Social Security: Then and Know
Deanna Havens
SOC 320/ Public Policy & Social Services

December 10, 2011

Social Security was established by President Franklin D. Roosevelt in 1935, during the great depression. The social security system was supposed to be a creation that would cover nearly all Americans. Over the years social security has expanded in both dollar amounts and the way you are eligible to receive benefits. Social security smoothes the risks of economic cycles, and it remains the most secure retirement income in America.
Intentionally or unintentionally, those who think that the surplus in social security is disappearing are misleading the American public. Social security is financed mainly through payroll taxes on wages, and self-employment income. Employees and employers contribute 6.2 of wages, up to a wage gap of 106.800 in 2009 that ordinarily increases with the growth in the nation’s average wage. The self-employed contribute the equivalent of the combined employer and employee tax rates.
According to the annual social security report (2010) income from social security payroll taxes will account for about eighty-three percent of trust fund income. At the end of 2008, nearly fifty-one million people were receiving benefits: thirty-five million were retired workers, six million survivors of deceased workers, and nine million disabled workers. During the last year an estimated one hundred sixty-two million workers had earnings covered by social security and paid payroll taxes. The annual report of social security remains strong. The recession has not drastically affected the system. The recession has had only a modest impact on the long- range solvency of social security. That is because the length of the downturn is relatively short when compared to the long range seventy- five year protection period for social security. This report confirms that the recession has not placed a significant strain on social security. Current economic conditions have had a devastating effect on the retirement savings of millions of Americans, leaving them with significant reductions. Social security was established in times much like today, to provide Americans with a foundation of security when the time comes. At the same time housing values have dropped dramatically. Social security has two types of surpluses, the annual surplus and the total assets. An annual surplus occurs in any year in which the revenue to social security that year exceeds the outgo for the year. As those annual surpluses accumulate over time they become the total assets of the social security trust fund. Many people refer to those accumulated assets as social security’s surplus, they may incorrectly conclude that the reduction in projected annual surpluses over the next few years means that social security’s total assets surplus, which is two-six trillion in 2010, is disappearing, in the short term and that social security will soon be unable to pay benefits. The truth is this; the assets held by the trust fund will continue to permit payment of full benefits until 2037. Americans are living, longer and are having fewer children. Together these factors results in the aging of the population and the strain on the social security system. This demographic challenge has been recognized by policy analysts as well as policy makers. In other words, in today’s world, people are living longer and, therefore drawing benefits longer. Those benefits are scheduled to rise dramatically over the next few decades. Instead of sixteen workers paying in for every beneficiary, right now it is only three. Over the next few decades that number will fall to just two workers per beneficiary. The social security administration (2010) says in 1950, eight percent of the population was age sixty-five or older. That share was twelve percent in 2005, and is projected to reach twenty-three percent by 2080. The elderly population will have more than doubled as a percentage of the total population in just over one hundred years. At the same time, the working-age population will have shrunk, from sixty percent in 2005 to fifty-four percent in2080. These demographic changes can be traced to declining fertility rate as well as increasing life expectancies. Immigration also plays a role in the age structure of the population. Compared with earlier decades immigration has increased in recent years. Because immigrants tend to be younger and have fertility rates than the general population, immigration mitigates the aging of the population. Without immigration the aging trend would be more pronounced. Rising life expectancy is a positive development in that it gives people more years to enjoy life, but adjustments and adaptions are needed so that people will have the means to enjoy their extra years. Rising life expectancy, along with falling fertility rates is also a primary cause of the financial difficulties that social security face in the United States and throughout the world. The aging America has created a situation in which relatively fewer workers will be asked to support a growing retired population. Because people are living longer, yearly benefits can be reduced in a proportion equivalent to rising life expectancy and average lifetime benefits will remain constant. However, there are also important critiques to proposals to reduce benefits in proportion to rising life expectancy. Most important it is the great variety in the types of jobs people have and their reasons for retiring when they do. Some, but not all early retirees are in poor health and have mortality risks than that of age sixty-five, and only a minority have health and mortality risks. Thus, this evidence shows that a reduction in social security benefits in proportion to rising life expectancy has the potential to disadvantage some retirees, including some who are vulnerable to economic hardship (Diamond, 2004). Governing Elites in Washington and Wall Street have devised a clever grand bargain; they want President Obama to embrace in the name of fiscal responsibility. The government they argue, having spent billions on bailing out the banks, can recover its cost by looting the social security system. They are also targeting Medicare and Medicaid. This sounds preposterous to millions of ordinary working people who are anxious about their economic security and worries about their retirement years. These players are promoting a tricky way to