Economics: The American Government Essay, Research Paper
Economics: The American Government
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.