A Brief History of Social Security - Case Study Example

Social Security: As a Public Policy The Evolution of Social Security The Great Depression had brought many problems to the American society. When thecountry’s stock market crashed in 1929, many businesses opted to cut back wages and some were even forced to stop their operation (Rosenberg, n.d.). As the citizens had little income, they started to spend less. Many banks were declared bankrupt as they had invested the savings of their clients in the stock market (Rosenberg, n.d.). With the economic downturn going on, many Americans became unemployed and a large percent of the population belonged to the poverty line. Old-age people were considered as the most affected sector of the society. Many of them were abandoned by their siblings. Some elderly were found living in sidewalks asking for alms and a number of them died due to health problem. In 1932, the citizens were somehow relieved from the effects of the phenomenon when Franklin D. Roosevelt was elected as president and introduced the New Deal programs (Rosenberg, n.d.). Few of the programs were aimed to help the farmers and lessen the unemployment rate across the country (Rosenberg, n.d.). Aiming to provide sustainable support and effective social security to the American nation, President Roosevelt signed into law the Social Security Act in 1935 (Social Security Administration [SSA], 2000). The legislation contained many provisions promoting the general welfare. Nonetheless, its most distinguishing feature was the social insurance program for retired employees aging at least sixty five years. The retirees were paid a continuing income right after they retire. The monthly benefits were planned to start in 1942 (SSA, 2000). In such case, the Social Security paid the retirees their benefits in lump-sum from 1937 to 1942. A retired motorman was the first retiree who received a lump-sum payment under the law (SSA, 2000). As a social legislation, the Social Security Act was designed to be adoptive to change. In the year 1939, it underwent a substantial amendment (SSA, 2000). The modification included two more benefits aside from the retirement benefits. The legislators added the dependents and survivors benefits. The former was made to benefit the spouse and minor children of the retired while the latter was for the family of the worker in case of premature death (SSA, 2000). In a sense, the amendment not only benefited the worker but also his or her family. As the economic situation of America began to regain strength, the amount of benefits to be received by the recipients was also increased. Moreover, the payment of monthly benefits was made to start in 1940 instead of 1942 (SSA, 2000). A legal secretary named Ida May Fuller was the first citizen to avail of the accelerated monthly benefits. In 1950, the congress once again amended the law and inserted a new feature called COLAs (Cost-of-Living Adjustments). As it was implemented, annual increase of the amount of benefits was expected corresponding to the annual increase of standard of living. This was implemented in the year 1975. In the year 1956, an insurance program for the disabled workers was included (SSA, 2000). At that time, the Social Security already offered four benefits, retirement, dependents, survivors and disability benefits. The year 1961 was memorable for the lawmakers made the retirement benefits available to citizens aging sixty two years old (SSA, 2000). Nevertheless, the most important amendment in that year was the inclusion of Medicare. The Social Security Administration actually managed the granting of Medicare benefits until 1976. In 1977, HCFA (Health Care Financing Administration) was created to assume the responsibility (SSA, 2000). In other words, a separate agency was established to specialize the handling of health care benefits. Later on, in 1972, the congress decided to base the annual increase on the yearly increase of consumer prices (SSA, 2000). It made the COLAs self-executory on the part of the agency concerned. The approval of the legislators was not anymore required in making an increase for the subsequent years. From then on, only the disability benefits have been subjected to several adjustments. In 2000, President Clinton approved the elimination of RET (Retirement Earnings Test) for the recipients having the desired normal retirement age (SSA, 2000). As a Public Policy: Scope and Nature Verily, the enactment of the Social Security Act was due to a public issue brought about by an unexpected economic crisis. In an attempt by the American government to relieve the suffering of its citizens, it created a social insurance program. It was a program initiated by the legislators themselves. In such case, pressure groups or the lobbying groups were not really the key players to influence the decision to make the policy. All the citizens of America were then aware of the country’s sad economic state. As to the many problems hunting the American nation at that time, the plight of the old-age people was the most apparent and pitiful. Most of them were left alone with nothing to support their basic needs. Nevertheless, a group known as the Townsend Club was able to enlighten the lawmakers of the unfortunate condition of the elderly. Its founder, Francis Townsend, actually saw three old women digging for food in the trash cans (Leonard, 2008). Disgruntled by that reality, he then became active in politics and founded the club. As the leader and representative of the Townsend Club, he made a proposition that the federal government of America grant pension to citizens aging sixty years of age (Leonard, 2008). What he proposed was the OARPP (Old Age Revolving Pension Plan), to be funded through federal sales taxes (Leonard, 2008). The Townsend Club successfully gathered support from the American citizens. In 1935, it had over twenty million members nationwide. Townsend allegedly walked up to Roosevelt and gave him a copy of the petition about the pension plan. The idea had put the president and lawmakers into action. The group’s effort ended up the legislators passing the Social Security Act which was readily approved by President Roosevelt in 1935 (Leonard, 2008). For the first time that the act was implemented, the main focus was the elderly in the country. The retirement program was the original intent of the Social Security Act (Tomkiel III, 2008). It was actually a legislation designed to augment the poverty level in America. The system of giving retirement benefits was proven helpful and effective. The Social Security Act was then made applicable to other public issues. This became the rationale of the additional benefits offered. Two kinds of benefits were actually added for the first time, the dependents and survivors benefits. The inclusion of the dependents’ benefits was centered on the reason that there are instances wherein all members of a family depend only to the income of the employed member. On the other side, the addition of the survivors’ benefits was justified by the fact that in case the working member of a family dies, his or her survivors can be entitled to the benefits that the deceased member was not able to use. Basically, the reinforcement of the two mentioned benefits was made to answer financial problem of families in case of retirement and premature death. Significantly, the government