FREE ESSAY ON SOCIAL SECURITY

SOCIAL SECURITY

Social Security Reform
A little over 60 years ago the nation struggled through what was, up to then, the most
dramatic crisis since the Civil War. The economy was uprooted after the crash of the
stock market and the country's financial stability destroyed. One of the many steps taken
to alleviate the burden on the American people was that of the passing of Social Security
Act of 1935 and its amendments by Congress and the President, Franklin D. Roosevelt.
Under the provisions of the Act, the government would take on the responsibility of
taxing the income of all working Americans and returning the money through numerous
public benefits and programs. Now the nation faces an economic and political problem with
the program instituted to earnestly help the people. In the first half of the next
century the government will face the task of paying benefits to a large generation with
funds it will not have. This year Social Security assistance accounts for over 20% of the
federal budget and will make up even more for the years to follow. Almost all political
sides agree that Social Security must be reformed in some way before the baby-boomer
generation begins to retire and collect.
Social Security benefits refer to all those measures established by the government
through legislation that help an individual or household to maintain an income of a
certain level, insure income if one's employment is lost, provide other assistance for
disability, old age, survivors, and other forms of compensation. Social Security may be
defined through several characteristics: (1) participation is mandatory. Everyone,
including children age 5 or older, is required to have a Social Security (2) Eligibility
for benefits and levels of benefits depends on past contributions made by earners. (3)
Benefit payments begin at a stipulated time such as at retirement from work, upon
temporary unemployment, or with disability (4) Social-insurance benefits are means-tested
- one's wealth or lack does not determine whether benefits are granted (Compton's). (5)
Currently SS funds are collected and distributed on a pay - as - you -go (PAYG) system in
which Social Security taxes from individuals are immediately distributed by the means of
the SS Administration as it sees best fit. This means that taxes collected are not
reserved for the individual who has paid them: in 
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the current state he or she must rely on those persons paying SS taxes during the time of
their retirement (Becker). For a number of these characteristics and future issues, the
Social Security System must be reformed or completely abolished to meet the needs of
tomorrow.
The leading concerns of Social Security that merits the immediate initiation of reform
are the demographic and economic circumstances in the coming century. Even though
forecasting the economy and budget over such a long period is uncertain there remain many
certainties regarding problems facing Social Security in the first half of the 21st
century (OMB, Budget Perspectives 23). The Federal Government's responsibilities extend
well beyond the five- or six-year window that has restricted the focus of recent budget
analysis and debate. Of these certainties are the mounting challenges posed from the
baby-boomer generation. This generation, born in the years after World War II, is aging
and will begin to retire around the year 2005. By 2008, the first baby-boomers will
become eligible for social security(OMB 23). With the increased expenditures for
baby-boomer group and pre-existing entitlements, a serious strain will be placed on the
budget for the majority of the next 100 years. As currently, the PAYG system has allowed
for four workers to pay for every retiree. But, when the baby boom generation retires,
eventually only two workers will be paying for every retiree(OMB, 1998 Budget 195). Long
range projections from research done by the Congressional Budget Office last year
observes that Those fiscal demands could produce unattainably high levels of federal debt
and taxes unless additional actions are taken to control federal spending (OMB, Budget
Perspectives 25).
The baby-boomer issue is not the only problem facing the future of the budget regarding
Social Security. The Social Security Trustees Report projects that population growth is
expected to slow over the next several decades. This slowdown is expected to lower the
rate of population growth making older groups and retirees a very large percentage of the
population. The labor force participation (by percentage) will therefore decline as the
average age increases (OMB, 1998 Federal Budget 196). This decrease in the number of
Social Security paying workers will undoubtedly make for an abatement in the total amount
of Social Security taxes collected each year to be distributed in services. As this
occurs the Federal Government would have to borrow money to pay its obligations to those
with Social Security assisted living, increasing the federal debt. 
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Another criticism of social security is the attacks on the fact that it pays Old Age,
Survivors, and Disability Insurance (OASDI)+ to those persons regardless of their wealth
or lack of it thereof. This practice, even though it was established to be
non-discriminatory, has been rebuked by many persons of poorer backgrounds because it
takes away from the extra benefits that they could be receiving and pay it to some
persons who may not need it as extremely (Samuelson). Retired workers account for 61% of
all social security recipients and of those 60% rely on it for half or more of their
total income. Because this total amount usually is not too great, they feel they should
be getting more by cutting the benefits paid to the other 40% that rely on it for half or
less of their total income (OMB, 1998 Budget 196).
The criticisms of Social Security, or Insecurity as some have labeled it, have been
discussed and now the issue about how to revise and fix these problems must be firmly
addressed by the Government in its all-knowing, all-powerful stature. The Federal Budget
for the US Government for the Fiscal Year of 1998 and it's supplements address the
aforementioned problems but state no incipient actions to solve any grievances or future
obstacles, as predicted by the Office of Management and Budget, the Congressional Budget
Office and many other private organizations, including Dow Jones (OMB, Budget -
Perspectives 23-31). The 1998 Budget section for Social Security reports that all of the
segments of the OASDI Trust Funds would be all be insolvent by 2029, but it does not
constitute an imminent crisis because the Social Security Trustees measure the
Administration's well-being for a period of 75 years. Obviously the baby-boomer and
generation-X generations are in danger of not receiving Social Security benefits being
paid in taxes right now.
Unofficial proposals by legislators and leading financial experts have been proposing
solutions for many years now, but they either do not have the power to introduce them or
are politically apprehensive. These proposals include, but are not limited to,
privatization of social security in stocks, Personal Security Accounts (PSAs), raising
taxes - lowering benefits, Cost of Living Adjustments (COLAs), and abolishment of many
Social Security benefits.
