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103-724: Types of social insurance include: Social insurance has also been defined as a program whose risks are transferred to and pooled by an often government organisation legally required to provide certain benefits. In the United States, programs that meet these definitions include Social Security , Medicare , the Pension Benefit Guaranty Corporation program, the Railroad Retirement Board program and state-sponsored unemployment insurance programs. The Canada Pension Plan (CPP)

206-494: A palace economy . These economies were centrally based around the administration, meaning the dictator or pharaoh had both the ability and the right to say who was taxed and who received special treatment. Another early form of wealth redistribution occurred in Plymouth Colony under the leadership of William Bradford . Bradford recorded in his diary that this "common course" bred confusion, discontent, distrust, and

309-593: A Benefits Calculators web page with several stand-alone online calculators that help individuals estimate their benefits and prepare for retirement. These include benefit calculators for spouses, calculators for persons affected by the Windfall Elimination Provision or the Government Pension Offset and calculators to determine a person's full retirement age or the effect of the earnings test on benefits. SSA also provides

412-482: A better standard of living. Seen for example in the work of John Rawls , another argument is that a truly fair society would be organized in a manner benefiting the least advantaged, and any inequality would be permissible only to the extent that it benefits the least advantaged. Some proponents of redistribution argue that capitalism results in an externality that creates unequal wealth distribution. Many economists have argued that wealth and income inequality are

515-405: A cause of economic crises , and that reducing these inequalities is one way to prevent or ameliorate economic crises, with redistribution thus benefiting the economy overall. This view was associated with the underconsumptionism school in the 19th century, now considered an aspect of some schools of Keynesian economics ; it has also been advanced, for different reasons, by Marxian economics . It

618-466: A competitive economy and there must be provisions to ensure that participants in the market do not end up with an "all-or-nothing-game". It is a means to allow participants of a dynamic economy to take risks and engage in economic activity with the assurance that in the instance of an emergency, they will be protected through this accumulated fund. Social insurance provides " social justice " and "social stability". The following reasons specifically identify

721-436: A current political infrastructure that addresses these issues. Modern thinking towards the topic of the redistribution of wealth, focuses on the concept that economic development increases the standard of living across an entire society. Today, income redistribution occurs in some form in most democratic countries, through economic policies. Some redistributive policies attempt to take wealth, income, and other resources from

824-505: A deceased person from closest family members and moving towards a more distant family. Son(s), daughter(s), wife, husband and parents are the prime recipients. This distribution is explicitly illustrated in Qur’an and cannot be changed or modified. Under varying conditions, the share received by different relatives accordingly changes. The important principle is that the owner at the time of his/her death cannot change these shares. The context that

927-489: A few years" but "longer growth spells are robustly associated with more equality in the income distribution." The Industrial Revolution led to increasing inequality among nations. Some economies took off, whereas others, like many of those in Africa or Asia, remained close to a subsistence standard of living. General calculations show that the 17 countries of the world with the most-developed economies had, on average, 2.4 times

1030-822: A government "production activity" rather than redistribution. Given that what some receive is far higher than what they attribute (on an actuarial basis), there is a large element of redistribution involved in government social insurance programs. The largest of these programs is Old Age, Survivors' and Disability Insurance Program (OASDI). It provides income not only for pensioners, but also to their survivors (especially widows and widowers) and people with disabilities. Other major social insurance schemes are workers' compensation, which provides compensation for workers injured at work, unemployment insurance providing temporary benefits after job loss, and Medicare. The Medicare Program, which provides medical services in old age (like Medicaid), has grown rapidly since its first introduction in 1965 and

1133-412: A job. They will receive several benefits once they find a job including wage subsidies and tax breaks. Welfare-to-work programs like these try to give people the incentive to work because, without them, people have a strong incentive to stay unemployed. Social Security (United States) Bowles–Simpson Commission 2007–2008 financial crisis 2013 budget sequestration Related events In

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1236-462: A life expectancy calculator to help with retirement planning. If a person first claims a retirement benefit at the full retirement age (FRA), the individual will receive a monthly benefit amount equal to 100 percent of the individual's primary insurance amount (PIA). If first claimed before the FRA, the monthly benefit amount is smaller than 100 percent of PIA and if claimed after the FRA the monthly amount

1339-523: A lower social class tend to favor more redistributive policies than their counterparts born into a higher social class. Research has also found that women generally support redistribution more than men do, though the strength of this preference varies across countries. While literature remains mixed on if monetary gain is the true motivation behind favoring redistributive policies, most researchers accept that social class plays some role in determining someone's views towards redistributive policies. Nonetheless,

