Difference between revisions of "Social Security"

Revision as of 20:15, October 27, 2010

Social Security is a compulsory social insurance program primarily for old people and the disabled, sponsored by the U.S. federal government. It is strongly endorsed by all major conservative politicians in recent decades, and was expanded by presidents George W. Bush and Dwight D. Eisenhower, and put on a stable financial basis by Ronald Reagan. Social Security includes Medicare, starting in 1965, which covers medical costs of beneficiaries.

Social Security is part of the welfare state, but it is not considered a welfare program because the beneficiaries have paid into it all their working lives.

Social security programs were first introduced by conservatives and pro-business politicians, such as Otto von Bismark in Germany and Winston Churchill in Britain, in order to weaken Socialism. All developed countries have a system somewhat similar to the U.S.

History

In 1889 Germany was the first country to introduce government pension plans. Britain introduced its program in 1907.

United States

Social Security was founded as a quick-fix solution to unemployment by paying off older workers to give up their jobs for younger workers. No net new jobs were created. Economists call this a zero-sum game, where net gains and losses are exactly balanced. The payment system mimicks the idea of insurance premiums with payments withheld from a workers paycheck. None of the premiums, however, have ever been invested in a so-called "Trust fund," and are actually diverted into a "pay as you go" (or "paygo") system destined for immediate aggregate consumption expenditures. Hence many of the structural flaws date from the programs' origins.

Payments are based on a percentage of earnings of workers which become an obligation, or debt, of the United States government. The current rates are 15.3% -- half provided by the worker and half paid by the employer, which includes Medicare. No deduction or personal exemption is allowed, meaning the very first dollar of earnings is taxed.

Over the years excess withholdings from workers paychecks, (known as F.I.C.A.), have been used to fund government paygo operations such as the Vietnam War,^[1][2][3] for instance. However, overwithholding from workers paychecks will become less of a problem in the near future as the gap is closed between the ratio of workers supporting the system, and those drawing upon the system for sustenance.

With the abject failure of the First New Deal to create any net new private sector jobs, the Social Security Act was passed in 1935 and started operations in 1937. Since benefits required at least 5 years of payments, a special program was included in 1937 to help old people who already were retired and who had high rates of poverty.

Roosevelt's proposal for an overwithholding slush fund

The Social Security Act was drafted by President Franklin Delano Roosevelt's committee on economic security, under Edwin E. Witte, and passed during FDFR's first term which provided for workers who reach the age of 65 a pension of $8 a week at most. The plan had to be pushed through against FDR's procrastination until finally in the 1934 congressional elections the Republicans denounced him for his tardiness. When FDR finally consented to a bill, it contained a plan for building a huge reserve fund that would extract billions from the workers' payrolls without any adequate return. Over the protest of the President, the Congress finally took that provision proposed by Roosevelt out of the law. ^[4]

President Clinton's proposal to privatize

Social Security has been called the "third rail of American politics" because politicians get badly burned if they try to tamper with it. In 1999 President Clinton proposed investing the Social Security Trust Fund in what some might consider "risky" assets in the stock market and bonds. The stock market then was in the late stages of a bull market cycle with stock prices and indexes overvalued. Clinton told a joint meeting fo the U.S. House of Representatives and Senate,

In 2009 conservatives attacked the Democrats health care reform program because it involves large cut-backs to Medicare.

Social Security and African-Americans

When Social Security was first passed most blacks worked on farms or as domestics and were not covered. Nearly all have left the farms--and the the few remaining domestics are now covered.

The amount of social security benefits received depends on how long one lives after retiring. African-Americans generally have lower life expectancies than other groups. When a black man reaches age 65, he is expected to live only another 13.9 years, almost 2 years (24 payments) less than a white male. The RAND Corporation concluded that, because of differences in life expectancies and marriage rates, on a life-time basis the income transfer from blacks to whites is as much as $10,000 per person. However, blacks aree more likely to receive disability benefits.

African-Americans are much more likely than other groups to be largely dependent on Social Security for retirement income.

The payroll tax

There are four component parts that constitute payments to a workers public sector retirement fund, of which the payroll tax paid by workers furnishes only half. Employers are required to pay the other half based on a percentage of the workers gross wages (W-2 income). The employers share of mandated payments on behalf of the worker is not seen in the worker's gross wages, yet the cost is very real. Other factors also weigh on employers ability to give raises, extend overtime, or create new jobs.

Medicare

In 1965, prodded by liberal president Lyndon Johnson, Congress enacted the Medicare program as part of the "Great Society." Medicare operates as part of Social Security and provides affordable health care to beneficiaries over the age of 65. A Medicaid program was established to provide health care for poor people who can not afford private health insurance.