The most controversial and popular proposition offered has been that of privatization of
some parts of the social security system. By this approach the government would invest
40% of the Social Security surplus into Wall Street on numerous private and public
stocks. This would give 
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the Administration a $1.3 trillion stake in Corporate America by 2020 (McNamee, How We
Should...). This system would allow workers to also invest at least 11% of payroll taxes
in their own accounts. Under the boldest plan, proposed by the Clinton Administration's
Advisory Council on Social Security, exactly 50% of the retirement fund would be replaced
with mandatory personal security accounts, which would be invested in stocks or bonds
(McNamee). The other 50% would finance basic government benefits for all retirees. The
privatization of accounts could theoretically reduce the length of time before the trusts
go insolvent by substituting savings accounts for some part of Social Security's PAYG
system. This would ensure that the government would have a surplus of funds for
entitlement expenditures. By 2020, PSAs could hold assets worth around $6.0 trillion
dollars if put on the market within a few years. Such a huge balance [just for benefits]
would give a kick to the nation's capital stock and [spur] growth (McNamee). But the
Advisory Council and others have come up with this plan not to balance the economy, just
fix Social Security. The Council and Social Security Trustees have concluded that if
nothing else is done to reserve funds for the upcoming insurgence of retirees, Social
Security will exhaust the trusts by 2029, and PAYG taxes will cover only 75% of promised
benefits. To ensure solvency for another 75 years Congress would have to choose now to
privatize, raise the 12.4% payroll tax, cut benefits, or all three (McNamee). The
limitations of privatization also come into play when considering the best reform
platform. Questions arise as to how the government could do this without taking over the
market and the consequences if there were a crash. Putting SS funds into the stock market
for higher returns is agreed to be a very likely idea, but would individuals be willing
to obey a compulsory law requiring letting the government manage funds on the stick
market? There is also no true way to insulate investment planning from political
pressures. If the market fell, the funds invested would go down also, and if they
succeeded too well the stocks would raise interest rates on debt, hurting the economy
(Business Week, How to Resecure SOCIAL SECURITY.). Compulsory saving in stocks would also
require tax increases or cuts in government spending (Samuelson). Privatization, though,
may be worth a try. Currently, the US Government can afford to experiment as there exists
no immediate SS crisis, and if funds are not raised for saving the benefits being paid
after the trusts go bankrupt will not be at paid at 100%. A small amount of investment
therefore definitely seems worth a try.
The next practical solution is seen as the very risky, at least to politicians hoping for
reelection. That is the raising of the already high payroll tax at 12.4% and the lowering
of benefits 
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to save for the coming tide of retirees and entitlements. This controversial move would
ensure that Social Security would be paid in full for at least 75 years, but is
challenged greatly by those already on OASDI, who have strong political footholds.
Interest-group politics can weigh in greatly. The American Association of Retired
Persons, for one, pledges to keep Social Security as a government guaranteed plan. Labor,
too, is opposed. Free-market agencies and business would favor any change, however
(McNamee). Neither the Executive nor the Legislative Branches of the government are
anywhere near willing to make a move like raising taxes and/or lowering benefits because
of this.
A very practical, and yet controversial, method being proposed for saving is that of 
lowering the Cost Of Living, or making a Cost Of Living Adjustment (COLA). Last year it
was discovered that the consumer price index (CPI) has been over-stating the annual cost
of living by 1.1%. Social Security payments are directly tied to the CPI and determine
the annual payment amounts. In other words, beneficiaries have been doing a little better
than the true rate of inflation. Simply by reducing the CPI by 1.1 percent a year the
government could save approximately $1 trillion in 12 years (Thomas 2). The benefit
payments would still rise with the true cost of living, but the Social Security trust
funds would be able to remain solvent well past the expectation dates proposed by the
trustees. This simple solution also has been thwarted by political apprehension. US
economist Daniel Patrick Moynihan states that politicians are scared of each other and
the AARP (Thomas 2). It may be likely, though, that President Clinton will appoint a
non-partisan committee to review the Social Security Issues and lower the CPI, and thus
benefits, through protected legislative order, sparing any legislators.
The final proposal by radicals is to abolish many programs, including Medicare, which may
not be necessary to the substantial living of some individuals. They also feel that a
means test be established to decide who and who does not need assistance. These ideas
have been mostly shot-down due to a favorable opinion of the Social Security system in
general, and the fact that it requires more government regulation to institute the means
tests.
All of the plans are impractical, if implemented solely. Alone, each creates large
practical risks for the system. Perhaps the best plan is to drop economic ideals and to
find a compromise in the different economic fervors that put the idea people at each
other's throats. A solution may be found to solve the different aspects of Social
Security by combining different plans. The president needs to appoint an independent
(completely independent) and non-partisan committee to propose a 
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total solution that would ensure complete payment of all Social Security entitlements for
at least the next 75 years. Perhaps with this, a real fix can come about so the up-coming
generation (gen-X) will receive benefits that are currently being paid from earnings.
Bibliography
Adde, Nick. Nunn: Social Security Key to Cutting Deficit. Navy Times 14 Apr. 1997:
Issues.
McNamee, Mike. The Bullet not Bitten. Commentary. Business Week 11 Nov. 1996; N/A .
Social Security: A Program's Rise. Journal of Economic Perspectives 1995.
Social Security Alternatives. New York: Capital Publishing Ltd., 1996.
United States. Office of Management and Budget. Implementing Welfare Reform. Washington:
OMB, 1997.