1442-441: A negative externality . In the case of the now struck down individual mandate, everyone purchasing health insurance creates a positive externality for those that are high cost to insurance companies as they can now afford health care and cannot be discriminated upon because of various emerging or pre-existing conditions. The existence of social insurance stems from the acceptance of the ideology that workers should be insured against

1545-420: A person is in can influence their views on redistributive policies. For example, despite both being Western civilizations, typical Americans and Europeans do not have the same views on redistribution policies. This phenomenon persists even among people who would benefit most from redistributive policies, as poor Americans tend to favor redistributive policy less than equally poor Europeans. Research shows this

1648-446: A progressive system of taxation to achieve a certain level of income redistribution. In addition to the creation and implementation of these tax systems, "globalization of the world economy [has] provided incentives for reforming the tax systems" across the globe. Along with utilizing a system of taxation to achieve the redistribution of wealth, the same socio-economic benefit can be achieved if there are appropriate policies enacted within

1751-405: A reasonable rate. Although causing political controversy, was an example of redistribution within a social insurance program. If individuals do not have social insurance and are thereby unable to afford the basic right of healthcare, then not only are they subjecting themselves to illnesses but also creating the likelihood that others around them will be infected as well. This would be an example of

1854-453: A reduced monthly benefit amount and a worker who claims at an age after the full retirement age (up to age 70) receives an increased monthly amount. The 90, 32, and 15 percent factors in the PIA computation lead to higher replacement rates for persons with lower career earnings. For example, a retired individual whose average earnings are below the first bend point can receive a monthly benefit at

1957-482: A replacement Social Security card or check the status of an application. A printed copy of the Social Security Statement is mailed to workers age 60 or older. In 2021, SSA began producing Retirement Ready fact sheets, available online and as part of the online Statement, that tailor retirement planning information to different age groups (young, middle age, and older workers). SSA also has

2060-463: A timely basis. The amount of the monthly Social Security benefit to which a worker is entitled, currently depends upon the earnings record on which they have paid FICA or SECA taxes and upon the age at which the retiree chooses to begin receiving benefits. That said, the U.S. Supreme Court ruled in Flemming v. Nestor (1960) that no one has a contractual right to Social Security benefits. Medicare

2163-505: A trickle-down effect, where the benefits of growth would eventually reach the poorest members of society. However, evidence began to emerge in the 1990s that challenged this notion and suggested that the link between economic growth and poverty reduction was not as strong as previously thought. This shift in thinking led to a reconsideration of the importance of addressing inequality in the pursuit of development. The redistribution of wealth and its practical application are bound to change with

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2266-532: Is a large program of social insurance that creates many externalities. With welfare, the beneficiary's contributions to the program are taken into account. A welfare program pays recipients based on need, not contributions. In the US, there are welfare-to-work programs that give unemployed people an incentive to work if they are starting to seek a job. The people who use these programs are government expenditures and are closely monitored to make sure that they are searching for

2369-484: Is a major instrument of restricting the excessive accumulation of wealth and helping the poor and most vulnerable members of the society, Secondly, usury , or charging interest , is prohibited. Elimination of interest from the economic system is a revolutionary step with profound effects on all spheres of economic activities. Finally, the Inheritance Law Of Islam is the distribution of the property of

2472-452: Is a public insurance that provides protection against economic risks. Participation in social insurance is compulsory. Social insurance is considered to be a type of social security. Social insurance differs from public support in that individuals' claims are partly dependent on their contributions, which can be considered as insurance premium. If what individuals receive is proportional to their contributions, social insurance can be considered

2575-578: Is a separate program from Social Security, although disabled and aged (65 or older) Social Security beneficiaries qualify for Medicare. The financing for Medicare (United States) is also based on payroll taxes, trust fund reserves, and the taxation of some Social Security benefits. Workers in Social Security covered employment pay FICA ( Federal Insurance Contributions Act ) or SECA (Self Employed Contributions Act) taxes and earn quarters of coverage if earnings are above minimum amounts specified in

2678-407: Is also a social insurance program. The World Bank 's 2019 World Development Report on The Changing Nature of Work considers the appropriateness of traditional social insurance models that are based on steady wage employment in light of persistently large informal sectors in developing countries and the decline in standard employer-employee relationships in advanced countries. Social insurance

2781-448: Is because when a society has a fundamental belief that those who work hard will earn rewards from their work, the society will favor lower redistributive policies. However, when a society as a whole believes that some combination of outside factors, such as luck or corruption, can contribute to determining one's wealth, those in the society will tend to favor higher redistributive policies. This leads to fundamentally different ideas of what

