FREE ESSAY ON REVAMPING SOCIAL SECURITY

REVAMPING SOCIAL SECURITY

Running head: Revamping Our Future Social Security
Revamping Our Future Social Security Tax System 
Jon Anderson
Sandra Padilla
Michael Peay
Abstract
This paper will discuss the current United States Social Security Tax system, the purpose
of that system and our goal for selecting this topic. Also, it will explain our analysis
of it's current standing, different idea's about what to change in our current standing
to secure and guarantee a strong future for it. We will conclude by recommending the best
course to accomplish this goal. 
Contents
Abstract 2
Contents 3
Title 4
Current U.S.A. Social Security Tax System 4
Low Risk Investment 7
High Risk Investment 8
Graph: Social Security Tax Increases 9
Conclusion/Recommendations 11 
References 12
Revamping Our Social Security Tax
System to Secure its future
Current U.S.A. Social Security Tax System
Social Security has been around for more than 60 years. It has been an important part of
American life. It was created in 1935 shortly after the great depression. Social Security
was created to be a protection for the American people against the hazards of
unemployment, old age, and ill health. Today Social Security not only provides minimum
protection for the retired worker, it also provides benefits for workers and their
families due to death of a family wage earner or loss of income due to disability. Today
there are about 150 million workers who are protected by social security, more than 44
million receive retirement, survivors and disability benefits form social security. 
American wage earners and their families are protected by social security and they pay
taxes to help make the system work.
There are two philosophies Social Security bases its payments on. First, the system is
designed so that there is a link between how much a wage earner pays into the system and
how much he or she will receive in benefits. For example, a high wage earner will receive
more benefits while a low wage earner will receive less. Second, a base for economic
security is provided by the Social Security system. Social Security provides a valuable
package of retirement, disability and survivors insurance, which relieves families of
financial burdens from supporting other family members.
Social Security has made an enormous difference in the lives of older Americans. American
workers can retire as early as age 62. At this age, wage earners are eligible to get
reduced benefits from Social Security. Wage earners may wait for full retirement age to
be eligible for full retirement benefits. Currently, full retirement age is 65, but will
be moved up gradually starting in 2003. The new retirement age will be 67 for people born
in 1960 or later.
Social benefits payments are paid out to more than 9 in 10 retirees. In America, only 11
percent of senior citizens live in poverty. Without Social Security benefits, the
percentage of seniors living in poverty would be much higher. Social Security is the
major source of income for about two-thirds of elderly Americans, and for abut a third
Social Security is virtually their only source of income. Retired Americans are given a
dependable monthly income from Social Security. Automatic increases are tied to increases
in the cost of living. Social Security gives retired American citizens a measure of
deserved financial independence (and that measure is becoming lower every year).
Social Security is more than a retirement program. It is also a protection plan for
American citizens. Valuable disability and survivors' insurance protection are given to
younger wage earners and their families. There are about 1 in 3 workers who are Social
Security beneficiaries that are not retired. Monthly survivors' benefits are given to
about 7.5 million people and more than 6 million workers and family members receive
disability benefits. 
Social Security provides a foundation on which to build retirement security. Social
Security, pensions and savings is a three-legged financial stool for a comfortable
retirement. Unfortunately, there is only a little more than half of all workers whose
employers have pension plans; and people are not saving for their future retirement.
Pre-retirement earnings for the average worker are about 40 percent, provided by Social
Security. Financial advisors say that the average worker will need 70 percent of pre-
retirement earnings to live comfortably. Saving is an important part of retirement
planning. 
Social Security will begin mailing statements to workers age 25 and older. The statement
will show a worker's earnings history, as well as giving estimates of retirement,
survivors and disability benefits. This statement will help with future financial
planning.
Demographics have been the main reason for Social Security's long-range financing
problem. People, today, are living longer and healthier lives. In 1935, when Social
Security was created, a 65-year-old person's average life expectancy was 12 1/2 more
years. Today, it is about 17 1/2 years and raising. And to add to this, at about 2010, 76
million baby boomers will be retiring. There will be nearly twice as many older Americans
as there is today in about 30 years. And at the same time, the number of wage earners
paying Social Security taxes, per beneficiary, will drop form 3.3 to 2. America's
retirement system will be strained caused by these changes.
Social Security is an economic compact among generations. Many people think that their
Social Security tax contributions are held in interest-bearing accounts earmarked for
their own future retirement needs. Social Security is actually an intergenerational
compact - the Social Security taxes paid by today's workers and their employers go mostly
to fund benefit payments for toady's retirees.
Social Security is now taking in more in taxes than is paid out in benefits and the
excess funds are credited to Social Security's trust funds. There is now about $850
billion in the trust funds, and they are projected to grow to more than $4 trillion in
the next 20 years. But benefit payments will begin to exceed taxes paid in 2014, and the
trust funds will be exhausted in 2034 when it will be able to pay only 75 percent of
beneficiaries. At that time Social Security will be able to pay only about three-fourths
of benefits owed... if no changes are made (The Future of Social Security, 1999). 
Today Social Security is not in a crisis, but America must make changes to strengthen
Social Security. Changes must be made in order to keep Social Security strong in the 21st
Century to ensure economic security for future generations and retirees. As President
Clinton stated, we must educate Americans about Social Security and the issues that face
it. Americans must understand the Social Security program of today, so they can make
informed choices about the Social Security program of tomorrow.
