American Government-Economics Essay, Research Paper

American Government-EconomicsMost of the problems of the United states are relatedto the economy. One of the major issues facing the countrytoday is social security.The United States was one of the last majorindustrialized nations to establish a social securitysystem. In 1911, Wisconsin passed the first state workerscompensation law to be held constitutional. At that time,most Americans believed the government should not have tocare for the aged, disabled or needy. But such attitudeschanged during the Great Depression in the 1930’s.In 1935, Congress passed the Social Security Act. Thislaw became the basis of the U.S. social insurance system. It provided cash benefits to only retired workers incommerce or industry. In 1939, Congress amended the act tobenefit and dependent children of retired workers and widowsand children of deceased workers . In 1950, theact began to cover many farm and domestic workers, nonprofessional self employed workers, and many state andmunicipal employees. Coverage became nearly universal in1956, when lawyers and other professional workers came underthe system. Social security is a government program that helps workers and retiredworkers and their families achieve a degree of economic security. Socialsecurity also called social insurance (Robertson p. 33), provides cashpayments to help replace income lost as a result of retirement,unemployment, disability, or death. The program also helps pay the costof medical care for people age 65 or older and for some disabledworkers. About one-sixth of the people in the United States receivesocial security benefits. People become eligible to receive benefits by working in a certainperiod in a job covered by social security. Employers and workers finance the program through payroll taxes. Participation in the social security system is required for about 95percent of all U.S. workers. Social security differs from public assistance. Social security paysbenefits to individuals, and their families, largely on the basis ofwork histories. Public assistance, or welfare, aids the needy,regardless of their work records. All industrialized countries as well as many developing nations have asocial security system. The social security program in the United stateshas three main parts. They are (1) old-aged, survivors, disability, andhospital insurance (OASDHI), (2) unemployment insurance; and (3)workers’ compensation.THE SOCIAL SECURITY PAYROLL TAXThis tax was to be taken from the payrolls of the nation’s employers andemployees. The government felt that, like unemployment benefits, thesocial security should be financed by those who got the greatestbenefit, those who worked, and were liable to need those benefits in thefuture. A plan that would affect those only who had paid such a tax for anumber of years would have done those who were currently suffering underthe Depression no good at all. As a result, the social security planbegan paying out benefits almost immediately to those who had beenretired, or elderly and out of work, and who were unable, primarilybecause of the depressed economic conditions, to retire comfortably. Inthis way, the government was able to accomplish two objectives: first,it helped the economy pull out of the depression, by providing a meansby which old people could support themselves and, by buying goods andservices, support others in the community ; and second, it showed theyounger workers of that time that they no longer had to fear living outtheir retirement years in fear of poverty. Therefore, the social security payroll tax has been used to providebenefits to those who otherwise would have little means of support, andas of this writing, there has never been a year when Social Securitybenefits were not paid due to lack of Social Security income. (Boskinp.122) PAYING OUT BENEFITSSocial Security benefits increased142% in the period between 1950-1972. not only the elderly, but many ofthe survivers, the widows and children, of those who paid into theSocial Security system, have received social security checks. Thesechecks have paid for the food shelters, and in many instances thecollege education of the recipients. Unlike private insurance firms, the United States Government does nothave to worry about financial failure. Government bonds are consideredthe safest investment money can buy-so safe, they are considered “riskfree” by many financial scholars. (Stein p. 198) The ability of theUnited States Government to raise money to meet the requirements of thesocial security should be no more in doubt than the governments abilityto finance the national defense, the housing programs, the StateDepartment, or any of the other activities that the federal governmentgets involved in. By paying out benefits equally to all participate in Social Security-that is by not relying so heavily on total payments in making thedecision to pay out benefits, the system is able to pay benefits topeople who otherwise may not be able to afford an insurance program thatwould provide them with as much protection. One of the main reasons forthe government’s involvement in this program, is its ability and itsdesire to provide insurance benefits for the poor and widowed, who underthe private market, might not be able to acquire the insurance tocontinue on a financially steady course. The government, then, is in a totally unique position to pay outbenefits that would be out of the reach of many American families.Another great advantage of this system,is the ability of the government to adjust the benefits forthe effects of inflation(Robertson p.134)INFLATION AND SOCIAL SECURITYPrivate insurance plans are totally unable to adjustfor the effects of inflation with complete accuracy. Inorder for an insurance company to make this adjustment, theywould have to be able to see forty-five years into thefuture, with twenty-twenty vision. When a private pensionplan currently insures the twenty-year-old worker, it canonly guarantee a fixed income when the worker reaches sixty-five and a fixed income is a prime victim of inflation(Robertson p.332) In order to adjust for that inflation, theprivate insurance firm would have to be able to predict what

