FICA/301: Is Social Security System Broken?
Is Social Security System broken?
Social Security
EC 301
What exactly is Social Security? Social Security was a program that was created by the federal government that was supported by nearly every working person in America. The Social Security Act was signed in 1935 by President Franklin D. Roosevelt, which was to provide retirement, survivors, and disability benefits to workers and their families, and to assume some of the health care costs borne by the elderly and the long term disabled. According to Epstein (2010), “President Roosevelt wanted to be sure that this country would never again face a crisis so disastrous to so many lives” (p. 4). Social Security is made up of the following programs, …show more content…
retirement, disability, dependents, and survivor benefits. These programs work together to provide a supplemental income to workers and their families when the normal income shrinks due to events such as retirement, disability, or death of the family member that earned the income. To manage the contributions that were being collected, Social Security numbers were generated. The U.S. Postal Service was given the job of handing out applications back in 1936. According to Epstein (2010), “The SSB carefully crafted the Social Security numbering system, grouping the first three digits as an area number that was assigned geographically, starting in the northeast and moving westward across the country” (p. 14). Then came the creation of the Federal Insurance Contributions Act (FICA). Federal Insurance Contributions Act was another tax created where both employees and employers were taxed. The amount of this tax changed every calendar year. The employee’s portion was deducted from the paycheck. Then the employer matched this deduction at 100 percent. The first recorded payment of Social Security was back in 1942. According to the Social Security website, “The earliest reported applicant for a lump-sum benefit was a retired Cleveland motorman named Ernest Ackerman, who retired one day after the Social Security program began.” His lump-sum payment was in the amount of 17 cents, since the amount that was withheld from his paycheck was 5 cents. By 1950 it became apparent to the Social Security Administration that people weren’t able to make ends meet with the small amount that was being paid under the Social Security’s retirement benefits. Therefore, a major change took place and an amendment was passed with the creation of the Cost of Living Allowance (COLA). The Cost of Living Allowance went through many adjustments by Congress before it finally became a feature of the Social Security benefits. Cost of Living Allowance is defined by Hardy (1991), “This is an annual increase in Social Security benefits based on the previous year’s increase in the Consumer Price Index” (p. xvii). In 1975 was one of many indications that the trusts of the Social Security may run out of funds by 1979. By 1977, Congress had passed amendments to cut back on Social Security benefits. Congress had come to the conclusion to adjust the COLA being paid out to help reduce the benefits that were being paid out. The Federal Income Contributions Act was increased from 6.45 percent to 7.65 percent. These drastic measures were possible fixes that would help extend the program’s life by hopefully 50 years. There was a steady increase of those who were starting to collect Social Security benefits. After the Great Depression the implementation of Social Security benefits alleviated those people living below the poverty line. However, with the rise in the population, the baby boomers now of age for retirement, and people living longer there were more people collecting their Social Security benefits. Matthews (2011) stated, “If the system continues as-is, the total benefits that retirees, dependents, and survivors collect will eventually surpass the amount of taxes paid into the system by younger workers” (p. 13). Former President George W Bush stated in his Inaugural Address, “We will reform Social Security and Medicare, sparing our children from struggles we have the power to prevent. We will reduce taxes, to recover the momentum of our economy and reward the effort and enterprise of working Americans.” With every presidential election comes more promises of ways to fix the current Social Security dilemma. President Barack Obama stated, “. . .what I think is probably the best solution, which is you can raise the cap on the payroll tax,“ during a town hall meeting in Arnold, Missouri. Landis (2011) stated, “Politicians have learned that if they attack Social Security they need “damage control” to save their careers. Therefore, the various branches of government have no motivation to weaken the system and every motivation to keep it strong” (p. 28). The current Social Security benefits being paid out are being paid out of current tax receipts. Therefore, the younger generations current Social Security deductions are being paid out to those baby boomers. There were concerns that building up large reserves would cause an effect on the already weak economy back in the 1940’s. The first payouts were of reasonable amount, instead of paying out the worker’s average wages or salary. Landis (2011) stated, “Payments are based not on need, but on the individual worker’s contributions and age. Contributions and age are concrete facts, far easier to assess than a concept such as need” (p. 26). The economy has gone through dips and spikes which have had an effect on bank failures, home foreclosures, and pension plans threatened.
