Social security, if left unchanged, eventually will become ineffective for future generations and it is doubtful that the younger generation that is currently paying into the system, will enjoy its benefits when they retire. This is the sad state of affairs and everyone, regardless of their political background, believes that changes need to be made to the current social security system. Only those who define themselves as radicals believe that Social Security must be abolished all together. It has become an important aspect of our country and its promise to help those who have worked their entire life, but now need assistance due to their age or other infirmities. Before the Social Security Administration Act was passed in 1935, those who were too old to work or suffered from an infirmity were expected to be taken in by their families. Many times this did occur, but for those whose family refused or were not present and available to provide for their elders, a cruel and destitute fate awaited them in the form of asylums, becoming wards of the state, or in the immediate years after the Great Depression, bread lines and eventual starvation. Something good did come out of the Great Depression as it forced lawmakers to recognize that social security was not socialism, that it could be afforded by the taxpayers and that it was not only feasible but the right of a society to take care of those that truly could not take care of themselves.
In the last seventy years, Social Security has now been recognized as an essential aspect of our culture and no current politician that seeks to amend social security, advocates its complete abolition. However, never before has social security been in so much trouble of extinction as it faces its worst fiscal crisis ever. These benefits which come under Social Security have expanded to include not only those who cannot work, but when they die, their spouses are now entitled to the same benefits. Disabled children and people with developmentally disabilities receive social security payments. Also, people are living longer and with the first of the baby boom generation turning sixty last year, soon, if things are left as they are within the Social Security Administration and how it collects and distributes money, there will be major problems which future generations will be hard pressed to correct. There are many opinions as to how exactly the current social security system would need to be amended in order to ensure its existence for the people who are currently paying into it and who expect and demand its presence in their old age. What is not a point of discussion, but is taken as fact, that if nothing is done, major problems will occur and the older generations may return to the day of having to depend solely upon their children.
In the last twenty years, there has always existed a surplus within social security. Ever since 1983, a surplus has helped the social security and its lawmakers to continue to expand upon the benefits in which they pay out. As recent, as of 2005, that surplus was $170 billion. As a result, little attention in the past twenty years has been given to the possibility that the treasury of social security could ever be empty. The sporadic calls for an amendment to Social Security in order that its retain its usefulness in the future, was always met in Congress with skepticism and little public demand for and changes which would exemplify a strong sense of fiscal conservatism. As a result, experts predict that expenses will exceed income around 2020 or 2022. What is also important to note, is the belief that this is not simply a trend but that such differences will only increase. This leads the common observer, even one who will not stand to gain anything from social security for decades, to wonder exactly, the source of this problem, and what, if anything, can be done to resolve it?
In being able to recognize the impending problem that social security will face in the coming decades, one needs to first ask why does there exist a problem now when in the past seventy years, nothing has been said about problems within the system? The easies and main reason for this is the aging population. In 2000, there were 35 million Americans over the age of 65. It is projected that by 2050, there will be 87 million; an increase of over 100%. This is a huge jump in the number of Americans who will be claiming benefits from the government. There are three main reasons for this jump in the number of people who will be claming benefits. The first is the baby boomers. After WWII, when millions of American service men came home from long years of fighting, millions quickly began to start a family. From 1946 until 1960, the number of children being born jumped an incredible 67% from the birth rates before the start of the war. Last year, the first of the baby boomers turned 60 and every year from now until 2010, a larger percentage of Americans will be turning sixty then ever before. The second contributing factor is the advances in medicine. In 1900, the average age expectancy was a mere 45. Now, women can expect to live for 78 years and for men: 76 years. Also, these numbers are expected to increase in the coming years and decades. Thirdly, the influx of illegal immigrants, in which not all are young men and women, and with a Congress hesitant to pass any laws to impede this influx of illegal immigrants, the resources of the social security system will be taxed in many of the same ways that America’s hospitals, schools and prisons are being taxed and run up to capacity due to illegal immigration.
In 1950, each person on Social Security was being supported in part, by the taxes of sixteen workers. Today, three people will be needed to provide for one applicant and by 2050, that number could be as low as two. What also makes the picture even more complicated is the fact that despite the belief of the general public, social security is much more than a retirement program. Social security pays for the benefits of disabled workers and their dependents as well as children of retired workers, the survivors of decreased workers and those who are mentally and physically handicapped, living in group homes. However, with the current problems upon social security, there has been no talk as of late, to dissemble the program. David Walker, Comptroller General of the United States says of the importance of Social Security: “it is precisely because the program is so deeply woven into the fabric of our nation that any proposed reform must consider the program in its entirety, rather than one aspect alone.” This is important to recognize but also has been identified as a sever impediment towards those who would propose changes to the current social security and how it administers its benefits. As a result of Mr. Walker’s statement, any proposed change will be met with cheers as well as jeers. “There is little that any of the current economists have proposed which will not short change one segment of the population.” So far, this seems to be the case and as a result, many politicians have backed away from making any formal recommendations concerning, in their opinion, needed changes to the system. Another question to ask is whether or not Social Security will go bankrupt as President Bush has said in numerous speeches dating back to his 2005 State of the Union address.