2884-401: Is because, in order to incentivize an unemployed worker's job search effort, it is necessary that the benefits paid to the worker during unemployment, meted out as a fraction of the worker's previous salary, are greatest when the individual is actively seeking employment. Those that critique the program of social insurance bring up the argument that programs such as social security only increase

2987-463: Is difficult to be monitored and evaluated, the unemployed individual may have no incentive to keep searching as they receive unemployment benefits. This reveals the inherent social insurance tradeoff of the incentives of the insurance and the risk involved. Typical similarities between social insurance programs and private insurance programs include: Typical differences between private insurance programs and social insurance programs include: Welfare

3090-470: Is fair still remains on the youth who must decide whether this offset in payments is enough of a counteracting effect. In 2019, receipts from Social Insurance taxes, the second-largest revenue source, increased by $ 72 billion (or 6 percent), and increased as a share of the economy from 5.8 percent in 2018 to 5.9 percent in 2019, climbing just above the 50-year average of 5.9 percent. "The increase in payroll tax receipts reflects higher wages and salaries and

3193-593: Is higher than 100 percent of PIA. Sometimes the full retirement age is referred to as the normal retirement age. Redistribution of income and wealth Redistribution of income and wealth is the transfer of income and wealth (including physical property ) from some individuals to others through a social mechanism such as taxation , welfare , public services , land reform , monetary policies , confiscation , divorce or tort law. The term typically refers to redistribution on an economy-wide basis rather than between selected individuals. Understanding of

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3296-411: Is much more equal than Western economies. Likewise, the socialist planned economies of the former Soviet Union and Eastern bloc featured very little income redistribution because private capital and land income were restricted. To attain an efficient allocation of resources with the desired distribution of income, if the assumptions of the competitive model are satisfied by the economy, the sole role of

3399-483: Is not enough to pay the prices of this insurance and insurance companies enter the death spiral . In order to achieve a better and more equitable distribution of insurance costs, the government intervenes through the means of taxation of low risk individuals in order to subsidise the premiums that have to be paid by high risk individuals. Therefore, there is a redistribution from low risk individuals to high risk individuals. Because of this, income taxes are often used in

3502-453: Is now the second largest program. Social security and Medicare are sometimes called middle class programs because the middle class are the main beneficiaries and benefits are not provided on a need basis, but when people satisfy a certain requirement, for example age. As soon as they satisfy the criteria, they can receive benefits. Social insurance is based on the premise that there is not always equitable distribution of resources or benefits in

3605-419: Is one example. Medicare is a government-run health insurance program that covers people age 65 or older, certain younger people with disabilities, and people with end-stage renal disease (permanent kidney failure requiring dialysis or a transplant, sometimes called ESRD). This is a direct benefit program because the government is directly providing health insurance for those who qualify. The difference between

3708-424: Is sometimes related to the term class warfare , where the redistribution is alleged to counteract harm caused by high-income earners and the wealthy through means such as unfairness and discrimination. Redistribution tax policy should not be confused with predistribution policies. "Predistribution" is the idea that the state should try to prevent inequalities from occurring in the first place rather than through

3811-478: Is ‘just’ or fair in these countries and influences their overall views on redistribution.   Another context that can influence one's ideas of redistributive policies is the social class that one is born into. People tend to favor redistributive policy that will help the groups that they are a member of.   This is displayed in a study of Latin American lawmakers, where it is shown that lawmakers born into

3914-524: The Gini index for the income distribution before taxation and the Gini index after taxation is an indicator for the effects of such taxation. Wealth redistribution can be implemented through land reform that transfers ownership of land from one category of people to another, or through inheritance taxes , land value taxes or a broader wealth tax on assets in general. Before-and-after Gini coefficients for

4017-642: The United States , Social Security is the commonly used term for the federal Old-Age, Survivors, and Disability Insurance ( OASDI ) program and is administered by the Social Security Administration (SSA). The Social Security Act was passed in 1935, and the existing version of the Act, as amended, encompasses several social welfare and social insurance programs. The average monthly Social Security benefit for September 2023

4120-408: The distribution of wealth can be compared. Interventions like rent control can impose large costs. Some alternative forms of interventions, such as housing subsidies, may achieve comparable distributional objectives at less cost. If the government cannot costlessly redistribute, it should look for efficient ways of redistributing—that is, ways that reduce the costs as much as possible. This is one of

4223-419: The negative income tax for very low income earners and tax loopholes (tax avoidance) for the better-off. Two other common types of governmental redistribution of income are subsidies and vouchers (such as food stamps or Section-8 housing vouchers). These transfer payment programs are funded through general taxation, but benefit the poor or influential special interest groups and corporations. While

