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In 1940, an amendment to the BNA was passed, followed by the first institution of unemployment insurance in Canada. The Marsh Report offered a comprehensive social security plan for Canada that included old age pensions paid for by employment taxes, as well as a public health plan. The Canadian Social Security system continued to grow, subject to the political whims of the time, until the 1970s. After this time, reforms were called for, as the system was growing too expensive (the Canadian Encyclopedia).
Both the Canadian Social Security system and the United States Social Security system currently face the problem of rising costs and increased spending. According to United North America, the United States publicly spends 1.8% more than Canada on Social Security and related programs than Canada, with Social Security comprising 6% of the U.S. budget as compared to 4.2% of the Canadian budget (United North America). Does this equate to a higher standard of living for retirees in the United States over those of their Canadian cousins?
Unlike the United States, which has only the contributory (though non-voluntary) Social Security system, Canada has two programs in place to assist seniors. The first, OAS (Old Age Security) is non-contributory. The only factors needed to qualify for this benefit, typically around $500 a month, is old age, and a number of years spent living in Canada, currently 20 years post 18th birthday (HRSDC.ca). This program is meant to primarily assist the lowest income seniors, with benefits decreasing for seniors of income of $66k, and disappearing completely for seniors who make $110k. The second program, the CPP (Canadian Pension Plan), is contributory, like the United States Social Security system. Also, like the U.S. Social Security system, the CPP provides survivor and disability benefits.
The primary difference between Canada's CPP and the U.S.'s Social Security is in the maximum tax rate. The maximum tax rate under the CPP is 9.9%, up to $42,100, shared equally between employee and employer. By contrast, the maximum tax rate under Social Security is 12.4% up to $106,800. The maximum tax under Social Security is three times that of the CPP. Because the amount taxed is lower, benefits received under the CPP are also lower. Under the CPP, the monthly income at age 65 is roughly $960; under Social Security, the average benefits are $2,366 at age 66 (TFB, 2011).
The primary difference between the two systems of interest to macro-economists is the way the two systems are funded. While both are in trust, the Social Security trust fund loans 100% of its funds to the U.S. government; when Social Security needs money to pay out benefits, taxpayers have their taxes raised accordingly. In contrast, the CPP is a true trust, with diversified investments in stocks, bonds and real estate (TFB, 2011).
Given the current economic climate, the resistance of the general populace of the United States to any increase in taxes, and the overwhelming demand for a safety net to protect the most vulnerable citizens, it behooves those in power to take a closer look at the Canadian retirement system of the OAS and the CPP. Reforming Social Security in the U.S. By creating two systems instead of one, one of which a basic safety net for all citizens, the other, a contributory program with investments diversified in marketable securities instead of loaned to the federal government, could prove to be both more secure in the long-term and more pragmatic in the present. Change must be done slowly, but to ensure the long-term economic security of both the United States as a nation and our citizens as individuals, change must indeed happen.
"Canadian Pension Plan and Old Age Security." Human Resources and Skills Development, Canada.
Retrieved from: http://www.hrsdc.gc.ca/eng/oas-cpp/index.shtml. 4/1/2012.
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"Historical Background and Development of Social Security." Social Security Online, U.S. Retrieved
from: http://www.ssa.gov/history/briefhistory3.html. 4/1/2012.
"The History of Social Security in Canada." The Canadian Encyclopedia. Retrieved from:
Leigh, Wilhelmina. "Social Security at 75: Strengthen it, Don't Cut it." The Franklin and Eleanor
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"Social Security Reform: The Progressive Case." The Cato Institute. Retrieved from:
TFB. "Retirement Income: OAS and CPP in Canada vs. Social Security in the United States."
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