Social Security - Essay Example

Social Security The social security program has been the most popular social insurance scheme in the United States of America. Many citizens in the US benefit from the program but only a few understand its operation methodology, or the comparison of the social insurance scheme with other retirement investments. A large portion of the American population have the notion that the Social Security system maintains a sort of saving account for each citizen of the country with a amount of money. On the contrary, the system does not connect the amount of money in taxes that people pay to the benefits that they will eventually receive on retirement. To add to this, the return rate on Social Security taxes is very low. For instance, two 30-years-old hard working individuals from a household with children earn a return rate of approximately 1.2 percent. A Social Security scheme is a government system that provides monetary assistance to citizens of the country who earn inadequate income, or have no income at all. In the US, Social Security is a comprehensive federal program that provides benefits to workers and their dependants with consistent retirement income and other payments (SSA). The main financial source of Social Security programs is usually the Social Security tax. The enactment of the social insurance legislation in the 1930s in the US Congress was among the greatest economic and social success in the twentieth century. During that period, the natural phenomenon of being old was associated with being poor and poverty. Many people were facing the terror of helpless, penniless old age. From retirement benefits only, the Social Security Act of 1934 has been broadened to include disability benefits, survivors’ benefits, automatic cost-of-living adjustments, and healthcare benefits (DeWitt, Beland & Berkowitz 18). Due to its responsive changes to the needs of the society, Social Security, especially in the US has become one of the most popular domestic government program initiatives in the country’s history. The success of social security is founded on the fact that it is a universal need emphasizing on common uncertain activities resulting from death, old age, and disability. From early times, people were working and living in farms with the economic security provided by the extended members of the family. This changed, however, on the rise of the Industrial Revolution in the US and the rest of the world. The Great Depression followed in the early twentieth century, triggering the emergence of the Social Security Act. The first ever form of a pension scheme was a generous pension program meant for disabled soldiers and dependants of deceased breadwinners after the Civil War in the US. In fact, the first formal pension program was in the military in early 1776. A message to the US Congress from President Franklin D. Roosevelt on June 8, 1934, announced his intention of unveiling a social security program. In accordance with his plan, President Roosevelt created a committee on Economic Security through an Executive Order. The committee comprised of Secretary of Labor Frances Perkins (Chairwoman), Secretary of Agriculture Henry A. Wallace, Secretary of Treasury Henry Morgenthau, Federal emergency Relief Administrator Harry L. Hopkins, and the then Attorney General Homer S. Cummings (SSA). Their duty was to study the issue of economic insecurity and present their recommendations, which would be subject to Congress legislative consideration. On completion of their tasks, the committee presented their report to President Roosevelt in January 1935. The President later unveiled the reports in both legislative houses for consideration. Eventually, both houses passed their own versions of the reports with differences. However, these differences in the reports from the two Houses of Congress were resolved. On August 14, 1935, the Social Security Act was passed into law. The act comprised of the general welfare provision along with a social benefits program carefully designed to provide payments to retired workers on the attainment of 65 years or older on a consistent basis. Abraham Epstein, an activist leading the American Association for Social Security movement, coined the term “Social Security” from the initial title Economic Security (DeWitt, Beland & Berkowitz 15). Part of the Social security Act provision was the establishment of a partisan board with three members appointed by the President. The Socials Security (SSB) was formed with the first members being Vincent M. Miles, Arthur J. Altmeyer, and chair John W. Winant. The responsibility of SSB was providing information to the public on how the scheme would work, including the reporting of the earnings, available benefits, and provision. SSB also had the responsibility of choosing field installation sites and selection and training of the personnel to occupy the offices. Their major task was the registration of workers and employees by the begging of the year 1937, which would mark the beginning of individuals acquiring the credit towards retirement insurance benefits. Considering the resources that SSB had at the time, they could not accomplish. The result was a contract with the US Postal service for distribution of the registration forms that begun in November 1936. After the registration by workers and employees, the post offices collected the forms, made the Social security Numbers (SSN), and returned these cards to their