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4326-526: The "haves" and give them to the "have-nots", but many redistributions go elsewhere. For example, the U.S. government's progressive-rate income tax policy is redistributive because much tax revenue goes to social programs such as welfare and Medicare . In a progressive income tax system, a high income earner will pay a higher tax rate (a larger percentage of their income) than a low income earner; and therefore, will pay more total dollars per person. Other taxation-based methods of redistributing income are

4429-445: The 1990s, the dominant view among development economists was that inequality in poor countries was a less pressing issue compared to ensuring sufficient growth, which was believed to be the primary means of reducing poverty. The policy recommendation for developing countries was clear: it was not possible to simultaneously decrease poverty and inequality. This perspective was based on the belief that economic growth would eventually lead to

4532-471: The 50 states of the US, British researchers Richard G. Wilkinson and Kate Pickett show a correlation between income inequality and higher rates of health and social problems ( obesity , mental illness , homicides , teenage births , incarceration , child conflict, drug use), and lower rates of social goods ( life expectancy , educational performance, trust among strangers , women's status , social mobility , even numbers of patents issued per capita), on

4635-426: The 90% multiplier in the first PIA bendpoint to 40–85% depending on the number of Years of Coverage. Foreign pensions are subject to WEP. A special minimum benefit, based on an alternative PIA calculation, is available for some workers with long careers but low earnings. However, it is rarely higher than the regularly computed PIA and thus few workers qualify for the special minimum benefit. 32,000 individuals received

4738-599: The Eastern European economies has increased after moving from socialist controlled systems to market-based economies. For the Islamic distribution, the following are the three key elements of the Islamic Economic System, which have significant implications for the distribution of income and wealth (if fully implemented) and are markedly different from Capitalism. The Islamic system is defined by

4841-829: The GDP per capita of the world's poorest economies in 1870. By 1960, the most developed economies had 4.2 times the GDP per capita of the poorest economies. Regarding to GDP indicator, GDP has nothing to say about the level of inequality in society. GDP per capita is only an average. When GDP per capita rises by 5%, it could mean that GDP for everyone in the society has risen by 5%, or that GDP of some groups has risen by more while that of others has risen by less—or even declined. Public choice theory states that redistribution tends to benefit those with political clout to set spending priorities more than those in need, who lack real influence on government. The socialist economists John Roemer and Pranab Bardhan criticize redistribution via taxation in

4944-431: The PIA. Once the PIA is computed, it is indexed for price inflation over time. Thus, Social Security monthly benefit amounts retain their purchasing power throughout a person's retirement years. A worker who first starts receiving a retirement benefit at the full retirement age receives a monthly benefit amount equal to 100 percent of the PIA. A worker who claims the retirement benefit before the full retirement age receives

5047-562: The PIAs of a spouse or a deceased spouse. Aged spouse and divorced spouse beneficiaries can receive up to 50 percent of the PIA. Survivor benefit rates are higher and aged widow(er)s and aged surviving divorced spouses can receive 100 percent of the PIA. Federal, state and local employees who have elected (when they could) NOT to pay FICA taxes are eligible for a reduced FICA benefits and full Medicare coverage if they have more than forty quarters of qualifying Social Security covered work. To minimize

5150-613: The Penn Wharton Budget Model (University of Pennsylvania) projected depletion in 2032–2034, depending on the shape of the economic recovery in the U.S. following the COVID-19 pandemic. With regard to actuarial balance, the Social Security Trustees estimate a 75-year actuarial deficit of 3.61 percent of payroll. This is approximately the total payroll tax increase that would be necessary to keep

5253-547: The Scandinavian countries, social democracy has been in decline since the labor movement weakened. Instead, Roemer and Bardhan argue that changing the patterns of enterprise ownership and market socialism , obviating the need for redistribution, would be more sustainable and effective at promoting egalitarianism. Marxian economists argue that social democratic reforms – including policies to redistribute income – such as unemployment benefits and high taxes on profits and

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5356-979: The Social Security Act are: The SSA administers two of these programs (OASDI and SSI). The Social Security program in the United States pays benefits to three broad categories of individuals: retired individuals and some family members, disabled persons and some family members, and survivors. Within these broad categories, the program defines more specific types of beneficiaries. For example, spouses and divorced spouses are distinct categories, with somewhat different eligibility requirements. Survivor benefits include several categories including aged widow(er)s, aged surviving divorced spouses, disabled widow(er)s, disabled surviving divorced spouses, paternal and maternal orphans, and widow(er)s caring for minor or disabled children. As of 2023, there were about 66.8 million individuals receiving Social Security benefits. Individuals receiving Retirement Insurance Benefits constitute

