Proposals to Change Social Security Benefits

During many elections, we have heard proposals from politicians to alter or change Social Security benefits. In this paper, I’m going to research and analyze these proposals to find out whether or not they would be beneficial to the Social Security fund, how it will affect all of us in the future, and the current beneficiaries who receive Social Security.

“The key problem for Social Security is that, as the population ages, soon there will not be enough people paying Social Security taxes to provide benefits for every retired person.” (Dilulio & Wilson 486). This is why so many politicians have proposed changes to the current system. The people in my generation might not see any benefits when it’s our time to retire. “In 1950, there were 16 workers to support every one beneficiary of Social Security; today, there are only 3.3 workers supporting every Social Security beneficiary.” (White House).

If Social Security stays unchanged at this rate, Social Security will be paying out more than it takes in. If we ever reach this stage we will be left with two problems, a lot of people paying into the system now will be cut off of Social Security, or the government will borrow more money to pay the beneficiaries, which will increase the national debt.

“Unless otherwise stated, payment levels apply equally to aged, blind, and disabled persons.” (State assistance programs for SSI recipients, 3) I believe that if the Social Security fund only funded beneficiaries who are aged, we would not have such a low number today of 3.3 workers supporting every Social Security beneficiary. “The Budget Enforcement Act, for example, excluded the receipts and disbursements of Social Security from the President’s budget and the congressional budget resolution.

Programs that have been excluded like this are called “off-budget”.” (Collender 12)

Robert M. Ball has proposed a plan to alter Social Security while arguing against President Bush’s proposal of private accounts. One thing that Ball has proposed was, “Gradually raise the cap on earnings covered by Social Security so that once again 90 percent of all such earnings would be taxed and counted for benefits” (Ball 2). I believe the means of using tax to fix Social Security will work in the short run, but not in the long. If we do take this approach, should we gradually raise the cap on earnings covered by Social Security even more in the future when Social Security has gone further into debt? Another proposed change by Ball was, “An estate tax is a highly progressive way of meeting this cost, and dedicating it to Social Security would strengthen the contributory.” (Ball 3) Now an estate tax, or sometimes called a “death tax”, is a tax on a person’s estate depending on how much he or she was worth. Again, I see a problem with this proposal because Ball is suggesting that we use another means of tax to be paid into Social Security. I personally think it’s wrong to even have an estate tax because those who are taxed an estate tax were most likely small business owners. “More than 70% of family businesses do not survive the second generation; 87% do not make it to the third generation.” (Frequently Asked Questions about the "Death Tax")

During the 2000 elections, President Bush was widely known for his proposals to privatize Social Security. Most of the Democrat’s are against Bush’s proposals to change Social Security, whereas, most Republican’s are for Bush’s proposals to change Social Security. In order to find out whether people would be better off under the current Social Security system or a privatized system, I researched the average returns among the current system and compared them to the average returns under a private investment or “private account”.

Barbara Boxer published a “Social Security to Social Insecurity calculator” (Boxer), that calculates the average return an individual will receive under the current system compared to Bush’s privatization plan. I entered many different salaries and years and at every given circumstance, Bush’s plan resulted in a loss. I found this very disturbing considering the large amounts of research I have done last year on retirement accounts.

Dave Ramsey published a ”Privatizing Social Security calculator” (Ramsey), that calculates the return you could expect depending on the type of fund you choose, your income, and your age. Compared to Barbara Boxer’s calculator, I found this calculator more accurate because you were able to choose a fund that had an average annual return, which is calculated into how much you contribute over a given amount of years. The result from Dave Ramsey’s calculator shows how much you will receive from social security and your private accounts when you retire which resulted in a much higher return than social security.

Last year I took an economics class, which covered a great deal in investing for retirement. Some people who are against Bush’s plan of private accounts state that privatizing social security is too risky for retirement. “For individual investors who have neither the time nor the inclusion to actively monitor a stock or a bong portfolio, mutual funds have an obvious appeal. Just pick a good fund and let the managers do the work for you.” (Groz 105). At the age of 19, I visited Fidelity Investments in Braintree, Massachusetts where I was able to start my own investment portfolio. They showed me many funds that ranged from aggressive growth to conservative growth funds. I then chose a couple of mutual funds that were aggressive growth because I was starting my investing at such a young age. “Many investors draw the inference that they should not invest all their money in a single stock or bond, but rather spread out their investments among a group of securities.” (Groz 106). If private accounts were an option, I would recommend people to diversify their investments into many different funds just to limit risk.

