Social Security Essay

1831 words - 8 pages

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Social Security

Introduction

While the pension reform Social Security is a huge issue, public officials remained reluctant when faced with this serious and, from a political standpoint dangerous problem. However, eventually the deteriorating financial condition of the system will fail to impose major reforms. Social Security wealth is not real wealth but only a duty on current and future tax dollars. Therefore, rather than label this key magnitude as Social Security wealth would be more appropriate to refer to it as the liabilities of the Social Security of the nation. Like regular public debt, the Social Security wealth has an effect of removal on the accumulation of ...view middle of the document...

The distorting effect of this tax is much greater than at first might think, because the net tax rate for Social Security tax is imposed in addition to federal and state income, the marginal federal tax rate is 28 percent (for those with taxable income above $ 23,000 and married couples with joint incomes over $ 38,000) and the typical state tax income tax stands at 5 percent. Therefore, retention of Social Security increases the total marginal tax rate over 40 percent, significantly exacerbating the distortions and costs caused by the income tax.

The combination of income tax and Social Security contribution distorts not only the number of hours of each individual, but also other dimensions of labor supply as may be occupational choice, location and effort. Furthermore, also distorts the way it is perceived compensation, changing part of the tax base by tax-free social improvements, better working conditions, etc. These distortions in the form of compensation are really distortions in the consumption pattern of the individual, they force individuals to spend their income on things they value potential less than those who could buy with money. These distortions in consumption patterns are as important as the distortion in labor supply.

In a system with private funded pension funds are automatically eliminated the additional distortion that comes from these very unequal links between contributions and benefits progressive. Although this distortion could also be eliminated within the distribution sys-tem exists by creating individual accounts for Social Security for each taxpayer, the largest distortions in the labor market resulting from the low rate of return on a PAYG cannot be eliminated without changing it to a public funded from either a private system of individual retirement plans.

National Savings Deduction

The resulting loss of labor market distortions is not the only adverse effect of a social security system of neither distribution nor the greatest. Current and future generations lose by being forced to participate in a sharing program on performance-that is, by being forced to accept an implied yield of 2.6 percent while the real marginal product of capital is 9.3 percent. And even though the capital gains tax that individuals perceive prevent that 9.3 percent of their personal savings, the entire public does receive the Total Return; what individuals are not directly receive it in the form reductions in other taxes or as increases in state services. The extent to which Social Security system of distribution may have on reducing the national income and economic welfare depends on the way in which private savings responds to the contributions and Social Security benefits and government actions to offset reductions in private savings.

Obviously, every dollar of Social Security wealth is not necessarily replaces a dollar of...

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