Social_Security

Andrew Stein Legislation and social policy issues and action Professor Jeane Anastas March 4th, 2013 The debate over Social Security reform is an important social issue and any changes made to the program can potentially effect the lives of every American. Currently 55.6 million people receive Social Security benefits each month. One in every four families receives income from Social Security. About one in three get almost all, ninety percent or more, of their income from Social Security (Larson, 2013). As future social workers it is imperative that we stay current on proposed changes to social programs. Being knowledgeable on this issue will help social workers aid the populations they serve in navigating this social program. This is especially true for those that will be providing services to senior citizens who are sixty-five years and older, which ninety percent of them receive Social Security benefits (Larson, 2013). This paper will discuss the issue of Social Security reform by providing proposed changes, presenting misconceptions about the program and providing opposing positions. This paper will also present an overview of proposed changes to help stabilize the program’s financial integrity. Before we begin our discussion on the present debate a brief historical overview of the Social Security program is needed to provide a framework for our current understanding of proposed reform. The Old Age, Survivors, Disability and Health Insurance (OASDHI), commonly known as the Social Security Act is a federal program that Former President Roosevelt signed into commission on August 14th, 1935 (Legislative history: Social, 2012). Social Security is the largest social insurance program in the United Sates that provides retirement, disability, and survivor benefits for workers and their families. This program protects individuals and families against the risk of lost income regardless of current income and socioeconomic status. The program operates under the Social Security Administration (SSA) that has offices through out the United States. The program is connected to the labor market and is primarily funded through payroll deductions. The payroll tax is regressive; which means, it takes proportionately more from those who earn less. Both low and high earners pay the same tax rate. However, a progressive distribution of benefits is used to compensate for the regressive funding of the program. The payroll taxes are collected under the authority of the Federal Insurance Contributions Act (FICA). The workers are taxed at a rate of 6.2 percent of their earnings through a payroll tax. This tax rate is then matched by an equal amount from employers. In addition, there is a 1.45 percent tax to fund Medicare. Citizens that are self-employed must pay the combined tax, but are allowed to deduct the employers’ share of the tax from their taxable personal income (Reno, Walker & Bethell, 2012). Employers then forward these taxes to be put into the Social Security Trust Fund, where they are then put into the U.S. Treasury for interest accruing bonds. Workers receive their benefits based on the number of years they worked and the amount of their wages. To be eligible, individuals must have worked and paid into the program for forty quarters or ten years (Reno, Walker & Bethell, 2012). Social Security benefits are also increased each year by a formulated cost of living adjustment. Social Security started as a retirement program. The aim was to help keep seniors citizens out of poverty in reaction to the great depression. At the time almost half of America’s senior citizens were living in poverty (Legislative history: Social, 2012). While the Social Security act did extend federal responsibility for social welfare, this accountability initially consisted of only retirement benefits and was extended to most, but not all workers. Farmers and household workers were two of the groups that were excluded. Those were the main occupations open to women and African Americans in the 1930s. However, by the 1950s these occupations were included allowing more women and people of color to receive benefits. In 1939, amendments were added that included paying benefits to survivors of workers covered by social security. In 1956, disability payments were added to the benefits paid under Social Security. This amendment provided benefits to disabled workers ages 50-64 and disabled adults and children. In 1965, Medicare was added to Social Security, which provided health coverage to almost all Americans who were 65 and older. In 1974, Supplemental Social Security Income (SSI) was added which provides payments to those over 65, blind, or disabled (Legislative history: Social, 2012). However, this is a tested needs based benefit, meaning it is only available to people who have limited financial resources and meet a certain criteria. Although these expansions in benefits seemed to be progress in the right direction by the 1980s a conservative agenda took hold. This forced the termination of some of these benefits. A move to benefit reductions and privatization of the old age pension was established. In 1997, Aid to Families with Dependent Children, which had been created by the 1935 legislation, was replaced by Temporary Assistance to Needy Families (Temporary assistance, 2013). This change in policy placed limits on entitlements and the length of time this assistance could be received. There have been a number of concessions made to Social Security and social welfare programs over the past decades. These have all contributed to the residual nature of social policy in the United States. Residual and means tested benefits in place of universal benefits seems to be a common feature of U.S. social policy. Conservatives have used the power of states rights to overturn any universal welfare legislation. Social Security celebrated its seventy-seventh anniversary in 2012. Administrative costs for the Social Security program currently run at less then one percent of its budget, making it an extremely efficient U.S. federal program (Blau & Abramovitz, 2010). In spite of this fact, there continues to be calls to overhaul the program with reforms. As one can see from the information provided above, since its conception Social Security has had numerous changes and pushes to reform. Liberals feel that the program can continue with minimal changes. While conservatives feel a revamp is necessary to ensure benefits can be paid as the baby boomer