Why is the rational social system necessary
It is only a small step that the grand coalition dares to take: the Union and the SPD have decided to reduce unemployment insurance contributions by 0.5 percentage points. That was the controversial part of the pension package that was decided in the cabinet on Wednesday. Employers and employees each benefit from the 0.5 percentage points. So anyone who earns 2000 euros gross per month will get five euros more from 2019. That's not much for a budget where money is tight.
The bill reveals the crucial problem of German social security: it disadvantages low-wage earners. Addressing this issue would be a really big political step. But nobody has dared to do that yet.
More than the gross salary, people are interested in how much money actually comes into the account. From the gross amount, the employer transfers taxes to the tax office on the one hand and social security contributions to the cash registers on the other. The tax rates in Germany are progressive, which means that those who earn more have to pay more proportionately. This is a simple and fair principle that unfortunately does not apply to social security.
The contribution rates for the pension system and the statutory health insurance funds, for the now reformed unemployment insurance and long-term care insurance, on the other hand, are practically the same for everyone. Almost 20 percent of the gross wage has to be paid in social security contributions; most of it goes to pension and health. Because this value is the same for everyone, the taxes work like one Flat tax - a flat tax for small earners as well as millionaires. A uniform tax rate for rich and poor would not have a social majority in Germany. But that is the reality with social security contributions.
The social security contributions are too high for low wage earners
The consequences are particularly dramatic for the groups that would actually be potential SPD voters: social security contributions are too high for low-wage earners (PDF). This particularly affects single parents, and therefore women in particular. It would be fair to relieve these people in particular when they go to work.
The German social system has even punished them so far. If a single parent with two children earns 1700 euros gross per month and wants to switch to a better job with a little more salary, it is not worth it: the bottom line is that they have less net money than before because the social security contributions are incurred and transfer payments are no longer applicable (PDF).
The German social system is a historic achievement. The system is designed in such a way that individual deposits and withdrawals must be in a fair relationship. The logic: since all people live for about the same length of time and get sick to the same extent, they also cost the social security funds the same amount. Therefore, the same rate must be levied for everyone.
And indeed: A billionaire can never get so sick or so old that he would cost the coffers millions more than other people. Therefore, the social contributions in Germany are even capped, the mean: the contribution assessment ceiling. Anyone who earns 8,000 euros a month has to pay the same amount into the pension fund as someone who earns 6,500 euros.
The individual entitlement and the uniform payment have been created in the German system since Bismarck and are also protected by constitutional law. Changing them requires a great social consensus. However, the pension funds and the statutory health insurance already receive billions of euros in taxes. So the system is already getting a bit more progressive through the back door. But more would be needed.
Achievement must pay off again for low-wage earners
Up to the basic tax allowance of 9,000 euros per year, there should be no social security contributions at all. Then, as with taxes, the burden should slowly increase, a little more with every euro. To finance this, the rates for high earners and the rich would have to rise to more than 20 percent, or tax subsidies would have to be increased.
In a modern welfare state, protection against poverty in old age and illness are essential for democracy. There could be support for reform in all political camps. Achievement would be worthwhile again for low-wage earners if they were relieved. Employers would be happy if more women wanted to work more. And it would be fairer anyway.
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