A Primer on Social Security and US Government Spending. Leon Ilgner, Friedrich-Alexander-Universität Nürnberg-Erlangen.
The US is currently facing the possibility of a government shutdown if Congress does not pass a funding bill or a stopgap measure before October 1. A short-term spending bill has been proposed to fund federal agencies for about three months, temporarily averting a shutdown. Government shutdowns occur when Congress fails to pass the 12 annual appropriation bills required to fund federal agencies. Under the Antideficiency Act, federal agencies cannot spend or obligate any money without an appropriation from Congress. When this happens, non-essential functions cease until Congress acts, leading to a government shutdown.
Government shutdowns can be used as a political tool by
parties to push their agendas. For example, a party may refuse to pass a
funding bill unless certain policy demands are met. This tactic can create
significant leverage, as the threat of a shutdown puts pressure on the opposing
party to negotiate and potentially concede to some demands to keep the
government running.
Government spending on social security is one of the
affected topics. Comparing the US to Germany and France, both also economic
powerhouses, reveals differences in their balance of payments and potential
areas for improvement. This analysis uses percentages due to the higher total
amounts in the US, considering population differences (US: 333 million,
Germany: 80 million, France: 66 million).
In 2023, social security is the top spending item in all
three countries. The US spends 22%, significantly less than Germany and France.
The US also leads in defense spending (13%) and net interest expenses (14%).
Environmental protection spending is low in all three countries (1-2%).
To compare, we merge different positions on their balance
sheets. In the US, 67% of government spending is on common goods, totaling
$4.09 trillion, higher than Germany (52.79%) and France (56%).
The US spends more on common goods but has a less effective
system due to its free market approach, which relies on private insurance and
individual savings, leading to disparities. In contrast, social market systems
in Germany and France combine free market principles with strong government
intervention, ensuring comprehensive social security coverage through higher
taxes and public spending.
Key differences lie in government roles, funding mechanisms,
and equity of benefits. Free market systems have minimal government
intervention, while social market systems emphasize strong government
involvement for equitable coverage.
Examples of these differences can be seen in healthcare
costs, drug prices, and unemployment benefits:
Healthcare Costs: The US spends significantly more on
healthcare than Germany and France. In 2022, the US spent approximately $12,555
per person on healthcare, while Germany spent around $8,011 and France about
$6,517. The higher costs in the US are attributed to factors such as higher
administrative fees, higher prices for medical services and drugs, and a
reliance on employer-sponsored insurance, which often results in higher
co-payments and deductibles for individuals.
Drug Prices: Drug prices are regulated in Germany and
France, keeping them lower than in the US. In the US, drug prices are
significantly higher, leading to higher out-of-pocket expenses for consumers.
Unemployment Benefits: In the United States,
unemployment benefits are managed by individual states, with no federal
program. Benefits typically last up to 26 weeks, with amounts ranging from $235
to $823 per week, depending on the state. Eligibility generally requires consistent
work history and earnings within the last 12-24 months. In contrast, Germany
and France have more centralized systems. Germany offers two types of
unemployment benefits: Arbeitslosengeld, based on previous salary and
contributions, and “Bürgergeld”, which provides a basic income for those unable
to cover living expenses. “Bürgergeld” includes automatic health insurance
enrollment and covers living expenses, accommodation, and heating costs, with a
single person receiving up to €563 per month. France’s unemployment benefits
are provided through the “Pôle Emploi”, with eligibility requiring proof of
previous employment and contributions. Benefits are calculated as a percentage
of the previous salary and can last up to 15 months for those under 55, and 27
months for those older.
Overall, Germany and France offer more comprehensive and centralized support systems compared to the state-managed approach in the US.