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Assignment 5

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Collage

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Course

Date

Topic: should the U.S Tax Social Security income ceilings for contributions be raised?

If the U.S Tax Social Security income ceiling or the contribution base is increased, this means that there will be an increase in the maximum social security tax to be collected from an individual worker. Thus, the Social Security changes determine the contribution base based on the Consumer Price Index for Urban Wage Earners. The contribution base thus determines the cost of living adjustment applied to the recipients. If there is no increase in the contribution base, then the consumer price index for urban wage earners remains the same as well as the cost of living. In U.S., the social security income benefits increases automatically in every year as long as the same (increase) is attributed in the Bureau of Labor Statistics’ Consumer Price Index for Urban Wage Earners and Clerical Workers, from the third quarter of the previous year to the corresponding period of the present year (Internal Revenue Service, 2010). However, this was not the case in the year 2010 because there was no change in the Consumer Price Index for the Urban Wage Earners. This means that the individual’s social benefits remain the same. This is because the social security Act prohibits an increase in the contribution base (Social Security’s Maximum Taxable Earnings). From the past, the contribution base increase was justified by the desire to achieve an improved system of financing as well as maintain meaningful benefits for the higher and middle earners.

The advantage of raising the contribution base is that the social security benefits will be put on a more stable footage. This means that more people will benefit from the program especially the future generation. However, requiring high income generators to contribute more on the benefits may be received with mixed reactions with some viewing the program as less equitable. Other reason to increase the contribution base beyond the wage indexed levels is to reflect the growing earning inequalities and help restore the financial balance (Livingston, 2008). However, according to the statistics, 53 percent of the American people would prefer to raise the contribution base in order to ensure social security’s solvency. This will require raising the income tax cap from the current limit on social security contribution from 110,000 dollars (the current limit) to more than 250,000 dollars (the proposed limit).

Since the amendments were enacted in the year 1977, the contribution base has risen automatically with an increase in average wages. The current proposal to further increase the contribution base tend to emphasis the rationales (that were included in the 1977 amendments) of reducing the social security’s projected funding shortfall and creating a less regressive income tax structure as well as responding to changing earning distribution (Livingston, 2008).

Before increasing the contribution base, there is a need to consider the effects it has on the economy. First, the increase will result to solve most of the 75-year actuarial deficit, a trust fund measure. However, most economists and government analysts view government trust fund as “accounting mechanisms” but do not necessarily save or transfer resources over time. Thus, as much as the contribution base may have a legal meaning, it may have a little significant on the economy. Most economists are of the view that social security surpluses only subsidies the current consumption in the budget but do not improve the overall budget or improve or rise the national saving.

Thus, this point is important since increasing the contribution base would produce large short-term payroll-tax surpluses, which would be credited to the trust fund and then “carried forward” to pay retirement benefits in the future (Internal Revenue Service, 2010). Consequently, eliminating the tax cap (currently proposed) does improve Social Security’s long-term cash flows, reducing annual deficits by around half. But the most anticipated advantage to the system’s actuarial balance hinges on a large trust fund buildup or from the increased contribution base in the short term is that higher taxes produce a bubble of payroll tax surpluses. If these surpluses are not truly saved as anticipated then Social Security’s financing will be improved more on a mere wording than in reality. After all, it may cut annual deficits in the budget which is great, but may not necessarily eliminate them. Another effect on raising the contribution base is that it will constitute a significant increase in marginal taxes for many people falling in a middle class standards o f living bracket. For instance, consider a person earning 108,000 dollars which is just above the current tax ceiling. That person pays 28 percent on the marginal federal income rate, 2.9 percent on Medicare tax rate, and 5 percent on state income tax rate. Generally, that person will contribute almost 36 percent of her income to the government.

Value of increase in contribution base in relation to the economy

The most commonly used measures of tax earning values include

· The nominal dollar

· Inflation adjusted dollars, and

· Wage adjusted dollar

The diagram bellow shows the tax values for these three measures. There saw no change in the Consumer Price Index for the Urban Wage Earners between 2009 and 2011, thus there was no cost of living adjustment foe recipients (Livingston, 2008).

·

Thus, increase in the contribution base has an effect on inflation. However, the nominal values do not account for such. The diagram shows that the real value of the tax earnings decreased from 1937 to around early 1950s before increasing during the late 1950s since then. Also from the diagram, the wages have generally increased at a higher rate than inflation. The third approach is used to adjust the tax income with the wage growth. This is important as the tax max applies to wages. From 1980s the wage adjusted values have almost remained the same with slight changes. This result reflects the effects on the wage index and consequently the share of economy wide earnings. Generally, increasing the contribution base is aimed at expanding and improving future benefits for the middle and higher earners. The development of the contribution base is also attached to political development as well as inflation effects and income inequalities (Livingston, 2008).

Conclusion

Despite of the merits attributable from increasing the contribution base, the demerits are way much more. Thus, based on the above argument, the U.S. Tax Social Security income ceilings for contributions should not be raised as that will have adverse social/individual effects as well as increase the long term effects on the State’s deficit. Additionally, this does not improve the economy.

Topic 2: Should state and local governments provide health insurance only for retirees who have served 20 years in government service?

