Social Policy and the Social Security System - Essay Example

Social Policy and the Social Security System Part I Introduction: The Social Security System, originally founded in the 1930's, has recently been the topic of much concern in the United States (The Welfare State, 2). This system, which has gone through a great number of changes since its founding in 1935, the social security system currently has some long-term financial concerns that could result in the failure of the Social Security System as it was originally intended. I chose this topic for my paper because the Social Security System for his or her post-retirement income affects every person in the United States. Description of the Problem: The social security system was originally founded as a program of social welfare in an effort to provide supplemental income for those individuals who are without work. As addressed by bush in the State of the Union Address in 2005, "One of America's most important institutions - a symbol of the trust between generations- is in need of wise and effective reform. Social Security was a great moral success of the 20th Century, and we must honor its great purpose in this new century. The system, however, on its current path, is headed toward bankruptcy. And so we must join together to strengthen and save Social Security." The threat of bankruptcy that the Social Security System is facing is a source of much concern throughout the United States and is an issue that the past and current administrations have taken very seriously (The Problems Facing, 1). Historical Background of the Policy: Since its establishment in 1935 with the signing of the Social Security Act by President Roosevelt, the Social Security System has undergone a great number of changes. Originally formatted to provide income to retired workers, the Act was adapted in 1939 to include coverage for the dependents and survivors of deceased workers, greatly increasing the payout to each retiree. In 1956 the system had two major changes, the first being the creation of Disability Insurance and the second being the allowance of early retirement for women at the age of 62 (History of Social Security, 1). The same early retirement was allowed for men by 1961. In 1972 the issue of inflation was addressed with the introduction of Cost of Living Adjustments (COLAs) (History of Social Security, 1). The COLAs had many problems, which were remedied in 1977. Created in 1983 was the National Commission on Social Security Reform. "The commission called for 1) an increase in the self-employment tax; 2) partial taxation of benefits to upper income retirees; 3) expansion of coverage to include federal civilian and nonprofit organization employees; 4) an increase in the retirement age from 65 to 67, to be enacted gradually starting in 2000" (History of Social Security, 1). The Social Security system went through a major change when The Social Security Trustees' Report in 1996 announced starting in 2012 the system would begin running deficits, exhausting the trust funds by 2029. The very next year it was decided by the Social Security Advisory Panel that Social Security's funds would be invested in the private sector. Payroll taxes were drastically affected by this change. (History of Social Security, 2). Social Security is a system initially established in 1935 when the vast majority of women were housewives (The Problems Facing, 1). When the program was established, many factors attributed to the great success of the program. One of the contributing factors was the much lower life expectancy in the United States. In many cases, workers would not live long enough to qualify to receive Social Security. As a result, "there were more than 40 workers to support every one retiree" (the Problems Facing, 1). Those statistics have drastically changed since the establishment of the system. Today, the average life expectancy is 77 years old. In addition, more than 60% of women are currently working. With this change of statistics, the ratio of workers to retiree's has shifted, causing the gradual decline in funding of the Social Security System. As opposed to having 40 workers to every retiree, we currently have 3.3 workers to each retiree. In addition, there are in excess of 45 million people in America that are currently collecting Social Security (The Problems Facing, 1). Description of the Policy: Two proposals have been made by President Bush in 2005 to remedy the predicted bankruptcy of the Social Security system. The Individual Accounts (IA) proposal and the Price-Indexed Social Security Benefits proposal are expected to work together to solve the problem currently associated with Social Security (Estimated Social Security, 1). In his proposal of The Individual Accounts proposal, President Bush would allow workers to gradually participate in IAs in accordance to their age with the first group eligible to participate in 2009. Initially, "those who choose to participate would be able to divert 4% of their Social Security covered wages into an individual account up to a dollar-based maximum contribution limit" (Estimated Social Security, 2). The initial maximum contribution will be increased by $100 yearly in