respective applicants. The applications collected from the workers and individuals were sent to the SSB for registration and establishment of employment records to the main processing center of the board in Baltimore, Maryland. The project saw more than 35 million SSN cards issued between 1936 and early 1937. The registration process had been a success, but according to the Act, payments were to begin in 1942. Between 1937 and 1942, retirements benefits were to be paid in one lump sum payment to the retirees. The first reported benefit payment was to Ernest Ackerman, a retired motorman from Cleveland (DeWitt, Beland & Berkowitz 46). Ackerman had retired a day after the implementation of the Social Security Act, during which he had contributed a nickel from his pay. His retirement benefit was 17 cents. At the time, retirement benefits were averaging at a low of 58.06 dollars. The lowest ever recorded payment was 5 cents. In essence, the original Act had a provision for retirement only, but as the scheme displayed practical success, amendments to the Act began. The first amendment to the original Act was in 1939. The amendment to the Act brought fundamental changes including the introduction of two other benefits: survivor benefits and the dependents benefits. The Social Security system was now a family-based financial security system from a primarily retirement program. The 1939 amendment re-instated 1940 as the start of the monthly payments from 1942, and increased the benefits amount. With the successful amendment of the Act, monthly benefits payment began in 1940 (SSA). The first beneficiary of the monthly retirement was Ida May, a retired legal secretary from Ludlow, Vermont. Her first payment was 22.54 dollars. Nonetheless, Miss Fuller passed away in January 1975 with an accumulated benefit basket of 22,000 dollars. As the world continued to experience economic hardships due to fixed incomes and inflation, there was a need to increase the benefits. These increases, commonly referred to as Cost-Of-Living Adjustments (COLA), first passed legislation in 1950 with a 77% increase. However, the amendment had a provision for increment of the COLA based on further amendment by the Congress. A further amendment in 1972 established a provision for an annual COLA based on the changes in the annual consumer prices, beginning in 1975. This was a very considerate amendment, as the effects of inflation do not affect the value of Social Security benefits. Another significant amendment in 1954 introduced disability insurance program that provided a cover for the public from economic insecurity. According to the Social Security program, there was a freeze of workers’ records if they were unable to work. Despite the lack of cash benefits provision, workers’ survivor and retirement benefits would not be affected because of such periods. The 1954 amendment introduced the provision of benefits to disabled workers and their children. The workers have to be aged between 50 and 65 years (DeWitt, Beland & Berkowitz 126). Consequently, the program was further broadened to cover disabled workers below the age of 50 and their dependants, and later all disabled workers at all age. The 1960s saw other major amendments to the Social Security Act including lowering of the benefits eligibility age limit for men to 62 years. The main change was that involving Medicare. The Medicare provision incorporated health coverage to beneficiaries from the age of 65 and above, and consequently incorporating the disability beneficiaries into the Medicare program. Close to 20 million workers were enrolled into the program within the first three years. The program would continue to offer comprehensive health coverage to the nation until the creation of the Health Care Financing Administration in 1977. The Social Security programs were becoming complex and the benefits were varying significantly from state to state. As a result, President Nixon commissioned Elliot Richardson (then Secretary of Health, Welfare, and Education) to design and implement some reforms in the program. In 1971, Richardson presented the report to the president, which proposed the establishment of Social Security Administration (SSA) to be responsible for the adult categories. Congress made the proposal into law in 1972, effectively creating the Social Security Income (SSI) program. The 1980s and the years that followed saw further amendments of the Act. During President Ronal Reagan administration, the program was facing financial problems leading to the creation of a panel, the Greenspan Commission, to investigate the financial issues and present recommendations. The proposals of the commission became law in 1983 with major changes in the Medicare and Social Security programs, notably the taxation of the Social Security benefits, coverage of federal employees, increasing the Social Security Trust Funds, and raising the retirement age effective from 2000 (DeWitt, Beland & Berkowitz ). The 1994 legislations included the abolition of the periodical advisory councils and the establishment of a permanent Social Security Advisory Board that would provide independent counsel and advice concerning the program. Welfare reforms in 1996 and 1997 under President Clinton’s administration were focusing on changing the qualification rules for disability benefits for citizens and the eligibility for non-citizens. In 1999, the “Ticket to Work Incentives Improvement Act” became law, providing