Social Security
Sherese Jones
BUS681
Instructor Lori Wieters
March 17, 2014

Social Security Every human being is faced with the problem of economic security (Dewitt, 2010). It’s a universal problem that encompasses the way in which an individual or family provides for assurance of income when an individual us either too old, too disables to work, when a family head of household dies, or when a worker faces involuntary unemployment (Dewitt, 2010). Some strategies are mostly individual such as saving and investing. Others rely on help from family members, religious group, unions, or social welfare programs (Dewitt, 2010). Some strategies are mixed with both and with use of various forms of insurance to reduce economic risks (Dewitt, 2010). The concept of insurance is to minimize economic risk by contributing to a fund from which benefits can be paid when and insured individual suffers a loss (Dewitt, 2010). From this social insurance was derived. Social insurance provides a method to address their economic security (Dewitt, 2010). The concept of social insurance is that the individual contributes to a central fund managed by governments and then used to provide income to individuals when they become unable to support themselves thus, creating the U.S. Social Security system (Dewitt, 2010). For this assignment, the concept of social security will be discussed as well as the viability of the program over the next 20 – 30 years and will provide recommendations on how to improve social security for the next generation.
Social Security is the largest United States federal program (Beland, 2009). The program has more than 50 million beneficiaries and generates expenditures that are significantly higher than the defense budget (Beland, 2009). The concept of social insurance can date back to the early seventeenth century (Dewitt, 2010). However, several reforms occurred over the years to improve the economic program. The modern pension system took shape during the New Deal and the post-World WAR II era (Beland, 2009). There are four main parts of the system: federal old-age, survivors, and disability insurance, a centralized earnings-related scheme that covers more than 95 percent of the workforce; supplemental security income—a means-tested federal assistance program offering modest benefits to poor, disabled, and elderly citizens; voluntary, tax-subsidized private pension plans and personal savings and tax – subsidized individual retirements accounts (Beland, 2009). In 1935, President Franklin D. Roosevelt appointed a special panel—the Committee on Economic Security (CES)—to study the existing systems around the world, to analyze the problem of economic security in the United States, and to design a social insurance system “suited to American purposes.” A key element of the social security act became, old-age, survivor, and disability insurance (Dewitt, 2010).
The baby boomer generation has caused some concerns regarding social security. Due to the further increase in the percentage of elderly people in the US, it is projected that the social security fund will face fiscal shortfalls with expenditures exceeding revenues, and depleting the social security reserves (Beland, 2009). As a result the forecast of social security in the US has caused many debates on how to reform this program to avoid fiscal crisis and imbalance in the program. In the mid-1990s the conservative campaigned to privatize social security (Beland, 2009). The idea of privatization refers to the diversion of all or part of the payroll tax money to personal savings accounts (Beland, 2009). This attempted shift is related to the expansion of tax-sponsored savings accounts and defined-contribution pension plans in the private sector (Beland, 2009). Partial privatization, diverting only a fraction of the pension contributions to private savings accounts became the most debated alternative (Beland, 2009). Conservatives argued that personal savings accounts would make workers wealthier by generating higher return rates that the existing social security program (Beland, 2009). Liberals on the other hand argued that social security is not facing any crisis and the privatization would expose workers to unnecessary financial risks (Beland, 2009). Liberals suggest that indirect benefits cuts and small contribution hikes is the best way to restore fiscal balance without affecting economic security or retirees.
Full privatization would be too drastic because it increases risk and uncertainties (Koleva, 2012). However a balance package of partial privatization, reduction of benefits and increase tax revenues would stabilize the current Social Security system and ensure longevity (Koleva, 2012). The first step would be to increase taxes. However for some this may be an issue but increasing tax revenue enough to minimize the financial gap will be significant (Koleva, 2012). The first approach entails increasing tax revenue by raising the taxable minimum. Currently, any wages earned over the limit of $110, 100 are not subject to Social Security (FICA) taxes (Koleva, 2012). Another approach is taxing social security beneficiaries the same that private pensions are taxed. Only about 40% of the current beneficiaries pay taxed on Social Security benefits because their income exceeds certain thresholds (Koleva, 2012). Those that are below the threshold don’t get taxed. The last and most obvious measure is to also increase the payroll tax. In all years besides 2011 and 2012 the payroll tax is 12.4%, for both the employee and the employer. Raising the FICA tax by a quarter of a percent on both employees and employers would produce significant results toward closing the financial gap of Social Security over the next 75 years (Koleva, 2012).
As previously discussed, reaching a final decision regarding successful Social Security reform is not an easy task. The underlying responsibility for the future of millions Americans makes the issue much more delicate and time consuming. In an attempt to fully analyze the chances for a solvent and sustainable retirement program that will withstand the tricks of time, it is imperative to look at some alternatives to full privatization.

References
Béland, D. (2009). The great social security debate. International Journal, 64(1), 115-123.
Retrieved from http://search.proquest.com/docview/220861426?accountid=32521

DeWitt, L. (2010). The Development of Social Security in America. Social Security Bulletin, 70,
1-26. Retrieved from http://search.proquest.com/docview/749619300?accountid=32521
Koleva, Y. (2012). The Outlook for Social Security Reform: Proposals and Implications. Journal
Of Financial Service Professionals, 66(3), 26-31.