addition to being subject to increases based on average wages. While participating in IAs would result in the reduction of contributions to Social Security, it would also result in the reduction of benefits paid to him or her by Social Security. "For each actual account that a worker contributes to and receives upon retirement, there is also a hypothetical "shadow" account that exists only as an accounting mechanism. The "shadow" account records all of the contributions made to the actual account and assumes that they are invested in such a way as to earn an annual real rate of return (the rate one would earn after adjusting for inflation) of 3%, equal to what SSA actuaries project one would earn by investing in government bonds" (Estimated Social Security, 2). Like Social Security, workers would have access to their IAs only after retirement. With retirement, will receive a payment that is a combination between their IAs and Social Security in a monthly amount equal to or exceeding the federal poverty threshold (Estimated Social Security, 3). Pre-Indexing Social Security Benefits was a proposal of the President's 2001 Commission to Strengthen Social Security. Its purpose is "to reduce the growth in future Social Security benefits by altering the Social Security PIA formula." The growth of Social Security benefits would be slowed as a result of increased labor activity (Estimated Social Security, 3). The combination of these two policies would increase incentive to keep working until the full retirement age as opposed to retiring early. Identification of individuals and groups concerned about the policy issue and their positions: President Bush fully supports the Individual Accounts proposal as well as the Pre-Indexing of Social Security Benefits. A Presidential statement said "These amendments to the Act represent another tremendous step forward in providing greater security for the people of this country" (Social Security's Cruelest Cut, 1). William Spriggs and David Ratner co-wrote an article depicting their revealed flaws in Bush's proposal. According to Spriggs and Ratner, "President Bush's plan to change Social Security includes benefit cuts for the surviving family members of workers who die before retirement" (Social Security's Cruelest Cut, 1). Senators Lindsey Graham and Robert Bennet fully embrace Bush's proposal and are in support of including it in the development of Social Security plans. Also in agreement that the proposal is a positive and promising one are Michael Tanner of the Cato Institute and David John of the Heritage Foundation (Why Progressive Price Indexing, 1). Part II Policy Analysis: While the Price Indexing policy could be very beneficial for the lower income level workers in the United States, middle and high income workers will experience a loss in promised benefits as a result of the proposal. One of the greatest criticisms the proposal is being faced with is the fact that those who make the most money are also losing the most as a result of the proposal (President's Proposal for, 1). Amy Chasanov and Lee Price estimated that median wage earners are going to lose almost eight thousand dollars of their scheduled benefit as a result of the price indexing. They also estimated that high wage earners are going to lose an estimated fifteen thousand dollars. They are so opposed to the change that they said, "The intention seems to fundamentally change Social Security from a dependable, guaranteed retirement benefit to a bare-bones safety net program" (President's Proposal for, 2). Spriggs and Ratner reiterate that while the purpose of Social Security was initially intended to provide steady income for those American workers who are no longer able to work full-time as a result of disability or old age, Bush's new proposal fails to keep that intention in mind with his new proposal. Instead, Bush and his current administration are working under the assumption that workers have invested money in non-federal programs where many of them have not. As a result, cutting Social Security will result in the inability for many non-workers to maintain the lifestyle they had spent a lifetime to achieve (Looking in the Wrong, 1). In fact, the only way the new plan will work is if workers become aware of exactly what is going to be provided upon retirement and take action in setting up other sources of incomes including 402(k) plans, IRAs and pension plans. Without their involvement in these other programs American workers will find it very hard to maintain financial stability post retirement (Looking in the Wrong, 1). In addition, Spriggs and Ratner claim, "Not only will workers face a loss of benefits, but they will also lack the additional funds to buy insurance against a drop in income. They also claim that the cuts they endure will not be easily recouped by participating in Individual Accounts, as proposed by Bush. One of Spriggs and Rather's particular concerns is that "while the stock market may perform well, on average, over a 30-year period, those who die before retirement may do so when the market is down and leave their families in debt" (Social Security's Cruelest, 5). Conclusion: While the policies of Individual Accounts and