Most healthy insurance plans are designed especially for public employees and most so for retirees who have served in the government service for more than 20 years. Generally, the local government is obliged to provide healthy insurance to its employees. However, the local government on most cases restricts this responsibility to retirees who have served public offices for more than 20 years. This is because the government may find it expensive to cater for health insurance to all its employees. Thus the government could lack funds to finance their employees on this insurance plan. Most states nowadays are reducing and others eliminating health coverage for retirees. This is because the plan is very expensive and hugely underfunded. But more than 77 percent retiree employees in the U.S. state and local government were eligible for retiree health insurance. However, the rising healthcare costs, plummeting tax revenues and unfunded pension liabilities have forced some states and local government into bankruptcy (United States & United States, 2004)

This has been a problem to many states to the extent that in some of the cities, insurance is no longer offered. It is a disadvantage to the employees because once the government backs down they cannot sue them. This is because the government is not obliged legally to cater for healthcare covers. This has led to many workers of the public sector being expected to cater for their own healthy care costs. In some cities, the employees have been forced to pay for their benefits because of lack of funding.

If the local government decides to offer for healthy insurance to all its employees, certain effects will be attached. To achieve this plan, the government may propose to raise taxes to be in a position to cater for the citizen’s health benefits. The majority have taken it positively while others argue that it will drain their pockets. In this case, some will view it as beneficial for them to pay more to have the raise in tax money but be assured of healthcare insurance (United States & United States2004).

The issue of health benefits has also led to the bankruptcy of some governments, and others are afraid of following suit. This is because there have been an increase in costs of health, pension is sometimes not available and lack of government support. In some cities however, they have found solutions that have enabled their retired workers to be assured of benefits even for those of their families. This has been termed as unfair for the employees since they have dedicated their time and energy to serve the country. There are those cities that have come up with solutions to help public employees to enjoy their retirement age. However, this has not come without its limits as the employee will be required to retire after a period of serving the government. It has varied in various cities around the States. For some, the retirement age to those that have served for more than five years is 60. Those that have served for a longer time retire at their desired age. This has been used as a way to limit people from retiring early and expecting retirement benefits. There are solutions that different cities have come up with to benefit the retired employees. The government of certain cities saw the need for them to implement programs that would benefit the retired employees. In United States, there is an insurance cover that has been designed to capitalize in dealing with the elderly. It caters for people who are 65 years and older, people that are less than 65 but have disabilities and people of all ages that have succumbed to renal disease. For the various parts, it seeks to cover different costs. In part A, it covers hospital bills for the elderly, part B caters for the cover of a medical insurance while covers the cost of drugs prescribed in part C. (United States, 2004)

Conclusion

In summation, all states are unique, and they all experience different problems, be it structural or monetary. It though seems that the investments that are done by the government are not rising to keep up with the rising need for benefit payments. Some of the states have taken to increasing rates of taxes in order to cater for these covers for the state employees. Therefore, the question as to whether the state and local governments should provide health insurance only for retirees who have served 20 years in government service depends on the financial stability of a state. But more precisely, the local government should provide health insurance for retirees who have served for more than 20 years as this will help retain its employees for a better period.

Topic 3: Should funding for the U.S. space program be changed?

The U.S. government has been funding space programs since 1957 when the Soviet Union launched Sputnik. Its aim was for it to be the first to go where no man has ever been there. Yuri Gagarin was the first man in space in 1961and since then more people are battle ling to break records and frontiers (Kay, 1995).

The issue of funding the space program has been received with mixed reactions from the public with some opposing greatly that the program should be publicly funded. Opposes of this motion argue that the cost of pushing boundaries in the space is very expensive to be funded from the tax payer’s money. Over 16.5billion dollars have used to get to the moon. They argue that these funds should be used to help people on rather than be spent on space. Dennis Kucinich responded to President Bush’s space initiative that, “I also want to explore planet Earth and planet D.C” meaning that he opposed the move. They also argue that private markets are better suited for space exploration investments as this would transfer the investment risk away from the public money. They also hold that space programs are a waste of tax payer’s money (Kay, 1995).

On the other hand, the proposers of this motion argue that public funding is necessary to achieve real results in space. The private sectors are more attached to serving the rich and it is to the best interests of the public to fund the space programs for the best interest of the general public. They also hold that space programs have relatively small budgets and that space exploration is more valuable than other human expenditures. Space programs have brought many practical benefits to the people as well as benefits from natural resources of other planets (Kay, 1995).

Conclusion

Based on the above argument, space exploration is a perfect investment the public and for the future generation and the world would be a different place if space exploration was neglected. With the current improvement and advancement of technology, space knowledge is crucial as the human race may require its accommodation in the future, for instance, the study of planet Mars. Technology innovation is also attributed from space exploration, for example, kidney dialysis and the new artificial heart which have been based on technology found in space shuttles. More importantly, space exploration has led to the development of satellite, the most important thing that keeps us connected with one another. Therefore, the funding of the space program should not be changed.

Reference

Internal Revenue Service. (2010). Statistics of Income, Final Individual Income Tax Returns: 2008. Internal Gitterman, D. P. (2010).

Boosting paychecks: The politics of supporting America's working poor. Washington, D.C: Brookings Institution Press. Revenue Service.

Livingston, S. G. (2008). U.S. social security: A reference handbook. Santa Barbara, Calif: ABC-CLIO.

Clark, R. L. (2010). Retiree health plans in the public sector: Is there a funding crisis?. Cheltenham, UK: Edward Elgar Pub.

United States., & United States. (2004). Pension and employee benefits: Code, ERISA, regulations as of January, 2004. Chicago, Ill: Commerce Clearing House.

Ebrary, Inc. (2004). Issues and opportunities regarding the U.S. space program: A summary report of a workshop on national space policy. Washington, D.C: National Academies Press.

Kay, W. D. (1995). Can democracies fly in space?: The challenge of revitalizing the U.S. space programm. Westport, Conn. [u.a.: Praeger.