Social security contributions and salaries are not balanced for all employees. Younger generations in particular are doing poorly, a new study shows.
Frankfurt – Due to demographic change, the tension between welfare state benefit expansions and rising tax burdens is becoming increasingly acute. Every year, the Taxpayers' Association shows how long taxpayers work each year just to pay off the costs of their tax burden using the so-called Taxpayers' Memorial Day.
In addition to taxes, the aspects considered in it also include other levies, such as those for pension and health insurance, which benefit taxpayers at a later date. In 2023, Taxpayers' Memorial Day fell on July 12th - it was only from then on that employees started working for their own pockets, so to speak.
For the current year, economist Prof. Dr. Bernd Raffelhüschen from the University of Freiburg analyzed in a study by the Market Economy Foundation how long employees in Germany will work, based on the year 2024, just to pay the social security contributions imposed by the state. According to their results, employees had to work until April 4th this year in order to earn the money that citizens as a whole receive on average as social benefits.
In 2024, “Taxpayers’ Memorial Day” and “Social Benefits Memorial Day” fall on these days.
“The statistical average person in Germany works for more than three months to finance the welfare state and the associated redistribution in order to generate both the tax-financed benefits and the social insurance contribution income,” emphasized Raffelhüschen in a press release accompanying the study. The social security burden rate of around 25.9 percent corresponds to a quarter of the average total annual income, he added.
However, Raffelhüschen and his co-authors also presented a second analysis in their study. In a second step, they excluded contribution-related social insurance benefits from the calculation and instead focused only on non-contributory social benefits - including social insurance benefits financed by federal subsidies, or tax-financed social benefits such as citizen's benefit or social assistance.
In this way, they determined how long a statistical average person has to work in a year to earn the money that is needed for all tax-financed social benefits: According to the researchers led by Raffelhüschen, “Social Benefit Remembrance Day” fell on January 31st this year. This corresponds to a social security contribution rate of 8.4 percent.
“An ever-increasing share of the burden is being passed on to the younger generations”
The study by Raffelhüschen's research group not only reveals the two so-called memorial days for taxes and social security contributions: the researchers also looked at the way in which members of individual generations benefit from the welfare state system - or, on the other hand, groan under its tax burden.
“Which generations are winners from today and which are losers from the welfare state over the rest of their life cycle?” they asked in their survey. They created a generational comparison using so-called generation accounts, which include a cash value of all current and future social benefit payments.
The research team led by Raffelhüschen comes to the conclusion: “An ever larger part of the burden is being passed on to the younger generations, which undermines intergenerational equity, a central foundation of our welfare state.”
Study shows: Up to this age, employees currently benefit from the welfare state
According to Raffelhüschen's researchers, taxpayers up to the age of 36 years and 3 months clearly emerge from the analysis as social benefit losers. In today's terms, they would contribute more to financing the welfare state system over the rest of their lives than they receive in non-contributory social benefits.
Those who are now between 15 and 20 years old have the worst balance between investments in the welfare state and benefits received from it: on average, according to the study, they are likely to invest around 10,000 euros more in the welfare state than they actually do themselves receive benefits.
However, since these are average values, they are only of limited significance. How much each employee ultimately pays in social benefit amounts and what social benefits they receive are of course purely individual. The Market Economy Foundation also emphasizes this when asked by
Focus
: “The study is based on a purely intergenerational view, between the generations. The calculations do not provide an intra-generational view, within one generation,” explains the Market Economy Foundation when asked.
Demographic change poses a major challenge to the future financing of social benefits
Nevertheless, the study shows: Given that members of the baby boomer generation will reach retirement age in the coming years, the social system is likely to be faced with a difficult situation. Because fewer employees will have to finance more pensioners in the future. According to Raffelhüschen, all other things being equal, a full 27 percent of all tax revenue will be needed from 2026 to sustainably finance non-contributory benefits.
“Due to the aging population, the current level of tax-financed and non-insurance social benefits will only be able to be financed in the long term while maintaining the current tax rates if the state budget is increasingly burdened,” warns the economist. According to him, from 2060 onwards, more than 40 percent of tax revenue will be needed to sustainably finance all social benefits.
In order to prevent the impending tax burden on younger generations from becoming even greater in the future, Raffelhüschen believes reforms are needed – immediately. Not an easy undertaking given demographic change. Otherwise it is conceivable that young people will simply terminate the generational contract - for example by emigrating.
Raffelhüschen calls, among other things, for an increase in the retirement age
When asked by
Focus Online
,
Raffelhüschen calls for
the “pension policy aberrations of the last 10 years” to be reversed. For him, this includes, among other things, the mother's pension, the basic pension and, above all, the pension at 63. The sustainability factor must be reactivated and even tightened in statutory pension security. “That means not continuing the holding lines so that pensions will grow more slowly in the future than wage developments,” emphasizes Raffelhüschen.
In addition, the retirement age must increase, said the economist. “And faster than life expectancy, because the shortcomings of the past few years have to be made up for.” In the end, pension recipients would also benefit from this, as the longer working life increases the level of pensions.
(fh)