Revamping Our Future Social Security Tax System
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