US Social Security vs. Canadian Social Security

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Table of Contents

Introduction
Introduction to the United States Social Security system
Introduction to Canadian social security
Similarities between the United States and Canadian security services
Differences between the United States and Canadian social security system
Evaluation of current US system against the Canadian system
Recommendations to improve the United States social security system
References

Introduction

The increasing challenge posed by an increase in the elderly population creates the need to deploy social security services. Demographic patterns on the provision of social services are estimated to increase drastically in the future.

In the United States, the notable demographic trends that are likely to impose significant pressures on social security includes the anticipated retirement of the baby boomers cohort, a reduction in the fertility rates and increases in life expectancy are estimated to pose a large increase in the old-age dependency ratio (Feldstein & Liebman, 2002).

The main purpose of this paper is to compare and contrast the United States with the Canadian social security system. The paper provides an overview of the United States and Canadian social security system, after which the paper discusses the objective similarities and differences between the two systems.

In addition the paper also provides a subjective analysis that is based on the current evaluation of the United States social security system against the Canadian system. Basing on the research, the paper provides recommendations for improving the United States social security system.

In the US, social security mainly involves the Old-Age, Survivors and Disability Insurance (OASDI) scheme that is administered by the federal government. Social Security in the United States was first adopted during 1935; subsequent amendments have resulted to the inclusion of social welfare and social insurance.

Major components of the United States social security also include the Supplemental Security Income, various unemployment benefits, offering aid to the needy families, grants issued to the states by the federal government for the purposes of Medical Assistance Programs (Medicaid), Health Insurance for the Aged and Disabled (Medicare) and the Patient Protection and Affordable Care Act (Giles, 2005).

Social security in the United States is mainly financed using dedicated payroll taxes that are referred to as the Federal Insurance Contributions Act tax. Social security in the United States is largely concerned with the benefits associated with retirement, unemployment, cases of disability, death and survivorship (Hyman, 2010).

Social Security in the United States is considered as the largest government program in the globe that takes a significant portion of the federal budget. In addition, social security is the biggest social insurance program in the United States. It is estimated that social security in the United States has helped to keep 40 percent of people aged over 65 years out of poverty.

Canadian social security comprises of approximately 2.3 percent of the Gross Domestic product, the Pay-as-you-go component Canadian social security is relatively small compared to the United States. Old Age Security (OAS) program is one of the core elements of elderly income transfers in Canada. The Guaranteed Income Supplement is used to increase the income levels for aged individuals in Canada.

Another important element of Canadian social security is the Canadian Pension Plan and the Quebec Pension plan, which are mainly funded by the joint monetary contributions from employers and employees. Canadians contribute 4.95 percent tax on their income from USD 3500 to USD 41000 (Orszag & Diamond, 2005).

Social security in Canada mainly involves the government programs that are adopted with the main objective of offering assistance to its citizens and covers diverse programs that are mostly run by the provinces.

In Canada, the social safety net is mainly concerned with the transfer payments that are directed at low income citizens only. It does not incorporate expenditures associated with healthcare services and education (Weisbrot & Baker, 2001).

Similarities between the United States and Canadian security services

In the US, social security denotes the funds that the individuals pay during their working life, which mainly comprises of the retirement benefits during old age. This is a similar approach under the Canadian social security that is implemented using the Canadian Pension Plan.

In the United States, employees contribute 5.65 percent of their earnings towards their social security and Medicare, which is used for offering medical insurance for aged and retired people.

The social security premiums in the US are capped at earnings of USD 106,800 while there is no capping of the premiums for Medicare (Hyman, 2010). Canadians contribute 4.95 percent of their total earnings towards the CPP. Socialized healthcare plan in Canada are somewhat similar to the Medicare program in the context of the United States (Orszag & Diamond, 2005).

Another similarity between the United States and Canadian social security systems is that they both make use of the pay-as-you-go scheme, although the United States system is relatively high compared to the Canadian system. Bo the social security systems can be considered to a hybrid between the PAYGO plan and a fully financed program (Hyman, 2010).

A notable difference between the two systems is the scope of coverage of social security. In this context, the Canadian social security system does not have provisions for education and healthcare expenditure, which are provided in the social security system in the United States (Giles, 2005).

The second difference between the two systems is that the United States expenditures on social security are relatively higher compared to the Canadian expenditure on social security. For instance, the Old Age and Survivors comprise of 6 percent of the United States GDP, compared to Canada that allocate 4.2 percent of its GDP. In addition, Canada spends relatively twice as much as the amount that the United States spends on unemployment benefits (Hyman, 2010).

Another difference between the two systems is that the CPP is a reserve fund that is invested in the market; this is contrary to the social security funds that are invested in government securities and bonds. Investing the CPP in the market resulted to 5 percent marginal difference between the returns in the United States and Canada.

Evaluation of current US system against the Canadian system

It is arguably evident that Canadian social security has a better establishment compared to the United States social security system. There is a potential that the Canada Pension Plan fund will grow since it is invested in the market, making significant contributions towards its future sustainability compared to the United States social security funds that are invested in government bonds.

Another reason that contributes to the effectiveness of the Canadian pension Plan when compared with the US social security system is that the benefits of the CPP are relatively lower compared to the benefits of the United States social security. The generosity of the United States social security questions its sustainability in meeting the future demands posed by the aging population (Weisbrot & Baker, 2001).

Improving the efficiency of the United States social security requires the reinforcement of insurance and financing. With regard to insurance, it is important to maintain an appropriate balance in terms of social and individual responsibility.

With regard to financing, establishing a suitable balance between pre-retirement funding and the use of the common PAYGO method will serve to address the potential challenges imposed by the demographic trends in the United States.

References

Feldstein, M., & Liebman, J. (2002). The Distributional Aspects of Social Security and Social Security Reform. Chicago: University of Chicago Press.

Giles, C. (2005). US social security is among least generous. Web.

Hyman, D. (2010). Public Finance: A Contemporary Application of Theory to Policy. New York: Cengage Learning.

Orszag, P., & Diamond, P. (2005). Saving Social Security-A Balanced Approach. Washington DC: Brookings Institution Press.

Weisbrot, M., & Baker, D. (2001). Social Security: The Phony Crisis. Chicago: University of Chicago Press.

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Introduction

Introduction to the United States Social Security system

Introduction to Canadian social security

Similarities between the United States and Canadian security services

Differences between the United States and Canadian social security system

Evaluation of current US system against the Canadian system

Recommendations to improve the United States social security system

References

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