Social Security
...countries had compulsory unemployment insurance laws. In this country, workers compensation programs operated by the states since 1911 represented its sole experience with social insurance programs. On August 14th 1935 the Social Security act was enacted… “To provide for the general welfare by establishing a system of federal old-age benefits and by enabling the several states to make more adequate provision…” Prior to this act any matters pertaining to the economic security of citizens was handled through either private sources or through the state. Federal action was significant and very necessary because neither the states nor the the private charities had the resources to cope with the growing need amongst the people. This program has grown so much that it now encompasses everything from old-age benefits, to disability, and even unemployment. If Social Security was not there, then many people could be in a lot of trouble very easily. To show how helpful social security’s benefits are I interviewed an unemployment recipient. His name is Alex and my first question was Where he worked and how he ended up losing his job. “I worked at the Adams Mark, hurricanes and a change in ownership forced them to layoff a lot of people.” He said. “If it wasn’t for unemployment then I think that I would definitely be in some big trouble. There were many businesses that had to shut down or get rid of there employees. So that means there are an awful lot of people out in this area that are looking for work, but fewer places around to provide jobs , and to top it off it’s [what most businesses call the time of year when business is bad] the slow season. If it weren’t for social security then I might have to put myself in debt by borrowing money if I did not find a job in time enough for me to payoff my rent and other bills. It’s easy to get stuck and at can get a hell of a whole lot worse than that.” Underlying the Social Security program are certain basic principles that guide its development and growth. These characteristics are worth noting because they are the key to how the program accomplishes its goal to provide a base of economic security for the American people. First, social security is compulsory, meaning that everyone must participate. It was debated over intensely but finally concluded that Under a voluntary system, some workers who chose not to participate could become disabled, reach old age, or die without adequate funds to support themselves and/or their families. They would need to be supported by public assistance. Social Security, then, would not meet one of its primary objectives of preventing economic insecurity by providing a continuing income after a worker becomes disabled, retires, or dies. Benefits are paid as a statutory right, not according to need. The Social Security program is not and was never intended to be a program to provide benefits based on need. Rather, it is a system of social insurance under which workers (and their employers) contribute a part of their earnings in order to provide protection for themselves and their families if certain events occur. Since each worker pays Social Security taxes, each worker earns the right to receive Social Security benefits without regard to need. This is one of the basic principles of the Social Security program and is largely responsible for its widespread public acceptance and support. Social Security’s benefits are work related. Social Security taxes and benefit amounts are related to a person’s level of earnings during working years. As people earn more money and pay more in Social Security taxes, they are earning a right to higher benefits. There is, however, a limit on the amount of yearly earnings on which Social Security taxes must be paid and on which program benefit payments are figured. Some have argued that this limit favors high earners, who do not have to pay on as high a proportion of their earnings. However, the limit, which automatically increases as wages increase, is necessary. If all the earnings of higher paid workers were taxed and then credited for benefits, the program would have to pay very high benefits. The method of figuring benefits is weighted in favor of workers with low average lifetime earnings and those with families. This is because the program attempts to achieve social adequacy as well as individual equity. The goal of social adequacy assures that individuals receive a level of benefits that reflects their lesser ability to prepare for the risk. The goal of individual equity means that a person receives a reasonable return on his/her investment in Social Security. Thus, while it is true that higher earners receive higher benefits, lower-paid workers receive higher benefits in relation to their earnings in employment covered by Social Security than do higher-paid workers. (Earnings replacement rates are about 60 percent for minimum wage earners, 42 percent for average wage earners, and 26 percent for high earners.) Finally, Social Security is financed by payroll tax The main source of Social Security income is the taxes that employees, employers, and the self-employed pay. This method of financing Social Security, payroll tax on workers and their employers, remains the main method of financing the program. The Social Security program has won widespread public acceptance and support largely because it is directly supported by the people who receive benefits from it. Both benefit amounts and Social Security taxes are based on the worker’s earnings under the program. This aspect of Social Security helps to avoid any implication that the benefits are a form of government assistance or public charity. A continuing argument against the payroll tax is that it places a burden on the cost of doing business. It decreases the number of workers a company can afford to hire (and pay matching Social Security taxes) and limits the amount of wages they can afford to pay, the argument goes. However, companies are permitted to deduct the Social Security taxes they pay from their income tax as a business expense. They are also permitted to include Social Security benefits workers expect to receive in the company’s pension plans. Since the Social Security program began, many ideas have been advanced for obtaining additional revenues. However, the Congress and various advisory groups that have studied the program over the years have not endorsed proposals which would alter its basic structure. President Bush says reforming social security will be a top priority during his second term. He wants workers to be able to divert some of their payroll taxes into private accounts. They could invest that money in stocks and bonds to save for their own retirement. So far there have been three reform models proposed, as to how this process might controlled and regulated. This information was obtained at www.npr.org/templates/story/story.php?storyId=4164384 Three Reform Models In December 2001, a bipartisan, 16-member commission issued its recommendations for reforming and strengthening Social Security. Their report included three reform proposals, summarized below: Reform Model 1 • Establishes a voluntary personal account option but does not specify other changes in Social Security's benefit and revenue structure to achieve full long-term sustainability. • Workers can voluntarily invest 2 percent of their taxable wages in a personal account. • In exchange, traditional Social Security benefits are offset by the worker's personal account contributions, compounded at an interest rate of 3.5 percent above inflation. • No other changes made to traditional Social Security. Reform Model 2 Currently, workers and their employers pay 12.5 percent of their income as payroll tax. Under Reform Model 2, the leading plan drafted by President Bush's Commission on Social Security, up to a third of that money could go into private accounts. This model establishes a voluntary personal account without raising taxes or requiring additional worker contributions. • Workers can voluntarily redirect 4 percent of their payroll taxes up to $1,000 annually to a personal account. No additional worker contribution required. • In exchange, traditional Social Security benefits are offset by the worker's personal account contributions, co...