Since the beginning of time there has been a longstanding tradition of the workers supporting the elderly. This was practiced during biblical times, with the children supporting their parents, and has continued to the present day. As times changed and humans developed more as a society, it became apparent that everyone should be required to support those who cannot work. The goal in mind is to provide everyone with economic security. These principles helped bring about the creation of Social Security.
The first act in which a government stepped in to provide for the needy was The English Poor Law of 1601. With this the English government recognized that the poor had to be taken care of. The law was supported through taxation, with relief given to those in need. Buildings, called almshouses, were even built in order to provide shelter for those without it. This law laid the foundations of modern day economic security. The ideology of the workers supporting the needy was brought over to America with the immigrants. Many of the new communities developed laws very similar to the English Poor Law of 1601. One of the major drawbacks to the English Poor Law of 1601 and the new laws made by Americans is that the laws discriminated against the poor. By this I mean that there was no set criteria for being poor. All the decisions on whether or not you were considered to be poor enough to receive money were made on an individual basis. Because of this many needy people did not receive the benefits they were entitled. If the individual making the decision was racist or didn’t like the person seeking money, they denied the person of the money. This attitude toward the poor continued for centuries (www.socialsecurityreform.org/).
It wasn’t until 1862 that the Federal government established a form of economic security. It was at this time that the Civil War pensions program was set up. This provided soldier, who were wounded as a result of the war, with benefits so that they could sustain a normal life. This program also provided the widows and children of slain soldiers with money. These pensions were paid out at a huge cost to the Federal government. In 1894 nearly 37 percent of the Federal budget was spent on these pensions. The cost of this program was actually lower than should have been, with confederate soldiers not receiving any of the benefits. While America was moving towards a more equal society, it had yet to realize that programs such as the Civil War pensions program could be adapted to include the entire community (www.socialsecurityreform.org/).
Social Security really became a necessity after the depression began in the late 1920’s. After President Herbert Hoover failed to address the problems of the nation, the people decided that they needed a change. The people looked towards Democratic nominee Franklin Delano Roosevelt. After being elected President Franklin Roosevelt initiated a series of programs designed to end the depression. One such program was a program for Social Security. On June 8, 1934 Roosevelt announced he was to begin such a program. Roosevelt expressed his views on Social Security when he announced his plan for the program (www.socialsecurityreform.org/).
After the bill was passed, federal employees immediately began working on getting Social Security started. The next thing on the agenda was assigning every person in the United States a social security number. Once this was established tax where ready to be taken. In January 1937 the first taxes, Federal Insurance Contributions Act, were collected, with payments planned on being received starting in 1942. The money collected was put into a trust fund, where it was stored until there was a need to give it out (www.socialsecurityreform.org/).
Social Security is a social insurance program, not just simply for the retired and elderly, but for the disabled and their wife, and children, and for the widows of working people who died young. These exceptions make up more than one out of three persons who collect Social Security checks. Therefore, Social Security is also a life insurance policy, along with being a reassurance of stability at an old age. Social Security is a pay-as-you-go system meaning that while working you are paying for the people collecting benefits, and when you begin to collect, the money will come from your children and grandchildren (www.network-democracy.org/social-security/ff/faq/faq.html).
An estimated 145 million workers and their employers pay taxes on wages. They both pay a 6.2 percent tax on salaries up to $68,400. They also pay a 1.45 percent tax, which levied from their salary income. The money collected from the working and employers goes to pay the monthly benefits to some 44 million beneficiaries. Social Security accounts for 20 percent of the federal budget. It is the single largest government expenditure and has soared to about $367 billion in benefits last year. In order to qualify for benefits, you need ten years of work. The amount of the checks is in some kind of proportion with your earnings during your working career. A system of formulas is used to distribute proportionally more money to the people with lower incomes. The retirement age established is 65 years to receive 100 percent of your benefits. But, you can retire at an age of 62 and still receive 80 percent of your total benefits. The majority of the people today retire before reaching the age of 65 (www.network-democracy.org/social-security/ff/faq/faq.html).