vouchers to disability beneficiaries that would enable them to access employment services, vocational rehabilitation services, and other essential support services from a personal choice in an employment network (DeWitt, Beland & Berkowitz 234). The amendment also had a provision for incentives for successful rehabilitations candidates who return to work. A year later, President Clinton passed “The Senior Citizens’ Freedom to Work Act of 2000” into law, which eliminated the Retired Earnings Test (RET) for individual beneficiaries with regards to the Normal Retirement Age (NRA). Below is a discussion of real cases of Social Security programs: One in the US, and the other in the United Arabs Emirates. The Social Security program is most notable in the US. Approximately two-thirds of the American population aged 62 and above depend heavily on Social Security payments for their incomes, with one among five of them depending solely on the payment as a source of livelihood. The Social Security program has become an important facet in the modern American life. According to Social Security records, the program covers approximately 98% of all workers in the country. In addition, one among six American citizens is a beneficiary of the program. The benefits from Social Security constitute about 5% of the total economic output of the nation. The number of people benefitting from the program has significantly increased from the initial 222,000 individuals to more than 45 million today (SSA). The program has also changed considerably from the initial retirement plan such that one in every three beneficiaries is not a retiree. The current Social Security system in the US gets its finances from the payroll tax, with the employee contributing 6.2 and the employer another 6.2 percent, totaling to 12.4 percent. The principle of the Social Security system is based on the concept of income distribution (DeWitt, Beland & Berkowitz 507). The program was transformed from a retirement insurance scheme to a redistribution program, to reduce the inequality of income. The wealth of Social Security is implicit in the fact that the younger generation provides funds for the benefits of the older generation, thus creating a form of income shift from the young generation to the old generation (SSA). Let take an example of two workers, one retires in 1980 and the other in 2010, thus each having a benefits accumulation of 39,200 dollars and 36,300 dollars respectively. A careful computation of the payroll taxes and benefits of the two individuals, one will note that the older individual gets more benefit. It is therefore conclusive to say that the Social Security program provides a means through which income shifts from the young generation to the older generation. Despite the achievement of the Social Security Program in the US, the program is a short-lived. According to the 2000 Trustees Report, the program could only repay beneficiaries in full until 1937, but the actuarial balance of 75 years will not be met. There are, however, plans by the US government to introduce new laws, including privatization, are underway. Nonetheless, the Social Security program is the most successful pension scheme in the entire world. In the United Arab Emirates (UAE), the 1977 Social Security law provides benefits to certain specific groups in the UAE, including the elderly, disabled, widows, unmarried women, and women separated from husbands, as well as those individuals living on an inadequate income (Al-Abed, Vine & Hellyer 225). In addition, the program incorporates free education from kindergarten through university, though limited to citizens of the region only. Accordingly, there is no minimum wage. The UAE authorities do not impose any social security taxes on foreigners. The social security system in UAE requires a mandatory 12.5% employer pension contribution based on the salary calculation. The taxes on benefits for any national employee are computed at 5% of the salary calculation. According to labor laws in the country, employers have to provide their employees with an end of service benefit, with a recent legislation requiring employer deposit guarantee of 3,000 Arab Emirates dollars for each employee (Al-Abed, Vine & Hellyer 226). The laws concerning the end of service guarantee place the benefit package at a figure close to one-month basic salary for every year of service, after the initial first three years. However, these provisions are for citizens only. In addition, there can be no unemployment insurance for foreigners as they lose their residence permit upon unemployment. In general, the social security program in the UAE is focused in citizens of the region only. In conclusion, the Social Security programs have proved to be very efficient and important, especially to the elderly members of nation. The only problem that faces the Social Security programs is their durability and self-sustenance. The Social Security funds need to build a substantial surplus to cater for future retirees of the nations. The social security concept has helped nations deal with their income distribution as well as contain elderly poverty. Works Cited Al-Abed, Ibrahim, Vine, Paula & Hellyer, Peter. United Emirates Yearbook 2005. London: Trident Press Ltd, 2005. Print. DeWitt, Larry, Beland, Daniel & Berkowitz Edward. Social Security: A Documentary History. Washington DC: CQPress, 2008. Print. SSA. A Brief History of Social Security. Web 10 Dec. 2011. Read More