The American social security system is said to crumble, and that today’s workers might actually fail to get pensions if the trend continues. As a result, policymakers and the general public agree that something should be done to save America’s retirement safety net. However, the social security system is not unique to America; most systems in the world, even in Europe, are facing the same problem. Others actually are in worse condition than America’s own.
But that should not be an excuse for delaying the improvement of the system. America has vital lessons to learn from countries that have successively pulled their systems from such problems. What is need is just political will among legislatures and taxpayers’ interest to have the coming generations retire well as generations have done since the national retirement safety net was established six decades ago.
This paper is an attempt to comb through possible solutions to this problem, including the use of institutionalism theory as a framework to designing a resolution. The paper is arranged in several sections that appear concurrently as follows: it first explains the social security issues as a policy problem, then extrapolates on some existing policy solutions, then lists potential solutions based on William Roth’s policy recommendations.
It will further list this author’s views on Roth’s theories and conclude by explaining how institutionalism could be used to create new foundations for the system. Overall, it holds that reforming the system is necessary for the country to secure safe retirement for many generations to come. Failure to do so will only compound the problem and risk the spillover of the system’s collapse to other sectors of the economy. Reforming the system is equivalent to doing justice for the generations of the nation that’s known for such actions.
Some Existing Policy Solutions
The most outstanding solution to the social security issues is the Roth IRA accounts, which enable individuals to open social pension accounts with a government-licensed pension scheme. Contributions to the account are completely tax-free; withdrawal of pensions during retirement is also guaranteed to be tax-free (Burt). This will include the accrued interest during the retirees’ working years, which could be in millions considering that interest will be compounding on contributions. This is a great shift from the current system where workers keep contributing to the government-controlled social security system that does end up providing living wage pensions. The government has a limit on maximum annual contributions that currently stand at $5,000 annually (IRA).
There has also been a talk of establishing private accounts for an individual. That is, workers will be left alone to choose how much they want to save for retirement annually and with which institution they would like to entrust their contributions. This call has caused an uproar from some quarters claiming that the poor might be left without a safety net, as institutions target the middle and upper classes (Walt and Carlson).
Private accounts are, however, understood to be the first step in resolving the crisis because they will relieve pressure off the system. This is the same procedure that was followed in Chile, a country that was the first to save its social security system from the problems that have crippled such institutions worldwide. Learning how such systems were streamlined to overcome challenges being faced in America will be the first step in saving the national safety net that has served the country for more than half a century.
Potential Solutions based on Roth’s Text
Roth puts emphasis on retaining the current system and for the sake of the poor because privatizing it will be tantamount to sacrificing the poor to the capitalist system that confined them to poverty. The writer actually sees corporations as vampires out to suck on workers’ energy in their corporations and yet contribute meager resources to their employees’ retirement safety nets. Therefore, Roth’s solution lies in increasing contribution from the corporation, which basically means increasing corporate share in employee retirement inputs.
Author’s Views on Roth Theories
The United States social security system was one of the New Deal programs established under President Franklin D. Roosevelt during the great American depression. Its aim was to provide working Americans with a medium to deposit monthly contributions, which they would later collect as pensions during retirement. Such a system is popularly referred to as pay-as-you-earn because contributions are deducted from worker’s paychecks. The state (US Government) designated itself as the sole custodian of the social security system with roles of investing the pooled funds in government bonds and paying out to retirees when the time came.
The first indication that social security would become a serious public policy problem was when the state decided to start distributing pensions to retirees who left the job market at the initial stages of the program. This meant that inaugural contributions were already being used to finance retirement; this is still continuing today. Some critics have even referred to the system as a legalized pyramid scheme because retired taxpayers’ pensions are sourced from new contributions by young workers, whose retirement will further be funded by the young workers of the day (O’Brien).
Another problem is that medical advances have increased longevity, which means that soon there will be more pension claims than there would-be contributors. This problem is further exacerbated by the decreasing fertility in the country that could lead to fewer people entering the job market in the near future. To solve the problem of a definite deficit in the system, the federal government will have to increase taxes on the fewer workers in the job market. This move could threaten America’s competitiveness internationally because of the increased cost for labor—higher taxes would force employers to increase pay rates so as to cushion employees against decreased incomes.
Using Institutionalism as a Policy Tool
Institutionalism refers to the use of public frameworks to ensure respectably and improving living standards for the disadvantaged people in the society (The Free Dictionary). This school of thought is gaining popularity in policy circles due to its emphasis on creating concrete foundations for establishing and reforming public institutions. In Regard to social security, institutionalism can be used to create a new foundation for the system.
It can, for instance, remove the mandatory requirement that workers contribute funds to the system, thus allow some flexibility in choosing ways to save for retirement. It can further be used to draft laws that will enable a smooth shift from the current system to a new one. Institutionalism will further be used to develop policies to govern individuals and entities that will be bestowed with the investing or controlling workers’ contributions.
American social security system is headed for collapse if it is not reformed forthwith. This would be a hard step because it would require a political solution that that’s hard to get bipartisan support from legislatures. It is vital to understand that some countries’ social security systems were in poor states than America’s own, yet reforms were undertaken; those systems have remained to be impressive successive stories. Studying those countries’ systems would form a great foundation to making American one work better and last to serve all classes of people and coming generations successfully.
The introduction of the Roth IRA accounts mentioned earlier in this paper is a good start in making sure that American’s retirement safety nets are solidly secured. The nation’s labor force, especially those joining it, should be encouraged to save in the system because funds are invested using secure criteria, let alone having access to professional advice.
References
O’Brien, George. It’s Time To End Social Security: Why the System is Bankrupt – and How We Can Replace It. 1998. International Society for Individual Liberty. Web.
Burt, Erin. Why You Need a Roth IRA. 2006. Web.
Internal Revenue Service. Individual Retirement Arrangements (IRAs). 2007. Internal Revenue Service. Web.
Duka, Walt and Carlson, Elliot. 2002. Social Security Private Accounts Wouldn’t Be Cheap. AARP Bulletin. Web.