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ECON202
7 December 2014
Social Security and its Deficits
In 1935, after bank failures and a stock market crash had wiped out the savings of millions of Americans, the nation turned to their president to guarantee the elderly a decent income. In those days, only a handful of workers had access to pensions from their employers or through State governmental pension programs. Over half of America's elderly lacked sufficient income to be self-supporting. The Social Security Act was enacted at the urging of President Franklin D. Roosevelt to create a social insurance program that ensures workers would have a source of income after they retired. (ssa.gov, n.d.)
In the decades that have followed, Social Security has become one of the federal government's most popular and essential programs. Despite all our efforts to encourage savings and investment, the private retirement picture has not changed much in recent decades. Even today, barely half of all workers have access to retirement plans at work, and millions reach retirement age without enough private savings to provide an adequate living in retirement. Social Security is still the foundation for most seniors' retirement. Without this critical safety-net program, over half of all older Americans would fall into poverty. Social Security does exactly what it was designed to do. It gives retired people a secure, basic income for as long as they live. At the end of 2005, more than 48 million people were receiving Social Security benefits: 33 million retired workers and their dependents, 7 million survivors of deceased workers, and 8 million disabled workers and their families.
Over time, the Democratic Party has implemented changes to the Social Security program in order to adjust to changing times. Americans have depended on these programs for retirement or in the event of permanent disability. There is much-heated debate on the issues of Social Security today. The Social Security system in today’s society is the largest government program of income distribution in the United States. People are concerned that they won't see a dime of what they worked so hard to contribute into the Social Security system for so many years. Social Security provides benefits to about forty-three million Americans. Not only to retired workers, but also to their spouses and dependents of the workers who die prematurely. It also provides benefits to disabled workers and their dependents. Social Security appears to most people like a simple retirement saving’s account. After all, you generally contribute through payroll deductions, then get money back after you retire. Nonetheless, Social Security is a complex and intricate communal program. By design, Social Security involves massive subsidies from the next generation of retirees to the present, from single workers to married couples. Now that the gigantic post World War II baby boomers generation approaches retirement age, there is concern about the consequences it will have on Social Security. There are basically three options, we can do nothing and allow Social Security to run its course, revise Social Security, or consider As the baby boomers continue to reach the Social Security-drawing age, the American government’s surplus of finances will gradually fall to a dearth of funds unless intervention is made quickly. Plans for reform have been mentioned, but so far nothing has been done to supplement the future’s inevitable lack of funds. The sooner the government takes action on Social Security, the less severe the reform will have to be. Well- planned adjustments in the smallest increments can make the largest impacts on the system of Social Security. Recent news articles lead Americans to believe that Social Security is in financial trouble that the taxes it depends upon to finance the programs for retirement, disability, and medical care soon will not be enough. (2010) In part because of the large numbers of people reaching retirement age, this has left a large number of people wondering if they can depend on Social Security for retirement. The answer to this dilemma is not to rely on Social Security for retirement. Depending on Social Security for retirement is like risking everything on one endeavor. Most likely, retirees will have less money with which to depend. Taxpayers who have paid into the program all of their lives can no longer depend on the funds being available to them in the next 10 years.
Young people and many others are convinced Social Security will not be there when they reach the retirement age. Some proclaim it will only become a monthly allowance from the government, not providing for all the needs one requires. After years of paying into the system, the return will be insubstantial for adequate living. Retirees will have to look to other places for income- even coming out of retirement to pay bills. Confidence in Social Security has been lost.
Social Security ran a $55 billion deficit in 2012, and a $71 billion deficit in 2013, closing out four years of consecutive cash-flow deficits as the program’s unfunded obligations continue to grow. The combined 75-year unfunded obligation of the Social Security and Disability trust funds (referred to as the OASDI trust fund) is $12.3 trillion. This is a $1 trillion increase from last year’s unfunded obligation of $11.3 trillion. The combined Social Security and Disability programs are projected to remain solvent—that is, they are expected to have enough revenue from payroll taxes, interest on the trust fund balance, and repayment of borrowed trust fund dollars to pay out scheduled benefits—through 2033. (Greszler, 2013) This is the same date as projected in last year’s report.
If no action is taken to improve the program’s solvency before 2033, benefits will be reduced across the board by 23 percent.
In 2033, the Social Security trust fund will be exhausted, and the program will be able to pay only three-fourths of scheduled benefits. While the Social Security system is considered solvent until that year, this is true only on paper. Social Security already adds to budget deficits.
Since 2010, Social Security has taken in less money through payroll tax revenues than it pays out in benefits, generating cash-flow deficits. Social Security’s 2012 cash-flow deficit was $55 billion. (Greszler, 2013)
Social Security covers cash-flow deficits by drawing down interest payments from the U.S. Treasury on previous trust fund borrowing. Cash-flow deficits mean the Treasury can no longer cover interest payments to the Social Security trust fund by issuing additional IOUs; instead, it must produce actual cash from taxes or borrowing. Thus, Social Security is adding to today’s deficits. (John, 2004)
To understand how privatizing social security will help the social security program in the future, first it is important to know what it is and what it does. How social security works now is that everybody that gets benefits from the social security program all get them from one big pot, so to speak. By privatizing the different accounts, they can earn interest faster and make more money for the consumer on an individual basis. This can work better to because the accounts are individualized and earn the right amount of money for the different financial situation that the person is in. This will be a big change for the way that social security is run, but it is for the better and it will help lots of older Americans and the social security program in general for years to come.
One of the big questions when dealing with the privatizing of social security is where it leaves the minority groups. All minorities are affected, but the African Americans are most likely the ones that will need to deal with it most. Indeed the president is doing all that he can so that African Americans and other minorities are financially secure for the future, which is a time when they need it the most. It is known that African Americans will and do need Social Security money more than Caucasians do, however it is more about income than it is about race. People of lower income tend to get more in the way of Social Security benefits than higher income people. So many minorities will be directly affected with this new change in the Social Security program. Although it seems that many older African Americans will be the ones affected by this change, there are also many younger African Americans affected as well. Nearly 18% of the workers in the United States receiving disability insurance benefits are African American. (Tanner, 2012) So the Social Security program affects not only the minorities, it affects the old and the young as well. With the privatization of Social Security, it will bring more money back to the common American citizen.
One of the many divisions of Social Security is dealing with the disability insurance. This is an important part of the Social Security benefit program because it is one of those things that people cannot control. Everybody knows that in the future they are going to get older, but when something comes along and you are put in that situation, it is a real challenge to come up with the needed money to pay the medical fees. Currently as it is, when you get benefits from Social Security, you get the same amounts from retiring and form being disabled. With the new plans of reform that are going into effect, it is likely that those receiving disability payments will get a larger percentage than those receiving retirement payments. While there is opposition to this, it is in the best interests of the American people to have it this way because the disabled ones are those who are still working and need to support families and other important things like that.
The privatization of Social Security is good for the American people. It is also popular with the American people as well. By a margin of 56% to 39%, Americans favor the idea of privatization due to its financial benefits. By being informed of its qualities, the American people consider privatization the way to go. All United States citizens are concerned with their money and their future, and where both are headed in the future. Knowing that they have been provided with a “Social Security” for the future, they can rest easy knowing that their money is in good hands.
One of the things that make this plan unique with the current working class citizens in the United States is the age of the people supporting it. Nearly 70% of Americans that are under the age of 25 support the idea of privatizing social security. While these are very impressive numbers, it is surprising to realize that only 40% of Americans that are seniors support it. Why are these numbers so unusual? The answer is that many of the senior citizens are already getting paid by social security in one way or another. This would cause them to be more apathetic toward the subject and not want to change something that is already working for them. On the other hand, most young Americans are very concerned about their future, and would want to be in good hands when they eventually retire.
There are three main social security reforms, the first is to fix social security’s cost-of-living adjustment it is currently an outdated measure of changes in the cost of living that fails to account for how people react to change in prices. Lawmakers should index social security’s COLA to the chained Consumer Price Index (CPI), which acknowledges that people choose less expensive and different goods and services in response to changes in prices. This would more accurately protect the value of benefits while improving social security’s finances. (Greszler, 2013)
Increase the early and full retirement ages. Since the beginning of social security life expectancy at birth in the United States has increased by about 17 years, while life expectancy at age 65 has increased by about 7 years. (Department of Health and Human services, 2011) Yet social security’s full retirement age has increased by only two years, and the early retirement age has not increased at all. More than 70 percent of eligible workers choose to take social security benefits at the early retirement age of 62. This means greater financial strain and smaller workforce, lower economic growth, and less revenue. Lawmakers should gradually and predictably increase the early and full retirement ages and then index both to increase in life expectancy. (Greszler, 2013)
Last focus social security benefits on those who need them most. Social security was designed as a program to protect the elderly from poverty, yet it pays benefits to more than 47,000 millionaires and leaves many low-income recipients in need of additional welfare benefits. (Face the fact, 2013). Lawmakers should phase out benefits for retirees with high levels of non-social security income and proved a true system of social insurance that focuses on seniors who need it most. Also consider a minimum flat benefit level to protect all seniors from poverty in retirement. (Greszler, 2013)