Low Risk Investment
Since the financial support from Social Security will be negative in 2014 and exhausted
in 2034, Americans must invest elsewhere, in order to secure a financial stable
retirement. One way to secure a financial stable retirement at a low risk investment is
by securing physical property. By investing in physical property, an investor would have
physical equity instead of electronic. This physical equity would create a low risk
investment, even if the roof caved in on Wall Street, the investor would have something
physical to lay claim too. However, a draw back to securing physical property is personal
time; the investor either has to hire a property consultant/manager or become one.
Another draw back to securing physical property is the fact that property markets are
just as diversified as Wall Street it-self. Property markets fluctuate and change based
on the economy and demographics, and not everybody lives in Holly Wood or San Francisco.
For example, in Southern California, a family named the Anderson's moved to a small rural
city (1960) called Simi Valley, located 25 miles N/W of Los Angeles, paying only
$13,000.00 for a small 3 bedroom home. Later, in 1988 the Anderson's decided to move
North and sold their home for $179,000.00. They were really lucky, because shortly later,
their old home peeked at $190,000.00 before falling to $150,000.00 average. However, the
Anderson's walked away with a gross of $166,000.00 or a 1,376% increase.
Another way to invest in low risk investment is by purchasing Government Bonds.
Government Bonds are backed (Insured) by the Federal Government and are guaranteed a set
% for the life of the Bond, which normal yields a 3% gross. 
High Risk Investment
As it stands now, there are basically three ways to restore the system's long-term
solvency: raise taxes, cut benefits or earn a higher return on the system's trust funds.
Democrats generally do not want to cut benefits, while Republicans do not want to raise
taxes. Therefore, the solution under serious consideration by policy-makers is to invest
part or all of the Social Security trust fund in something with a higher annual yield
than it is currently earning. 
Another way to classify the current reform proposals is to think of them as being grouped
into one of two general categories: minor, if any changes; and plans that propose more
drastic changes. The latter would either include means-testing of benefits or investing
much of the funds that now enter the pay-as-you-go system through taxes into individual
interest earning 401(k) retirement plans and individual retirement accounts.
Privatization advocates of argue that redirecting Social Security funds into private
accounts would generate revenue for the system without having to raise taxes. They
estimate that workers could earn returns up to 7 percent on their Social Security
contribution in comparison to the less than 3 percent earned currently by Social Security
funds invested in U.S. Treasury bonds. 
Opponents of privatization counter that the Treasury-bond system is stable, unlike the
volatile stock market, which, they argue, could tank at any time. Many also oppose
privatization on the grounds that placing money in private accounts would reduce the
funds available for guaranteed monthly payment, on which many low-wage workers depend.
Privatization opponents also point out the high transition costs associated with moving
toward a privatized system, which would have to be raised to support existing payments
while current payments are funneled into private accounts.
President Clinton has promised that much of his 1999 agenda will be devoted to a national
dialogue on the future of the Social Security system and has asked all Americans support
his plan to save it. In his 1999 State of the Union address, President Clinton put forth
a proposal that calls for the transfer of 62 percent of the projected budget surpluses
over the next 15 years -- more than $2.7 trillion -- to the Social Security system. The
government would invest a portion of the transferred surpluses in the private sector to
achieve higher returns for Social Security. 
The president says this course of action will keep Social Security solvent until 2055.
At the heart of his plan is a proposal to allocate 11 percent of surpluses to create
universal savings accounts. These government-subsidized USA accounts: would help
individuals save for retirement. A portion of individual savings in the accounts would
receive matching federal funds. 
In addition, Clinton says he is dedicated to working with Congress on a bipartisan plan
that would shore up Social Security until 2075. These negotiations will involve
controversial issues, whether to raise taxes, slash benefits or raise the retirement
age.
Some Republicans, most notably in the House, prefer that some of the surplus be returned
to taxpayers in the form of tax cuts. The taxpayers would then be free to invest this
money as they choose, possibly in high-yield private savings accounts.
But many lawmakers across the political spectrum say that cutting taxes would be
tantamount to squandering the surplus. These lawmakers generally agree that the current
budget surplus presents an historic opportunity to shore up the disintegrating Social
Security system. Republicans have said that they are reserving H.R. 1 for legislation
based on the president's Social Security plan, when and if it is offered.
This Policy.com Special Report examines the present and future of the embattled Social
Security system. Focusing first on the workings of the system, this report explores the
leading reform and privatization proposals being discussed in Washington. The report also
features an examination of how Social Security effects women and minorities, links to
Social Security calculators, polls and Policy.com feature events on retirement security
and Social Security reform. 
Conclusion/Recommendations
We feel that something must be done to the Social Security Tax System, especially as it
stands now, to secure a bright and strong future. We feel that the Keynesian approach,
with a mixed investment base by each individual will satisfy its future. 
References
Social Security. (1999). The Future of Social Security [Online]. Available:
http://www.ssa.gov/pubs/1055.html [1999, July].
Apfel, K.S. (1998). President Clinton's State of the Union [Online]. Available:
http://ssa.gov/press/state_of union_ press.html [1998, January 5].
Social Security at the Crossroads, Amy Steinhttp (Online). 
http://www.policy.com/issuewk/1999/0306_60/Intro60.html
Bibliography
References
Social Security. (1999). The Future of Social Security [Online]. Available:
http://www.ssa.gov/pubs/1055.html [1999, July].
Apfel, K.S. (1998). President Clinton's State of the Union [Online]. Available:
http://ssa.gov/press/state_of union_ press.html [1998, January 5].
Social Security at the Crossroads, Amy Steinhttp (Online). 
http://www.policy.com/issuewk/1999/0306_60/Intro60.html