5459-425: The Social Security Statement. The Statement can be accessed online by opening an online account with SSA called my Social Security . With that account, workers can also construct "what if" scenarios, helping them to understand the effect on monthly benefits if they work additional years or delay the start of retirement benefits. The my Social Security account also offers other services, allowing individuals to request

5562-422: The Social Security payments to those who have not contributed to FICA for 35+ years and are eligible for federal, state and local benefits, which are usually more generous, the U.S. Congress passed the Windfall Elimination Provision (WEP). The WEP provision does not eliminate all Social Security or Medicare eligibility if the worker has 40 quarters of qualifying income, but calculates the benefit payments by reducing

5665-496: The Social Security payroll tax. Wage and salary earnings above this amount are not taxed. In 2024, the maximum amount of taxable earnings is $ 168,600. Social Security is nearly universal, with 94 percent of individuals in paid employment in the United States working in covered employment. However, about 6.6 million state and local government workers in the United States, or 28 percent of all state and local workers, are not covered by Social Security but rather pension plans operated at

5768-474: The Social Security program began, during President Franklin D. Roosevelt's first term, as a measure to implement " social insurance " during the Great Depression of the 1930s. The Act was an attempt to limit unforeseen and unprepared-for dangers in modern life, including old age, disability, poverty, unemployment, and the burdens of widow(er)s with and without children. Opponents, however, decried

5871-566: The Twenty-First Century is at the forefront of the debate, mainly focusing on within-country concentration of income and wealth. Branko Milanovic provided evidence of increasing inequality at the global level, showing how the group of so-called "global plutocrats ", i.e. the richest 1% in the world income distribution, were the main beneficiaries of economic growth in the period 1988–2008. More recent analysis supports this claim, as 27% of total economic growth worldwide accrued to

5974-545: The adverse outcomes of these actions. This process is known as moral hazard and is a drawback of providing insurance to everyone because then the government and insurance providers cannot monitor the insured and must bear their costs of immoral actions. Moral hazard has important implications for optimal social insurance programs, particularly in the case of unemployment benefits : the presence of moral hazard entails that, paradoxical as it may seem, individuals should optimally be only partially insured against unemployment. This

6077-461: The burden on the employed youth of the country because of the number of retired individuals that are the beneficiaries. However, this has been mitigated by research that shows that although the number of retirees that benefit from the working youth is significant, the number of children that American families are raising, have considerably fallen. Thus, the number of members in a family that need to be supported have reduced. The question of whether this

6180-426: The classic theory that individual preferences for redistribution decrease with their income, leading to societal preferences for redistribution that increase with income inequality has been disputed. Perhaps the most important impact of government on the distribution of “wealth” is in the sphere of education—in ensuring that everyone has a certain amount of human capital . By providing all individuals, regardless of

6283-582: The colonists looked upon it as a form of slavery. A closely related term, distributism (also known as distributionism or distributivism), refers to an economic ideology that developed in Europe in the late 19th and early 20th century. It was based on the principles of Catholic social teaching , particularly the teachings of Pope Leo XIII in his encyclical Rerum Novarum and Pope Pius XI in Quadragesimo Anno . More recently, Pope Francis echoed

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6386-501: The combined programs together (OASI and DI) and focus on key measures such as trust fund depletion date, actuarial balance over a 75-year period, and comparisons of program costs to U.S. GDP. Regarding trust fund depletion, the Social Security Trustees in 2024, based on technical work by the Social Security Administration's actuaries, project the combined OASDI trust fund will be depleted in 2035. In 2021,

6489-414: The context of Nordic-style social democracy , reportedly highlighting its limited success at promoting relative egalitarianism and its lack of sustainability. They point out that social democracy requires a strong labor movement to sustain its heavy redistribution, and that it is unrealistic to expect such redistribution to be feasible in countries with weaker labor movements. They point out that, even in

6592-401: The continuous evolution of social norms, politics, and culture. Within developed countries income inequality has become a widely popular issue that has dominated the debate stage for the past few years. The importance of a nation's ability to redistribute wealth in order to implement social welfare programs, maintain public goods, and drive economic development has brought various conversations to

6695-422: The earlier Papal statements in his Evangelii Gaudium . Different types of economic systems feature varying degrees of interventionism aimed at redistributing income, depending on how unequal their initial distributions are. Free-market capitalist economies tend to feature high degrees of income redistribution. However, Japan's government engages in much less redistribution because its initial wage distribution

