Social Security Reform Platform - Essay Example

Introduction The Social Security system has been one of the most discussed and critically analyzed areas of US policy. One can understand why this is the case; through the policy numerous Americans have been sheltered against some of the challenges that can result out of retirement. (President Bush, 2) Given that social security reform is an agenda for many interest groups in the company, then it is essential to sieve some of the sources of this information so as to come up with a comprehensive and balanced social reform plan. These details will be examined below. The Social reform plan Including life expectancy in social reform The first aspect that needs to be changed in the current Social Security policy is the issue of life expectancy. As we speak, most of the payments made are based on the nineteen thirties and forties. At that time, many beneficiaries were expected to live up to an age of fifty five, however, this life expectancy has increased upwards and it is currently at seventy seven years. Experts agree that it would definitely make sense to include this age related issue in the process of making reforms. (Concord Coalition) There are two major options which the US government can take to tackle this issue. They can either increase the amount of taxes being collected from social security contributors or they have the alternative of reducing the amount of benefits going to retirees. The latter proposals are based on the following interrelations -Prolonged life expectancy = higher overall social security payments to beneficiaries -Prolonged life expectancy = lower effect of contributions from payroll taxes When life expectancy has increased, then it may be very difficult for the current crop of workers to meet the total social security payments. This is because beneficiaries must be paid social security for as long as they are alive and this means more payments. Additionally, if the amount of payroll contributions is not changed, then it may be inadequate to cover these costs. In order to avoid extremities or the winner-takes-it-all approach, it is essential to split these costs between the two parties involved i.e. the social security contributors and the beneficiaries. The government needs to minimize the benefits given to retirees by including this component. Additionally, they also need to involve the payroll tax contributors too. Half of the additional costs brought on by increased life expectancy can be covered by increasing payroll taxes so that no group will feel that they have been treated unfairly. (Cauthen, 38) Dealing with historical debts It has been noted by some researchers that not all workers in local and state institutions pay their taxes. This is one of the reasons that is causing the huge debt that has accrued over the past few years. In order to tackle this problem sufficiently, there is a need to impose mandatory taxation to this group. However, because implementing such a system on pre-existing workers would cause a lot of uproar and unfairness, it would be advisable to introduce that reform for every new worker that enters local or state departments and institutions. If these numbers are curbed, it is estimated that close to four million workers will be able to pay their taxes and this will greatly contribute towards eliminating that large debt that has been accumulated by past generations. Another manner in which the US government can handle this issue is by imposing a form of legacy taxes on high earners. (Springs, 9) As we currently stand, there is a maximum taxable amount and those who make more than this amount are not obliged to pay taxes depending on how much more they earn. This approach is creating a serious loophole and if left unchecked could lead to greater levels of historical debt. These higher earners can be informed that they are contributing towards the historical debt that has accumulated over the past few years. Additionally, the rates may be determined by how much more a contributor is earning above the maximum taxable income. Besides the latter alternative, it would be advisable to include another source of finance; through slight benefits reductions among the Social Security benefits who start earning their benefits after ten years from the reform's passing. This will go along way in ensuring that there are tangible efforts made towards minimizing these debt obligations from past generations. How and when to implement the reforms In order to ensure that social security reforms are effective, it would be more valuable to implement the latter suggestions sooner rather than later. This is largely because of the fact that if things are left as they are, then chances are that the US government will be left with huge deficits in its Social Security budget. This would mean that the retirees, who had been expecting a certain quantity, may have to receive much less amounts than expected. Estimates indicate that by the year 2052, the US government may have to pay beneficiaries up to twenty percent less than what they expect today. (UFEIAF) However, if reforms are conducted today, then chances are that young payroll tax contributors will be aware that they will receive fewer payments upon retirement. This means that most of them may actually have the ability to plan in advance for these reductions. The current young workers may have adequate time to work harder, to save more, to plan wisely and to spend less so that they can mitigate the effects of fewer benefits during retirement. Implementing social security reforms today will go a long way in minimizing their effects in the future. It should also be noted that the current government stance of waiting for later could actually worsen the situation. Many analysts say that the US social security system's imbalances will not gradually be phased out. Instead, there should be graduate and deliberate actions today so as to minimize future disruptions. The reasoning behind these actions is supported by the fact that slow but gradual changes done over long periods of time are always less disturbing than haphazard, large and sudden reductions. If the government waits for a crisis to act, then all parties will be affected negatively by it and this will be worsened by the unexpectedness of the measures. The government would either have to increase payroll taxes by large sums and these would be highly strenuous to workers who may be depressed in their work efforts. Additionally, the reforms could come in the form of huge benefit cuts to the beneficiaries. This could cause a reduction in investments because people would be de-motivated. Consequently, the time to act is definitely now. There are so many alternatives that the government can use to implement these changes in taxable incomes. One of them is through reduction of payment benefits by ten percent. This can be implemented from the year 2010 for anyone who retires from that time. Through this kind of approach, then chances are that the baby boom generation would have to contribute to the reform endeavor by receiving less social security benefits in the future. Additionally, workers who are now within the range of twenty five would also receive fewer benefits than they would if the social security plan was left as it is. (Congressional Budget Office) However, by minimizing these benefits by ten percent, then chances are that the government will be in a position to pay subsequent generations much more than what the current generation is getting. The following three things can be achieved if the government were to adopt such a system Greater savings Less debts Higher benefits to subsequent generations The figure below illustrates what can happen if the social security system is left as it is it if it is changed (indicated by a dark blue shade) by a ten percent reduction (indicated in light blue shade) Source: http://www.brookings.edu/papers/2003/12saving_orszag.aspx It