Implications of increased social security contributions

502 DB 4
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Implications of increased social security contributions
One of the implications resulting from increased social security contributions is that welfare would be better funded. Employees are likely to have less disposable income, even as the social security contributions rise. Hence, in the short-term employees will have less income to spend and invest, showing that there is a need for adjustments in light of the fall in disposable income. States often intervene to ensure social justice especially through the tax system. Nonetheless, there is also a drawback to higher contributions, since employees are not able to control their investments, and privatization has been suggested as a way to improve flexibility and employees’ control over their contributions.
Current system in the United States and proposed changes
Payroll taxes are the main sources of funding for social security contributions, where both employers and employees remit contributions for the salaries of employees. However, there have been suggestions that there is a need to change this, as opponents view the welfare program as bloated and inefficient. Faced with rising entitlements, there are various options available to either cut entitlement benefits or increase taxes. Raising the payroll taxes combined with eliminating the debt ceiling would result to higher contributions. However, when raising taxes, the government focused more on increased funding and not improving efficiency. Alternatively cutting benefits would result to more savings, and there is a need for increased efficiency but people have fewer benefits and may spend. At the same time, there are arguments in favor of mean-testing where benefits to the rich would be cut and given to the poor, this merely redistributes the contributions and may be accompanied by inefficiency as the government decides on how to spend the money. Privatization is another option where employees take more responsibility for their contributions. Privation makes it easier for employees to decide on their investment options, but it is also risky as individuals may make bad decisions.
Benefits and drawbacks of the policy
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