6798-470: The efficient implementation of social insurance programs. In the case of the Affordable Care Act, for example, an individual mandate was included which required Americans to purchase health insurance or be subject to a financial penalty. This allowed higher cost individuals, from the perspective of insurance companies, such as people with pre-existing conditions to be covered and not excluded at

6901-475: The features of a market economy that give rise to the need for social insurance: This is a form of failure in a competitive market where there is not a parity in the provision of information between buyers and sellers or in this situation insurers and the insured. If the risk involved in a transaction is not made equally clear to both parties then the trades are differently valued by the two parties. The difference in knowledge between insurers and insured about

7004-424: The first $ 1,174 of average indexed monthly earnings, plus (b) 32 percent of average indexed monthly earnings between $ 1,174 and $ 7,078, plus (c) 15 percent of average indexed monthly earnings over $ 7,078 For workers who turn 62 in the future, the 90, 32, and 15 percent factors in the computation formula will remain the same but the dollar amounts in the formula (called bend points) will increase by wage growth in

7107-500: The following three key elements: Ushr and Zakat, the prohibition of usury, and the Inheritance Law. Ushr is an obligatory payment from agriculture output at the time of harvesting. If agricultural land is irrigated by rain or some other natural freely available water the producer is obliged to pay ten percent of the output as Ushr. In case irrigation water is not free of cost then the deduction would be five percent, while Zakat

7210-520: The full retirement age that equals 90 percent of the person's average monthly earnings before retirement. The table shows replacement rates for workers who turned 62 in 2013. The PIA computation formula for disabled workers parallels that for retired workers except the AIME is based on fewer years to reflect disablement before age 62. The monthly benefit amount of a disabled worker is 100 percent of PIA. Benefits for spouses, children, and widow(er)s depend on

7313-783: The full spouse benefit for which they qualify. In addition, Social Security beneficiaries with low income and limited resources may qualify for additional income through the Supplemental Security Income (SSI) program. SSI is separate from the Social Security program, but it is administered by SSA. In 2022, 2.5 million Social Security beneficiaries received additional income through SSI. Social Security payments to beneficiaries, which totaled $ 1.23 trillion in 2022, are generally financed by payroll taxes on workers in Social Security covered employment, trust fund reserves, and income taxation of some Social Security benefits. The payroll tax rate totals 12.4 percent of earnings up to

7416-446: The funding of public services . One basis for redistribution is the concept of distributive justice , whose premise is that money and resources ought to be distributed in such a way as to lead to a socially just , and possibly more financially egalitarian , society. Another argument is that a larger middle class benefits an economy by enabling more people to be consumers , while providing equal opportunities for individuals to reach

7519-477: The government is to alter the initial distribution of wealth – the major drivers of income inequality in capitalist systems – was virtually nonexistent; and because the wage rates were set by the government in these economies. A comparison between Socialist and Capitalist Systems in terms of distribution of income is much easier as both these systems stand practically implemented in a number of countries under compatible political systems. Inequality in almost all

7622-521: The large baby-boom generation however, is lowering balances. Without legislative changes, trust fund reserves are projected to be depleted in 2033 for the OASI fund. Should depletion occur, incoming payroll tax and other revenue would be sufficient to pay 77 percent of OASI benefits starting in 2035. With few exceptions, all legal residents working in the United States have an individual Social Security Number . Social Security timeline A limited form of

7725-494: The largest group of beneficiaries, with 52.4 million retired workers or family members receiving monthly payments. Social Security Disability Insurance benefits were paid to 7.4 million disabled workers and 1.2 million dependents (children and spouses). About 5.8 million individuals, including 2 million children, received some type of survivor benefit from Social Security. Some individuals qualify for more than one type of benefit, but program rules on dual entitlement generally prevent

7828-427: The law. Workers with 40 quarters of coverage (QC) are "fully insured" and eligible for retirement benefits. Retirement benefit amounts depend upon the average of the person's highest 35 years of "adjusted [for inflation]" or "indexed [for inflation]" earnings. A person's payroll-taxable earnings from earlier years are adjusted for economy-wide wage growth, using the national average wage index (AWI), and then averaged. If

7931-429: The main concerns of the branch of economics called the economics of the public sector. One study suggests that "the middle class faces a paradoxical status" in that they tend to vote against income redistribution, even though they would benefit economically from it. The objectives of income redistribution are to increase economic stability and opportunity for the less wealthy members of society and thus usually include

8034-469: The national economy, as measured by the AWI. Because the AIME and the PIA calculation incorporate the AWI, Social Security benefits are said to be wage indexed. Because wages typically grow faster than prices, the PIAs for workers turning 62 in the future will tend to be higher in real terms but similar relative to average earnings in the economy at the time age 62 is attained. Monthly benefit amounts are based on