the inflation rate will be from the moment the worker isinsured until the day he dies, and then make the complexadjustments necessary to reflect this in the pension plan.An inflation estimate that is too small will result in theerosion of the workers retirement benefits. Because the government, unlike the private insurancefirm, can guarantee that it will exist well into the future, and willhave the continued income of the Social Security tax to draw upon, itcan make on-the-spot adjustments for changes in the inflation rate. Someadjustments, in fact, have been automatic in the recent years, thereforerelieving the pensioners of the periodic worry of whether this yearsbenefits would be adjusted, or whether the level of payments wouldremain stable, thereby, relative to the cost of living, making thempoorer that ever before(Stein p.28). In the face of the government’s ability to make thosenecessary adjustments and to continually finance the SocialSecurity program, many opponents of the system argue thatthe government programs are driving out the privateinsurance industry. The statistics remain otherwise. SOCIAL SECURITY FINANCINGThe social security tax is one of the fewest taxes inthe United States, and the only federal tax in the country,that is given for a specific purpose. All other taxes areput into another fund, so that welfare programs, defense,space projects, and the other categories of governmentspending are all financed from one giant, uncategorized bowlof tax revenues(boskin p.62). When the Social Security system was first established,it was felt that a direct payroll tax, based on the pay ofthe worker and paid both by employer and employee, would bethe fairest way for the people that were currently workingto pay benefits to those who weren’t working, as well as toprovide for some future requirements and disabilities.Therefore, a specially constructed payroll tax was usedto fund the program. By measuring the amount taken in by the tax to theamount, not only that is taken out, but to the amount thatwill be taken out in future years, opponents of the SocialSecurity system make the case that the system will be unableto keep itself in such a manner indefinitely. And, ifSocial Security were a private insurance program, itwouldn’t. But the fact is that Social Security is nota private program. it is funded by the government. Further, the government is in a unique position tochange the laws of commerce and contract to adjust thesystem, making it more responsive to the needs of theretired, which, in turn, would reduce their need for theSocial Security benefits. For example, the United statesGovernment should raise the mandatory retirement age. Byraising the age to sixty-eight, the Social Security Systemcould delay paying out benefits for several years tothousands of people, saving the system a significantamount of money in benefits. For these reasons, the government is in a positionwhich cannot be compared to private industry. In this sense,looking at social security as an insurance programand comparing it to other insurance programs in the privatesystem could easily give the impression that the system isgong bankrupt, when in the reality it isn’t. THE FUTURE OF SOCIAL SECURITYThe thing to keep in mind about the Social Securitysystem, then, is this: the system itself is in nofundamental danger of collapse. There is only temporary,cash flow situation that must be carefully looked at. The federal government pays out 4.5 billion more in SocialSecurity benefits as it collects in taxes every year. Infact, $4.5 billion is a small price, compared to the otherprograms the federal government now finances from generalrevenue. Besides tapping the general revenue fund andraising the retirement limit to 68 or even 70,the governmenthas the option of raising the Social Security tax or evenreducing the benefits slightly. The government has so manyoptions with regard to financing the benefits that thequestion becomes of the cash management, not quite assignificant as the huge deficits that the Social Securityhas been accused of having. The government is already under way to help alleviatethis cash flow problem. Public officials have debated whichof the various ways would help best serve the publicinterest, and legislative action has been taken that wouldultimately result of the Social Security system to apositive cash base. This shift would provide the workers ofAmerica with the same benefits they have been guaranteedsince 1935- and have been paid, and expanded ever since.The social security system has withstood forty years ofchanging economic conditions and greater concern of publicwelfare. What would replace the system, if the critics hadtheir way?SOCIAL SECURITY PERSPECTIVESThe social security system has saved an untold numberof people from disaster throughout many years. Many of thenations old people- some as young as sixty-two, a few overa hundred, live from Social Security paycheck to Socialsecurity paycheck, with this government program as theirlivelihood. There can be no doubt that social security hasmade a tremendous effort to alleviate a lot of sufferingthat has occurred, even in recent times. The Social Security act was one of the cornerstones ofRoosevelt s new deal program, and it is one of who’snecessity has been proven, and whose usefulness has allowedit to live. Like all the other new deal projects,Social Security was never meant to show a financial profit,It was meant to show a profit only in the amount of humansuffering, It was able to lift. The social security programcannot be measured in the same manner that a private programcan be evaluated in, because it is a governmental welfareprogram. which doesn’t mean that it acts in competition withprivate programs, that was never its intent. The social securityadministration has written:”Today the American economic system has producedrelatively full employment, widespread ownership property,and a rapidly increasing standard of living for the majorityof Americans. It has developed a threefold structure toprevent economic insecurity: a public social objectives,mutual protection through private employee-benefit plans tobring the added strength of voluntary of group action:and private savings and other individual action to achievethe greatest range of choice”. One only has to look at the number of people, and theamount of money, that those who are recipients of Socialsecurity effect, and the advantages of Social Securitybecome obvious: it has taken a group of people who havetraditionally been a financial burden on society, andprovided a program that they have contributed a littleto their own financial well being. the amount of dignityand self respect these people have gained cannot be measuredin dollars.