Works Cited
(2010). Huffington post.
Department of Health and Human services. (2011, May 29). Retrieved from Department of Health and human services.
Face the fact. (2013, March 6). Retrieved from Face the fact: www.facethefact.org
Greszler, R. B. (2013, May 31). Social Security Trust Fund Reports Massive Deficits, Benefit Cuts by 2033.
John, D. C. (2004, Sept 2). Misleading the public. How the Social Security Trust fund Really Works.
Social Security Deficit. (2013, 05). Retrieved from Heritage.org. ssa.gov. (n.d.). Retrieved from Social Security web site.
Tanner, M. (2012). The African American stake in social security reform.

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...1) For a maximizing individual, he will not pay more than he is willing to pay for a good. Hence, his marginal valuation of a good determines the maximum amount of other goods that he is willing to pay in order to obtain an additional unit of the good. As long as his marginal valuation is higher than the actual amount paid, he will continue to buy the good concerned. At the margin, he will pay the maximum of what he is willing to pay, otherwise his behavior would be inconsistent with maximization. Hence, what he pays at the margin his marginal valuation.   When allocating one’s scarce resources, one has to incur cost whatever his decision will be. As cost is defined as the ‘highest-valued option forgone, whenever there is an option, there will be cost. However, since one’s resources can only be allocated to one use at one time, though there may be many options available, the cost of one’s activity is not equal to the sum of the options forgone. Hence, in deciding the cost of one’s action, only the highest-valued option forgone is considered as the cost of one’s action. This is because only this option is relevant in one’s decision making. Anything less than this highest sacrifice is irrelevant for decision making as even one does not choose the prevailing option, he will not choose an option which is not the highest-valued one. 2) Cost is the defined as the highest-valued option forgone for an action. Cost exists whenever options exist for an action. As there are many...

Words: 1110 - Pages: 5