The Social Security was not immune from any of these financial crisis. To try and remedy the situation the Social Security Administration created FICA and COLA. However, the program continued to operate at a deficit. In 1983 an amendment was passed to the Social Security Act that would raise taxes and cut benefits. With the new changes the Social Security began running in a surplus. The surplus though, wasn’t permanent, there was speculation that by 2037 the Social Security may face another financial crisis. There are more people claiming Social Security benefits, however the rate of unemployment is rising, therefore there was money going out but not as much money coming in. Social Security has been running a surplus, more supply than in demand, since 1984. The surplus of funds were being invested for future needs and were earning interest. The changes brought about from the 1983 Amendment such as raising the taxes from 5.4 percent to 6.2 percent, lowering computations, raising the retirement age and stiffening eligibility requirements have contributed to the surplus. “The accumulated surplus funds, about $2.5 trillion in 2010 and growing are invested in U.S. Treasury bonds, widely considered the safest investment in the world,” according to Landis (2011, p …show more content…
230). The Social Security system isn’t broken, even though there was a deficit in 2010. The deficit in 2010 was in one of the three income streams, which was the payroll income. The surplus and investments in U.S. Treasury bonds was what was helping maintain Social Security. The 2012 Social Security and Medicare Annual Report stated, “ Both Medicare and Social Security cannot sustain projected long-run program costs under currently scheduled financing, and legislative modifications are necessary to avoid disruptive consequences for beneficiaries and taxpayers.” With the changes in the economy over the years Social Security must be reevaluated before it become to late to make any changes. In the early 40’s and 50’s there were many workers to pay into Social Security that benefit beneficiaries, now a days with jobs slowly on the rise with the economy coming back from a recession, there isn’t as much funds coming into Social Security that would benefit the young workers who are currently contributing when it’s their turn to receive the benefits. Therefore, changes must be made in the near future that will affect those of us who will be receiving the benefits when we retire. The possible changes may be similar to those of the 1983 Amendment, such as increasing the tax rate, increasing the retirement age, and changing where the current investment is being invested to get a better return on the surplus. In a Town Hall Meeting in Arnold, Missouri President Barack Obama talked about his best solution, “. . .you can do what I think is probably the best solution, which is you can raise the cap on the payroll tax.” The payroll tax is set at $102,000, however for the wealthier people that amount is just a fraction of their total amount earned, therefore once they have paid that amount they have sufficed the requirement. If the payroll tax is raised for the wealthier individuals then there will be a greater contribution to the Social Security that would be placed into investments. In conclusion, the Social Security system isn’t broken, in fact it is being managed fairly well.
The Social Security has managed to maintain a surplus since 1983 and will continue to do so until about 2037, if action isn’t taken to raise taxes or increase the contributions. President Barack Obama has a unique idea of imposing higher payroll taxes on wealthier individuals. Individuals may be under the impression that the Social Security may be broken because the amount of benefits they receive is minimal and expect those benefits to be their sole income. Individuals must come to the realization that Social Security is only there to supplement their income and not be their only means of an
income.
1547 words
References:
Epstein, L. (2010). The Complete Idiot’s Guide to Social Security and Medicare, Third Edition. New York: Penguin Group.
Hardy, D and Hardy C. (1991). Social Insecurity The Crisis In America’s Social Security System and How to Plan Now for Your Own Financial Survival. New York: Villard Books.
Landis, A. (2011). Social Security The Inside Story.
Matthews, A. and Bermanm D. (2011) Social Security, Medicare & Government Pensions. California: NOLO.
Stern, K. (1995). The Comprehensive Guide To Social Security and Medicare. New Jersey: Career Press
Social Security Administration. Historical Background and Development of Social Security. Retrieved from http://www.ssa.gov/history/briefhistory3.html on 17 July 2012.
Social Security Administration. Special Collections, Presidential Statements: George W. Bush. Retrieved from http://www.ssa.gov/history/gwbushstmts.html on 18 July 2012.
