To Bust Some Myths about Social Security

Another response to HK skeptics of social security:

Q=the arguments against social security (SS)and similar type programs; A=my answers

Q: SS uses taxpayers’ money to subsidize lazy people who do not work.

A: SS is a contribution based system where both you and your employer contribute to the fund. If you don’t work, you get no benefits.

Q: Individuals are supposed to take care of themselves when they get old.

A: Only feasible  to those who take in enough income. Working class people don’t have that luxury and need their children to support them.

Q: well, children are supposed to support their parents.

A: Yea, but it is tough for the working class people. And they will have to save up a lot of disposable income for that. That money can be better spent elsewhere, like for the education of their children or other consumption and investment. More disposable income spent on the above also means better economic development.

Q: SS distorts incentive to work.

A: SS is primarily a force saving program, funded by various taxation schemes, including a more progressive tax system and payroll tax. It does not stop people to become rich. If you are making a lot of money, you will still have enough to accumulate wealth. It does, however, matter to those of low-middle middle-class whose after tax income may fall to  a similar level of those with a lower-income and a lower tax line, and their after tax income will be close. We have methods to provide incentives: 1) Increase the pension benefits for those low-middle middle class, or 2) provide tax credits for them to buy other retirement related financial tools (meaning more benefits with the same dollar). Furthermore, even though the income levels are similar, their social status will be different, and that is an incentive for working harder. (There is a Stiglitz paper on this, searching)

Q: SS is a communist scheme of sharing wealth.

A: No, it is a scheme of sharing risk. Expanding on the point about the responsibility of retirement, it is good if you can make enough to take care of your own retired life, but many are not so lucky. There are those who would get sick, become disabled, lose their employments, which are risks that everybody will face, and no matter how hard they work, they will still not earn enough to have/enjoy a life with reasonable quality. If we have a method to reduce/absorb that risk in an effective manner, we should do it, as it reduces unnecessary suffering.

Q: Other countries like the US, Germany, UK cannot afford it anymore.

A: No. The US program is still running well. It’s just that the crisis reduced payroll contributions. Germany, UK and EU at large is another story about the unnecessary austerity measures with horrible consequences, but that’s another story for another day.

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