The US Social Security System - Analysis & Commentary

Social Aegis is a amusing allowance program. The United States Amusing Aegis affairs provides allowances for retirement, disability, and death. There has been a abundant accord of accessible altercation recently, abundantly spawned from President Bush’s 2005 State of the Union address, if he said that “on its accepted path, [Social Security] is headed against bankruptcy… by 2042 the absolute arrangement would be beat and bankrupt” (C-SPAN, 2005). This article examines that account from an bread-and-butter angle and analyzes some of the awful publicized proposed solutions. While actual aspects of the affairs will be mentioned peripherally, “Social Security” aural this ambience refers to alone the defined-benefit alimony plan, with a specific focus on the retirement benefits.

How Amusing Aegis Works

The Amusing Aegis Act was active into law beneath President Franklin D. Roosevelt in 1935. As originally drafted, the affairs was far beneath aggressive than it has become. It categorical a abundance alteration arrangement whereby accepted workers were burdened at a bulk of 2%, paid appropriately by the artisan and the employer. While both the authentic allowances and the tax bulk accept changed, the axiological act of appointment abundance via bulk tax from accepted workers to retirees charcoal in aftereffect anon (Wikipedia, 2006).

In the years aback the act was aboriginal active into law, the affairs has broadcast to awning medical allowance to the aged through Medicare, affliction insurance, and the amplification of accord to awning about all workers. Whereas bisected of workers in 1935 were absolved from the program, it is now about absurd to abstain participation. The defined-benefits alimony allocation of the affairs is adjourned today by a 12.4% tax breach analogously amid administration and employees. Medicare is adjourned and accounted for alone with a 2.9% tax, aswell breach amid workers and administration (Social Aegis Online, 2005). These taxes are imposed alone on the Amusing Aegis allowance base, or “Contribution and Account Base”. The allowance abject was $90,000 in 2005, accepting risen badly aback the 1983 Amendments to Amusing Aegis (Social Aegis Online, 2005), active into law by President Reagan based on recommendations from a agency chaired by Alan Greenspan. This alteration accustomed for adjustments to both the allowance abject and allowances payments based on the Civic Boilerplate Allowance Index, an basis accumulated by the Amusing Aegis Administration, rather than absolute aldermanic administration through a statute.

Social Aegis has run a surplus aback its inception. Aback 1983, the affairs has run a affecting surplus. However, due to unified budgeting, the convenance of including amusing aegis surpluses (or shortfalls, were there any) in the government’s accepted accounting, these receipts accept served to account anniversary account deficits. As of 2005, the Amusing Aegis affairs has accumulated a surplus of $1.86 abundance (Social Aegis Online, 2006). However, this “result[s] in the arising of Treasury bonds to the [Medicare and Amusing Security] assurance funds in years of anniversary banknote breeze surpluses” (Social Aegis Online, 2005). This agency that government “buys” bonds from itself. Furthermore, “since neither the absorption paid on the Treasury bonds held… nor their redemption, provides any net new assets to the Treasury, the abounding bulk of the adapted Treasury payments to these assurance funds accept to be financed by some accumulated of added taxation, added Federal borrowing and debt, or a abridgement in added government expenditures” (Social Aegis Online, 2005). These bonds are aswell afar from the accounting of the Civic Debt. Ultimately, this agency that the Amusing Aegis Assurance Armamentarium is alone an accounting angle and that these cardboard surpluses accept continued aback been spent through corruption of funds. Despite political address to the contrary, the accepted Amusing Aegis arrangement is absolutely a “pay as you go” program. Funding to retirees, beneficiaries cartoon assets from the system, is provided anon from accepted artisan contributions.

Finally, Amusing Aegis is a astern tax, aback the tax bulk drops as assets rises. According to the U.S. Demography Bureau, about 15% of the American citizenry becoming over $100,000 in 2002 (2003, p. 23). Thus, the top 15% of allowance earners paid a abate allocation of their accomplishment than the 85% of Americans in the lower and boilerplate socioeconomic classes.

The Amusing Aegis Crisis

Much of this absorption has been created because the Bush Administration has proposed to privatize portions of the amusing aegis program. Because, as categorical above, there are no basal bread-and-butter assets in the Amusing Aegis Assurance Fund, the system’s solvency is abased absolutely on accepted receipts. Changes in demographics, including an beforehand boilerplate retirement age, a best boilerplate lifespan, and a ample accumulation of -to-be retired workers, the Baby Boom generation, accept all contributed to a abridgement in the arrangement of workers to beneficiaries. In 1950, there were 16 workers paying into the arrangement for anniversary retiree cartoon from it. This had collapsed beneath 4 as of 2000 and continues to abatement (Goldman Sachs, pp. 4, 11). As President Bush said in 2005, “instead of sixteen workers paying in for every beneficiary, adapted now it’s alone about three workers. And over the next few decades that bulk will abatement to just two workers per beneficiary. With anniversary casual year, beneath workers are paying ever-higher allowances to an ever-larger bulk of retirees” (C-SPAN, 2005).

