Social security in the U.S is the most significant income program available for the elderly. However, United States ranks 26th compared to Greece which ranks 3rd in the replacement of the prior earnings. Despite this great variance, Greece has recently had its national debt restructured by the European Union to avoid bankruptcy.
The following discussion is inclusive of the causes of this great variance between Greece and the United State on income replacement. It also includes the role of public pension replacement rates on its debt burden. From the past experience of Greece, U.S. has a lot to learn from it (Weitzman & Bullock, 2010).
Greece is viewed as a warning to U.S. in the essence of high promises and high pay of those promises. Both Greece and the United States pay a value added Tax (VAT) on top of income tax. Greece however pays little amount on health care compared to U.S, as well as the higher education payment, where it utilizes the taxes to pay the replacement income (Livingston, 2008).
The U.S VAT has no offsetting cuts on taxes thus fewer incentives compared to Greece and innovations which cause the state to offshore tax economic development in the so called anemic levels thus being in a position that it can’t improve in replacement income. The minimum pension for the United States is lower than that of the Greece for the low income earners. In Greece, a portion of the replacement income is taken as returns flow which is not the case in U.S. (Fund, 2009).
Greece has a high level for the median-income contributors which are mandatory as compared to that of U. S, thus enhancing high amount of net replacement. The financial support of clear benefit procedure in the U.S. is therefore a great challenge which has in turn affected the pension procedures in public sectors in the long run, thus it is difficult to fund effectively the social security. These are just few causes which have led in lower rank of U.S. compared to Greece.
Pension public replacement funds play a great role in the debts burden. The shortfalls of the U.S public pension replacement fund has been the major subject on its debts increase. This has in turn led to the inability of the state to pay the institution’s bills. Further, the U.S. has been led into a state of borrowing more funds so that it can support pension payments and come out of its usual financial backing (Weitzman & Bullock, 2010).
On the current state, it is difficult for the U.S to pay the pensioners on what they had saved but the State uses the future contributions in support of the current beneficiaries.
The State is already into the future debts to the current donor pensioners. It is therefore estimated that in about the next 20 years it will not be possible for the State to give pensions thus putting it under future pressure of financial instability which might lead to more debts. Basing on the current debts the States issued a debt of 3.5billion U.S. dollars in year 2009 while in this year 2010 it had other plans of making a bond amounting to 4 billion U.S. dollars to pay the pensions (Weitzman & Bullock, 2010).
Although the United States are among the leading positions in terms of the economy growth, the local tax is still a burden thus there is need to find on ways on how the revenue can be increased. This therefore calls for the reformation of the retirement fund structure. Finally, the biggest worry that is left is whether the US State is in a position to evade out of its debts (Livingston, 2008).
References
Fund, I. M. (2009). Greece: Selected Issues. New York: International Monetary Fund.
Livingston, S. G. (2008). United States social security: a reference handbook. New York: ABC-CLIO.
Weitzman, H. & Bullock N. (2010). America: States of distress. Web.