Another benefit from investing in certain types of stocks is the dividends. “Dividends, then, are a dividing up and distribution to shareholders of a portion of the corporation’s earnings.” (Groz 27). With these dividends, you can reinvest them into the stock or fund; “Compounding occurs when you get many (e.g., interest or dividends) from an investment and put it back into the portfolio, letting it grow alongside the original investment.” (Groz 183).

After doing researching and analyzing the proposals offered by many politicians, I feel that privatizing Social Security is not such a bad idea. I feel that privatizing Social Security would give people more control of their money when it comes to saving money for retirement that the government cannot touch. I understand that some people might fear the risks of investing in the stock market, but if someone diversifies and chooses funds that are somewhat conservative, there is a very small risk of having little return. Considering that Social Security today has very little return “Social Security's inflation-adjusted rate of return is only 1.23 percent for an average household of two 30-year-old earners with children in which each parent made just under ,000 in 1996.” (Beach), you would be better off putting your money into a savings account earning a return close to 3 percent.

“If someone's definition of national debt excludes the debt owed to federal entities, they are not accounting for the interest on the debt owed to federal entities.” (Ruoco). Since the government’s national debt has been rising year after year which can be seen on ([http://www.publicdebt.treas.gov/opd/opdhisto4.htm]), why should I trust the government with my retirement money? This is why I support the idea of privatizing Social Security, or at least giving the American people the option to invest in private accounts.

Sources

Orr, Doug. "Social Security Q & A: separating fact from fiction." Dollars & Sense 259 (May-June 2005): 15(6).

State assistance programs for SSI recipients. Baltimore, Md. : The Branch, 2002 Jan

Ball, Robert P (2005). “Fixing Social Security” The Century Foundation. 5/3/2005 http://www.socsec.org/facts/Check_Lists/checklist1.PDF

Beach, William W., Gareth E. Davis. "Social Security's Rate of Return." The Heritage Foundation. 15 Jan 1998. 25 Nov. 2005 http://www.heritage.org/Research/SocialSecurity/CDA98-01.cfm#1>.

Bogle, John C. Common Sense on Mutual Funds : New Imperatives for the Intelligent Investor . San Francisco: John Wiley, 1999.

Boxer, Barbara. "Social Security into Social Insecurity." Social Insecurity. 25 Nov. 2005 http://boxer.senate.gov/socsec/>.

Brohawn, Dawn K., Norman G. Kurland, and Michael D. Greaney. Capital Homesteading for Every Citizen: A Just Free Market Solution for Saving Social Security. : Center for Economic and Social Justice, 2004.
(Brohawn et al. 256)

Collender, Stanley E. The Guide to the Federal Budget : Fiscal 2000. New York: Century Foundation Press, 1999.

"Frequently Asked Questions about the "Death Tax"." DeathTax. 29 Mar 2001. The Seattle Times. 25 Nov. 2005 http://www.deathtax.com/deathtax/faq.html>.

Groz, Marc M. Forbes Guide to the Markets : Becoming a Savvy Investor. New York: J. Wiley, 1999.

Hubbard, Glenn. "Happy 70th, Social Security." Business Week August 08 2005.

Ramsey, Dave. "Making the Case for Privatizing Social Security." Social Security Reform. 25 Nov. 2005 http://www.daveramsey.com/etc/social_security/>.

Ruoco, James. "The Impact of Social Security on the National Debt." JustFacts.com. 1 Sep 2001. 25 Nov. 2005 http://www.justfacts.com/ssdebtimpact.htm>.

United States. A blueprint for new beginnings : a responsible budget for America’s priorities. Washington, D.C: U.S. G.P.O., 2001.

United States. “U.S. Department of the Treasury, Bureau of the Public Debt.” Historical Debt Outstanding – Annual. 25 Nov. 2005 http://www.publicdebt.treas.gov/opd/opdhisto4.htm>.

White House. "Strengthening Social Security for Future Generations." Strengthening Social Security. The White House. 25 Nov. 2005 http://www.whitehouse.gov/infocus/social-security/>.

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