Question

Describe the differences between contributory programs, noncontributory programs, and tax expenditures and provide an example of each.

What are some current concerns regarding spending for two of the largest government programs: Social Security and Medicare?

Answer 1

Differences and examples are as below:

Contributory programs: These are employee-benefit plans which are funded by the respective employees by a deduction from their periodic salaries and wages regularly. Employers contribute equally there. Examples are Social Security and Medicare.

Non-contributory programs: These benefits are free of cost, means the benefit-holders do not have to contribute anything. These benefits are provided to the poorer section of a society and needy families. Examples are Medicaid, food stamp, Supplemental Income, etc.

Tax expenditures: this is the government program of relaxation of taxes, which is also termed as tax deduction or tax credit. This is the benefit to taxpayer, since they need to pay high tax. Example: the employee pays Social Security Tax (contribution) gets a tax credit for the same amount.

Concerns:

No.1) Benefits becomes much higher than what contributed, making a fund crisis of the government.

No.2) Life expectancy of people increases. This requires providing benefits for long times, which creates financial crisis.

No.3) Since birth rate decreases and mortality rate increases in the country, getting the new labor force in increasing number becomes difficult. Such increasing number of labor force could only compensate the increasing amount of benefits.