17 Apr 2011

Sample Essay: The Social Security Reform Debate in the United States of America

The reign of Franklin Roosevelt as the president of the USA was one of the most important in the American history. The Social Security Act (SSA) remains the most influential legislation (Arnoa 25). Prior to its enactment on 14 August 1935, the poor, disabled and the elderly found it difficult to live. This was made worse by the Great Depression. During this time, employment rates dropped drastically, jobs were lost, and poverty levels shot. The enactment of the law primarily aimed at providing a steady income for retired workers. Adults aged 65 or older were targeted. The Committee on Economic Security (CES) initiated plans that would prompt workers to contribute part of their wages into a consolidated account (Leff 289). Subsequent modifications of the law have been occasioned by variations in demographic and economic trends. Increase in the population and fluctuations in the economic growth have been key considerations. Most scholars have supported the system on social grounds. However, some have critically questioned the sustainability of the system. The funding of the system, as well as the benefits that accrue from it seems to be the points of contention about the system (Arnoa 36). Whereas either side in the debate support the benefits of social security, the liberal ideas have often played against conservative ideas in government control, taxation, spending for social security- contentions that will remain for some time to come.

The first argument regards ownership and choice. The fact that the USA is experiencing resource incapacitation in the support of the system is evident. Previous financial crisis characterized by high expenditures and flat contributions may recur (Orszag & Diamond 115). SS deficits are possible in situations where the unemployment rates are high and wages are low. Consequently, the accruing benefits will drastically drop. Population growth has always been thought to be important in the realization of a successful SS. According to the USA federal government the debt base broadens (Arnoa 38). However, the economic growth fluctuations are unpredictable. It is therefore absurd for the government to affirm that an increase in population will be matched by an increase in SS contributions. A situation where expenditures exceed contributions is undesirable. The funding of the government debt becomes difficult. Consequently more borrowing is observed. The SS deficit is questionable. Why should the government opt for external funding due to uncontrolled internal debt? The future health of the system is therefore critical. The fact that many people are reaching retirement age due to the ‘Baby Boomers’ should not be ignored (Leff 289).

The second argument revolves around government taxation. The revenue realized from the SS system should be increased to reduce the regression of the payroll tax. It should be noted that people earning up to $ 72,600 are subjected to SS payroll taxes. The growth in average earnings dictates the level of increase in the cap of earnings (Orszag and Diamond 120). The past 20 years have been characterized by an imbalanced growth of earnings between the high and the middle income groups. Increased SS revenue is ensured when the cap on earnings is raised. This will ultimately ensure that the payroll taxes are non-regressive. The future funding of the SS system will be made possible through tax increase. A decrease in the payroll tax should not be advocated for. It has also been proposed that benefits should be taxed. However, the move is undesirable. It will see the low and moderate-income beneficiaries highly taxed. The tax burden of this income groups will increase while that of the high-income group will fall (Weisbrot and Baker 22).

Another common argument regards wealth redistribution. The USA is characterized by a great financial inequality. The richer have been getting richer while the poor continue to languish in poverty. The reason behind this trend has been the level of wages offered for new jobs. Whereas old jobs offer high wages, current jobs offer low wages (Weisbrot & Baker 23). In addition, the latter may lack retirement plans or health coverage. Similarly, the SS benefit structure exhibits considerable degrees of inequities. Some workers receive lower returns than others. It is common phenomenon to have workers pay for SS benefits not within their scope. In addition, workers are deprived the freedom to control their yearly contributions. In view of this the long-term financial problems inherent with the system should not widen the wealth redistribution gap (Orszag & Diamond 130).

Another common argument in social security reform revolves around trading off wealth creation for social insurance. The internal rate of return has been considered a monetary advantage. It should be noted that SS is a social insurance program, rather than an investment plan. The annuities enjoyed by retirees are adjusted to take care of yearly inflation. The monetary compensation associated with SS system is not enough (Orszag & Diamond 132). The beneficiaries of the system include surviving spouses, children and the disabled. A person, who regards the system as a source of monetary gain alone, underestimates the real value of the system.

Other arguments revolve issues of charitable entitlements, particularly safety nets or earned benefits. Citizens from most countries enjoy safety net activities as a right. However, USA citizens do not enjoy such activities as rights. The only exceptions are the public education for schoolchildren and Medicare funded healthcare for older adults (Weisbrot & Baker 24). In USA, the SS ensures that people work for social benefits. This is usually not the case in other countries. Good citizenship and compliance with laws are usually enough for citizens to enjoy social benefits. Charitable ventures are neither earned nor a right. It should however be proved beyond reasonable doubt, that indeed one is poor. Means-tested programs are common in the USA. However, most of these programs are criticized for their lack of objectivity in ascertaining those that qualify for ‘charitable’ entitlements (Orszag & Diamond 134).