generation begins to retire. There is concern over long-term solvency for the program. According to SSA actuaries the program should have no problem with funding until at least 2033. However, payroll taxes will only cover about seventy-five percent of the scheduled payout amounts from 2033-2086 (Gorin & Armstrong, 2012). A 2012 Trustees Report confirms that if minimal changes are not made Social Security could face a long-term solvency issue (Reno, Walker & Bethell, 2012). By law the Social Security benefits have to be projected seventy-five years in advanced to be able to payout benefits. Actuaries predict the future of the program by factoring in assumptions about the future of the economy and demographic trends. This includes employment, productivity, inflation and mortality/birth rates. The actuaries then use three scenarios to project for the future. The three scenarios are low-cost, high-cost and intermediate. Low cost uses more optimistic assumptions such as higher economic growth and lower inflation. While high cost is based on more pessimistic assumptions. The intermediate scenario is considered the best projection and is more commonly cited. It would appear that there is a consensus that funding for Social Security is at risk if something does not change. Calls for Social Security reform are coming from both Democrats and Republicans. Part of the problem is that while Social Security has its own funding through FICA and has been running a surplus, it is also part of the federal budget which has been running a deficit. Conservatives claimed Social Security reform to privatization would help the programs overall financial integrity and benefit African Americans, Latinos and women, who are populations that have been historically discriminated against by the Social Security program. In 2005, Former President Bush proposed to privatize Social Security by allowing workers to invest a portion of their FICA deductions in the stock market. A report by the Heritage Foundation asserted that the aforementioned populations would benefit from privatization by allowing them to put their Social Security contributions in private accounts of a mixture of stocks and bonds (Mitchell, 1997). Fortunately, this idea was rejected at the time, mostly due to Republicans losing control of congress during the midterm elections of 2006. In addition, the SSA found that the report made assumptions and overstated the payroll taxes and underestimated the benefits. The report also excluded disability and survivor benefits. A report written by Anrig and Waslow (2005), for the Century Foundation, lists twelve reasons why privatization is a bad idea. In short, they found not only would privatization do nothing to improve Social Security’s financing problems it would cause a number of unintended consequences. For example it would prove to be more risky for workers, increase the deficit, would require additional government bureaucracy, leave younger as well as minority workers and women worse off in retirement, and not provide a hedge against inflation. In addition, a move to privatization would increase the administrative cost of the program. As mention previously, the programs administrative cost is one percent of its budget. If numerous individual accounts were created which would have to be managed individually, administrative cost could rise to over fifteen percent. In fact, the article found that the only group benefiting from privatization would be Wall Street. Despite all the uncertainties that privatization would bring, some people are still worried that the Social Security system will run out of money in the future. However, John Harvey (2013), a contributor to Forbes wrote an article explaining how Social Security could never go bankrupt. The author explains that there is a common misconception about Social Security. He states that the general public conceptualizes the program from a micro level rather then a macro level. The author explained that it is not a personal pension fund but an immediate transfer from the workers of today to the retirees of today. He continues by claiming money and financing has nothing to do with the outcome of the program but it has everything to do with productivity. The program doesn’t require prior financing or savings because it uses means redistribution. In addition, the Social Security Trust Fund is made up from the surplus that came about from having collected more in taxes then was necessary to pay retirees. It is not the source for benefits that could one day become empty. Money and financing are only a mechanism of the program. As long as our society keeps up productivity Social Security could never go bankrupt. There is also another Social Security Trust Fund issue that many Americans are worried about. It is related to the expected increase in the ratio of retirees to workers over the next couple of decades. King and Soneji (2013) warn in a New York Times opinion article that this threat is real and something must be done. These authors state that the SSA has underestimated how long Americans will live and how much they will have to pay out in benefits. They forecast that if nothing is done the Social Security Trust Fund will run out of money and it will happen two years before the SSA actuaries projected it will. They believe the methods the SSA use to predict the future for Social Security are outdated and have not changed much since its conception in 1935. They highlight the decrease in smoking among Americans and that the advances in the medical field will prove to make Americans live longer and receive benefits for longer periods then previously predicted. They then call for the SSA to add statisticians and social science methodologists to help actuaries to produce a more formalized and quantitative significant formula to predict the future for Social Security. In fact, they have also produced their own model to predict the future of Social Security and have made it public, available online at j.mp/SSecurity, so that others can view it and help to improve it if necessary. Although calls for privatization have waned since 2005 there are still continued pressure for reform and proposed changes. During this past presidential debate, Social Security was one of the topics brought up for discussion. In the first presidential debates President Obama described Social Security as “structurally sound,” and Mitt Romney said that “neither the president nor I are proposing any changes” to the program (Debate transcripts. 