8137-539: The other. The authors argue inequality leads to the social ills through the psychosocial stress , status anxiety it creates. A 2011 report by the International Monetary Fund by Andrew G. Berg and Jonathan D. Ostry found a strong association between lower levels of inequality and sustained periods of economic growth. Developing countries (such as Brazil, Cameroon, Jordan) with high inequality have "succeeded in initiating growth at high rates for

8240-468: The past, legislation has been enacted to prevent trust fund depletion. Should the trust funds be depleted, Social Security would still have revenue coming into the system from payroll taxes. The Social Security trustees estimate that revenue would be sufficient to pay 77 percent of the program's benefits. There has been debate about a trust fund depletion scenario regarding whether monthly benefits would be lowered or whether full amounts would be paid but not on

8343-423: The payment of two full benefits. For example, a person eligible for a retirement benefit and a higher spouse benefit will receive the full retirement benefit and a partial spouse benefit. The dual entitlement rules disproportionately affect women (7 million women in 2022 ) because historically they have earned less than current or former husbands and this leads to retirement benefits for women that are often lower than

8446-409: The persons receiving transfers from such programs may prefer to be directly given cash, these programs may be more palatable to society than cash assistance, as they give society some measure of control over how the funds are spent. Governmental redistribution of income may include a direct benefit program involving either cash transfers or the purchase of specific services for an individual. Medicare

8549-405: The phrase varies, depending on personal perspectives, political ideologies and the selective use of statistics. It is frequently used in politics, to refer to perceived redistribution from those who have more to those who have less. Occasionally, albeit rarely, the term is used to describe laws or policies that cause redistribution in the opposite direction, from the poor to the rich. The phrase

8652-497: The political arena. A country's means of redistributing wealth comes from the implementation of a carefully thought out well described system of taxation. The implementation of such a system would aid in achieving the desired social and economic objective of diminishing social inequality and maximizing social welfare. There are various ways to impose a tax system that will help create a more efficient allocation of resources, in particular, many democratic, even socialist governments utilize

8755-545: The poor, dependent children, spouses, survivors and the disabled. Poor farms were common in the US before Social Security took effect, then most disappeared by about 1950. By 1950, debates moved away from which occupational groups should be included to get enough taxpayers to fund Social Security to how to provide more benefits. Changes in Social Security have reflected a balance between promoting "equality" and efforts to provide "adequate" and affordable protection for low wage workers. The larger and better known programs under

8858-412: The proposal as socialism. Secretary of Labor Frances Perkins wrote that during a Senate Finance Committee hearing, Senator Thomas Gore (D-OK) asked "Isn't this Socialism?" She replied that it was not, but he continued, "Isn't this a teeny-weeny bit of Socialism?" The provisions of Social Security have been changing since the 1930s, shifting in response to economic worries as well as coverage for

8961-406: The proposed " Buffett Rule ", which is a hybrid taxation model composed of opposing systems intended to minimize the favoritism of special interests in tax design. The effects of a redistributive system are actively debated on ethical and economic grounds. The subject includes an analysis of its rationales, objectives, means, and policy effectiveness. In ancient times, redistribution operated as

9064-410: The reallocations made between payroll and individual income taxes" Unemployment insurance and workers' compensation are essential aspects of Social Insurance that indeed provide unparalleled assistance to citizens facing uncertainty regarding their jobs. Although these programs have obvious benefits, they also affect the labor supply because they incentivise workers to spend time out of work and thus

9167-523: The risk level ultimately leads to the problem of adverse selection . An example of this problem would be the situation where insurers set a particular price for health insurance that is too high for individuals with low risk of getting sick, and thus only those with a high risk of getting sick purchase this insurance. Ultimately the insurance company is losing money since they cannot discriminate between buyers and thus they further increase prices. This increase continues to eliminate individuals whose risk level

9270-429: The risk of losses of economic status due to their participation in the labour market .  This inherent idea of fairness has propagated the desirability and subsequent durability of this program. An issue of social insurance is that often, individuals who are insured against certain risks become complacent and more likely to take adverse actions because they are secure in the knowledge that they will be insured against

9373-404: The special minimum benefit in 2019. The benefits someone is eligible for are potentially so complicated that potential retirees should consult the Social Security Administration directly for advice. Many questions are addressed and at least partially answered on many online publications and online calculators. The Social Security Administration (SSA) provides benefit estimates to workers through

