 2019, at 4.00 PM ET
After the news release, the pair forms a 15-minute bearish candle. However, the news is not significant enough to maintain the earlier observed downtrend.
USD/CHF: Before Employee Social Security Rate Release October 10, 2020, just before 4.00 PM ET
USD/CHF: After Employee Social Security Rate Release October 10, 2019, at 4.00 PM ET
Before the news release, the USD/CHF pair shows a similar trading pattern as the USD/CAD pair. The pair was trading on a neutral trend with 15-minute candles forming around a flattening 20-period Moving Average. As the USD/JPY, the pair showed signs of reversing into a downtrend 30 minutes before the news release. After the release, USD/CHF formed a 15-minute “Shooting Star” candle. It later continued trading in a downtrend with subsequent candles forming below the 20-period Moving Average.
On October 10, 2019, the US effectively increased the social security rate. Theoretically, this is supposed to be positive for the USD. However, as shown by our analyses, this news release had no significant price action impact on any currency paired with the US dollar.