Social Security United States
Social Security is a social welfare program administered by the Social Security Administration under the authority of the United States federal government. It provides benefits to the retired elderly and to the disabled, and also provides survivors' insurance. The following programs are provided under the Social Security system:
- Retirement insurance
- Survivors insurance
- Disability insurance
- Hospital and medical insurance for the aged and disabled
- Black lung benefits
- Supplemental security income (SSI)
- Administration for Children and Families
- Unemployment insurance
- Medical assistance
- Food stamp supplements
- Child support enforcement and establishment of paternity
- Services for maternal and child health and child welfare
- Workers' compensation
- Railroad retirement, sickness, and unemployment insurance
- Veterans benefits
- Federal, State, and local government employees' retirement systems
Social Security was created during the administration of Franklin Delano Roosevelt, in 1935. The amount of benefits in retirement is typically based on the total accumulation of Social Security Income over a beneficiary's working career.
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Myths of Social Security
Among the apocryphal stories attributed to the Roosevelt administration is that FDR promised the following five conditions to Americans [1] (http://www.ssa.gov/history/InternetMyths.html):
- That participation in the Program would be completely voluntary,
- That the participants would only have to pay 1% of the first $1,400 of their annual incomes into the Program,
- That the money the participants elected to put into the Program would be deductible from their income for tax purposes each year,
- That the money the participants put into the independent "Trust Fund" rather than into the General operating fund, and therefore, would only be used to fund the Social Security Retirement Program and no other Government program,
- That the annuity payments to the retirees would never be taxed as income.
Social Security Tax
Benefits are funded via a Social Security Payroll tax. This tax is 6.2% of an employee's income paid directly by the employer, and 6.2% deducted from the employee's paycheck, yielding an effective rate of 12.4% of an employee's income. Self-employed people are responsible for the entire tax. This tax is paid only on the employee's first $87,000 of income, although that cutoff increases yearly, indexed to inflation.
Social Security is not a savings, investment, or pension plan, and there are no individual Social Security accounts. In a very real way, it is similar to an insurance policy that every one has to take out. Benefits from the program are skewed towards low-income workers and are paid out according to a detailed formula.
Social Security taxes are paid into the Social Security Trust Fund maintained by the U.S. Treasury. Current year expenses are paid from current social security tax revenues. In roughly 10 years (2015), the taxes are not expected to cover expenses.
Because taxes have been higher than program expenses since 1983, there is the appearance of a surplus in the Social Security system. This appearence is aided by the US Government's accounting for the higher taxes in a Trust Fund. Unfortunately, the excess revenues are spent in the year they are received. Once the taxes fall below the program needs, the US Government will have to make up the difference. This can be done by going into more debt, raising either social security or other taxes, and/or cutting federal expenditures. Another option: cut benefits, thus devaluing the program.
A side effect of the Social Security program in the United States has been the near-universal adaptation of the program's identification number, the Social Security number, as a form of unique identification in the U.S. A multitude of U.S. entities use the Social Security number as a personal identifier. These include government agencies such as the Internal Revenue Service, as well as private agencies such as banks, creditors, health insurance companies, and employers. Laws are in place governing acceptable uses for the number; these laws are, however, often unenforced.
Social Security Reform
Retirees who receive Social Security benefits are an important bloc of voters. Indeed, Social Security has been called "the third rail of American politics," in that any politician who touches it may live to regret it, having sparked fears of payouts being cut.
No candidate for major office from any political party has suggested that Social Security simply be eliminated, without regard to current or near-future recipients of Social Security payouts.
The age at which one begins to receive Social Security benefits has been raised several times since the program's inception. Other common criticisms of the system are that its financial model is inherently unstable, that the Social Security tax is not a deposit which can be passed to one's heirs, that it discourages saving, investment, and thrift, especially among the working class, that a greater return could be achieved by simply investing 12% of one's earnings in bank certificates, and that the Social Security surplus is used as a somewhat covert way of funding a large and expanding central government and maintaining the appearance of a balanced budget.
In the late 1990s and early 2000s, there were several proposals to reform Social Security by converting it from a pay-as-we-go system (compared by its critics to the illegal Ponzi pyramid scheme) into one in which workers would have accounts which could include securities such as stocks, certificates of deposit, and mutual funds.