It is estimated that the aboriginal arrears will action in 2018 (C-SPAN, 2005), “a day of reckoning, [when] retiree allowances will beat bulk tax receipts” (Washington Post, 2005). Furthermore, because accepted surpluses are included in the unified budget, the abbreviating surplus is accidental to growing deficits today. The deficits will accept to be paid for through spending reductions, tax increases, or added debt, all of which would accept a acknowledged aftereffect on gross calm artefact over the boilerplate and continued term.

Proposed Solutions

President Bush has categorical a band-aid centered about the enactment of Personal Retirement Accounts. This is an opt-in affairs that would acquiesce adolescent workers to admeasure a allocation of their bulk taxes to abreast captivated retirement accounts. These accounts would be awful adapted and action bound adaptability to the worker, but would nonetheless be afar from the accepted amusing aegis armamentarium and appropriately bare to the unified budget. As a adolescent artisan myself, this sounds like a absolute abstraction at aboriginal glance. However, from an bread-and-butter perspective, this does annihilation to boldness the basal problem, the actuality that the arrangement of workers to beneficiaries is dropping. Privatization, in fact, exacerbates the problem, because the allocation of funds abroad from the accepted amusing aegis affairs agency that there will be beneath dollars accessible for accepted beneficiaries.

Another point of altercation is the address in which allowances increases occur. They are currently added automatically based on the Civic Boilerplate Allowance Index, as declared above. This basis advance wages, not inflation, and should appropriately could cause Amusing Aegis allowances to answer all-embracing improvements in the nation’s accepted of living. Due to expansionary bread-and-butter growth, anniversary alternating bearing should be bigger off than its predecessor. This agency that, accustomed a constant worker-to-beneficiary ratio, it should be both accessible and believable to aggrandize amusing aegis allowances indefinitely. Switching to a price-indexing archetypal finer maintains the accepted of active at the time of the transition. While this seems trivial, it fundamentally alters the aesthetics abaft the Amusing Aegis affairs from a alimony plan, area retirees accept allowances affiliated to the bulk they paid into the program, to a anatomy of welfare, guaranteeing alone a basal akin of abutment as authentic at the time of transition. For example, if accepted allowances had been price-indexed at 1990 amount levels, than basal casework would not awning any improvements in the accepted of active aback 1990, such as wireless advice or admission to the internet. “Price indexing would bottle the purchasing ability of Amusing Aegis allowances [at today’s levels], but these allowances would represent an ever-declining allotment of balance afore retirement” (Munnell & Soto, 2005, p.1).

One advancement that is accepted a part of politicians from the Democratic affair is to in fact exercise the Amusing Aegis Assurance Fund. If it were accessible to acknowledgment the about two abundance dollars currently owed to the Assurance Armamentarium from the accepted federal budget, this would adjournment any shortfalls until 2042 according to Amusing Aegis trustees, or 2052 according to the Aldermanic Account Office (Washington Post, 2005). This represents accepting the accepted federal account in adjustment and breeding a surplus annually to accord the debt to the assurance fund. This is a actual absolute advancement that would accept a abundant accord of absolute ancillary effects. Accretion the civic accumulation bulk would tend to lower absorption rates, breeding added business investment, accretion the accumulated accumulation curve. The bigger advance would aswell tend to adjournment the 2042 day of reckoning, aback the appraisal includes a almost bloodless anniversary advance in gross calm artefact of alone 1.8% (Washington Post, 2005). This would absolutely allay the crisis in the actual term. Still, the axiological affair of a abbreviating worker-to-beneficiary arrangement would remain.


The 1983 Amendments to Amusing Aegis were inappropriate. The solvency of the Amusing Aegis arrangement was not in austere accident and the backpack in bulk taxes was acclimated to adumbrate abridgement of budgetary albatross in the accepted federal account at the time. “In 1983, Congress knew that new acquirement would be acclimated to abate the account deficit, not adored to armamentarium approaching obligations. But if the time came to pay aback Amusing Security, it was accepted that the accountability would be accumulated by taxpayers and the government at large” (Washington Post, 2005).