Price-Indexing may help alleviate the risk of the bankruptcy of the Social Security System, does it do so while still satisfying the intentions of the Social Security Act By encouraging American workers to invest their money in Individual Accounts, the government expects to be able to successfully reduce the benefit amount each worker receives through Social Security. The reason they propose this to be effective is that each worker will also then be receiving income from their Individual Accounts. Unfortunately, the success of the relationship between these two programs has yet to be proven. In addition, it has been predicted that the cuts that are seen by American workers is not even for all that intend to receive Social Security Benefits. The higher wage earners are predicted to experience a much larger cut as a result of the proposed plans by the current administration. It has also yet to be proven that the plans proposed are going to successfully save the Social Security System from eventual bankruptcy. It is possible however, that these policies with both fail to preserve the system and cause sizable financial hardships to the retired American worker. While the large majority of the American Administration is in full support of these Social Security programs, the general public of America does not largely support them. American workers are increasingly concerned that the decisions of the American Administration are going to be detrimental to the benefits of the Social Security program they have been paying into since they began working. Recommendations: While it is important to avoid the bankruptcy of the Social Security System, the solutions currently proposed by the Bush administration may not be the best solutions. One of the major concerns associated with the Individual Accounts is their dependency upon the stock market. The Great Depression is still a memory of what can happen if an individual's safety net is wrapped up in the stock market. A great number of American workers would find it much more settling if they knew the money they were counting on it for survival post retirement were a guarantee despite the condition of the stock market. The problem of Social Security has arisen as a result of too many American workers receiving too much money for an extensive period of time as a result of the increased life expectancy of recent years. As a solution to this problem, perhaps it would be more beneficial to begin an increased awareness program about the limitations the Social Security program is experiencing and encouraging American workers to depend on other areas of financial income post retirement. With such a large percentage of American workers not enrolled in a life insurance program, 401(k) program, or other such investment opportunities, there is an increased dependency upon Social Security. An increase in other programs would decrease this dependency and thus prolong the financial life of the Social Security program. Implications for social Work Practice: If the current proposals take place and fail, social workers will find that a great number of American citizens will not be financially secure. Social Security is supposed to be a program to provide financial security, not poverty. As a result, if the program fails Social Workers will find that there will be an increased number of impoverished retiree's. This would result in the need for other forms of social welfare to be initiated in an effort to counteract the deficits of the Social Security program. References: Chasanov, A. & Price, L. (2005). President's proposal for deep cuts in middle-income Social Security benefits. Economic Snapshots. Retrieved February 5, 2006 from http://epinet.org/content.cfm/webfeatures_snapshots_30050504 Furman, J. & Greenstein, R. (February 7, 2005). An Overview of Issues Raised by the Administration's Social Security Plan. Center on Budget and Policy Priorities. Retrieved on February 5, 2006, from www.cbpp.org. Furman, J., Greenstein, R. & Sperling, G. (April 26, 2005). Why Progressive Price Indexing Could Lead to the Unraveling of Social Security. Center on Budget and Policy Priorities. Retrieved on February 5, 2006, from http://www.cbpp.org Haltzel, Laura. (March 31, 2005). Estimated Social Security Benefit Levels Under President Bush's 2005 Individual Accounts Proposal Combined with a Proposal to Price-Index Social Security Benefits. Congressional Research Service Memorandum. Republican National Committee. (2005). The Problems Facing Social Security. Retrieved February 5, 2006, from http://www.gop.com/news/read.aspxID=5129 Social Security Reform Center. (1999). History of Social Security. Retrieved from http://www.socialsecurityreform.org/history/index.cfm Spriggs, W. E. & Ratner, D. (2005). Looking in the wrong places: Why benefit cuts will not solve Social Security's financing problem. Economic Snapshots. Retrieved February 5, 2006, from http://www.epi.org/printer.cfmid=2060&content_type =1&nice_name=webfeatures_snapshot Spriggs, W. E. & Rather, D. ( June 28, 2005). Social Security's Cruelest Cut: Bush's proposal slashes benefits for family members of workers who die before retirement. Economic Policy Institute, Issue Brief #211. Read More