American Government-Economics Essay, Research Paper

American Government-Economics

Mid-term Paper

Most of the problems of the United states are related

to the economy. One of the major issues facing the country

today is social security.

The United States was one of the last major

industrialized nations to establish a social security

system. In 1911, Wisconsin passed the first state workers

compensation law to be held constitutional. At that time,

most Americans believed the government should not have to

care for the aged, disabled or needy. But such attitudes

changed during the Great Depression in the 1930’s.

In 1935, Congress passed the Social Security Act. This

law became the basis of the U.S. social insurance system.

It provided cash benefits to only retired workers in

commerce or industry. In 1939, Congress amended the act to

benefit and dependent children of retired workers and widows

and children of deceased workers . In 1950, the

act began to cover many farm and domestic workers, non

professional self employed workers, and many state and

municipal employees. Coverage became nearly universal in

1956, when lawyers and other professional workers came under

the system.

Social security is a government program that helps workers and retired workers and their families achieve a degree of economic security. Social security also called social insurance (Robertson p. 33), provides cash payments to help replace income lost as a result of retirement, unemployment, disability, or death. The program also helps pay the cost of medical care for people age 65 or older and for some disabled workers. About one-sixth of the people in the United States receive social security benefits.

People become eligible to receive benefits by working in a certain period 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 95 percent of all U.S. workers.

Social security differs from public assistance. Social security pays benefits to individuals, and their families, largely on the basis of work histories. Public assistance, or welfare, aids the needy, regardless of their work records.

All industrialized countries as well as many developing nations have a social security system. The social security program in the United states has three main parts. They are (1) old-aged, survivors, disability, and hospital insurance (OASDHI), (2) unemployment insurance; and (3) workers’ compensation.

THE SOCIAL SECURITY PAYROLL TAX

This tax was to be taken from the payrolls of the nation’s employers and employees. The government felt that, like unemployment benefits, the social security should be financed by those who got the greatest benefit, those who worked, and were liable to need those benefits in the future.

A plan that would affect those only who had paid such a tax for a number of years would have done those who were currently suffering under the Depression no good at all. As a result, the social security plan began paying out benefits almost immediately to those who had been retired, or elderly and out of work, and who were unable, primarily because of the depressed economic conditions, to retire comfortably. In this way, the government was able to accomplish two objectives: first, it helped the economy pull out of the depression, by providing a means by which old people could support themselves and, by buying goods and services, support others in the community ; and second, it showed the younger workers of that time that they no longer had to fear living out their retirement years in fear of poverty.

Therefore, the social security payroll tax has been used to provide benefits to those who otherwise would have little means of support, and as of this writing, there has never been a year when Social Security benefits were not paid due to lack of Social Security income. (Boskin p.122) PAYING OUT BENEFITSSocial Security benefits increased 142% in the period between 1950-1972. not only the elderly, but many of the survivers, the widows and children, of those who paid into the Social Security system, have received social security checks. These checks have paid for the food shelters, and in many instances the college education of the recipients.

Unlike private insurance firms, the United States Government does not have to worry about financial failure. Government bonds are considered the safest investment money can buy-so safe, they are considered “risk free” by many financial scholars. (Stein p. 198) The ability of the United States Government to raise money to meet the requirements of the social security should be no more in doubt than the governments ability to finance the national defense, the housing programs, the State Department, or any of the other activities that the federal government gets 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 the decision to pay out benefits, the system is able to pay benefits to people who otherwise may not be able to afford an insurance program that would provide them with as much protection. One of the main reasons for the government’s involvement in this program, is its ability and its desire to provide insurance benefits for the poor and widowed, who under the private market, might not be able to acquire the insurance to continue on a financially steady course.

The government, then, is in a totally unique position to pay out benefits 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 for

the effects of inflation(Robertson p.134)

INFLATION AND SOCIAL SECURITY

Private insurance plans are totally unable to adjust

for the effects of inflation with complete accuracy. In

order for an insurance company to make this adjustment, they

would have to be able to see forty-five years into the

future, with twenty-twenty vision. When a private pension

plan currently insures the twenty-year-old worker, it can

only 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, the

private insurance firm would have to be able to predict what

the inflation rate will be from the moment the worker is

insured until the day he dies, and then make the complex

adjustments necessary to reflect this in the pension plan.

An inflation estimate that is too small will result in the

erosion of the workers retirement benefits.