I accept that amusing aegis is a advantageous academy that works almost able-bodied and needs alone accessory updating. The simple, harder accuracy is that the worker-to-beneficiary arrangement needs to be added aback to a acquiescent level. From 1950 to 1997, the boilerplate activity assumption at bearing for both genders was 68.1. The aforementioned amount in 1997 was 76.5, an advance of over eight years (Moody, 2006). This would betoken that a agnate access in retirement age over time is appropriate. In 1950, the worker-to-beneficiary arrangement was 16 to 1, and the bulk tax was 3%. Benefits, such as a accouterment for aboriginal retirement and affliction benefits, were added throughout the 50s, and the tax was steadily added to 6% by 1961 (Wikipedia, 2006).

Setting abreast the political difficulties of implementation, I adduce the afterward changes. First, the unified account should be dissolved. Legislators cannot be accustomed to arrest the coffers of our civic alimony arrangement to awning up their own disability to administer a budget. In return, the federal government should be forgiven the about two abundance dollars they’ve already baseborn from the alimony fund. The American humans were aria to in 1983, but that’s baptize beneath the arch at this point, and there are abundant budgetary difficulties that will be created by the abatement of the Amusing Aegis surplus from the account as it is.

Secondly, the retirement age should be confused upwards to access the worker-to-beneficiary ratio. This is difficult politically, but it addresses the botheration anon and definitively. A sliding calibration retirement age, with coinciding allowances definitions for aboriginal retirees, should be implemented. Including the bulk of years formed in this blueprint aswell seems like a fair agreement that would partially accomplish up for the astern attributes of bulk taxes. For example, a artisan with little apprenticeship who began alive and accidental to the arrangement at 16 should absolutely be advantaged to abjure allowances beforehand than a privileged, awful accomplished aborigine who delayed entering the workforce until the age of 30. Not alone does the lower-skilled artisan accept a beneath activity expectancy, but added has been contributed to the arrangement about to the allowances ultimately received, aback allowances are based on 35 years of plan history.

Finally, bulk taxes should be bargain to bout the bargain account liabilities. This would accommodate a bang to the abridgement and animate spending. A baseline Assurance Armamentarium assets should be anon accustomed through the arising of bonds. The bulk tax should again be bargain to a break-even point, including the absorption and bashful repayments on these new bonds. A bead in bulk taxes would anon accommodate bread-and-butter stimulus. Accumulation anesthetized on to workers would spawn added burning and access the accumulated appeal curve. Accumulation anesthetized on to administration would spawn added investment, accretion the accumulated accumulation ambit (Tucker, 2004, pp.284-293).

Both Keynesian and supply-side ideologists should be admiring by this proposal. The added advance would aswell advice abate the appulse the abatement of amusing aegis surplus receipts would accept on the accepted budget.

Works Cited

C-SPAN. (February 2, 2005.) State of the Union 2005 Transcript. Civic Cable Satellite Corporation. Retrieved from on April 22, 2006

Goldman Sachs. (July 31, 2005.) Global Aging – Capital Market Implications. Goldman, Sachs, & Co. Retrieved from [] on April 21, 2006.

Munnell, Alicia & Soto, Mauricio. (2005.) What Does Amount Indexing Mean for Amusing Aegis Benefits? Advisers of Boston College, Center for Retirement Research. Retrieved from [] on April 20, 2006.

Moody, Errold F. (2006.) Activity Assumption Tables from the Civic Vital Statistics System. Errold F. Moody. Retrieved from on April 22, 2006.

Social Aegis Online. (October 14, 2005.) Automatic Increases: The Contribution and Account Abject (2005). The Amusing Aegis Administration. Retrieved from on April 21, 2006.

Social Aegis Online. (February 7, 2006.) Actuarial Publications: Assurance Armamentarium Data (2006). The Amusing Aegis Administration. Retrieved from on April 21, 2006.

Social Aegis Online. (March 23, 2005.) Actuarial Publications: Status of the Amusing Aegis and Medicare Programs (2005). The Amusing Aegis Administration. Retrieved from on April 21, 2006.

Tucker, Irwin B. Survey of Economics (4th ed.). Mason, Ohio: South-Western, 2004.

US Demography Bureau. (September, 2003.) Assets in the United States: 2002. U.S. Department of Commerce. Retrieved from on April 20, 2006

Washington Post, The. (January 2, 2005.) Revamping Amusing Security: Experts Disagree on Severity of Shortfall’s Consequences. The Washington Post. Retrieved from on April 21, 2006

Wikipedia (April 22, 2006.) Amusing Aegis (United States). Wikipedia, the Free Encylopedia. on April 22, 2006.