Kimberly Clark
Professor Camille Castorina
ECO 405-001
February 1, 2015

Social Security and Medicare are critical federal programs, in America, that promotes income stability among millions of households. Social Security does so by providing a steady stream of income to replace wages lost due to retirement, disability, or death. Medicare provided health benefits to the elderly and disabled. While both of these programs make sense, both are struggling to keep up with their growing demands. Social Security is a tax that every working individual and their employer pays. These taxes do not go into a “personal” account; as one might think. Instead, the benefits that are received by the current retiree is being paid by today’s workers and today’s worker will be paid by the next generation of workers; a pay-as-you-go-system. Unfortunately, for retirees, benefits will not be received by the amount he/she pays into Social Security but on their earnings history and retirement age.
Social Security is a hot topic, one that our current administration is unwilling to address; even with a looming presence of issues by 2020. A program that has been plagued by funding issues caused by our elected government officials. To quote the Social Security Administration itself: "Social Security's total expenditures have exceeded non-interest income of its combined trust funds since 2010. ... Since the cash-flow deficit will be less than interest earnings through 2019, reserves of the combined trust funds will continue to grow. ... After 2019, Treasury will redeem trust fund asset reserves to the extent that program cost exceeds tax revenue and interest earnings until depletion of combined trust fund reserves in 2033 (Saletta, 2015)." Social Security finances go hand in hand with the number of workers paying taxes and the number of retirees receiving benefits; which is so unbalanced. Scary prospects for retiring individuals that are depending on their Social Security benefits to cover their living expenses.
As the chart shows below, Social Security has and will pump millions into the United States economy. A substantial program that has helped many.

What is to become of Social Security in the future? Trustees state that by 2020, Social Security will have major funding issues and the money will have been depleted. Our legislation’s answer is to cut benefits, however; the chart below shows the effects of a cut and the results are not good.

Reduction of benefits will have a trickle-down effect to every part of the economy. Jobs will be damaged, retailers will struggle with no spending, and generated tax revenues will be lower.
So, what does that mean for the future retirees? First, a major governmental reform to the system will have to be enacted before 2020. Second, interest rates will have to be increased to cover the Treasury debt currently in place. Third, working individuals will have to work into retirement age just to make ends meet. Forth, the mind set of future retirees will have to change, making them want to save for their retirement and not count on Social Security to cover their future living expenses.
Social Security significantly impacts every aspect of the economy. First, the recipient will spend their benefits on goods and services. Second, the businesses receiving these dollars will use them to pay their owners and employees. They will also purchase additional items to sell, pay rent, taxes, and the other normal costs of doing business. Third, the business suppliers in turn use the revenue they receive to pay their employees and suppliers. This is a continuing cycle that is repeated each and every month; pumping billions of dollars back into the economy (as shown below). A cycle, if disrupted, could bring down this country’s economy. A cycle that cannot or should not be stopped.
Every state, whether big or small, will feel the effects of Social Security recipients spending their benefits. Businesses, labor income, employment, and tax revenues are all stimulated every month by the individuals adjusted Social Security payments. These payments also have a major impact on five of the most important economic variables… 1. Output: the dollar value of all goods and services produced and consumed, 2. Employment: the number of jobs Social Security benefits support, 3. Employee compensation: wages, salaries, and other forms of compensation paid, 4. Value added: things added to value of the goods and service; such as salaries, inventory changes, etc.

5. Tax revenues: taxes such as federal, state, local governments; could also be income taxes, sales taxes, property taxes, etc.
Why are these variables so important to the United States economy? Look at the charted information above and the understanding becomes clear. Every aspect of the United States economy is touched by Social Security. Recipients are going to spend their benefits, creating economic stability and growth. Social Security has many faces that Americans do not understand; supporting recipients is just a small piece in the larger picture.
At the present time, approximately 57 million families are guaranteed Social Security benefits. These benefits are paid each and every month without interruption. These benefits are secure, meaning the current economic situation does not dictate whether money is or is not receive. This security is a given for these families creating a level of stability and peace of mind, however; what is the future holding for these families?
See, the future is coming at a speed that we cannot stop. Social Security is clearly an unstable program that cannot be sustained in it is current state. A program that is ready to implode. Is that a harsh view point? Maybe, but the numbers do not lie…look at the charted information in this paper.
In 1935, when Social Security was first enacted it was established to provide stable and sufficient income for our retirees. However, a severe recession and high unemployment rates have resulted in a reduction in payroll tax revenue, with mishandling and misrepresentation of funds the Social Security account has become unstable. It is clear that Social Security is on a course headed for destruction.
Clearly, the retiree population is going to only grow. Social Security and Medicare are going to feel the effects…a 45% expenditure. Will Congress step up to the plate and do the right thing for the people and the economy of the United States?

References

Kessler, G. (2014, January 08). The Washington Post. Retrieved from Social Security: A Guide to Critical Questions: http://www.washingtonpost.com/blogs/fact-checker/wp/2014/01/08/social-security-a-guide-to-critical-questions/

Myles, G. K. (2015, January 28). AARP Public Policy Institute. Retrieved from Social Security’s Impact on the National Economy: http://www.aarp.org/content/dam/aarp/research/public_policy_institute/econ_sec/2013/social-security-impact-national-economy-AARP-ppi-econ-sec.pdf

Saletta, C. (2015, January 25). Fox Business . Retrieved from Why the Real Social Security Crisis will Start in 2020: http://www.foxbusiness.com/investing/2015/01/25/why-real-social-security-crisis-will-start-in-2020/