Because the government, unlike the private insurance

firm, can guarantee that it will exist well into the future, and will have the continued income of the Social Security tax to draw upon, it can make on-the-spot adjustments for changes in the inflation rate. Some adjustments, in fact, have been automatic in the recent years, therefore relieving the pensioners of the periodic worry of whether this years benefits would be adjusted, or whether the level of payments would remain stable, thereby, relative to the cost of living, making them poorer that ever before(Stein p.28).

In the face of the government’s ability to make those

necessary adjustments and to continually finance the Social

Security program, many opponents of the system argue that

the government programs are driving out the private

insurance industry. The statistics remain otherwise.

SOCIAL SECURITY FINANCING

The social security tax is one of the fewest taxes in

the United States, and the only federal tax in the country,

that is given for a specific purpose. All other taxes are

put into another fund, so that welfare programs, defense,

space projects, and the other categories of government

spending are all financed from one giant, uncategorized bowl

of 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 of

the worker and paid both by employer and employee, would be

the fairest way for the people that were currently working

to pay benefits to those who weren’t working, as well as to

provide for some future requirements and disabilities.

Therefore, a specially constructed payroll tax was used

to fund the program.

By measuring the amount taken in by the tax to the

amount, not only that is taken out, but to the amount that

will be taken out in future years, opponents of the Social

Security system make the case that the system will be unable

to keep itself in such a manner indefinitely. And, if

Social Security were a private insurance program, it

wouldn’t. But the fact is that Social Security is not

a private program. it is funded by the government.

Further, the government is in a unique position to

change the laws of commerce and contract to adjust the

system, making it more responsive to the needs of the

retired, which, in turn, would reduce their need for the

Social Security benefits. For example, the United states

Government should raise the mandatory retirement age. By

raising the age to sixty-eight, the Social Security System

could delay paying out benefits for several years to

thousands of people, saving the system a significant

amount of money in benefits.

For these reasons, the government is in a position

which cannot be compared to private industry. In this sense,

looking at social security as an insurance program

and comparing it to other insurance programs in the private

system could easily give the impression that the system is

gong bankrupt, when in the reality it isn’t.

THE FUTURE OF SOCIAL SECURITY

The thing to keep in mind about the Social Security

system, then, is this: the system itself is in no

fundamental 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 Social

Security benefits as it collects in taxes every year. In

fact, $4.5 billion is a small price, compared to the other

programs the federal government now finances from general

revenue. Besides tapping the general revenue fund and

raising the retirement limit to 68 or even 70,the government

has the option of raising the Social Security tax or even

reducing the benefits slightly. The government has so many

options with regard to financing the benefits that the

question becomes of the cash management, not quite as

significant as the huge deficits that the Social Security

has been accused of having.

The government is already under way to help alleviate

this cash flow problem. Public officials have debated which

of the various ways would help best serve the public

interest, and legislative action has been taken that would

ultimately result of the Social Security system to a

positive cash base. This shift would provide the workers of

America with the same benefits they have been guaranteed

since 1935- and have been paid, and expanded ever since.

The social security system has withstood forty years of

changing economic conditions and greater concern of public

welfare. What would replace the system, if the critics had

their way?

SOCIAL SECURITY PERSPECTIVES

The social security system has saved an untold number

of people from disaster throughout many years. Many of the

nations old people- some as young as sixty-two, a few over

a hundred, live from Social Security paycheck to Social

security paycheck, with this government program as their

livelihood. There can be no doubt that social security has

made a tremendous effort to alleviate a lot of suffering

that has occurred, even in recent times.

The Social Security act was one of the cornerstones of

Roosevelt?s new deal program, and it is one of who’s

necessity has been proven, and whose usefulness has allowed

it 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 human

suffering, It was able to lift. The social security program

cannot be measured in the same manner that a private program

can be evaluated in, because it is a governmental welfare

program. which doesn’t mean that it acts in competition with

private programs, that was never its intent. The social security administration has written:

“Today the American economic system has produced

relatively full employment, widespread ownership property,

and a rapidly increasing standard of living for the majority

of Americans. It has developed a threefold structure to

prevent economic insecurity: a public social objectives,

mutual protection through private employee-benefit plans to

bring the added strength of voluntary of group action:

and private savings and other individual action to achieve

the greatest range of choice”.

One only has to look at the number of people, and the

amount of money, that those who are recipients of Social

security effect, and the advantages of Social Security

become obvious: it has taken a group of people who have

traditionally been a financial burden on society, and

provided a program that they have contributed a little

to their own financial well being. the amount of dignity

and self respect these people have gained cannot be measured

in dollars.