9476-498: The state or local level. Social Security payroll taxes are collected by the federal Internal Revenue Service (IRS) and are formally entrusted to the Federal Old-Age and Survivors Insurance (OASI) Trust Fund and the federal Disability Insurance (DI) Trust Fund, the two Social Security Trust Funds . Social Security revenues exceeded expenditures between 1983 and 2009 which increased trust fund balances. The retirement of

9579-467: The system solvent for 75 years. The figure is designed to illustrate the size of the deficit. Legislation could close the deficit in ways other than raising the payroll tax rate. Because taxable earnings are a fraction of GDP, sometimes the system's finances are put into context by using GDP. Social Security's cost are currently 5.2 percent of U.S. GDP. Program costs will rise to 6.3 percent of GDP by 2076, and then decline to 6.0 percent of GDP by 2097. In

9682-399: The tax and benefits system once they have occurred. For example, a government predistribution policy might require employers to pay all employees a living wage and not just a minimum wage , as a "bottom-up" response to widespread income inequalities or high poverty rates. Many alternate taxation proposals have been floated without the political will to alter the status quo. One example is

9785-702: The taxable maximum (the rate is 6.2 percent from workers and 6.2 percent from employers and 12.4 percent from the self-employed). The OASI Trust Fund and the DI Trust Fund are legally separate. For employees and employers combined, the OASI payroll taxes are 10.6 percent and the DI payroll taxes are 1.8 percent. In 2022, trust fund reserves for the OASI and DI programs were $ 2.7 trillion and $ 118 billion, respectively. Income taxation of some Social Security benefits brought in $ 47.1 billion for OASI and $ 1.6 billion for DI in 2022. Assessments of system financing often focus on

9888-428: The time that these citizens are unemployed is longer. Unemployment insurance, an example of social insurance, is inherently faced with determining whether individuals face financial hardship in the form of little or no income by choice or by circumstantial necessity. An unemployed worker is able to rejoin the work force through active, effortful job search. In the case of full unemployment insurance, and job search effort

9991-532: The top 1% of the world income distribution in the period 1980–2016. The approach underpinning these analyses has been critiqued in certain publications such as The Economist . Peter Singer 's argument contrasts to Thomas Pogge's in that he states we have an individual moral obligation to help the poor. The rich people who are living in the states with more redistribution, are more in favor of immigrants than poorer people, because this can make them pay less wages. Using statistics from 23 developed countries and

10094-413: The wealth of their parents, with a free basic education, government reduces the degree of inequality that otherwise would exist. Income inequality has many different connotations, three of which are of particular importance: The existence of high inequality within many developing countries , alongside persistent poverty , began to draw attention in the early 1970s. However, throughout the 1980s and into

10197-726: The wealthy create more contradictions in capitalism by further limiting the efficiency of the capitalist system via reducing incentives for capitalists to invest in further production. In the Marxist view, redistribution cannot resolve the fundamental issues of capitalism – only a transition to a socialist economy can. Income redistribution will lower poverty by reducing inequality, if done properly. But it may not accelerate growth in any major way, except perhaps by reducing social tensions arising from inequality and allowing poor people to devote more resources to human and physical asset accumulation. Directly investing in opportunities for poor people

10300-527: The worker has fewer than 35 years of covered earnings, these non-contributory years are assigned zero earnings. The sum of the highest 35 years of adjusted or indexed earnings divided by 420 (35 years times 12 months per year) produces a person's Average Indexed Monthly Earnings or AIME. The AIME is then used to calculate the Primary Insurance Amount (PIA). For workers who turn 62 in 2024, the PIA computation formula is: (a) 90 percent of

10403-522: Was $ 1,706. The total cost of the Social Security program for 2022 was $ 1.244 trillion or about 5.2 percent of U.S. gross domestic product (GDP). Social Security is funded primarily through payroll taxes called the Federal Insurance Contributions Act (FICA) or Self Employed Contributions Act (SECA). Wage and salary earnings from covered employment, up to an amount determined by law (see tax rate table), are subject to

10506-448: Was particularly advanced in the US in the 1920s by Waddill Catchings and William Trufant Foster . More recently, the so-called "Rajan hypothesis" posited that income inequality was at the basis of the explosion of the 2008 financial crisis. The reason is that rising inequality caused people on low and middle incomes, particularly in the US, to increase their debt to keep up their consumption levels with that of richer people. Borrowing

10609-494: Was particularly high in the housing market and deregulation in the financial sector made it possible to extend lending in sub-prime mortgages . The downturn in the housing market in 2007 halted this process and triggered the financial crisis . Nobel Prize laureate Joseph Stiglitz , along with many others, supports this view. There is currently a debate concerning the extent to which the world's extremely rich have become richer over recent decades. Thomas Piketty 's Capital in

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