Social Security system in United States is a social insurance program that covers the welfare of elderly, survivors and disabled people (Bovbjerg 2). The program is fundamentally funded through a dedicated payroll tax (Walker 13). Due to challenges such as long term funding, reforms are being proposed to the program.
Expenses accrued by the program are expected to exceed the revenues at the beginning of 2017. This will be as a result of low ratio of paying workers to retirees, increasing life expectancy and low birth rate (Walker 3).
Social Security was launched in 1935; this is the time when the US was in the middle of a significant depression. When the program started, more than half the population of elderly people depended on other people for their livelihood and approximately one-sixth depended on charity (Bovbjerg 21).
This program was designed to help the old by ensuring that their future would have sufficient retirement incomes. Four years later, the program was extended to cover dependents and survivors. In 1956, Disability Insurance was included in the program to cover the welfare of the disabled (Walker 3).
Reforms intended for Social Security program should preserve the objectives of the program at all costs. The primary goal of social security is ensuring there is sufficient retirement income. The system is funded by workers and it’s aimed at reducing the extent of dependency on welfare. The system is designed so that both contributions and benefits are based on the earnings.
Another goal named individual equity ensures that the benefits depend on contributions. The program is designed to balance the objective of income adequacy and equity while the benefit formula ensures adequacy by providing higher benefits (Walker 4).
Social Security Reforms are based on the argument that the benefit costs will soon begin to grow rapidly. Cash payments in benefits are likely to exceed revenues in 2017; this will eventually deplete the funds in 2041. With the same breath, projections indicate that the growth of labor is expected to slow down.
The fertility rate or the number of children born to women before menopause is falling which create an unstable population (Walker 19). Additionally, participation in labor force by the elderly is expected to fall significantly. It is important to note that discussions about Social Security reforms have been characterized by political interference (Bovbjerg 10).
Social Security reforms will change the amount of revenue required to pay the benefits. The revenue requirements finally determine the impacts on federal budget deficits and the public debt.
Benefits are compensated in cash without considering the amount of government securities in the trust fund. In a situation where the social security revenues are not adequate to take care of the benefits, the benefits are covered by the trust funds (Walker 20).
Labor force is expected to reduce by a third by the year 2025. This means that for each aged, disabled, or surviving beneficiary, contributions to the funds will reduce significantly. The root cause of the difference between the costs and revenues is that life expectancy has improved incessantly and it is expected to keep improving.
This causes a dramatic growth of the aged population who are now about twelve percent of the US population. The implication to the Social Security program is that the numbers of beneficiaries continue to increase at an alarming rate while its revenues continue to be depleted (Walker 21).
Social Security reform is a major issue in the current political climate. The biggest challenge is implementation of many opinions that have been put across. The reforms in the system are valid for Social Security to remain solvent. Although the best solution may not settle well with some Americans, reforms have to be conducted in the best interest of the system. The reforms have to consider both current retirees and the future generations.
The US government has to bargain with American public to allow the government to take control over its most costly entitlement programs. Cuts on Social Security program should be considered to secure the future of the program.
The retirement age should be adjusted and the rate at which cost of living adjustments are made should be lowered. Reforms should be done through decreasing the total amount of benefit payouts and raising the effectiveness of the rather expensive and bloated program (Walker 20).
To solve the insolvency problems, the eligibility age should be raised by two to three years. Reforms should be carried out on Medicare and Medicaid to save billions of dollars by streamlining and negotiating for lower prices of drugs. This should also include high premiums for Medicare beneficiaries with financial ability.
Protecting the Social Security will be a good move for the current government. The way in which Social Security benefits are paid should be changed so that a lower level of benefit is paid over time. Social Security should not be taken as a driver of near and medium term deficits. Therefore, recommendation for deficit reduction should not include any changes on Social Security.
Rather than taking gradual approach as a deficit reduction plan, the Social Security should be made stronger for future generations. Since Social Security is not a contributor to the deficit, the program should be dealt with in a different discussion.
Social Security should be strengthened without risking the retirees, the disabled and the vulnerable groups. Reforms should be carried out without cutting the benefit of future generations and without putting the guaranteed retirement income of the US citizens to the influence of stock market. It is not a good policy to cut the benefits since Social Security is not related to federal deficits.
Although the surplus of Social Security fund is likely to be depleted around 2035, it does not mean that the program is approaching insolvency; this is a political opinion. A sound reform has to be carried out without exaggerating the future of Social Security. The program is likely to fund more than seventy percent of its promised benefits from its current income even in 2035.
The long term imbalance of funds should be accurately understood. The assumptions and projections that Social Security cannot support United States’ increasing longevity rates have had a political inclination. Boosting the retirement age and working longer will not eliminate the entire predicament since it is estimated that rising longevity accounts for only one-fifth of the problem.
Problems such as rising earnings inequality and reduced growth of wages for the working group are much significant issues that should be addressed. These issues are likely to account for more than half the problems facing the Social Security system. Inequality in earning has taken much Social Security’s taxable income since earnings above a cap are exempted from Social Security taxes.
On the other hand, reduced rate of increase of wages has the effect of increasing the cost as a share of taxable earning. The rise in costs of healthcare creates an increasing gap between taxable wages and compensation; fall in birth rates is also a contributing factor.
Works Cited
Bovbjerg, Barbara D. Observations on SSA’s Plans for the Social Security Statement. Testimony Before the Subcommittee on Social Security, Committee on Ways and Means, House of Representatives. Washington, DC: United States Government Accountability Office, 2011.
Walker, David M. Social Security Reforms: Answers to Key Questions. Washington, DC: United States Government Accountability Office (GAO), 2005. Print.