Social Security Administration. Special Collections, Presidential Statements: Barack H. Obama. Retrieved from http://www.ssa.gov/history/Obamastmts1.html on July 18, 2012.88
Social Security
EC 301
What exactly is Social Security? Social Security was a program that was created by the federal government that was supported by nearly every working person in America. The Social Security Act was signed in 1935 by President Franklin D. Roosevelt, which was to provide retirement, survivors, and disability benefits to workers and their families, and to assume some of the health care costs borne by the elderly and the long term disabled. According to Epstein (2010), “President Roosevelt wanted to be sure that this country would never again face a crisis so disastrous to so many lives” (p. 4). Social Security is made up of the following programs, …show more content…
retirement, disability, dependents, and survivor benefits. These programs work together to provide a supplemental income to workers and their families when the normal income shrinks due to events such as retirement, disability, or death of the family member that earned the income. To manage the contributions that were being collected, Social Security numbers were generated. The U.S. Postal Service was given the job of handing out applications back in 1936. According to Epstein (2010), “The SSB carefully crafted the Social Security numbering system, grouping the first three digits as an area number that was assigned geographically, starting in the northeast and moving westward across the country” (p. 14). Then came the creation of the Federal Insurance Contributions Act (FICA). Federal Insurance Contributions Act was another tax created where both employees and employers were taxed. The amount of this tax changed every calendar year. The employee’s portion was deducted from the paycheck. Then the employer matched this deduction at 100 percent. The first recorded payment of Social Security was back in 1942. According to the Social Security website, “The earliest reported applicant for a lump-sum benefit was a retired Cleveland motorman named Ernest Ackerman, who retired one day after the Social Security program began.” His lump-sum payment was in the amount of 17 cents, since the amount that was withheld from his paycheck was 5 cents. By 1950 it became apparent to the Social Security Administration that people weren’t able to make ends meet with the small amount that was being paid under the Social Security’s retirement benefits. Therefore, a major change took place and an amendment was passed with the creation of the Cost of Living Allowance (COLA). The Cost of Living Allowance went through many adjustments by Congress before it finally became a feature of the Social Security benefits. Cost of Living Allowance is defined by Hardy (1991), “This is an annual increase in Social Security benefits based on the previous year’s increase in the Consumer Price Index” (p. xvii). In 1975 was one of many indications that the trusts of the Social Security may run out of funds by 1979. By 1977, Congress had passed amendments to cut back on Social Security benefits. Congress had come to the conclusion to adjust the COLA being paid out to help reduce the benefits that were being paid out. The Federal Income Contributions Act was increased from 6.45 percent to 7.65 percent. These drastic measures were possible fixes that would help extend the program’s life by hopefully 50 years. There was a steady increase of those who were starting to collect Social Security benefits. After the Great Depression the implementation of Social Security benefits alleviated those people living below the poverty line. However, with the rise in the population, the baby boomers now of age for retirement, and people living longer there were more people collecting their Social Security benefits. Matthews (2011) stated, “If the system continues as-is, the total benefits that retirees, dependents, and survivors collect will eventually surpass the amount of taxes paid into the system by younger workers” (p. 13). Former President George W Bush stated in his Inaugural Address, “We will reform Social Security and Medicare, sparing our children from struggles we have the power to prevent. We will reduce taxes, to recover the momentum of our economy and reward the effort and enterprise of working Americans.” With every presidential election comes more promises of ways to fix the current Social Security dilemma. President Barack Obama stated, “. . .what I think is probably the best solution, which is you can raise the cap on the payroll tax,“ during a town hall meeting in Arnold, Missouri. Landis (2011) stated, “Politicians have learned that if they attack Social Security they need “damage control” to save their careers. Therefore, the various branches of government have no motivation to weaken the system and every motivation to keep it strong” (p. 28). The current Social Security benefits being paid out are being paid out of current tax receipts. Therefore, the younger generations current Social Security deductions are being paid out to those baby boomers. There were concerns that building up large reserves would cause an effect on the already weak economy back in the 1940’s. The first payouts were of reasonable amount, instead of paying out the worker’s average wages or salary. Landis (2011) stated, “Payments are based not on need, but on the individual worker’s contributions and age. Contributions and age are concrete facts, far easier to assess than a concept such as need” (p. 26). The economy has gone through dips and spikes which have had an effect on bank failures, home foreclosures, and pension plans threatened.