The answer to this important question and concern is “yes and no.” If not a single thing is done to amend social security; a frightening although real possibility with the current Congress in place now, then the experts tell us, Social security will hit a financial wall and will be forced to implement an immediate cut in benefits, some as high as 30%. This would create a public outcry from the millions of people who would benefit from social security and who would be expecting these checks in order to live and to have their daily needs met. There would be outrage, and correctly so, asking why something was not done sooner in order to fix the problem. One way in which the impending deficit within social security would be fixed, would be an increase in taxes. Currently, social security is financed by a 12.3% payroll tax which is levied on the first $90,000 of our annual wages.” As of right now, this tax rate has not been a problem. However, by 2020, the revenue from these taxes will only meet the amount of benefits that Social security is paying to its beneficiaries. This actuality will not only be bad for its beneficiaries but will also increase the deficit of the current fiscal budget which in 2006 was more than $420 billion!
Therefore, the next logical question, since it now accepted as a fact that social security is in trouble: “What can be done in order to fix the problem?” What needs to be first understood is that fixing the problem is more complex that simply making the numbers match up. “In order to fix the problem, one must be able to ensure that there is a proper balance between the program’s competing goals.” What is important to note is that the United States has already promised more than $3.7 trillion over the next seventy years that is has not funded. Many economics have stated that a simple 1.5% increase in the social security tax would eliminate the problem for the next seventy five years. Or, a cut in benefits up to and including an immediate 13% would also be seen as fixing the problem. Tax rates could be increased or the $90,000 tax be lowered in order to affect and tax more people. What serves to compound the problem is that for each of the above mentioned propositions, there incites a command of cries against such a proposition; regardless of which one is chosen. President Bush has not given any definite recommendations or an indication of plans on behalf of amending the problem. He has promised that benefits will not be cut. He has also said that he flatly against a tax rate hike of any kind. The one thing that President Bush did push back in 2005 but in which he has quieted his calls for as a result of the resounding cry against such a plan is the privatization of our social security accounts. However, many economists believe that such measures are based on less than sound fiscal principles and will not solve the problem.
Theoretically, these private accounts would not affect social security in the long run. Workers would be paying less in payroll taxes but as a result, they would be receiving fewer benefits when they would retire. The impeding variable would be the success of what they would be investing their money in. Basically, these private accounts would work similar to a 401(k) program which many workers have offered to them by their employers. In these programs, workers are allowed to divert some of their payroll taxes into a privately held reserve. The money would then be invested as the owners would see fit. Participation in these accounts would be voluntary and it would not be offered to workers over the age of 55 as to safeguard against unwise decisions in which the individual, who had been paying into social security for upwards of half a century, could then have his entire savings erased by unwise investing practices. Also, if implemented, it would be phased slowly over the coming years. The White House would plan on workers between the ages of 40 and 55, beginning in 2009, being allowed to participate in this program. By 2010, workers between the ages of 27 and 55 and by 2011, anyone under the age of 55 would be allowed to establish a private account. Also, contributions would be phased in a similar fashion.
Also, workers would not be able to invest in anything that they wanted. Even though an exact list has not yet been offered by the White House, it would behoove the current administration, or any administration hereafter, to disallow people to invest their money in highly speculative ventures as it would then force the loss of revenue as well as the individual being forced to claim welfare payments. Also, workers would not be allowed to withdraw the money from their private account before their age of retirement, if that deduction would place them below the poverty line. Also, the worker would not be allowed to borrow against himself. Without exception, retirees would be allowed to use their finances from these private accounts as they saw fit once it reached the age of maturity. It would even be allowed to be passed onto an heir of their choice.
Even the Chairman of the Federal Reserve, Ben Bernanke said that the problem of Social Security needs to be fixed now and has given some dire predictions in what is usually a very reserved post. “”Dealing with the resulting fiscal strains will pose difficult choices for the Congress, the Administration and the American people. However, if early and meaningful action is not taken, the U.S. economy could be seriously weakened.” Bernanke also said that the percentage of the GDP which Social Security currently commands: 8.5% will be expected to nearly double to an astounding 15% by the year 2020. These comments have seemed to have emboldened the Bush Administration as they renewed their push for Social Security Reform. All of these presumed fixes to the current social security problem face an uphill battle with politicians and their most vocal constituents who have their own ideas about how to combat the assumed deficit within Social Security. Advocates of privatization believe that people should be given a greater control over their own money and that they are the best decision makers about how much risk they should take. They believe that this is the example of an economy that is based on the principles of capitalism. Also, such advocated point to current returns on investments exceeding the return that an individual gets from their social security account. This is most certainly true in the stock market, which over the last seventy five years, has yielded a return of just over 10% each year. However, this takes into effect the hills and valleys that the stock market has had and will continue to have and it makes many in the general public nervous that their loved ones, their parents and grandparents, might be lured away from sound economic principle and might lose their nest egg through a risky investment. The Heritage Foundation, a conservative think tank estimated that a “forty year old male with an annual income of $60,000 a year, will have contributed $284,360 in payroll taxes to the trust fund over his life and can expect to receive $2208 a month under the current program. The same man, investing the same $284,360 in high grade bonds over his working life, at retirement would have over $904,000 in his next egg and could enjoy a monthly annuity of just over $7300 a month.” Relative to the current yields that said bonds would produce, historically, this assertion: that the freedom to invest in one’s own investment would give a higher return is accurate in general terms. However, everything, even government bonds are speculative upon the current market. Those who would have chosen to retire during a downturn in the market in which they had not the advantage of decades of investing ( as this plan is new) would be placed at a severe disadvantage and a large percentage of his nest egg would disappear at the most inopportune time.
