The Social Security (United States) reference article from the English Wikipedia on 24-Jul-2004
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Social Security (United States)

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United States Social Security Card


In the United States, Social Security is a federal government social welfare program. It provides benefits to the elderly retired and to the 
disabled, and also provides survivors' insurance.  The following programs are provided under the Social Security system:

Social Security was created during the administration of Franklin Delano Roosevelt, in 1935. It is administered by the Social Security Administration.

The amount of benefits in retirement is typically based on the total accumulation of Social Security Income over a beneficiary's working career.

Table of contents
1 Social Security Tax
2 Social Security Reform
3 Related Legislation
4 External Links

Social Security Tax

Benefits are funded via a Social Security Payroll Tax. This tax is 6.2% of an employee's income paid directly by the employer, and 6.2% deducted from the employee's paycheck, yielding an effective rate of 12.4% of an employee's income. Self-employed people are responsible for the entire tax. This tax is paid only on the employee's first $87,000 of income, although that cutoff increases yearly, indexed to inflation.

Social Security is not a savings, investment, or pension plan, and there are no individual Social Security accounts. Social Security tax is paid into the Social Security Trust Fund maintained by the U.S. Treasury. Surpluses from this trust fund have been used by the federal government to fund other government programs. However, it is predicted, because of the aging of the population, that at some point the fund flowing into the trust fund from payroll taxes will be insufficient to cover payments to benefit recipients, if the system remains in its current form. This is because benefits are paid from taxes currently being collected, rather than from the taxes previously paid by the current beneficiaries. This also explains why the aging of the Baby Boomer generation presents a threat to the U.S. Social Security system: as more of the Baby Boomers retire, there will be more people collecting social security benefits than there will be workers paying taxes for Social Security benefits.

There is widespread disagreement as to when the trust fund will cease to have a surplus, based primarily on different modeling assumptions. In particular, the most pessimistic numbers assume a lower rate of economic growth than has occurred at any time since the fund was created and a continuing decline of net capital flowing into the system. Conversely, the most optimistic numbers assume a forecast of overall economic growth.

A side effect of the Social Security program in the United States has been the near-universal adaptation of the program's identification number, the Social Security number, as a form of unique identification in the U.S. A multitude of U.S. entities use the Social Security number as a personal identifier. These include government agencies such as the Internal Revenue Service, as well as private agencies such as banks, creditors, health insurance companies, and employers. Laws are in place governing acceptable uses for the number; these laws are, however, often unenforced.


Social Security Reform

Reform of the Social Security system is a politically delicate subject in that retirees who receive Social Security benefits are an important bloc of voters. Indeed, Social Security has been called "the
third rail of American politics," in that any politician who dares touch it may come to regret it. Often the reaction to any talk of Social Security reforms or phaseouts by the bloc of elderly voters, many of whom did not, or could not, save for their own retirement, is to assume or talk about the reform as though it will result in the cutoff of payouts.

No candidate for major office from any political party has suggested that Social Security simply be eliminated without regard to current or near-future recipients of Social Security payouts. The fear, however, illustrates one of the major criticisms of Social Security, which is that the law does not guarantee payment to anybody, which is quite unlike depositing money at the bank or investing in securities, which gives the depositor or owner the legal right to money or a portion of a business's profits. The age at which one begins to receive Social Security benefits has been raised several times since the program's inception. Other common criticisms of the system are that its financial model is inherently unstable, that the Social Security tax is not a deposit which can be passed to one's heirs, that it discourages saving, investment, and thrift, especially among the working class, that a greater return could be achieved by simply investing 12% of one's earnings in bank certificates, and that the Social Security surplus is used as a somewhat covert way of funding a large and expanding central government and maintaining the appearance of a balanced budget.

In the late 1990s and early 2000s, there were several proposals to reform Social Security by converting it from a pay-as-we-go system (compared by its critics to the illegal Ponzi pyramid scheme) into one in which workers would have accounts which could include securities such as stocks, certificates of deposit, and mutual funds.

Harry Browne, who ran for President on the Libertarian ticket in 1996 and 2000 supported a plan to eliminate the SSA and the payroll tax completely, and guarantee benefits to everybody above an age determined to be close enough to retirement to be made worse off by the end of Social Security. This would be coupled with a drastic reduction in the size of the federal government; payments to those who would receive benefits would come from annuities purchased with the proceeds from the sale of surplus Federal property as well as the tax surplus which would result from Browne's proposed cuts. This eliminated the problem of "double payments" inherent in most privatization proposals, but Browne's proposed cutbacks were too large or too sudden to be popular, and he did not receive more than a few hundred thousand votes.

More moderate proposals for privatization range from those initially suggested by Republican candidates in 2000, which involved setting aside an initially small percentage of each worker's payroll tax in a 'lockbox', which the worker would be allowed to invest in securities, to proposals which eliminate the Social Security payroll tax completely for workers born after a certain date and allow workers of different ages different amounts of time for which they could opt to not pay the payroll tax, in exchange for a proportional delay in their receipt of payouts.

Privatization of state-run old-age pension systems had occurred in the late 1980s and through the 1990s in several states throughout the world, most notable in Chile, where workers were required to pay a certain percentage of their earnings into a retirement account which they could invest in certain approved forms of securities. Withdrawals before retirement are prohibited, but the funds in the retirement accounts belong to the individual worker and can even be passed on to the worker's heirs at time of death. This approach was akin to the Republicans' "lockbox" proposal, but more comprehensive a change.

In the late 1990s, privatization was popular in the USA because of the high rates of return of the stock market in the 1990s and the popularity of IRAs and 401(k) plans. The sharp correction of the stock market in 2000 and the Bush administration's abandonment of the issue has moved talk of Social Security reform to the backburner, but several influential organizations, most notably the Cato Institute, continue to consider it a crucial issue.

Related Legislation

External Links