whack social security benefits, but to do it behind closed doors so the public cannot see what’s happening or figure out which politicians to blame. The essential transaction would amount to misappropriating the trillions in social security taxes that workers have paid to finance the retirement benefits. This swindle is portrayed as fiscal reform. In fact it is the political equivalent of bait and switch fraud. Defending social security sounds like yesterday’s issue, the fight people won when his attempts to privatize the system, they defeated George W. Bush. But the financial establishment has pushed it back on the table, claiming that the current crisis requires responsible leaders to take action. Will Obama take the bait? Surely not. The president has been cleared and consistent about social security. The programs financing is basically sound and can be assured far into the future by making only modest adjustments. Obama is also playing footsie with the conservative advocates of entitlement reform. The President wants the corporate establishments support on many other important matters, and he recently promised to hold a fiscal responsibility summit to explain the long term cost of entitlements. That forum could set a trap for a bipartisan compromise that may become difficult for Obama to resist. If he resists, he will be denounced as an old fashion free spending liberal. The public is urging both parties to hold hands and take the leap together, authorizing big benefits cuts in a circuitous way that allows them to dodge the public’s blame. Reforming social security and their policies is harder than anyone anticipated. It is not about shoring up the programs finances or how we can save social security for the twenty-first century. It is not about preparing for the retirement of the baby boom generation, which we have already done. It is not about making the plan more equitable or fair or improving. In all fairness this debate is about cutting social security. At its worst it is about privatization, about undermining or even destroying the program that has formed the bedrock of the social safety net for more than half a century. There are significant differences between the various proposals for reform that have been put forth. Privatization would have more serious consequences than some of the smaller proposed cuts. But the cuts in benefits, whether packaged as an adjustment to the consumer price index, an increase in the retirement age, or changes in the formula for computing benefits would cause great deal of unnecessary pain and suffering among the elderly. The poorest among the elderly would be the hardest hit. If these cuts were enacted, they would eventually push millions of seniors below the poverty line. Social security is not broke, not even close. Population aging bears significant implications for the economic environment. The structure group of production may have to adjust to accommodate a labor force with a different age composition. The composition of the aggregated demand may also change since a graying society will express different needs, and presumably higher demand for goods and services for the elderly, such as recreational and long- term care. The relative importance of the different schemes in the welfare state will also be affected, with more emphasis being put on programs targeted to the elderly, such as social security, health insurance, and long term care. Under population aging the political push corresponding to the aging electorate is forecasted to dominate the economic elements consisting of the reduction in the average profitability of the system. Pension spending is estimates to rise sharply in all six countries. The largest increases are expected in Spain, the fastest aging country (Berger 1982), but also in the United Kingdom, with contribution rates rising respectively from twenty-one point three and fourteen point five percent in 2001 to forty-five point five and thirty-three point two percent in 2050 (Berger 1982). The possible solution is to raise the retirement age, from sixty-five to sixty-seven (Sanders 2011). Postponing retirement represents an effective measure to limit the increase in pension spending induced by population aging, as measured by the social security contribution rate while increasing the generosity of the system. A rise in the effective retirement age moderates the political demand for more social security, since it reduces the expected retirement period, while increasing the contribution period for the decisive voter (Livingston 2008). Simulations on political support to postpone retirement gives an encouraging picture of how it is all is coming together. In, fact aging tends to decrease the individual’s lifetime income, due to the presence of a large social security system whose profitability will largely drop, while lower pension’s benefits will reduce the incentives to retire early. These two effects will make you think twice about early retirement. Current economic conditions have had a devastating effect on the retirement savings of millions of Americans. Whether social security is indeed facing a crisis is an important issue, as it effects decisions about whether the system needs reforming. Those who see a crisis want radical reform to be implemented soon. Those who think social security’s problems are more transitory difficulties rather than a crisis think that minor adjustments can maintain the systems solvency. Social security is healthy and successful. There is no crisis. The President and the Republicans in congress are trying to scare the American people in order to destroy the most successful program in American history. Social security remains one of the most secure retirement incomes in America.

References
Berger, Jason (1982) Saving Social Security, H.W. Wilson Company, New York.
Diamond, P. A. & Orszag, P. R. (2004) Saving Social Security: A Balanced approach. Washington, D.C: Brookings Institution Press:

Diamond, P. (2004) The American Economic Review, Vol, 94. No. 1. Pg1-24. Retrieved from www. Jstor. /org on 11-20-2011

Herdt, Timm. (2008) McClatchy-Tribune Business News. Washington:

Sanders, Bernie. (2011) Los Angeles Times. Los Angeles, California: pg. A. 15 Retrieved from.www. Proquest on 11-20-2011.

Social Security Administration, (2010) Office of policy, office of research, Evaluation and statistics, ‘Fast Facts and Figures about social security.” Washington, D.C: