Social security system

There are many research paper approaches to the social security system. Many people predict that the Social Security system will face a crisis when babyboomers retire. Various reform measures have been proposed as a solution. Those measures can be roughly classified into two approaches. Write a research paper on these two social security system approaches:

1. Some modest reform within the current Soical Security System
2. Privatization of the Social Security System

In the research paper discuss the fact that Social Security as a payroll tax has been around since 1935, when President Franklin D. Roosevelt signed the Social Security Act. The new law was designed to provide a "security blanket" in terms of supplemental income for men and women who worked in commerce and industry. It has undergone many changes in the past 66 years, and more are likely to occur. Social Security, for some older people, is virtually their only source of income. For others, it is a supplement to their pension. We will now look at where Social Security has been, where it is today, and where it might be going.

There is no doubt that there is an emerging problem facing Social Security funding, but there is a great deal of debate as to whether these problems are so great as to require a drastic fix in the form of privatization or partial-privatization. In 2004, Sharon O'Brien tells us, the Board of Trustees of the Social Security system sent an annual report to Congress which stated that a number of serious problems will occur if nothing is done to reform the finances of the system. Inter alia, these problems are:

1. Program tax revenues will not be adequate to meet program cost in the years from 2018 onward
2. The Social Security trust fund will be exhausted in the year 2042
3. Over the next 75 years the program will require $3.7 trillion dollars (year 2004 dollars that is) to maintain the present benefits structure
   

These projections would seem to suggest the existence of staggering problems and call for some very fundamental changes in the financing of the system. But does it require something so drastic as privatization? The answer is, "No." Virginia Reno points out that if we look at the problem in macroeconomic terms, the shortfall may not be so frightening as to require drastic changes in the nature of the system as it now exists. Social Security benefits, she states, are really rather modest, and Social Security taxes are not applied to a very large portion of national income. The program is financed by means of a 12.4% tax on payrolls-the employer and employee each paying 6.2% of gross wages-but Social Security-taxable wages constitute only 39% of national income today. Moreover, if we look at the projected 75 year shortfall of $3.7 trillion, this sum can be seen as not being particularly catastrophic if we realize that it is only 0.7% of gross domestic product. Reno further notes that by increasing each of the employers and employees contributions from 6.2% to 7.15%, or 0.95%, the system would be rendered solvent over the 75 year period in question. It is also the case that Social Security taxes apply to only the first $90,000 in earnings in 2005, that this tax cap rises every year, but is indexed to rises in the average earnings of all workers, and that there is no means-test for receiving Social Security benefits. Bill Gates will receive Social Security when he retires. While the Cato Institute, which terms the situation a "crisis," and, it is to be noted, also argues that by 2077 the Social Security tax burden will increase not by 0.95% for employers and employees, but by "as much as" 3.25% (2-3), it does not make allowances for the effects of substantially-rather that incrementally--increasing the wage cap and/or means-testing the program, and/or tapping into other forms of national income than payroll taxes. Social Security, many have argued, can be made solvent by modest increases in taxes on people well able to afford them.

We should keep this fact in mind when we consider some of the rhetoric that surrounds this issue. The White House web site proclaims, "If we do not fix Social Security now, the only solutions will be dramatically higher taxes, massive new borrowing or sudden severe cuts in Social Security benefits or other government programs". The solution proposed by what we may call "conservative/libertarian Social Security alarmists" is to partially privatize the system by allowing workers to put part of their Social Security taxes into what the White House calls "a conservative mix of bond and stock funds that would have the opportunity to earn a higher rate of return than anything the current system provides". Here the White House gives a number, stating that a person who earned an average of $35 thousand a year over the course of a career and chose the investment in securities option would have $250 thousand in securities upon retirement. The Cato Institute, the libertarian organization that is very prominent in agitation for privatization, notes that Social Security taxes are now so high that the benefits derived from Social Security by retirees do not amount to what they could get in the market. There is a certain logic to the position of both the White House and the Cato Institute, but we must understand two things about the contentions made.

1. Both the White House and the Cato Institute are implacably hostile to increased taxes and are so on ideological grounds.
2. Both are ardent free-market advocates who believe in unfettered individual choice, or as, the Cato Institute puts it, "Individuals, Not Government, Should Invest".

Given these ideological facts, it should be understood that the present projections concerning Social Security are viewed by these people as an opportunity to accomplish ideological goals by panicking people into making what would be a very fundamental change in the system, a change that would allow young workers to make decisions which might very well diminish rather than augment their retirement income by taking their Social Security contributions and making a bet on the performance of securities markets that may not perform as desired. This is a very bad idea.