Solutions For Social Security Social Security is a hot topic of debate today, since most American’s believe that the system is near collapse. The trust fund that Americans have been paying into for Social Security is likely to dry up in 2029 due to the large number of baby boomers heading into retirement. Franklin Roosevelt set up Social security to help the people that had worked and Struggled all their lives in honest toil. Social security was set up to accomplish two main goals. The first goal of Social Security is to act as a disability or life insurance policy that protects almost all Americans. Currently, there are seven million survivors of deceased workers and four million disabled Americans that receive income support from Social Security.
The second goal is to provide lifetime retirement benefits that rise with inflation. Social Security payments for retirees are needed to keep half of the elderly Americans above the poverty line. A large number of baby boomers believe that they won’t see a dime’s worth of Social Security benefits, and most younger people assume that once they have reached retirement the program will be gone. There have been many proposed solutions to the Social Security problem. A first possible solution is to dramatically change the Social Security Payroll Tax.
Another proposal is to change amount of benefits of the provided by Social Security. A third reform proposal includes investing Social Security money in stocks either by the government investing the money or by setting up mandatory IRA investing. Another major development in the future of Social Security is the recent proposals made by President Clinton’s Advisory Committee on Social Security. In January of this year the Advisory Committee on Social Security presented a report of strategies to save Social Security. Shortly after the 261 page report was released there was a huge increase of debates and criticism over the future of Social Security.
The issue facing American today is when and how to reform Social Security. Although the American public and political groups are unwilling to accept the burdens of social security reform, extensive reform is needed soon to continue paying the current benefits to American citizens. A change in the Social Security tax is a possible factor of reform to bring the Social Security program back on track. Currently the Social Security tax is a flat-rate tax paid on all employment earnings up to a specified limit. Due to inflation the limit is increased every year currently it is just over $60,000. This tax is much harder on a lower income individual because the higher income individual is only taxed on their income that is below a certain amount set every year. It has been proposed that if the limit on the payroll tax were lifted, two-thirds of the projected Social Security deficit would be eliminated.
Once the limit on the payroll tax is lifted a rise in the tax rate of the employers and the employees by 1.1% is predicted to be enough to solve Social Security’s problems. This is assuming that two evasive actions take place. First the government will have to keep its hands of this extra tax revenue gained by the tax increases. Second the proposed solution will only have a chance to work if it is started immediately while the baby boomers are still able to add a little more cash to the trust fund for there own retirement. This solution isn’t likely to be implemented by today’s political system. The advisory council on Social Security would not pursue the lift of the limit because the support of the wealthy voters for Social Security reform would be lost.
Americans are also weary of Social Security tax increases. The middle and lower class voters would also not support a Social Security tax increase. A recent poll by Money magazine found that 70% of the public is unwilling to pay more tax than the current 6.2% rate. Another proposed solution to Social Security’s problems is a to decrease the amount of benefits received by retirees. The first way to reduce the amount of benefits that are being paid out is to adjust the CPI.
Sen. Daniel Monynihan of New York (Dem.) has proposed that a 1.1% cut in annual cost-of-living adjustments for pensioners would be a reasonable solution to Social Securities problems. The adjustment of the CPI would reflect the belief by many economists that the CPI overstates current inflation. He claims that this would almost completely solve the problems in the Social Security program by insuring that the expected inflow of funds would equal the expected outflow of benefits for future decades. An alternate approach to lowering the amount of paid benefits is to raise the retirement age.
Currently the retirement age is expected to rise from 65 to 67 in 2037. A recent poll taken by Money magazine found that 70% were in favor of raising the retirement age to 67 by 2016. This would decrease the amount of benefits being paid out, and give two more years for these individuals to put money into the system. Another proposed solution that would also lower the amount of benefits paid out is to cut benefits for the prosperous retirees with incomes above $50,000 dollars a year. The biggest problem with cutting benefits of any kind is that any politician that proposes cuts will instantly lose support by elderly that count for a major portion of the voters, so cutting benefits is almost impossible in our political system even if the cuts are very small.
A politician would also be unwise to implement benefit cuts only for prosperous retirees because the support of the wealthy would also be lost. The third major reform proposal consists of investing the Social Security tax in the stock market. The biggest question for this type of reform is whether taxpayers would decide where to invest there tax money or would the government choose for them. An individual on this type of plan would be required to invest a portion of there income in stocks, bonds, mutual funds, bank CDs, but not in gambling or other wild money making schemes. The tax payer on this type of program would then be able to withdraw their investments once there reach retirement age.
The government would also insure that the retire still receive a minimum return even …