CHAPTER XXVIII
METHODS OF FINANCING

Relief and social security systems are devices which operate to redistribute part of the earnings of the people in accordance with a governmentally designed plan. They are not themselves directly productive of wealth; they have no source of income of their own; they must secure their income through taxes, or compulsory contributions, collected by the government through the exercise of its sovereign power. In the present chapter we shall be concerned, therefore, basically with methods of taxation and with borrowing, which means taxation deferred. As in most discussions of taxation, attention will have to be given to the incidence of taxation and to individual equities. Since social security systems are devices to redistribute income to achieve certain governmental purposes, it is particularly necessary to consider incidence and equities because of the possibility that the methods of financing selected may operate against the basic objectives sought.

As was shown in the earlier parts of this book, revenues for relief and social security ordinarily do not come from a single tax but rather from a battery of taxes. Sometimes, as in unemployment insurance in the United States, the revenues come almost exclusively from a single tax--in this case a tax on employers--but for the relief and social security system as a whole, the revenues come from many taxes or from borrowing. For purposes of exposition it is necessary to take them up one at a time. We shall follow this general classification: (1) contributions from employers; (2) contributions from employees; (3) earmarked special taxes; (4) general taxes; (5) borrowing.


CONTRIBUTIONS FROM EMPLOYERS

In American social security practice special taxes levied against employers as contributions are a percentage of pay rolls. That part of the wage or salary of an individual employee

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