ISSUE: Economy
Social Security in 2008
by Steffani Tollefson '09
Lara Halverson is a junior at Wartburg College. Not only is Halverson a full time student, but she works part time as a waitress at Joe’s Knighthawk. Knowing that she will graduate less than two years from now, Halverson has been trying to save money for her future. But, for her, saving money has been difficult because she uses her paychecks, which are less than $200, to pay for necessities. Halverson is loosing more money each month because a portion of her money is taken out for Social Security, which she never sees.
Halverson said she has a hard time understanding why she has to pay for Social Security now, because she may never receive any benefits from it.
History of Social Security
The Social Security Act of 1935 created an insurance program for retired workers age 65 or older. These people became eligible to receive payments from the federal government, called Social Security. In 1937, taxes were first collected, then three years later Social Security benefits began. The people that retired between 1937 and 1939 received a lump sum as their Social Security benefits.
The first benefits were small and inflation had not yet been considered. The legislator increased the size of Social Security benefits in 1950 and 1952. The benefit increases were provided by special acts of Congress until 1975, when the annual cost of living increases were introduced.
The Social Security program provided disability insurance for all workers and health insurance to people 65 or older, through Medicare.
A pay as you go system
Since the beginning of the Social Security trust fund it has been a pay as you go system, meaning current workers will pay taxes that will then be used to as current funding. This is the cause of most of the concern regarding Social Security, because the baby-boom generation will drastically increase the number of retired people.
“When the baby boom was entering the labor market there was a lot more money going in to Social Security than what was paid out. Congress decided to add benefits with out changing the amount of money that was going in which is what you can do if there is a lot of money in a fund. Congress hates having that so they look for ways to spend it,” said Dr. Orazem, a professor of Economics at Iowa State University.
“Among other things they added benefits that rise with inflation. Most pension plans will not have that of course, the amount of pension is based on dollars that are going in rather than what’s happened after the dollars went in. Not only that, Social Security goes up, not with the cost of living but with wage inflation. So, that actually adds another percentage point. And if you simply change from indexing Social Security to wage inflation back to the changes in the consumer price index that would go along way to making the Social Security trust fund sound.”
Disappearing trust fund
Some economists say that the trust fund will be gone by 2042. But Dr. Sula, an economics professor at Loras College, disagrees. Dr. Sula said we can make Social Security last longer if we take care of it.
“I think its going to be around for 50 year to 100 years; I think it’s going to be around for a long period of time. Is it going to be around in the current structure, no its not, because it simply can’t fund itself and what even more scary is the fact that Social Security is the smaller of the two issues Medicare/Medicaid programs, Medicare in particular is a much less funded program and if you extrapolate, which you always have to be careful about but as you extrapolate into the future, Medicare is really a much less funded program and that’s going to break the bank in quotes much sooner than Social Security is,” Dr. Sula said.
Understanding Social Security
Young people, like Halverson, are often upset when they think about the future of Social Security because they see portions of their paycheck being taken out each month for a plan that may or may not be around when they retire.
“We need to pay into it in order to provide that social safety net for others who are elderly or some unfortunate circumstance causes them to be short of money or some condition of housing, they might be mentally disturbed, or whatever. We need to provide a way to take care of those people, and that’s where I see a social safety net, responsibility for our fellow man, and I see that happening,” said Dr. Schuchart, an Economics Professor at Wartburg College.
Plans for extending the life of social security
Economists have tried to predict the future of Social Security so that we can try to make it last as long as possible. Dr. Orazem has his own plan for making Social Security last.
“I would probably start by eliminating the indexation to the consumer price index. That by itself would eliminate the problem. Remember Social Security is sort of the easy one. Medicare, Medicaid they cost are growing more rapidly than inflation and more rapidly than wages. And ultimately that’s going to be the bigger issue, the cost of health care, and no one has a solution for that. Under the Bush administration there was a proposal to fix that. And at the end of the day they added additional costs by adding a prescription benefit with out adding more costs, so they just made it worse. We’ll see what happens. One nice thing about being a politician is that you can always shift the burden to the next person. So if you come up with a promise and it’s not going to go broke for 10-15 years well that’s somebody else’s problem.”
Social Security in the 2008 presidential election
The state of the economy has been one of the most talked about issues with this presidential election. Each candidate has their own ideas on the economy. Sen. Sam Brownback (R-Kan.), Rep. Duncan Hunter (R-Calif.), and Rep. Ron Paul (R-Texas) all would like to privatize Social Security. Mayor Rudy Giuliani (R-N.Y.) and Sen. John McCain (R-Ariz.) both say they would allow some investment in private accounts. Gov. Mike Huckabee (R-Ark.) said his main concern is making Social Security and Medicare last. Gov. Mitt Romney (R-Mass.) said, “It’s time to reform the two major entitlement programs in America: Social Security and Medicare, government- paid health care insurance for the elderly.”
Rep. Tom Tancredo (R-Colo.) said, “Congress should consider some form of individually directed personal savings accounts. Future retirees should have more flexibility and involvement in planning for their retirement, and have the opportunity to earn more on their retirement investments than Social Security currently can offer. We can give future retirees this opportunity, while preserving and protecting Social Security for today’s beneficiaries and for the Baby Boomers nearing retirement.”
Sen. Fred Thompson (R-Tenn.) would vote yes to limiting the national debt.
Gov. Bill Richardson (D-N.M.) said, “Number one, any reform has to be fiscally responsible by not continuing to explode the budget deficit; number two, that a solution be bipartisan; and number three, that we should not break our promise to our seniors and our young people to cut benefits.”
Sen. Joe Biden (D-Del.), Sen. Hilary Clinton (D-N.Y.), and Rep. Dennis Kucinich (D-Ohio) would not privatize Social Security. Sen. John Edwards (D-N.C.) said he would save Social Security and Medicare. Sen. Barack Obama (D-Ill.) supports the interest of retired Americans.
Sen. Mike Gravel (D-Alaska) said he wants to, “Put real money in the Social Security Trust Fund, investing it properly and identifying the interests of individual beneficiaries so they can leave their surplus funds to their heirs. He also calls on Congress to stop raiding the Social Security Trust Fund.”
Economists' insight on the candidates plans
Dr. Schuchart said that he thinks Obama has the best plan for Social Security.
“His plan gets at this wealth discrimination that we have in the United States. His plan as I understand it is to leave Social Security as it is up to $100,000 skip $100,000 then pick it up again at the $200,000 level and continue paying and that would attack the problem of getting the extremely wealthy to pay for some of these costs.”
Although Dr. Schuchart thinks Obama has the best plan for Social Security he said he would vote for Edwards.
Dr. Sula said he does not think any of the candidates really have a plan for Social Security that sticks out, thought he said if he had to pick a candidate to day he would pick Obama.
Dr. Orazem disagrees, he said, “First I thought I would be happy with Richardson, but then he made so many kind of ludicrous statements lately so I said well that isn’t quite working so then I thought Clinton because at least her husband was a conservative, she’s been on all sides of issues. Right now I am not to keen on anybody. To be honest I think Joe Biden or Dodd are probably the best informed candidates but they don’t seem to be getting much play.”
The future of Social Security is something that everyone should think about. It is especially important for student to look at the how each candidate stands on Social Security so they can decide who they believe has the best plan for our economic future.
Halverson has just begun paying into Social Security. She currently pays about $180 dollars per year into the fund. Some people may think that is a small amount, but to a college student, an extra $180 per year can make a big difference.