Social Security Tax System
Revamping Our Future Social Security Tax
System
This paper will discuss the current
United States Social Security Tax system, the
purpose of that system and our
goal for selecting this topic. Also, it will
explain our analysis of it's
current standing, different idea's about what to
change in our current
standing to secure and guarantee a strong future for it.
System Social
Security has been around for more than 60 years. It has been an
important
part of American life. It was created in 1935 shortly after the
great
depression. Social Security was created to be a protection for the
American
people against the hazards of unemployment, old age, and ill health.
Today
Social Security not only provides minimum protection for the
retired worker, it
also provides benefits for workers and their families due
to death of a family
wage earner or loss of income due to disability. Today
there are about 150
million workers who are protected by social security,
more than 44 million
receive retirement, survivors and disability benefits
form social security.
American wage earners and their families are
protected by social security and
they pay taxes to help make the system work.
There are two philosophies Social
Security bases its payments on. First,
the system is designed so that there is a
link between how much a wage earner
pays into the system and how much he or she
will receive in benefits. For
example, a high wage earner will receive more
benefits while a low wage
earner will receive less. Second, a base for economic
security is provided by
the Social Security system. Social Security provides a
valuable package of
retirement, disability and survivors insurance, which
relieves families of
financial burdens from supporting other family members.
Social Security
has made an enormous difference in the lives of older Americans.
American
workers can retire as early as age 62. At this age, wage earners are
eligible
to get reduced benefits from Social Security. Wage earners may wait for
full
retirement age to be eligible for full retirement benefits. Currently,
full
retirement age is 65, but will be moved up gradually starting in 2003.
The new
retirement age will be 67 for people born in 1960 or later. Social
benefits
payments are paid out to more than 9 in 10 retirees. In America,
only 11 percent
of senior citizens live in poverty. Without Social Security
benefits, the
percentage of seniors living in poverty would be much higher.
Social Security is
the major source of income for about two-thirds of elderly
Americans, and for
abut a third Social Security is virtually their only
source of income. Retired
Americans are given a dependable monthly income
from Social Security. Automatic
increases are tied to increases in the cost
of living. Social Security gives
retired American citizens a measure of
deserved financial independence (and that
measure is becoming lower every
year). Social Security is more than a retirement
program. It is also a
protection plan for American citizens. Valuable disability
and survivors'
insurance protection are given to younger wage earners and their
families.
There are about 1 in 3 workers who are Social Security beneficiaries
that are
not retired. Monthly survivors' benefits are given to about 7.5
million
people and more than 6 million workers and family members receive
disability
benefits. Social Security provides a foundation on which to build
retirement
security. Social Security, pensions and savings is a three-legged
financial
stool for a comfortable retirement. Unfortunately, there is only a
little more
than half of all workers whose employers have pension plans; and
people are not
saving for their future retirement. Pre-retirement earnings
for the average
worker are about 40 percent, provided by Social Security.
Financial advisors say
that the average worker will need 70 percent of pre-
retirement earnings to live
comfortably. Saving is an important part of
retirement planning. Social Security
will begin mailing statements to workers
age 25 and older. The statement will
show a worker's earnings history, as
well as giving estimates of retirement,
survivors and disability benefits.
This statement will help with future
financial planning. Demographics have
been the main reason for Social Security's
long-range financing problem.
People, today, are living longer and healthier
lives. In 1935, when Social
Security was created, a 65-year-old person's average
life expectancy was 12
1/2 more years. Today, it is about 17 1/2 years and
raising. And to add to
this, at about 2010, 76 million baby boomers will be
retiring. There will be
nearly twice as many older Americans as there is today
in about 30 years. And
at the same time, the number of wage earners paying
Social Security
taxes, per beneficiary, will drop form 3.3 to 2. America's
retirement system
will be strained caused by these changes. "Social
Security is an economic
compact among generations. Many people think that their
Social Security
tax contributions are held in interest-bearing accounts
earmarked for their
own future retirement needs. Social Security is actually an
intergenerational
compact - the Social Security taxes paid by today's workers
and their
employers go mostly to fund benefit payments for toady's retirees.
Social
Security is now taking in more in taxes than is paid out in benefits and
the
excess funds are credited to Social Security's trust funds. There is
now
about $850 billion in the trust funds, and they are projected to grow to
more
than $4 trillion in the next 20 years. But benefit payments will begin
to exceed
taxes paid in 2014, and the trust funds will be exhausted in 2034
when it will
be able to pay only 75 percent of beneficiaries. At that time
Social Security
will be able to pay only about three-fourths of benefits
owed... if no changes
are made (The Future of Social Security, 1999)." Today
Social Security is
not in a crisis, but America must make changes to
strengthen Social Security.
Changes must be made in order to keep Social
Security strong in the 21st Century
to ensure economic security for future
generations and retirees. As President
Clinton stated, "we must educate
Americans about Social Security and the
issues that face it. Americans must
understand the Social Security program of
today, so they can make informed
choices about the Social Security program of
tomorrow." Low Risk Investment
Since the financial support from Social
Security will be negative in 2014
and exhausted in 2034, Americans must invest
elsewhere, in order to secure a
financial stable retirement. One way to secure a
financial stable retirement
at a low risk investment is by securing physical
property. By investing in
physical property, an investor would have physical
equity instead of
electronic. This physical equity would create a low risk
investment, even if
the roof caved in on Wall Street, the investor would have
something physical
to lay claim too. However, a draw back to securing physical
property is
personal time; the investor either has to hire a property
consultant/manager
or become one. Another draw back to securing physical
property is the fact
that property markets are just as diversified as Wall
Street it-self.
