Issues in social security

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1. Should social security be overhauled, reformed or terminated?

One might choose reform, which would include policies in the following areas:

1. Retirement Age
2. Payroll Tax Rates
3. Investment of Trust fund Assets in Stocks
4. Individual Accounts
5. Cost-of-Living Adjustments (COLA)
6. Benefit Reduction
7. Increase Amount of Earnings Subject to Payroll Tax
8. Reduction of Benefits for More Affluent Recipients
9. Tax Social Security Benefits Like a Private Pension
10. Use the Budget Surplus to Help Social Security Indirectly
11. Use Budget Surpluses for Retirement Accounts
12. Increase the Number of Years to Calculate Benefits
13. Cover All New Workers Hired by State and Local Governments
14. Change the Structure of Family Benefits
15. Supplemental Individual Accounts (www.network-democracy.org/​social-security/bb/adss/​options.html )

2. What policies do feel are important in evaluating this? Explain you reasoning for selecting the particular policy issues. Support your response.

The following information expands on these areas for you to consider. It suggests areas for policy change and also provides an explanation (excerpt).

1- Retirement Age

Current Law: Full benefits are currently available at age 65. A reduced benefit can be collected starting at age 62, with an amount equal to 80% of the full benefit. The age of retirement for full benefits will increase at the rate of two months a year, starting in the next century. It will rise to the age of 66 for those born between 1943 and 1954, and rise to 67 for those born in 1960 or later. People will still be allowed to take early retirement at 62, but the benefit will be reduced to 75%, and eventually 70% of the full benefit.

Option: Increase the age at which one can receive full benefits.

Pro: Since Social Security was enacted, life expectancy at birth has risen from 63 to 76. It makes sense to keep pace with that increase by asking people to work longer before claiming full retirement benefits.

Con: This increase could hurt people who have physically demanding jobs, those who have serious health problems, and those who cannot find work because of age discrimination or lack of suitable work.

2-Payroll Tax Rates

Current Law: Social Security payroll tax rate for employers and employees each is 6.2% (total of 12.4%) on earned income up to $72,600 in 1999; no increases in the rate are scheduled in present law.

Option: Increase the payroll tax rate.

Pro: A modest increase in the payroll tax is a small price to pay to keep Social Security strong.

Con: Payroll taxes are already too high, and increasing them further will worsen the rate of return that all future beneficiaries receive.

3-Investment of Trust Fund Assets in Stocks

Current Law: Surplus funds collected by the Social Security system are invested in special issues of Treasury securities, backed by the full faith and credit of the U.S. government. The average interest rate earned in 1997 was 7.5%.

Option: A portion of the Social Security surplus would be invested in the stock market, with an independent board selecting portfolio managers to operate indexed funds.

Pro: Social Security could receive a higher rate of return on its investments, and the Social Security system would bear the risks involved, rather than the individual.

Con: Social Security trust funds would have to absorb risks of market downturns. Investment decisions could become highly politicized as ...