Stable Financing of Social Security Systems

Tasks

The aim of the project is to explore the financial and legal scope as well as the economic feasibility of broadening the assessment bases in the statutory social insurance systems. The central question is whether the contribution-financed social insurance systems of the Federal Republic of Germany (pension, unemployment, health, and long-term care insurance) could be financed in a more stable manner, while maintaining the same level of benefits and care, if the assessment of contributions were to include all types of income of the insured and were not limited to the current statutory regulations.

Methods

The study focuses on broadening the assessment base in the group of employed persons already subject to social insurance contributions. This could be done either by raising the income threshold to include labor income or by including non-labor income, such as rental income, interest, or dividends, which have not been included in the financing of social insurance so far. An inclusion of new population groups into the social insurance is not analyzed. Different variants of broadening the tax base are then evaluated from a constitutional perspective and also economically quantified in terms of their revenue effects by means of a simulation calculation.

Data and other sources

Socio-Economic Panel (Sozio-oekonomisches Panel SOEP v37)

Results

The greatest reform leeway from the legal point of view exists regarding the inclusion of further types of income in the obligation to pay contributions. A moderate increase in the contribution assessment ceiling also appears possible, while a complete abolition of it without a simultaneous expansion of the scope of benefits must be viewed critically from a constitutional perspective. The economic analysis shows that expanding the assessment base to include additional types of income would expand the assessment base only relatively little and thus generate little additional income. Compared with the status quo, the assessment base would increase by only 36 billion EUR in statutory health insurance and by 30 billion EUR in statutory pension insurance. Merging different insurance branches into one social contribution is deemed as counterproductive, as it reduces transparency and governance of the individual systems.