Social Insecurity and Other Bad Puns

Full disclosure, this was an article I wrote my freshman year and as such it is less than amazing. That said, it still is an interesting take on Social Security Insolvency.

Social Security, the very system that provides vital benefits for elderly and disabled American citizens, is expected to go bankrupt as early as 2018—though most estimates report a later date. If the United States government does not take any action before this point, the elderly and disabled of the US will be effectively deprived of their benefits¬—which, might I add, they worked to deserve. What is at risk here is our economic stability and the integrity of the social compact that has existed since the inception of the program. Policymakers are faced with a unique situation: Social Security ought to be rendered solvent yet it must be maintained is such a manner that Americans are not deprived of their benefits.

What is Social Security? Why do I care about it?

For those who do not know, Social Security is an insurance program—in a rough sense—that provides monetary benefits to American citizens. The system is funded through payroll taxes, taxes based upon and taken from an individual’s wage, and is also the largest expenditure of the federal government’s budget. The benefits that the program provides are divided into three categories: old age, disability, and spouse benefits. These benefits are calculated according to the individual’s income; a worker earning over $110,000 pays 3.4% of his or her payroll while a worker earning under that amount pays 6.8% of his or her payroll. In theory, Social Security is tax neutral. Under such a system, the money given to the US government in the form of the payroll tax will be the same amount given out in benefits to US citizens. In reality, the expenditures of the US government exceed its revenues; the US government is effectively losing money. Each year the US government loses money, for many reasons, like the retirement of the ‘baby boomers’. These losses, simply put, deplete the amount of money in the trust fund. There are many criticisms of the Social Security system other than its fiscal insolvency: it has a regressive tax system that penalizes the poor and a low rate of capital formation. However, despite its flaws, Social Security’s strengths are much more potent. It allows workers to accrue human capital and, in doing so, boosts the economy. The program even helps spur investment and entrepreneurship. It provides an invaluable safety net for the lower and middle class, and improves quality of life for all Americans. It does this provides benefits for the elderly, the retired, and the disabled who may not be able to pay for various necessary expenses. With these benefits in mind, we can conclude that it must not be eliminated despite its insolvency. Instead, it must be reformed so that it becomes an economically feasible policy.

Social Security is not a Ponzi Scheme.

A misconception people usually have about the social security system is that the system is a Ponzi scheme. Pundits throw the term around in order to describe the program’s insecurity—but the use of the word does not tell us anything about the program…and the term isn’t even appropriate. Ponzi schemes are frauds in which the operator promises or credits investors with exceptional returns, supposedly based on the performance of the assets purchased. The organizer acquires no assets, pays maturing promises or other withdrawals with funds from new depositors, and skims money off the top to support lavish personal consumption. Social Security isn’t a Ponzi scheme, as unlike in a Ponzi scheme it does not require continued growth to sustain it…not to mention the obvious fact that there is no intentional fraud. The social security system can be better envisioned as a trust fund rather than a Ponzi scheme. Social Security functions like a trust fund as it provides benefits for an individual when he or she reaches a certain age. It’s not anything like a Ponzi scheme.

So what do we do?

The United States government must stop the annual loss of money. They can do this two fundamental ways: increasing revenue by raising the payroll tax, or decreasing expenses by taking away or reducing benefits. Both these ways will theoretically rebalance the Social Security system. There are many ways, however, to either lower expenses or raise revenues. For example, recently, many congressmen have been supporting a change to private social security accounts, which would theoretically reduce expenditures. There are as well countless ways to reform the social security tax that could increase tax revenues. In looking at which of these solutions is favorable, the stance of the Democratic Party has traditionally been that the benefits provided by the social security should not be harmed or reduced in any way and that the revenues of the social security system should be increased by having the rich shoulder much of the tax. On the other hand, the Republican Party believes that reducing the benefits given by the system should lower the expenditures of the system. Republicans and Democrats have often clashed on the issue of social security and the current United States Congress has been known to be slow in the passing of legislature due to a very apparent lack of bipartisanship. Hopefully, Republicans and Democrats will be able to do the seemingly impossible and compromise on the issue of Social Security before the system goes bankrupt.

Leave a Reply