Government Policy; Social Security
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Social Security, Reformation & Privatizing Policies
The policy I wish to address is one we dont here too much of anymore, unless youre looking! My parents have come to the point in there life where Social Security is becoming increasingly important. This provoked my curiosity into what has changed since the first major discussion about its reformation. With major political discussions focused on the War in Iraq and Immigration policies, and global warming, Social Security has taken a back seat in leading debates. Although Social Security is not as frequently discussed on the news or in the papers as the proceeding topics, it still is a major issue that should be a concern to us all, and is being discussed between the leaders of our government.
There are several matters that need to be resolved within our current Social Security system and its influences, including the funds for our trusts, Medicare, disability and prescription drug benefits, raising or lowering the retirement age. However, for the purpose of this essay, I will limit myself to focusing on the Privatizing Social Security policy, the benefits and losses of the rising of taxes and retirement age, as well as the impending changes it will reap on GDP.
First lets start with some background; the Social Security Board was first initiated on August 14, 1935 by President Franklin D. Roosevelt and has since been an essential role in the welfare of our senior citizens. Once President Roosevelt took office in 1932, he studied the European ideas of economic security through social insurance instead of supporting through welfare. This groundbreaking substitute addressed the major crisis of economic security for elderly individuals by generating a work related, mildly contributory system which withheld the taxes of the working individual into a nest egg, that would provide for their own economic security after retirement. This new policy applied to anyone on a workforce, an employer or employee. The Internal Revenue Service accumulates the taxes of working individuals and places the currency into their accounts. For the people who are gathering their pensions at this time, the benefits are given through the tax revenues of our payrolls and adequately distributed (DeWitt).
Social Security taxes also pay for Medicare, the national health program for the elderly. Ultimately this substitute changed and helped decrease both the reliance on welfare and spurred some of the fundamental changes in our capitalist system. Roosevelts new policy brought a sense of peace and security to a nation struggle from financial hardship and adversity. It helped the nation pull itself back onto its feet after the devastating effects of the Great Depression, which was one main motivation for this program. During that time, the nations desperate financial state and economic changes were due to the Depressions skyrocketing inflation rates and towering unemployment status. The proposal to provide a program for Social Security seemed to be the lifeboat that the hardworking citizens dreamt of.
Although it was extremely costly for the programs initiation, it has proven to be well worth the investment, becoming an indispensable component of modern life. More than 90% of all workers are in jobs covered by Social Security and 1 in 7 Americans obtains some kind of Social Security benefit.
In the beginning, roughly 225,000 people were given Social Security benefits monthly. It was recently estimated that we now provide over 44 million people with such benefits and it is as the baby boomers continue to age, the amount of individuals receiving benefits will continue to dramatically increase. The Supplementary Security Income program, which provides financial support to the blind, elderly and disabled, has grown as well from its inception in 1974 covering over 7 million individuals throughout the United States. (DeWitt)
In the beginning of 2001, the Bush Administration made its objective to reform our Social Security and Medicare system. George W. Bushs proposal entailed that current employees, had the choice to choose between a private plan for their benefits or the traditional Social Security plan. The private plan would make them pay 5% of wages instead of having the 6.2% tax from Social Security. It would form private investment accounts, which in return would produce a payroll tax cut of 20%. Six guidelines were given during President Bushs proposal: “Modernization must not change Social Security benefits for retirees or near-retirees. The entire Social Security surplus must be dedicated only to Social Security. Social Security payroll taxes must not be increased. The government must not invest Social Security funds in the stock market. Modernization must preserve Social Securitys disability and survivors insurance programs. Modernization must include individually controlled, voluntary personal retirement accounts, which will augment Social Security (Guiding Principles)”.
According to Gregory Mankiw, GDP is defined as the total market value of all the goods and services produced within the borders of a nation during a specified period; its values reflect the final market products. An example could be the rancher who raises the cattle is not accounted for by GDP, as the consumer is who buys the meat. Reports made by Robert Kogan and R. Greenstein on The Center on Budget and Policy Priorities government site, President Bush and cabinets members that are also Social Security and Medicare trustees will suffer from a .65% shortfall of our GDP within the next 75 years. In 2005, this figures dollar value amounts to an estimated $3.7 trillion in deficit. The tax cuts and the prescription drug bill policies are now going to cost most likely more than then what they expected by at least five times in the next 75 years, trustees predict social security profits and losses by increments of 75 years. So far this will only cause the US fiscal problems to mature into something worse, reaching into double-digit trillions! Here are the graphs they were basing it off of:
The Shortfall in the Social Security Trust Fund Compared with the Cost of the Medicare Prescription Drug Benefit and the Cost of the Bush Tax Cuts if Made Permanent
Shortfall or cost as a percent of GDP through 2078
In trillions of dollars through 2078a
Shortfall, Social Security Trust Fund (CBO est.) b
0.35%
Shortfall, Social Security Trust Fund (Trustees estimate) c
0.65%
$3.7 trillion
Cost of the new Rx Drug Benefit (Trustees