Social Security in the USA

Social Security is the largest federal social welfare program in the United States. Started as part of the New Deal, it has grown steadily in scope and cost, and currently provides the principal source of income for nearly half of all retirees in the U.S. The Social Security program provides income for retired workers, their spouses and dependent children and benefits for the disabled. The Social Security Act, first adopted in 1935, also contains numerous other titles and programs, including Title IV Children's Services, Title XVIII (Medicare), Title XIX (Medicaid), and much more. The Social Security retirement program and Medicare are funded by taxes on payrolls, with employer and employee paying equal shares (currently about 7% each).

The Social Security program is officially known by the acronym OASDHI, which spells out the major categories of beneficiaries covered by the program (Old Age, Survivors (widows and minor children of deceased workers), and permanently and totally Disabled workers. Medicare is a component social insurance program in Social Security, enacted in 1965 and represented by the letter 'H' in the acronym. (The I is for insurance)

Social Security is a social insurance program modeled after the German social insurance programs designed in the 1880s by Theodor Lohmann and others in the Prussian bureaucracy under Chancellor Otto von Bismarck. Other key social insurance programs arising from the German social insurance model include work-based health insurance, workers' compensation, and the Black Lung program. Like the German model, the Social Security "program" is actually a series of autonomous and actuarially balanced funds.

The fundamental nature of the Social Security program has been controversial from the very start in 1935. Liberal and progressive economists working in the New Deal tradition have characterized Social Security as an inter-generational transfer program. Each current generation of workers and their employers pay into the appropriate fund from which payments are then made to the current generation of eligible retirees (who previously paid into the fund to support the retirees of their working years). It is this inter-generational transfer aspect from which the title Social Security is derived. This idea is also known as social solidarity in some European contexts. This inter-generational transfer notion has been very significant historically to supporters of the program, who point to the fact that it has worked for more than 70 years, and can continue to work indefinitely as long as periodic actuarial adjustments are made. This aspect of the program has also been frequently ignored, misrepresented, discounted and even denied by critics of Social Security in contemporary policy debates. Many critics of Social Security completely deny the currency of the inter-generational transfer idea, preferring instead to characterize it as a vast national Ponzi scheme, or an inadequate pension program that suffers by comparison with private pensions.

Continual Reform and the 'Graying of America'

The U.S. Social Security program has been under almost continual amendment and modification since its adoption in 1935, with many, many changes over the years in those covered, the extent of benefits, the tax rate(s) and many other changes. The greatest present and future challenges for Social Security in the U.S. are associated with the dramatic increases in the older population.

Social Security Reform, 1983

Mounting concerns that rising Social Security benefits were causing a long-term deficit and were growing too fast resulted in a bipartisan compromise in 1983. Brokered by conservative economist Alan Greenspan and liberal Congressman Claude Pepper, the agreement lowered benefits over the next 75 years and brought the system into balance. Key provisions included a gradual increase over 25 years in the retirement age from 65 to 67, to take account of longer life expectancy. (People could retire younger, but at a reduced rate of benefits.) Workers over the age of 62 can still retire with some benefits, but the amounts are reduced for those retiring before the full retirement age is reached. Millions of people were added to the system, especially employees of state governments and of nonprofit organizations.

COLA (Cost of Living Adjustment)

Another key feature of the 1983 reform was inclusion of periodic Cost of Living Adjustments (known as COLAs). Also adopted at the same time was the provision to tax social security benefits of retirees whose combined income from social security and other sources exceeded $25,000 for an individual and $32,000 for a couple.

Privatization proposals

There are currently proposals to privatize, in whole or in part, the Social Security system, in light of its increasing cost that is perceived to become unmanageable in future.

The current U.S. president, George W. Bush, with the Republicans, has introduced a proposal which would allow younger workers to partially opt out of the program, provided the money not put into Social Security is placed into private retirement funds. These proposals were rejected in 2005, with Democrats leading the attack.

More radical proposals for privatizing Social Security have been made, but they have generally not been considered seriously by Congress, due to political difficulties of obtaining support for such proposals, due to either the loss of benefits or the increase in funding required.

Republican presidential contender Mike Huckabee has proposed continuing the Social Security payouts unchanged, but radically changing the funding by ending all payroll taxes and relying on a national sales tax.

External Links

Home page for the Social Security Administration

Bibliography

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