Today there is a surplus within the Social Security system. They are generating more tax revenues from workers than they are paying out to beneficiaries. What’s the problem with this? Well, the workers today are subjects of the Baby Boom era. Basically, there are more of them than there are retirees. This is good if you are retiring before the baby boomers do. At an estimated year of 2012 the first wave of the baby boomers begin to retire. As the largest generation population, this means that the baby boomers will begin to exhaust the Social Security surplus at a much faster rate than before. By the year 2029, the Social Security trust fund will be completely depleted. This means that there will be no money to pay out benefits to people who paid their taxes for security. At this point the government will be forced to rely solely on the revenue from the payroll tax. This will not be enough to pay all of the benefits promised. Either payroll taxes will have to be raised to 18 percent from today’s 12.4 percent, or benefits will have to be cut drastically (Thomas 3). “The logic is powerful. The Presidential commission headed by Moynihan says that the Social Security system is beset by a “crisis of confidence,” engendered by demographics and the faulty structure that Franklin Roosevelt erected in an emergency nearly 70 years ago. The retirement portion of Social Security is an unfunded pension plan. The money to pay current retirees comes from taxes on current workers, not from money they put away during their employed years. This worked in 1940, when there were 42 workers for every retiree. But, thanks to longer life spans, fewer children, earlier retirement, and other changes, there will soon be only two workers paying into Social Security for every retiree drawing checks out. That can’t work” (Glassman 13).
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 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. Rose 3 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. 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).
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, “politicians are scared of each other and the AARP” (Thomas 2).
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 (Thomas 4).
All of the plans are impractical, if applied 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 Rose 6 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 (Thomas 3).
President Bush is depending on CEOs for the revision of Social Security. Most are involved on the record, and the rest give other forms of support. Still business leaders stay neutral in the dispute about our nations largest federal program. Former New York Democratic Senator Daniel Patrick Moynihan co-chairs the President’s Commission to Strengthen Social Security fear’s that today’s system is traveling into an unavoidable demographic wall. “In 1960, there were five workers for every retiree,” they explained in an interim report last July. “Now there are slightly more than three. Before long there will be just two. This downward trend in the ratio of workers to retirees, under the existing system, would require either painful tax increases, significant benefit cuts, or astronomical levels of borrowing”(Murdock 22).
President Bush, forging ahead with his plans for Social Security reform despite advice from some to delay it, appointed a 16-member panel that will submit specific proposals this fall. Former Sen. Daniel Patrick: Moynihan (D. -N.Y.) and Richard Parsons, chief operating officer of AOL Time Warner, wilt co-chair the commission. Bush wants to allow younger workers to put some of their payroll taxes into personal retirement accounts that can be invested in the stock market, and has apparently filled the commission with that goal in mind. Senate Minority Leader Tom Daschle (D. -S.D) noted, “I don’t know that there’s anybody who would dispute the fact that this commission is already a predetermined group that will be organized for a clearly desired result to privatize Social Security” (Human Events 2).
In conclusion, the United States Social Security program started back in 1935 has experienced 66 years of developing and reforming. During the last 66 years, this program has achieved a lot for providing benefits to retired workers and their dependents. The legislation also has successfully improved the Medicare, disability treatment and the Cost-of-living Adjustments. Although the low rate of turn is a considerable problem of the Social Security system, I believe as Bush has predict, his reform of allowing private investments of payroll taxes would eventually prevent our Social Security from bankrupted and bring people a higher standard of living.
“Social Security reform is gonna happen.” The American Enterprise; Washington; Oct/Nov 2001; James Glassman
“Social Security reform calls for leadership.” Chief Executive; New York; Oct 2001; Deroy Murdock.
“Social Security Reform.” Human Events, 05/07/2001, Vol. 57 Issue 17, p2, 1/9p.
Edward ,Thomas. “Social Security Alternatives.” New York: Capital Publishing Ltd., 1996. United States.
Office of Management and Budget. Implementing Welfare Reform. Washington: OMB, 1997.