was able to notice that there are circumstances wherein the employed person becomes disabled and stops working for the family. It became a public issue. The legislators addressed the problem by inserting the disability benefits into the Social Security Act. Evaluation of the Policy The Success. The Social Security Act has been true to its cause. It has achieved its goals (Cochran, Mayer, Carr, & Cayer, 2008). This has been attributed to the well integrated governmental structures in the American political system. The different units of government have been actively supporting the objectives of the act. It was done through information dissemination and formulating of implementing rules. The old-age citizens (the political clout) have been quite cooperative too when the act was first applied throughout the country. Since the passage of the act, social spending has been consistently the largest item in the federal budget (“The National,” 2010). Accordingly, the citizens response as to the granting of benefits has been positive (Cochran et al., 2008). The OASDI (Old-age, Survivors, Disability) or simply Social Security and the insurance for unemployment have successfully kept the beneficiaries out of poverty (Cochran et al., 2008). The unemployment insurance actually supports citizens who are either laid off from work or illegally dismissed (U.S. Department of State, n.d.). This insurance is funded by the government itself and shall be paid back when the worker finds another job or is reinstated. Somehow, the OASDI has been able to adequately support the basic needs of the recipients. In fact, it has effectively lowered the poverty rate of the elderly in America. It has been dubbed as the most successful American program against poverty. The Social Security has given the retirees, survivors and disabled a just return of their investment (Cochran et al., 2008). The years that they have worked and allowed a social security tax to be deducted to their income has been a fruitful undertaking. Right after an employee retires, he or she can opt to receive the benefits either in lump-sum or monthly. When the worker chooses the second option, he or she shall be granted a monthly pension until his or her death. Furthermore, the recipients have been assured by the legislators of the program’s financial stability (Cochran et al., 2008). In fact, the Congress has always been alert to amend the law so as to keep its stability in many areas. For instance, the lawmakers have increased the rate of tax and wage base for the contributions in 1983. Also, they have mandated that the retirement age would be increased to 67 in 2027. Moreover, the Congress subjected half of the OASDI benefits of one-third of retirees having the highest income to federal taxation. These amendments were predicted to keep the Social Security solvent until 2030 (Cochran et al., 2008). The Dilemma. Problem on long term financing faces the Social Security. This is due to the fact that it is financed “on a pay-as-you-go basis” (Cochran et al., 2008). In the system, the taxes paid go into the trust funds. However, these trust funds do not have enough reserves to cover the benefits. As a consequence, a substantial part of the taxes collected each year is used to cover the benefits for that same year (Cochran et al., 2008). Actually, under the act, current employees are required to pay social security taxes in order for them to provide funds for the retirees benefits (Cochran et al., 2008). In the same way, when these workers eventually retire, the next generation will be the one to pay for their benefits. A reciprocal obligation is created between the current workers and the retirees. This scheme poses no problem especially if the benefits to be given are low and the number of active workers is high (Cochran et al., 2008). This could mean that there will be enough budget to cover the benefits of these active employees when they retire. The dilemma exists when there is inflation and the life span of Americans increases (Cochran et al., 2008). The Approaches It is observed that both the normative and descriptive approach were employed in making the Social Security Act. In arriving at the decision to create such policy, the actors involved have gathered substantial information about the major public issues existing at the time when America was suffering from the Great Depression. Forms of activism were even exhausted just to unravel the most pressing problem in the society. In the final analysis, the Congress served as the ultimate decision maker. It instituted several meetings just to determine the major problem to be addressed and formulate a possible solution. When the legislators have agreed of the appropriate course of action, they made the policy and endorsed it to the president. When the Social Security Act was created, a Committee on Economic Security was actually established. The members of which were chosen among the members of the Congress. In drafting the policy, the committee employed descriptive analysis, describing what the citizens should do when the law will be implemented. In the Social Security Act of 1935, the American citizens were mandated to pay social security taxes to help the elderly. Privatization of Social Security The first formal introduction of the Social Security Act’s change in policy was made during the presidential term of George W. Bush. The Bush administration proposed that a private investment account shall be created aside from the traditional Social Security. In implementing such, a small percentage (about 1 to 2 percent) shall be deducted from the 6.2 percent payroll tax. The deducted amount shall be used by the employee to open an account for retirement. This account will be managed by the employee and retiree concerned subject to government guidelines (Cochran et al., 2008). The proponents of this system assured that a higher return on investment can be expected by the worker and the private fund can be passed to one’s survivors. It has been observed that the system encourages individual responsibility during retirement and expands avenue to financial markets (Cochran et al., 2008). Countries such as England, Sweden, Australia and Chile have already adopted this privatization scheme (Auerbach, 1997). As such, it is strongly suggested that America should also embrace this spreading social security privatization in the international community. References Auerbach, A. (1997). Fiscal policy: Lessons from economic research. Massachusetts: Massachusetts Institute of Technology Press. Cochran, C., Mayer, L., Carr, T.R., & Cayer, N. J. (2008). American Public Policy: An introduction. Boston, Massachusetts: Cengage Learning. Leonard, V. R. (2008). The social security and medicare handbook: What you need to know explained simply. Ocala, Florida: Atlantic Publishing Company. Rosenberg, J. (n.d.). The great depression. Retrieved from http://history1900s.about.com/od/1930s/p/greatdepression.htm Social Security Administration. (2000). A brief history of social security. [Pdf]. The national debt is $13.7 trillion. (2010). Retrieved from http://www.federalbudget.com/ Tomkiel III, S. (2008). The social security answer book. Naperville, Illinois: Sphinx Publishing. U.S. Department of State. (n.d.). Unemployment insurance in the United States. Retrieved from http://economics.about.com/od/laborinamerica/a/unemployment.htm Read More