should be noted that latter illustrations are made based on the assumptions that the government will not decide to alter all other issues related to government expenditure i.e. they must be kept constant. This is because when these factors are taken into account, then chances are that there would be much higher levels of disorganization within the current government arrangement. This is largely because policy makers have the ability to reduce national savings through adoption of certain approaches. Additionally the government has the ability to direct savings received from benefit reductions in social security payments into the prevention of future reductions. If they do not do this, then the latter projections may not hold true. The most important thing to remember here is that reducing social security for older workers currently has the ability to increase benefits for future generations of workers. (Brookings Institution) It should also be noted that the latter plan of reducing benefits by ten percent two years from now has the ability to transform the social security system. As the social security system stands today, most of the baby boom generation are not participating towards reduction of the current social security debt. This is a fairly large group since they are approximately forty million people. By keeping these people out of the social security bracket contributions, the government is losing out on almost fifty percent of savings that they would have made if this generation was participating in the reform plan. (NETWORK) Treatment of social security as a form of private pension As the country is today, there are certain inequalities in the way payroll taxes are being paid. Most of the time, greater incentives are given to people who actually do not need them while those who really do are denied this opportunity. For instance, taking the example of couples who are earning the same amount of money but those lying in different tax categories; it is likely to find that a young couple with a child may pay up to six times more social security taxes than their counterparts in the older generation. This is because federal payments cannot be considered in the process of taxation. One would argue that the latter assumption is valid but this would be countering what the government has been doing in other areas. For instance, the government currently taxes income derived from unemployment benefits. However, other benefits such as food stamps and medic care are left untaxed. It is very clear why the latter two categories would not be taxed, however, it is difficult to understand why the same thing is happening in unemployment benefits. In fact, the latter issue has brought about a huge debate with people disagreeing on whether they should be taxed or not. Consequently, in order to determine whether older couples should also be taxed, it is essential to understand the principle governing those taxations. The government largely focuses on those payments that can be deemed as regular sources of income. Medicare and Medic aid do not fall in this category because they are not consistent and neither are food stamps. Additionally, the government normally exempts certain payments from taxation when those payments are made with the sole aim of raising living standards amongst the poor. Opponents to taxation of retirement benefits argue that this is actually what social security payments are designed to drop. However, this is an overestimation because of the fact that social security payments are made so as to replace regular incomes that people earn while working. Consequently, they take the place of wages and must be treated as such through the taxation process. (Grier, 5) In order to implement such a system, it would be feasible to tax retirees in the same way that normal workers are taxed. In other words, the rates applied to the latter categories would be applied to the former. However, in order to avoid the issue of double taxation, then it would be advisable to consider only amounts that exceeded the overall payroll contributions that had been made by these respective workers. The government can implement the latter part of the plan by focusing on each social security beneficiary. The amount should not be inclusive of interest and should also be made in such manner that it is specific to each individual. This system of dealing with current problems in the social security system would be very welcome among people who respect equality amongst them. This is largely because of the fact that the current taxation system seems to be treating the younger generation more unfairly than the older ones because the latter are not participating in it. Additionally, adoption of such a reform could promote greater investments in business and could motivate employees to work harder. This is because as we speak today, the current system seems to be tailored towards the private income earner alone. The latter category is taxed yet those who receive income from the federal government are exempt. This seems to be preferential treatment of one group in comparison to the other. Consequently, it would be better to look for other ways of handling the matter. (Social Security) The latter approach to taxation would also work because of the fact that the rates will largely depend on one's income status. If they fall in the low income category, then they will not be severely affected by it. In the end, the plan will go a long way in restoring balance and sealing some of the loopholes in the current taxation system. Conclusion The reform, plan examined has a number of issues that need to be addressed. First of all, it has looked at the incorporation of life expectancy as a factor in social security. The plan has also examined the need to instate change currently rather than in the future and the benefits have been stated. Social security reform would not be complete if the current baby boom generation is exempt from taxation; retirees need to be included. Lastly, the current crop of workers can also contribute towards the social security system by contributing an additional ten percent of their income. This will promote the overall success of the endeavor. Reference Concord Coalition (1998): Saving social security, retrieved from http://www.concordcoalition.org/learn/entitlements/social-security accessed on 2nd Dec 2008 Congressional Budget Office (2005): The future of social security, retrieved from http://www.cbo.gov/showdoc.cfmindex=6068&sequence=0 accessed on 2nd Dec 2008 President Bush's statement on social security reform (2005): Strengthening social security for the 21st Century, http://www.whitehouse.gov/infocus/social-security/200501/socialsecurity.pdf Brookings Institution (2003): Reforming Social Security: A Balanced Plan, retrieved from http://www.brookings.edu/papers/2003/12saving_orszag.aspx accessed on 2nd Dec 2008 Cauthen, N. (2005): Who's Security What Social Security Means to Children and Families, National Center for Children in Poverty, 25th February Grier, P. (2005): Q&A: The Great Social Security Debate; Christian Science Monitor, 3rd march, available at http://www.csmonitor.com/2005/0303/p01s04-uspo.htmls=hns accessed on 2nd Dec 2008 Springs, W. (2005): Busting Social Security Myths; The Black Commentator, available at, http://www.alternet.org/story/21295/ accessed on 2nd Dec 2008 UFEIAF (2005): Tax Payers for a Day: Wall Street CEOs Have Most to Gain and Least to Lose in Social Security Privatization; United for a Fair Economy, available at, http://www.faireconomy.org/press/2005/Tax_Day_Report_0405.pdf accessed on 2nd Dec 2008 NETWORK (2005): NETWORK's Position on Social Security; NETWORK Catholic Social Justice Lobby, available at http://www.networklobby.org/issues/soc_sec_position.htm accessed on 2nd Dec 2008 Social Security (2008): The official site of the U.S. Social Security Administration, available at http://www.ssa.gov/ accessed on 2nd Dec 2008 Read More