Property markets fluctuate and change based on the economy and
demographics,
and not everybody lives in Holly Wood or San Francisco. For
example, in
Southern California, a family named the Anderson's moved to a small
rural
city (1960) called Simi Valley, located 25 miles N/W of Los Angeles,
paying
only $13,000.00 for a small 3 bedroom home. Later, in 1988 the
Anderson's
decided to move North and sold their home for $179,000.00. They
were really
lucky, because shortly later, their old home peeked at
$190,000.00 before
falling to $150,000.00 average. However, the Anderson's
walked away with a gross
of $166,000.00 or a 1,376% increase. Another way to
invest in low risk
investment is by purchasing Government Bonds. Government
Bonds are backed
(Insured) by the Federal Government and are guaranteed a set
% for the life of
the Bond, which normal yields a 3% gross. High Risk
Investment As it stands now,
there are basically three ways to restore the
system's long-term solvency: raise
taxes, cut benefits or earn a higher
return on the system's trust funds.
Democrats generally do not want to
cut benefits, while Republicans do not want
to raise taxes. Therefore, the
solution under serious consideration by
policy-makers is to invest part or
all of the Social Security trust fund in
something with a higher annual yield
than it is currently earning. Another way
to classify the current reform
proposals is to think of them as being grouped
into one of two general
categories: minor, if any changes; and plans that
propose more drastic
changes. The latter would either include means-testing of
benefits or
investing much of the funds that now enter the pay-as-you-go system
through
taxes into individual interest earning 401(k) retirement plans and
individual
retirement accounts. Privatization advocates of argue that
redirecting Social
Security funds into private accounts would generate revenue
for the system
without having to raise taxes. They estimate that workers could
earn returns
up to 7 percent on their Social Security contribution in comparison
to the
less than 3 percent earned currently by Social Security funds invested
in
U.S. Treasury bonds. Opponents of privatization counter that the
Treasury-bond
system is stable, unlike the volatile stock market, which, they
argue, could
tank at any time. Many also oppose privatization on the grounds
that placing
money in private accounts would reduce the funds available for
guaranteed
monthly payment, on which many low-wage workers depend.
Privatization opponents
also point out the high transition costs associated
with moving toward a
privatized system, which would have to be raised to
support existing payments
while current payments are funneled into private
accounts. President Clinton has
promised that much of his 1999 agenda will be
devoted to a national dialogue on
the future of the Social Security system
and has asked all Americans support his
plan to save it. In his 1999 State of
the Union address, President Clinton put
forth a proposal that calls for the
transfer of 62 percent of the projected
budget surpluses over the next 15
years -- more than $2.7 trillion -- to the
Social Security system. The
government would invest a portion of the transferred
surpluses in the private
sector to achieve higher returns for Social Security.
The president says
this course of action will keep Social Security solvent until
2055. At
the heart of his plan is a proposal to allocate 11 percent of surpluses
to
create" universal savings accounts." These government-subsidized
"USA
accounts: would help individuals save for retirement. A portion of
individual
savings in the accounts would receive matching federal funds. In
addition,
Clinton says he is dedicated to working with Congress on a bipartisan
plan
that would shore up Social Security until 2075. These negotiations
will
involve controversial issues, whether to raise taxes, slash benefits or
raise
the retirement age. Some Republicans, most notably in the House, prefer
that
some of the surplus be returned to taxpayers in the form of tax cuts.
The
taxpayers would then be free to invest this money as they choose,
possibly in
high-yield private savings accounts. But many lawmakers across
the political
spectrum say that cutting taxes would be tantamount to
squandering the surplus.
These lawmakers generally agree that the current
budget surplus presents an
historic opportunity to shore up the
disintegrating Social Security system.
Republicans have said that they
are reserving H.R. 1 for legislation based on
the president's Social Security
plan, when and if it is offered. This Policy.com
Special Report examines
the present and future of the embattled Social Security
system. Focusing
first on the workings of the system, this report explores the
leading reform
and privatization proposals being discussed in Washington. The
report also
features an examination of how Social Security effects women and
minorities,
links to Social Security calculators, polls and Policy.com feature
events on
retirement security and Social Security
reform.
Conclusion/Recommendations We feel that something must be done to
the Social
Security Tax System, especially as it stands now, to secure a
bright and strong
future. We feel that the Keynesian approach, with a mixed
investment base by
each individual will satisfy its future. References Social
Security. (1999). The
Future of Social Security [Online]. Available:
http://www.ssa.gov/pubs/1055.html
[1999, July]. Apfel, K.S. (1998). President
Clinton's State of the Union
[Online]. Available:
http://ssa.gov/press/state_of union_ press.html [1998,
January 5]. Social
Security at the Crossroads, Amy Steinhttp (Online).
http://www.policy.com/issuewk/1999/0306_60/Intro60.html
Bibliography
References
Social Security. (1999). The Future of Social Security
[Online].
Available: http://www.ssa.gov/pubs/1055.html [1999, July].
Apfel, K.S. (1998).
President Clinton's State of the Union [Online].
Available: http://ssa.gov/press/state_of
union_ press.html [1998, January 5].
Social Security at the Crossroads, Amy
Steinhttp (Online). http://www.policy.com/issuewk/1999/0306_60/Intro60.html