What makes any changes difficult to implement, is a lack of information and education on the part of the majority of the younger people who are paying into Social Security, who assume that when they retire in forty of fifty years, their benefits will still be there. According to a recent Gallop Poll, only 17% of those polled believe that social security is in a state of crisis. The idea of private investments was favored by 40% but opposed by 55%. What was favored was: limiting benefits for wealthy participants or demanding that people with a higher income, perhaps one which exceeds $250,000 a year, be required to social security taxes on all of their wages. It is unclear at this present time, if such ideas will ever be implemented in the future. As long as the Bush White House calls such plans socialism, and are flatly against any tax hikes, it is unlikely that increased taxes on any social class will come to fruition in the near future.
Another impediment to any lasting change coming from Congress is the severe partisanship that is present in Congress today. Some of President Bush’s critics have fought hard against any change that was implemented from the White House as their belief that President Bush wishes to dismantle and fully privatize social security is met with dread and fear. They point to the fact that in 2000, when President Bush was running for the presidency, he commented on the impending problems with the current Social Security administration: “It’s going to take a while for a successful transition to take place in a system where personal savings accounts are the predominant part of the investment vehicle which will help to alleviate Social Security’s present problems. This is a step towards a completely different world and it is an important step.” Many will agree but as to how exactly the country will adapt such changes that remain to be seen.
Even though President Bush had stated the need for a much needed overhaul of the Social Security Administration ever since he was campaigning back in 2000 for his first presidential term, President Bush would not make a formal declaration to include Social Security reform as one of his priorities until his 2005 State of the Union Address on February 2, 2005. His plan towards privatization was based on a 2001 report by the Commission to Strengthen Social Security, a report which was published in December of 2001. In this report, three separate plans were suggested. The first plan suggested than up to two percent of taxable wages would be allowed to be diverted from Social Security payments and placed at the sole desire of the worker into private stocks, bonds or mutual funds. The second plan suggested that up to four percent of taxable income, not to exceed $1000 could be diverted into a private account for the purpose of investments. Plan II, suggested four full years before President Bush’s State of the Union speech, was what Bush effectively decided upon.
There have been other plans by Republicans members of Congress who did not feel comfortable with the President’s plans or who felt the need to distance themselves politically from the President and his falling poll numbers. One such plan proposed the elimination of the Social Security tax on “people born after a certain date and allowed said workers different periods of time during which they could chose to pay or to opt out of paying the payroll tax all together, in exchange for a proportional delay in the time in which they would receive their pay out.” These plans have yet to take hold as the zenith of this discussion occurred in the middle of a midterm election and as it was recognized as a politically hot topic, many in Congress, on both sides of the political isle, have shied away from proposing a plan of their own but have aggressively either criticized the President or have made efforts to distance themselves from his plans.
Presently any changes to Social Security may be put on the back burner for now. In May 2005, then Majority Whip Roy Blunt in his annual list of priority legislation, did not include any changes or any mention concerning Social Security. There is a lack of broad congressional support within Congress but President Bush does have the option of creating the option of privatization of Social Security through an executive order as he did when trying to pass the faith-based initiatives in early 2001 without enough support by Congress. President Bush also has stated during the 2006 campaign of the midterm elections that for the last two years that he would be in office, he would make the privatization of Social Security “a top priority.”
What is not a source of debate is whether or not Social Security is in trouble. Leaving Social Security as it is and doing nothing will eventually yield disastrous results. Privatization of Social Security raised the questions: “How much risk will workers fall prey to with their own accounts as opposed to the current system and its decline in surplus? What are the rewards and what is to be done for people whose investments turn out badly?” These are all questions which must be answered and answered quickly as the population of those requiring Social Security as their sole form of income as they are senior citizens or people who are disabled and truly unable to work, yet require the benefits of Social Security in order to simply live, rise on a daily basis. This compounds the necessity of Social Security changing or else the Federal deficit will be in the tens of trillions of Social Security decades from now, due to an apathetic Congress and general population, does nothing to fix the problem now, while it still can be fixed.