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Social Security Update....
by Robert P. Dean, Executive
Director
Over the past few months, there has been a great deal of discussion about Social Security, and much debate over whether or not there is a Social Security “crisis”. As we contemplate this question, it might perhaps be helpful to take a brief look at the Social Security program.
Social Security has been a basic part of American life for the past 70 years. The Social Security Act was signed into law by President Franklin D. Roosevelt in 1935. Social Security payroll taxes were collected for the first time in January 1937, and in January 1940 regular ongoing monthly benefits began. The mission of the Social Security Administration (SSA), which oversees the Social Security programs, is “to advance the economic security of the nation’s people through compassionate and vigilant leadership in shaping and managing America’s Social Security programs”. According to the SSA, Social Security is widely considered to be the nation’s most successful domestic federal program. By design it is a universal program that provides a basic level of protection to all covered workers based on their past earnings. Monthly cash benefits are financed through payroll taxes paid for by workers and their employers and by self-employed people. The combined Old-Age, Survivors and Disability Insurance (OASDI) programs, which are commonly referred to as Social Security, provide a comprehensive package of protection against the loss of earnings due to retirement, disability and/or death. Supplemental Social Security (SSI) provides a backstop to Social Security by guaranteeing a minimum level of income to needy elders and persons with disabilities, including children. According to the SSA’s FY 2004 Performance and Accountability Report, about 47.4 million Americans receive monthly cash benefits from Social Security, while another 4.6 million receive SSI benefits. 91% of those receiving Social Security benefits are age 65 or older.
The Social Security Administration (SSA) describes Social Security as a pay-as-you-go retirement system, which means that the Social Security taxes paid by today’s workers and their employers are used to pay the benefits for today’s retirees and other beneficiaries. The 2004 Old-Age, Survivors and Disability Insurance (OASDI) Trustees Report provides a low cost, an intermediate cost, and a high cost analysis for calendar years 2004 through 2080. The low cost or best case scenario indicates a Social Security surplus in excess of 17,921.2 billion (in constant 2004 dollars) and growing by 2080; while the high and intermediate cost scenarios indicate that the fund will be exhausted within the next 25 to 35 years, or by 2031 or 2042 respectively.
Some analysts point to the latter two scenarios as evidence that Social Security is in “crisis” and suggest that “privatization”, which would allow workers to shift some of their contributions to personal investment accounts is the answer. There are many others, however, who maintain that there is no crisis and that moderate adjustments can keep the system sound. One proposed adjustment is a slight increase in the social security payroll, or FICA, tax that employers and employees currently pay. Another is to raise the limit on salaries subject to the social security payroll tax, above the current salary level of $90,000 a year. This would mean that individuals making higher yearly salaries would pay social security taxes on a greater percentage of that salary and not be capped at just the first $90,000 as is currently the case. The AARP has indicated that it will oppose privatization of Social Security, likening individual accounts to casino gambling and saying that privatization would cause “Social Insecurity”. One question which has yet to be satisfactorily answered is what would happen in those situations where individuals invested poorly or the market took a downward turn? Would these individuals simply be out of luck or would there be an appropriately funded safety net for them, and at what cost? The AARP supports new incentives for people to save but says such savings should supplement, not replace, the existing system. Meanwhile, the Century Foundation has recently published a report stating that Social Security is not in crisis and is stronger today than it has been at any time in its history. The report states that even the pessimists predict that the program will be able to meet every promise until most of today’s forty-years olds are deceased, and concludes by stating that while we must keep a close eye on Social Security, the system is not broken and we should not rush to dismantle it.
Any changes to Social Security certainly deserve careful consideration. Stay tuned...