Quiz 9: Social Security

Business

A social insurance program is any government program funded by payroll taxes on employers. It is targeted to aid certain eligible groups of people, and a person need not have low income in order to be eligible. The purpose of social insurance program is to pool risk of loses from such occurrences such as accidents or death. Social insurance benefits are paid only by government and it is compulsory to participate. The social insurance is financed by tax payments of individual and it a pay-as-you-go service. The social insurance provide statutory benefit right of beneficiaries. It operates under principle of social adequacy and individual equity. It is argued that the women are treated unfairly under the social security program. The widows, who receive benefits, will continue to receive it until the age of her youngest child riches 16 years. She will receive the benefits again at the age of 65. As there could be a gap of several years between these two events and full time homemakers does not have any marketable skill, it becomes quite difficult for her to pay for her expenses. On the other hand, the women generally receive half of spousal benefits based on the benefits received by her husband. Many women discovered that the spousal benefits that they receive are greater than her own benefits as a worker. Thus it seems that all the payments she made as a tax payments is practically lost. The issue with the young worker is more complex and sometimes refers to as "bad buys". The younger generation pays more in taxes than the benefits they are expected to receive. Therefore, many argue that the young workers must be given an option to opt out of social security contributions. It is often argued that the worker should be given option to choose the social security function over private insurance program. That is the social security must be made voluntary. This argument makes sense if the workers put entire amount paid by employers and employee in taxes for social security. The employer part of social security is used to finance those people who work for a relatively shorter time and still eligible for benefits. Thus, the employer part of social security helps to redistribute income from high to low income worker possible. Thus, social adequacy which is provided by the employer tax will not be available if the worker opt out of social security benefit.

Government imposes taxes to finance its programs. Government taxes come in various forms and are imposed by the federal government as well as by state and local government. Imposition of taxes has different effects on macro economy as well as on the income distribution. According to redistributive effect of taxes there are three basic types of taxes: progressive taxes, proportional taxes and regressive taxes. The social security tax is levied only on income earned by working. That is on wages and salaries. As the lower income people earn their living in the form of wages and salaries, all of these incomes is taxed. A higher income people have high capital gain, thus, it take larger proportion of income from lower income group. That is, the tax is highly regressive. A regressive tax benefits the high income people and distributes the income in favor of the high income people. Therefore, the social security tax should be overhauled to reduce its regressivity. The regressivity of social benefit tax can be reduced by increasing the limit beyond which an earning will not be taxed. As the tax is assessed on earning only up to a certain limit there may be some lower income people will be taxed while some high income people will not be taxed. Increasing the limit will exempt some of the lower income people and will give benefit to them.

A social insurance program is any government program funded by payroll taxes on employers. It is targeted to aid certain eligible groups of people, and a person need not have low income in order to be eligible. The purpose of social insurance program is to pool risk of loses from such occurrences such as accidents or death. Social insurance benefits are paid only by government and it is compulsory to participate. The social insurance is financed by tax payments of individual and it a pay-as-you-go service. The social insurance provide statutory benefit right of beneficiaries. It operates under principle of social adequacy and individual equity. A private insurance is provided by profit insurance companies and funded by premiums. It purpose is also to pool risk of loses from such occurrences such as accidents or death. The private insurance in a voluntary service and fully funded by the companies that is they are liable to pay all the claims likely to make on them. The rights of benefits received under private insurance are protected by the contract signed at the time of purchase of the insurance. The program is based on the principle of individual equity that is the beneficiaries get back benefits proportional to what they have paid in. Although the basic purpose of both the programs is same they differ in most other characteristic. • Social insurance in compulsory whereas private insurance in voluntary. The covered worker must pay the taxes and participate in the program. In private insurance no one requires that the policy will be bought. • Social insurance benefits are paid only by government and it is a government monopoly. On the other hand, there are many competing firm for providing private insurance. • A social insurance program is any government program funded by payroll taxes on employers. A private insurance is provided by profit insurance companies and funded by premiums. • By law, private insurance program is fully funded by the companies; that is, they are liable to pay all the claims likely to make on them. The social insurance is financed by tax payments of individual and it a pay-as-you-go service. • The social insurance provides statutory benefit right of beneficiaries and it is subject to change with the change in government policy. While the private insurance provides a contractual right. • The social insurance operates under principle of social adequacy and individual equity. On the other hand, the private insurance is based on the principle of individual equity which means the beneficiaries get back benefits proportional to what they have paid in.

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