2012).   However, since then President Obama has suggested that he is possibly receptive to lowering benefits by changing how they’re being calculated. Also, President Obama’s deficit commission has proposed rising the retirement age to 68 and later to 69 although this would not start until 2050. Meanwhile, Former Republican Presidential contender Mitt Romney has signaled he wants to go even further by beginning the process of privatizing Social Security. In addition, he has proposed like Obama to gradually increase the retirement age to 68 or 69. The former running mate of Mitt Romney, Paul Ryan who is a Wisconsin Republican Congressmen and chairman of the Budget Committee, is also on the forefront of efforts to dismantle the program by putting seniors’ savings into risky Wall Street investments. Over the years, Ryan has not only pushed for privatizing Social Security but also dismantling Medicare and slashing funding for Medicaid. In the Republican response to President Obama’s 2011 State of the Union address, Ryan defended cutbacks on social spending. He stated, “This is a future in which we will transform our social safety net into a hammock, which lulls able-bodied people into lives of complacency and dependency” (Transcript: Gop response, 2011). Ryan has also proposed a budget cut that would slash Medicare by $205 billion. Ryan was a conservative favorite because his agenda was marked by deep cutbacks to social welfare coupled with lower tax rates. Ryan has also proposed a plan to slash taxes for the wealthiest Americans while raising taxes on the poor and middle class. The debate over Social Security reform can become overwhelming at times and brings up the question, “what should be done to help reform the program'” There are several suggestions that could help assuage the fears that the program will fail in the future. The Social Security shortfall over the next 75 years amounts to about one-third of the cost of extending the Bush tax cuts over the same period (Greenstein, 2011). One possibility is to continue raising the retirement age for those that are fifty years old and younger. As mentioned before the current retirement age is sixty-five. It is possible to raise this age to sixty-seven or above. This suggestion seems to have support by both conservatives and liberals. However, some feel that even this suggestion is not enough to ensure the programs success for the future. Another suggestion would be to increase the cap payroll taxes could be collected. Currently the payroll taxes are collected on earners making up to $113,700 limit mark. This would allow the government to gain more taxes from high earners that make more than the stated limit. This could increase the overall amount of dollars in the Social Security Trust fund. It also may yield a higher surplus in the Trust Fund, thus improving the programs long-term solvency. Yet another suggestion would be to limit the annual cost of living adjustments. This would reduce benefits to citizens in the long run, but help the financial integrity of the program. However, this could have some potential unintended consequences that could make Americans suffer form low payout benefits in a society where the cost of living has a trend to continue to rise. If done correctly, it could be adjusted by reformulating how these adjustments are made. In addition, another possibility would be to reduce overall benefits. The government could adjust by lowering the initial benefits for workers that are above the national annual average of income. All these suggestion should be considered and the debate continued. In conclusion, there seems to be a consensus and a real concern over the longevity of the Social Security program. From the research I have done I seem to stand on the side of the Liberals. The program could use some minimal changes to help the overall financial issues that American’s will face in the future. However, I feel the call to privatize the program could be too risky for the average American family. There are many unforeseen factors in privatization that could ultimately doom the program rather then help it in the future. As a future social worker and an American citizen I would like to see U.S. social policy to move away from it residual history to a more universal future. This wish to a more universal social U.S. policy seems far from reality as long as a conservative agenda continues and the power of state rights is used to defeat proposed federal changes. References Anrig, G., & Waslow B. (2005) Twelve reasons why privatization is a bad idea. The Century Foundation. Washington D.C. Blau, J., & Abramovitz, M. (2010). The dynamics of social welfare policy. (5th ed.). New York, NY: Oxford university press. Debate transcript. (2012, 10/03). Retrieved from: http://www.debates.org/index.php'page=october-3-2012-debate-transcript Greenstein, R. (2011, May 13). Statement on the 2011 Social Security Trustees' report. Retrieved from: http://www.cbpp.org/cms/'fa=view&id=3495 Gorin, S. H., & Armstrong, R. (2012). The truth about social security and medicare. Health & Social Work. 37(1), 3-7 Harvey, J. T. (2013). Why social security can't go bankrupt: Rerun. Forbes, Retrieved from http://www.forbes.com/sites/johntharvey/2013/01/07/social-security-rerun/ King, G., & Soneji, S. S. (2013, 01/05). Social security: It’s worse than you think. New York Times. Retrieved from: http://www.nytimes.com/2013/01/06/opinion/sunday/social-security-its-worse- than-you-think.html'_r=0 Larson, R. (2013, 01/08). What's ahead for social security: A conversation. National academy of social insurance. Retrieved from www.nasi.org Legislative hisotry: Social security act of 1935. (2012, 09/28). Retrieved from http://www.socialsecurity.gov/history/35actpre.html Mitchell, D. J. (1997). Creating a better social security system for america. The Heritage Foundation, Retrieved from: http://www.heritage.org/research/reports/1997/04/bg1109-creating-a-better- social-security-system-for-america Reno, V. P., Walker, E. A., & Bethell, T. N. (2012). Social security finances: Findings of the 2012 trustees report. Retrieved from National Academy of Social Insurance website: www.nasi.org Temporary assistance for needy families (tanf). (2013). Retrieved from http://www.hhs.gov/recovery/programs/tanf/index.html Transcript: Gop response from rep. paul ryan. (2011, 01/05). Retrieved from http://www.npr.org/2011/01/26/133227396/transcript-gop-response-from-rep-