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Another name that is frequently used to refer to the Social Security System is the “pay-as-you-go pension system” (Garrett and Rhine, 2005, p. 103). The Congress passed the Social Security Act on 14 August 1935. The social insurance program introduced by the Social Security System covered individuals belonging to different categories. People aged 65 or more that had retired received a monthly benefit from the law. The primary worker received the monthly benefit upon retirement and the amount of money obtained was determined by the contributions made by the individual’s payroll tax. Benefits provided by the Social Security Act included but were not limited to aid to the dependent children, grants for the medical care to the states, and unemployment insurance. After establishment of the Social Security Board, it was charged with the implementation of the employees’ enrollment system, collection of contributions made by the payroll taxes, and the report earnings. How the Social Security System Works Money paid by an individual in the Social Security System is immediately paid to the individuals acquiring the checks of Social Security. When Roosevelt approved the Act of Social Security in the year 1935, there was a huge population of the needy people as they had been through the Great Depression period, but there was scarcity of money to compensate for the benefits they required. Thus, the retiring workers in all generations have been paid by the working people of the times, which happens to be the secret behind how the Social Security System has always worked despite the lack of money to start with. Social Security System: A Global Phenomenon Today, the Social Security System has been implemented in all developed countries. The Social Security System in a vast majority of countries is unfunded. A payroll tax applied on the working people’s income is the source of finance for these systems whereas the retirees get the pension benefits. Over the past few decades, there has occurred an increase in the size of the Social Security Systems around the world. In the year 1995, Social Security System consumed 4.5 per cent of the total Gross Domestic Product (GDP) of the USA, 13 per cent of the total GDP of Italy, 20 per cent of the total GDP of Sweden, and 16.5 per cent GDP of France (Galasso and Profeta, 2002, p. 2). Decisions related to the Social Security System ranging from the system’s design to all subsequent alterations extend beyond the economic theory and enter the political realm. Governments of a lot of countries across the world are presently considering structural reforms related to the Social Security System and many have already enacted the changes. “The key feature in these reforms is a shift from a pure pay-as-you-go tax-financed system, in which taxes on current workers are primarily distributed to current retirees, to a mixed system that combines pay-as-you-go benefits with investment-based personal retirement accounts” (Feldstein, 2005, p. 33). Countries that have already enacted these changes include but are not limited to China, Australia, Sweden, Britain, and Chile. A similar plan was proposed for the USA by President Bill Clinton which was made a main priority by President Bush for his second term. Past Challenges for the Social ...Show more
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Summary

The Social Security System School The Social Security System History of the Social Security System In the year 1934, the Committee on Economic Security (CES) was created by the President Franklin D. Roosevelt. Roosevelt assigned the CES the responsibility of exploring the feasibility of a system of economic security that would provide the disabled and the elderly people with income…
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