Present liabilities promised to Baby boomers

The cost of Social Security benefits that were promised to 70 million Americans of the "baby-boom" generation exceeds fifty trillion dollars ($50,000,000,000,000).^[6][7][8]

Reform

Is Social Security going bankrupt?^[9] Actuaries say that thanks to the Reagan reforms of 1983, Social Security is fullly funded for 75 years. Medicare is much harder to gauge, because no one knows the future rate of growth of medical costs, which have been quite high in recent decades.

In 2005 President Bush proposed a privatization program that would allow people to control their own Social Security accounts, especially by investments in the stock market. He argued that the stock market provided higher rates of return. The proposals got little support and were dropped. The stock market collapse in the Recession of 2008 chilled enthusiasm for similar proposals, and no prominent politician in 2009 is proposing privatization.

Pros and cons of social security

This is a list of the most common arguments used in favour of, and against social security, some may not apply to American social security, since it is not as extensive as that of other developed nations.

Pros

Safety Net

• Health benefits for everyone over 65.
• Cash benefit for the elderly who haven't provided for private retirement plans.

Security

• Social security decreases extreme poverty, which in turn decreases crime ^[10].

Cons

• Individual Empowerment: individuals would have more motivation to work hard and succeed, this may not however apply to some disabled persons and the economy is unpredictable (recessions).

• Higher Returns and Greater Benefits: even the most conservative investors would accrue substantial assets during their lifetimes through privately invested accounts, which historically have yielded far more than Social Security promises in retirement income.

• Improved Economy: economists believe that the overall economy will benefit from an increase in savings and investment resulting from this system. Retirement savings provided by workers create jobs, unlike the Social Security pay as you go system destined for immediate aggregate personal consumption expenditures.

• Some individuals will get "lazy" and choose not to work, only costing society.

• Economic costs of the program. It is estimated that Social Security will be broke in the early-to-mid 21st century.

France

In September 2010 an estimated one to three million demonstrators took to the streets to protest a government effort to raise the retirement age from 60 to 62.^[11]

Greece

In February 2010 Greece announced austerity plans to overhaul its Social Security system in the wake of the Greek Sovereign Debt Crisis.^[12]

The future of Social Security

Social security will face many problems in the 21st century, most notably the aging of the population in developed nations, although more problematic in Europe and especially Japan, will strain American social security budgets ^[13] In calendar year 2010, Social Security's outlays will exceed tax revenues (that is, the trust funds' receipts excluding interest) for the first time since the enactment of the Social Security Amendments of 1983.^[14] According to the Congressional Budget Office, Social Security will exhaust its current sources of revenue completely by 2042 and will be "unable to pay full benefits without changes in law."^[15]

Further reading

• Beland, Daniel. Social Security: History and Politics from the New Deal to the Privatization Debate (2007) excerpt and text search
• Glenn, Brian J. and Steven M. Teles, eds. Conservatism and American Political Development (2009), two chapters on conservatives andSocial Security issues since 1930s excerpt and text search
• Shoven, John B. and George P. Shultz. Putting Our House in Order: A Guide to Social Security and Health Care Reform (2008), a conservative analysis excerpt and text search

References

1. ↑ "President Johnson issued a 'unified' federal budget for FY1969. This was done administratively (i.e., not as a result of legislation)." Social Security and the Federal Budget: What Does Social Security’s Being “Off Budget” Mean? Congresasional Research Service, 98-422 EPW, Updated July 23, 1998, p. 20.
2. ↑ The Federal Budget and Stabilization Policy in 1968.
3. ↑ Trust Funds in the Unified Budget, p.3.
4. ↑ Roosevelt Myth, Book 3, Chapter 14, The Roosevelt Myth, John T. Flynn, Fox and Wilkes, 1948.
5. ↑ President Bill Clinotn's 1999 State of the Union Address, January 19, 1999. Retrieved from C-Span.org 19 August 2010.
6. ↑ http://www.usatoday.com/news/nation/2004-10-03-debt-cover_x.htm
7. ↑ http://www.usatoday.com/news/graphics/debtcalculator/flash.htm
8. ↑ http://fiscalsolvency.com/the_3_parts_of_our_fiscal_crisis.htm
9. ↑ Social Security Commissioner, 2006 Social Security Statement
10. ↑ Poverty, Income Inequality, and Violent Crime: A Meta-Analysis of Recent Aggregate Data Studies Ching-Chi Hsieh [1]
11. ↑ http://news.yahoo.com/s/afp/20100923/ts_afp/francestrikepensionpolitics
12. ↑ http://news.ebru.tv/en/Europe/14657.html
13. ↑ Will social security and Medicare remain viable as the US population is aging? (pdf) Henning Bohn[2]
14. ↑ Congressional Budget Office, Long-Term Projections for Social Security, October 2010.
15. ↑ Ibid.