The last ideological argument around social security in the US regards intergenerational equity and particularly on issues regarding supposed burden of social security for future generations. Differences in financial opportunities have been addressed by safety net policies (Weisbrot and Baker 26). Consequently, people with intergenerational histories of poverty and mental incapacitation have been empowered. The economic and social disadvantages have had negative ramification on the affordability of social benefits. Compensatory assistance is the best tool to address the intergenerational inequity. Communities characterized by high poverty levels, low employment rates and low literacy levels should be offered compensatory assistance (Orszag & Diamond 135).

Debate on social security reforms also revolves around whether to privatize social security schemes or not. Central in this argument is whether the schemes are bankrupt or financially sound- issues that would enable privatization. It has been observed that most workers never receive benefits associated with the system (Weisbrot & Baker 29). The long-term solvency is only guaranteed if all the stakeholders play their respective roles properly. It has been argued that higher earners would not benefit from SS benefits as the low earners would, once the tax ceiling is raised (or eliminated). The SS should not be viewed as a private savings scheme (Leff 290). There is need to ensure that fairness is nurtured in the system. The USA should ensure that the system changes with the increasing population needs. Otherwise, financial crisis may erupt in future.

Another issue regarding supposed privatization pits “Pay as you go” against “transition costs”. The pay-as-you-go system has been criticized for its nature to upset the balance between the expected future taxes and benefits. Situations of increased unemployment will lead to decreased payroll tax. A system where transition costs are put into consideration will ensure that bankruptcy is averted (Leff 290). The transition to a fully funded system will minimize cases of unclaimed funds.  The accumulation of economic reserves coupled by increased benefits will be enhanced. Transition to a fully funded system will not only avert the financial problems associated with the pay-as-you-go system. Rather, young workers will accumulate substantial amounts of benefits in their retirement accounts (Weisbrot & Baker 29).

The last argument pits “definite contribution” against “definite benefits” plans. The definite contribution plan allows both the employer and the employees to contribute to the individual account (Weisbrot and Baker 30). The contribution rather than the benefit is not known. On the contrary, the definite benefit plan ensures that individuals receive a given percentage on a monthly basis. The latter plan is the best on grounds of ensuring that one receives benefits commensurate to his/her contribution, salary and length of service (Orszag & Diamond 139).

In sum, it is clear that; Liberal ideas for ages will antagonize conservative ideas in US social security reforms. Several ideological differences that focus on the ownership and choice of SS funding, government taxation and wealth re-distribution have been highlighted. In addition, arguments over safety nets and benefits, wealth creation and social insurance, intergeneration equity have been discussed. Similarly, privatization concerns in regards to the system’s financial position have been outlined. In addition, pay-as-you-go costs are compared with transition costs. Finally, the nature of plan adopted dictates the nature of benefits realized. Definite benefit plan is superior to the definite contribution plan. Essentially, in the social security reform debate, liberal ideas will antagonize conservative ideas for long.

Works Cited

Arnoa, Peter et al. Social Security and mortality: The role of income support policies and population health in the United States. Journal of Public Health Policy. 2011. Advance online publication 17. <http://www.palgrave-journals.com/jphp/journal/vaop/ncurrent/pdf/jphp20112a.pdf>. Accessed 09 April 2011

Democracy Now! Social Security under Attack: Cuts Proposed, Higher Retirement Age Suggested – A video report. <http://www.democracynow.org/2010/7/19/social_security_under_attack_cuts_proposed>. Accessed 09 April 2011

FactCheck.org. “Bush’s State of the Union: Social Security ‘Bankruptcy?”. FactCheck.org: commentary on the speech. <http://www.factcheck.org/article305.html> Accessed 09 April 2011

Leff, Mark H. “Robert Ball and the Politics of Social Security”. Journal of American History, 92 (1), (2005): 289-290

Orszag, Peter, and Diamond, Peter. Saving Social Security-A Balanced Approach. Washington, D.C.: Brookings Institution Press, 2005.

US Government Accountability Office, Social Security Reform: Answers to Key Questions. <http://www.gao.gov/cgi-bin/getrpt?GAO-05-193SP> Accessed 09 April 2011

Weisbrot, Mark, and Baker, Dean. Social Security: The Phony Crisis. Chicago: University of Chicago Press, 2001.

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