In 1935 the United States was in the throws of the worst economic depression our country had ever seen. The President at the time was Franklin Roosevelt. As part of Roosevelt’s “New Deal”, he instituted Social Security, which established an old-age pension system, to be administered by the federal government, and financed by taxes on both employers and employees. This system was to help the older citizens and dependents of workers of the U.S. However, since its inception, Social Security has been turned into a retirement plan of sorts. Many retired and older citizens rely solely on Social Security benefits to live on. The program has been successful for the last 64 years, but in the near future Social Security might run out unless some drastic measures are taken to preserve it. The program will be collecting less than it is paying out by the year 2012 and be insolvent by 2030. Something must be done.
Social Security has been a safe and reliable source of income for the old for the last 64 years. Some 42 % of elderly citizens rely on social security as a large part of their income. Every month, millions of people over the age of 65 receive a check in the mail. The preceding fact is one of the main reasons that Social Security is in trouble. When Social Security was first instituted, the percent of the population that lived past 70 was much lower than it was today. Recent discoveries in the medical field, and new attitudes towards eating and exercise have extended the life span of Americans much longer than in 1935. This means that there will be much more people receiving Social Security and they will be receiving it for a much longer time. The next problem with the system has to do with a change in demographics. Currently there are millions of baby boomers in the U.S. Once the baby boomers retire, there will be far more retirees drawing benefits than workers to support them. Right now the ratio of workers exceeds the number of beneficiaries. In the year 2030 it will be even less. In less that 2 decades, the taxes that the government will collect from the workers will not cover the benefits that they are paying out. This will cause the government to either stop Social Security, dip more into debt by continuing to pay, or institute a plan.
In light of the problem that our country is faced with, there have been many suggestions of ways to fix Social Security. The proposals include ideas such as raising taxes, increasing the age to collect, cutting benefits, and privatization in stocks. The probable first step to be taken by the government would be to increase the payroll tax. The government has proposed a 2 percent payroll tax increase, which would bring it to about 14.5 percent. They have also thought about increasing the amount of money that can be taxed (currently $68,400). This would generate a vast amount of money, however it would raise the taxes of the middle class to an astronomical amount.
Besides increasing the tax, the government could possibly raise the age that people are eligible to receive benefits. It is proposed to raise the retirement age to 70 by 2029 and the early retirement age to 65 by 2017. After that, they would increase the age of retirement to correspond with the rise in life expectancy. Raising the age would serve a dual purpose, it would keep people working longer and it would decrease the amount of years that people would be collecting Social Security. By implementing this, the people would be supporting the fund longer by paying the payroll tax longer, and they would help to save money by not collecting any. The labor unions strongly opposed to this suggestion because it would affect the amount they pay for pensions. It is also advantageous to them to have newer employees who have not worked up to the same wage rate as the senior employees have. The tax and age hike would clear the problem for the near future, but the government wants to see the system safe for the next 75 years. So they propose the idea of privatization.
Privatization would work as follows; workers would deposit 2% of their earnings in private accounts, choosing from a wide selection of diversified stocks and bonds that are authorized by the Federal Government. The remaining 11 percent from taxes would stay in the usual trust fund. With the stock prices soaring and a bull market it seems the perfect time to invest in the stock market. But is it right for the government?
The government has the opportunity to make a lot of money by investing in the stock market. The investments in the stock market would also not be subject to paying off the $9 billion in promised benefits as the fund does, which is very enticing. However, the disadvantages far outweigh the advantages. The possible repercussions of the government owning a large scale of the capitalist market are disastrous. Some people believe that the government should not be able to interfere with the market to that extent. Also, at the moment, a government panel decides whether or not merging companies violates antitrust laws when they merge. If the government were to have a large stake in certain markets, what would stop them for creating a monopoly? Would government bias investment toward some industries and away from others? The government would certainly be libel for the same things that Microsoft is being charged with. These are just some of the conflicts of interest that the government would have if it entered the stock market.
While some people believe that privatization is a good idea, others believe it to be a horrible solution. The most significant reason as to why people believe it is not a good idea to invest in the stock market is due to the uncertainty of the whole endeavor. What most people don’t take into account is the high risk factor involved with investing money into the stock market. The yield is high because the risk is equally high. The possible rewards don’t outweigh the possible disaster that could take place. Furthermore, the stock market is at an all time apex, and we are in a bull market. Many investment analysts are predicting a major correction of the market. What would happen if the market crashed? Is there a back up plan? How would the government protect investors against large losses? These questions can’t be answered, that is why it is not right for the government to invest in the market.
It seems to me that the government should stick with what it already does and knows how to do, that is, raise taxes. I am in favor of a sharp tax increase for Social Security. There is no risk involved in raising the tax, except for disapproval by the citizens of the U.S. I would also like to see the retirement age raised to 70 and the early retirement age raised to 65. This would make it lighter on the system as I mentioned above, providing more tax and fewer people to support. The measure I would implement would be to raise the cap on the amount of money that is taxable for Social Security. This would allow more tax money to be generated. These three things would set the system straight for the upcoming years. They are stable and sound ideas that have been proven to work. Privatization is not needed, we need to balance before we try to accumulate an abundance.
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