Social Security - Essay Example

of the Number Email Address November 28, H. Social Security- Changing Perspectives and Approaches over Time Social insurance is a constitutional provision, based on the pragmatic premise that in democratic, capitalist societies, individuals and families may become vulnerable to economic insecurity owing to an array of unavoidable human circumstances like aging, retirement, unemployment, physical disability, loss of the earning member in the family, etc. The US Social Security is the biggest social insurance program in the world that incurs expenditure unsurpassed by any other similar program. The objective of Social Security is to extend a safety net to the US workers and their dependents impacted by retirement, disability, unemployment or untimely death. The below graph explains the nature and proportion of the 58 million Social Security benefeceries in the year 2013. (Social Security Administration, 2014) Even a cursory analysis of this graph does show the relevance and importance of Social Security for the individuals, groups and families most in need of economic stability and security. However, one fact that deserves ample consideration and concern is that barring a few years, the magnitude of Social Security spending as the percentage of GDP has been persistently augmenting over the years, as shown by the below given graph. (US Government Spending. com, 2014) This continual soaring of the social security bill did give credence to many bodies of opinion advocating a partial privatization of the Social Security Program. Going by the success of his 2004 re-election campaign, President Bush listed Social Security reforms as his primary domestic priority, regarding which he received ample support from many Republican stalwarts (Galston, 2007). The whole premise behind this advocacy of a partial and systematic privatization of the Social Security Program was that that this program was getting way too unwieldy and was poised to get financially unviable in the times to come (Galston, 2007). The annual report submitted by Social Security Board of Trustees in the year 2009 estimated that the program was poised to register a massive shortfall to the amount of US Dollar 15 trillion over a period of 75 years in the times to come (Social Security Administration, 2009). This gave credence to the claims made by the Republicans that the only way to make Social Security pragmatic and financially viable was to systematically transfer the social security taxes towards the creation of private investment funds, engaging in large scale borrowing by the government to sustain the immediate Social Security liabilities and to plan drastic cuts in the social security aimed at the future retirees, believing that the gains made by the private investment funds will compensate for these cuts. This proposal was further supported by the statistical evidence pointing towards the fact that the Federal mandatory spending primarily covering Social Security and social insurance entitlements was also soaring every successive year. (The Heritage Foundation, 2014) Graph A explains the impact of social security taxes imposed by government on employers. Before the imposition of taxes, in consonance with the competitive equilibrium given by point A, at Wº wage, Eº workers get hired. Suppose the government imposes a tax of $1 per employee hour on the employers. As the employers only intended to pay a wage of Wº per hour to employ Eº workers, in the new scenario, employers will only agree to pay Wº-1 to hire Eº workers, to make up for the $1 per employee hour tax levied on them. Hence, owing to this imposition of the social security tax, the demand curve shifts from Dº to D¹. This pushes the labor market to touch a new equilibrium at B. This not only decreases the actual wage received by per worker to W¹, but also sinks the number of hired workers to E¹, irrespective of the fact that the cost of hiring a workers stays W¹+1. Dollars S W¹+1 A Wº W¹ B Wº-1 Dº D¹ Employment E¹ Eº A. Impact of Payroll Taxes Imposed on Employers The amazing thing is that a similar social security tax imposed on employees also registers an equal impact on equilibrium wages and the levels of employment, when the supply curve moves left, as shown by the graph B below. Though the Social Security reforms proposed by President Bush failed to materialize, these intended reforms did project an array of long term and short term economic benefits and pitfalls. Considering the augmenting government spending on social insurance obligations, gradually shifting the social security taxes to private accounts did present a viable way of at least partially shifting the social security burden to the private players. Some experts and professional bodies of opinion also projected that the future retirees could expect to get better return on their private account investment as compared to those being offered by the Social Security Program (Tanner, 2003). Dollars S¹ Sº Wº+1 B W¹ Wº A W¹-1 D¹ Dº E¹ Eº Employment B. Impact of Payroll Taxes Imposed on Employees Besides, the moving of trust funds to private accounts would have given a greater say and control to the beneficiaries over these retirement benefits. It is also a fact that successive federal governments had many a times resorted to funneling Social Security surpluses to many other forms of government spending. A privatization of social security would have mitigated this practice. One large macro benefit of these reforms would have been that they would have flushed the capital markets with many funds, which would have boosted the national economy. If one delves on the privatization of social security in the context of the current economic slowdown, perhaps many young beneficiaries may support this measure, considering their slackened trust in the system. However, these possibilities do represent only one side of the argument. The pitfalls against the privatization of Social Security are also ample and quiet weighty. The major obstacle to even the partial privatization of social security proposed by President Bush was that this would have required the Federal government to borrow more funds to sustain the immediate social security liabilities. The disheartening statistics related to the galloping national debt did scarcely support these reforms. (Treasury Direct, 2014) According to a Business Week report, the onus of gradually moving the socially security funds to the private accounts would have necessitated a government borrowing of roughly $1 trillion to $2 trillion (Bernstein, 2005). This