Harry Browne, who ran for President on the Libertarian ticket in 1996 and 2000 supported a plan to eliminate the SSA and the payroll tax completely, and guarantee benefits to everybody above an age determined to be close enough to retirement to be made worse off by the end of Social Security. This would be coupled with a drastic reduction in the size of the federal government; payments to those who would receive benefits would come from annuities purchased with the proceeds from the sale of surplus Federal property as well as the tax surplus which would result from Browne's proposed cuts. This eliminated the problem of "double payments" inherent in most privatization proposals, but Browne's proposed cutbacks were too large or too sudden to be popular, and he did not receive more than a few hundred thousand votes.
More moderate proposals for privatization range from those initially suggested by Republican candidates in 2000, which involved setting aside an initially small percentage of each worker's payroll tax in a 'lockbox', which the worker would be allowed to invest in securities, to proposals which eliminate the Social Security payroll tax completely for workers born after a certain date and allow workers of different ages different amounts of time for which they could opt to not pay the payroll tax, in exchange for a proportional delay in their receipt of payouts.
Privatization of state-run old-age pension systems had occurred in the late 1980s and through the 1990s in several states throughout the world, most notable in Chile, where workers were required to pay a certain percentage of their earnings into a retirement account which they could invest in certain approved forms of securities. Withdrawals before retirement are prohibited, but the funds in the retirement accounts belong to the individual worker and can even be passed on to the worker's heirs at time of death. This approach was akin to the Republicans' "lockbox" proposal, but more comprehensive a change.
In the late 1990s, privatization was popular in the USA because of the high rates of return of the stock market in the 1990s and the popularity of IRAs and 401(k) plans. The sharp correction of the stock market in 2000 and the Bush administration's abandonment of the issue has moved talk of Social Security reform to the backburner, but several influential organizations, most notably the Cato Institute, continue to consider it a crucial issue.
Plans of Privatization
On May 21, 2001, President Bush formed a 16-member, bipartisan Commission to Strengthen Social Security to suggest proposals for modernizing social security. The committee developed three possible models for modernization:
- Two percent of taxable wages would be placed into private accounts for investment (likely in stocks), with the rest of the system unchanged.
- Four percent of taxable wages, up to $1000, would be placed into private accounts for investement.
- One percent of wages would be placed into retirement accounts, and 2.5% would be invested.
The second proposal emerged as the preferred one. Any plan would result in high transition costs, estimated by some to be in the vicinity of $1 to $2 trillion over 10 years. For workers, privatization would mean smaller social security checks, with the possibility of compensation from returns on investments. There is debate over the advisability of subjecting workers' retirement money to market risks.
President Bush made social security reform a major issue in the 2004 elections, and has made clear that he intends to work to privatize social security in his second term.
Related Legislation
- 1950 - Social Security Amendments PL 81-734
- 1952 - Social Security Amendments PL 82-590
- 1954 - Social Security Amendments PL 83-761
- 1956 - Social Security Amendments PL 84-880
- 1958 - Welfare Pensions Plans Disclosure Act PL 85-836
- 1958 - Social Security Amendments PL 85-840
- 1961 - Social Security Amendments PL 87-64
- 1962 - Welfare Pensions Plans Disclosure Act PL 87-420
- 1962 - Self-Employed Individuals Tax Retirement Act PL 87-792
- 1967 - Social Security Act Amendments PL 90-248
- 1969 - Tax Reform Act PL 91-172
- 1971 - Social Security Amendments PL 92-5
- 1972 - Social Security Amendments PL 92-336
- 1972 - Social Security Amendments (Supplemental Security Income) PL 92-603
- 1973 - Social Security Benefits Increase PL 93-233
- 1974 - Employment Retirement Income Security Act (ERISA) PL 93-406
- 1976 - Tax Reform Act PL 94-455
- 1977 - Social Security Act Amendments PL 95-216
- 1978 - Revenue Act PL 95-600
- 1983 - Social Security Act Amendments PL 98-21
- 1986 - Tax Reform Act PL 99-514
External links
- Social Security Administration (http://www.ssa.gov)
- Social Security Death Index Information (http://www.deathindexes.com/ssdi.html)
- Commission to Strengthen Social Security (http://www.csss.gov/)
Categories: Social Justice | United States