Proposals to change Social Security benefits
by Jonathan Kingsbury (ridinhighspeeds)

The American people 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 et al. 486). This is why so many politicians have proposed changes to the current system. People who are in the younger generation might not see any benefits when it’s time for them to retire if there is no Social Security reform. “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, I feel that we will be left with a couple of serious 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 only funded beneficiaries who were of age to receive retirement benefits, 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) I think the best solution for managing a balanced budget is to keep the Social Security funds separate from the government funds. Whenever the government borrows money or purchases bonds from Social Security surplus funds, they are raising the national debt. I believe if the Social Security trust fund was kept separate from the Government, the fund would not be heading in the wrong direction as it is today.

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 using the means of tax to fix a problem like 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 in the future when it continues to go 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. 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") That however, is a different story. The population is increasing year after year; more people are retiring everyday, and the after human lifespan is increasing. These all account for the decreasing surplus of the Social Security fund each year. Since the factors of population, retirees, and age have been increasing year after year, how is an increase of tax going to fix the problem in the future?

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 Bush’s proposed plan of privatizing Social Security, I did some research on the average returns beneficiaries would receive under the current Social Security trust fund and compared them to the average returns beneficiaries would receive 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 Social Security system compared to Bush’s privatization plan. I entered in her calculator many different salaries and birth-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. There are many different kinds of conservative mutual funds, which averaged a 9% return over a ten-year period. I just couldn’t understand how the Social Security trust fund, which had a low return rate, would overcome an investment in a private account. I then decided to try out a different retirement account calculator that was opposed to Barbara Boxer’s Social Insecurity calculator.

Dave Ramsey published a ”Privatizing Social Security calculator” (Ramsey), that calculates the average 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 that was 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 both Social Security and your private accounts when you retire. The results were as I expected, a higher return in a privatized system than the current Social Security system. I found Ramsey’s calculator more accurate considering that your investments could receive dividends, “Dividends, then, are a dividing up and distribution to shareholders of a portion of the corporation’s earnings.” (Groz 27). And compounding, “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). I myself have money invested in a couple of mutual funds that offer dividends, which I reinvest back into my mutual fund regularly. I have noticed great gains over the years with my funds because of compounding. It seems to me that these two factors were not even taken into consideration in Barbara Boxer’s calculator.

Last year I took an economics class that 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 explained to me in great detail which funds I should consider and how well the fund managers were. If people like myself start investing in a privatized system at a young age, they could invest in aggressive growth funds because they have more time to recover from any years their funds were down. People who are near retirement can invest in conservative funds that usually have a lower return rate, but they offer a much lesser risk than aggressive funds. “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 investing in a private account were an option, I would recommend people to diversify their investments into many different funds to limit their risk.

“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? Proposals to increase taxes or using other taxes to be paid into Social Security are only a temporary fix. As Ronald Reagan would say, “We need true tax reform that will at least make a start toward restoring for our children the American Dream that wealth is denied to no one, that each individual has the right to fly as high as his strength and ability will take him.... But we cannot have such reform while our tax policy is engineered by people who view the tax as a means of achieving changes in our social structure.”

After 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 for retirement. Another good thing about your own private account is that it’s your own money 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 losing your money. Considering that Social Security today has a 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 $26,000 in 1996.” (Beach), you would be better off putting your money into a savings account earning a return close to 3 percent. Anyone who has common sense can definitely see the problem with the Social Security trust fund if a bank is able to offer a higher interest rate. This research has brought me to the conclusion to support the idea of a privatized Social Security system, or at least giving the American people the option to have private accounts.




Sources

Ball, Robert P. "Fixing Social Security." Social Security Reform. 25 Nov. 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.

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

Dilulio, John J., James Q. Wilson. American Government : Institutions and Policies. : New York: Houghton Mifflin Company, 2004.

"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>.

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

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/>.

Good paper.

But I still feel that social security is something that should be guaranteed, not something gained through investments. What happens to the people that go through the next major market crash? A lifetime of work deserves more respect than that.

Can't get rid of Social Security entirely...Each person would still have SS, plus the option of having 4% of their savings up to a certain amount in a private account under Bush's plan.

If you invest in conservative mutual funds that have good managers, you will have no problem. If you are young where you can take risk, invest in agressive growth funds.

No problem until the market crashes.

If we can use taxes to fund a 400 billion dollar war why can't we just use taxes to fund people's security?

I'm glad you mentioned that.

The primary mission of the U.S. Securities and Exchange Commission (SEC) is to protect investors and maintain the integrity of the securities markets. As more and more first-time investors turn to the markets to help secure their futures, pay for homes, and send children to college, these goals are more compelling than ever.
...read on here:
http://www.sec.gov/about/whatwedo.shtml


Without the SEC, you would definitely have a point. If the stock market does crash and you have money invested in IRA's, mutual funds, and not solely on one stock such as Enron, you shouldn't have any problems if you just wait it out. Just in case you didn't know, their are many different kinds of IRA's..You can choose to invest just in bonds, CD's, which is more conservative or invest mostly in stocks for that agressive growth. All depends on how much risk you want to take. Take the conservative approach and you will still get an astronomical return in a private account compared to the Social Security trust fund. Hell, you will get an astronomical return in a savings account compared to the return you would get with Social Security. Don't forget that!

Because their is a better way of funding people's security. 12.4% is a large tax already taken out of my income to pay for beneficiaries, which is something I will probably never see in the future. This is a very interesting article:

http://www.justfacts.com/ssdebtimpact.htm

I don't see how people would be protected even with "conservative" mutual funds if there was a market crash like the one in 1929 (?year?). Why not take taxes from luxury items such as liquor, cigarettes, marijuana and gasoline to provide for everyone's security?

More money going back into the hands of large corporations via the stock market is NOT the way to secure people's retirement in my opinion.

To secure people's retirement according to your approach would be to invest in an IRA consisting of bonds and CD's (safe).

If you are young saving for retirement like myself, I would max out your IRA each year, and then invest the rest in Mutual Funds with good project managers. If people don't want to invest in mutual funds, that's fine...just invest your money in bonds and CD's. Just keep your money out of the hands of the government!

Keep your money out of the hands of corporations!

haha I will give you that one.

If you don't want to invest in large corporations, then just invest your money in CD's and bonds.

That sounds pretty good. But I don't think I should have to be resposible to take any action at all (other than a lifetime of work) to secure my retirement.