The Social Security was not immune from any of these financial crisis. To try and remedy the situation the Social Security Administration created FICA and COLA. However, the program continued to operate at a deficit. In 1983 an amendment was passed to the Social Security Act that would raise taxes and cut benefits. With the new changes the Social Security began running in a surplus. The surplus though, wasn’t permanent, there was speculation that by 2037 the Social Security may face another financial crisis. There are more people claiming Social Security benefits, however the rate of unemployment is rising, therefore there was money going out but not as much money coming in. Social Security has been running a surplus, more supply than in demand, since 1984. The surplus of funds were being invested for future needs and were earning interest. The changes brought about from the 1983 Amendment such as raising the taxes from 5.4 percent to 6.2 percent, lowering computations, raising the retirement age and stiffening eligibility requirements have contributed to the surplus. “The accumulated surplus funds, about $2.5 trillion in 2010 and growing are invested in U.S. Treasury bonds, widely considered the safest investment in the world,” according to Landis (2011, p …show more content…
230). The Social Security system isn’t broken, even though there was a deficit in 2010. The deficit in 2010 was in one of the three income streams, which was the payroll income. The surplus and investments in U.S. Treasury bonds was what was helping maintain Social Security. The 2012 Social Security and Medicare Annual Report stated, “ Both Medicare and Social Security cannot sustain projected long-run program costs under currently scheduled financing, and legislative modifications are necessary to avoid disruptive consequences for beneficiaries and taxpayers.” With the changes in the economy over the years Social Security must be reevaluated before it become to late to make any changes. In the early 40’s and 50’s there were many workers to pay into Social Security that benefit beneficiaries, now a days with jobs slowly on the rise with the economy coming back from a recession, there isn’t as much funds coming into Social Security that would benefit the young workers who are currently contributing when it’s their turn to receive the benefits. Therefore, changes must be made in the near future that will affect those of us who will be receiving the benefits when we retire. The possible changes may be similar to those of the 1983 Amendment, such as increasing the tax rate, increasing the retirement age, and changing where the current investment is being invested to get a better return on the surplus. In a Town Hall Meeting in Arnold, Missouri President Barack Obama talked about his best solution, “. . .you can do what I think is probably the best solution, which is you can raise the cap on the payroll tax.” The payroll tax is set at $102,000, however for the wealthier people that amount is just a fraction of their total amount earned, therefore once they have paid that amount they have sufficed the requirement. If the payroll tax is raised for the wealthier individuals then there will be a greater contribution to the Social Security that would be placed into investments. In conclusion, the Social Security system isn’t broken, in fact it is being managed fairly well.
The Social Security has managed to maintain a surplus since 1983 and will continue to do so until about 2037, if action isn’t taken to raise taxes or increase the contributions. President Barack Obama has a unique idea of imposing higher payroll taxes on wealthier individuals. Individuals may be under the impression that the Social Security may be broken because the amount of benefits they receive is minimal and expect those benefits to be their sole income. Individuals must come to the realization that Social Security is only there to supplement their income and not be their only means of an
income.
1547 words
References:
Epstein, L. (2010). The Complete Idiot’s Guide to Social Security and Medicare, Third Edition. New York: Penguin Group.
Hardy, D and Hardy C. (1991). Social Insecurity The Crisis In America’s Social Security System and How to Plan Now for Your Own Financial Survival. New York: Villard Books.
Landis, A. (2011). Social Security The Inside Story.
Matthews, A. and Bermanm D. (2011) Social Security, Medicare & Government Pensions. California: NOLO.
Stern, K. (1995). The Comprehensive Guide To Social Security and Medicare. New Jersey: Career Press
Social Security Administration. Historical Background and Development of Social Security. Retrieved from http://www.ssa.gov/history/briefhistory3.html on 17 July 2012.
Social Security Administration. Special Collections, Presidential Statements: George W. Bush. Retrieved from http://www.ssa.gov/history/gwbushstmts.html on 18 July 2012.
Social Security Administration. Special Collections, Presidential Statements: Barack H. Obama. Retrieved from http://www.ssa.gov/history/Obamastmts1.html on July 18, 2012.88