would have further jeopardized the precarious national debt and fiscal deficit scenario. This conclusion becomes even more serious when one takes into account the housing bubble burst of 2008 and the consequent credit crunch in the national and international markets. Besides, it would be but practical to assume that a poised partial privatization of social security even if guaranteed to yield higher returns in the future, would have negatively impacted the social security benefits in the immediate future. Moreover, it would be really naïve to assume that private portfolio investments would have always yielded the expected returns considering the wavering Dow Jones returns over the years. (StockCharts.com, 2014) This measure if materialized would have made the Social Security safety net vulnerable to the interference and manipulation of the private financial institutions and banks, which would have made it very unreliable and fraught with apprehension and mistrust. The other big thing is that many such reforms in other comparable liberal and capitalist democracies did not yield the expected benefits and returns for the targeted beneficiaries. The privately managed retirement accounts introduced in the United Kingdom in the year 1988 had such exorbitant management costs and governance fees that they practically mitigated the expected high returns (Bernstein, 2005). So, on a more serious note, even partial privatization of Social Security is a measure that needs to be much debated and deliberated on, before being implemented. In retrospect, considering the 2008 economic meltdown and the immediate recessionary trends and high unemployment, it was a blessing in disguise that the Social Security reforms intended by President Bush failed to take up. When one attempts to pick on the really old Social Security debate in relation to the present times, it will be but realistic to say that the extent of safety, security and support that the vulnerable citizens seek from their government has a lot to do with the immediate economic realities. In that context, the ongoing economic recession, industrial slowdown, outsourcing of the industrial production and services and the high unemployment rates, the intention of President Obama to widen the social insurance programs and expand the scope of Social Security program is a step, which does make a lot of emotive and political sense, if not financial and economic sense (The White House, 2014). Today more than 54 million Americans do rely on Social Security as their primary basis for economic security and income. It does need to be mentioned that the wavering public confidence with regards to the recessionary economic trends does justify a further strengthening of the Social Security coverage to boost the national spirit and public sentiment. Hence, Presidents Obama’s commitment to preserve and bolster Social Security and allowing the targeted beneficiaries a life of dignity and respect is indeed a step in the right direction (The White House, 2014). Right now Social Security is the mainstay of some of the most vulnerable sections of the American society, which include the women, the disabled and the young workers (The White House, 2014). In that context, President Obama has shown aversion for privatizing social security and making it vulnerable to market speculations (The White House, 2014). On a more practical plain, the Obama policy of consolidating and expanding Social Security and not allowing for the privatization of Social Security does also make much political sense. Already 54 million Americans are benefitting from Social Security. Moreover, almost 75 million American workers, which amount to almost half of the working class American population, lack access to employer assisted retirement programs. (The White House, 2014) Obama administration plans to automatic enroll a significant proportion of this workforce in IRAs, through 401(k) plans (The White House, 2014). This will indeed augment support for the Obama government in the current times defined by many political and policy constraints. However, it does need to be noted that irrespective of the mammoth budget and coverage of the national Social Security Program, it fails to touch many marginalized sections of the society like the immigrants, a significant portion of the ethnic and racial minorities, unemployed women and women working as homemakers, people employed in unorganized sectors that are hitherto untouched by the Social Security Program. Thereby, the Social Security Programs does need to be made more inclusive to assure its relevance as one major tool for extending social justice and empowering people. References Bernstein, A. (2005, January 23). Social Security. News Week. Retrieved from http://www.businessweek.com/stories/2005-01-23/social-security Dow Jones Industrial Average (1900-Present Monthly). (2014, June 2). Retrieved November 28, 2014, from StockCharts.com, http://stockcharts.com/freecharts/historical/djia1900.html Federal Spending by the Numbers, 2013. (2013). Retrieved November 28, 2014, from The Heritage Foundation Website, http://www.heritage.org/research/reports/2013/08/federal-spending-by-the-numbers-2013 Galston, W.A. (2007, September 21). Why the 2005 Social Security Initiative Failed, and What it Means for the Future. Brookings. Retrieved from http://www.brookings.edu/research/papers/2007/09/21governance-galston Historical Debt Outstanding-Annual. (2014, November 10). Retrieved November 28, 2014 , from Treasury Direct Website, http://www.treasurydirect.gov/govt/reports/pd/histdebt/histdebt.htm Seniors and Social Security. (2014). Retrieved November 28, 2014, from The White House Website, http://www.whitehouse.gov/issues/seniors-and-social-security Social Security Basic Facts. (2014, April 2). Retrieved November 28, 2014, from Social Security Administration Website, http://www.ssa.gov/news/press/basicfact.html Social Security Spending by Year. (2014, December 2). Retrieved December 2, 2014, from US Government Spending Website, http://www.usgovernmentspending.com/social_security_spending_by_year Tanner, M.D. (2003, October 28). The Better Deal. Cato Institute. Retrieved from, http://www.cato.org/publications/social-security-choice-paper/better-deal-estimating-rates-return-under-system-individual-accounts The 2009 Annual Report of the Board of Trustees of the Federal Old Age and Survivors Insurance and Federal Disability Insurance Trust Funds. (2009, May 12). Retrieved November 28, 2014, from Social Security Administration Website, http://www.ssa.gov/oact/tr/2009/tr09.pdf Read More