The social security system has been, according to some, in danger of collapse an

Question

The social security system has been, according to some, in danger of collapse and insolvency for some time now. Since 1950 the number of workers supporting one retiree has fallen from 16.5 to 3 while the tax assessed against wages has increased from 1% of income up to $3,000.00 to 6.5% of the first $106,800.00 plus 1.45 % of all earnings for Medicare. The taxes are assessed against both the employee and the employer. It is expected the number of workers supporting one retiree will continue to fall and that taxes will probably have to be raised as well as the age at which a retiree can receive benefits. Discuss the following proposals advanced to “solve” the looming economic crisis concerning social security:

(A.) Privatization of social security

(B.) Means testing

(C.) Elimination of cost of living adjustments

Grade Breakdown for DB:

(1) 33.33% of the points for discussing privatization.

(2) 33.33 % of the points for discussing means testing.

(3) 33.33% of the points for discussing the elimination of the cost of living adjustment.

Explanation / Answer

There is very critical problem associated with social security system now a day. This beacuse of rising old aged population and low birth rate. Therefore the ratio of workers to retirees is decreasing and the funds available for future workers also. The problem can be solved by cuts in benefits, tax hike and heavy borrowing. The other better alternative is private retirement account that would be funded by existing payroll tax.

(A) Privatization of social secuirity:

Main arguments of privatization are as follows:

Any shift to a private system must solve a major financial problem. To make scope for a new private system, policy-makers must find funds to pay for these liabilities and young workers will have enough money to deposit in new private accounts.

(B) Means testing: Means test solves whether a family or an individual is eligible for government assistance. Means testing for social security benefits is based on a threshold value of income, beyond that the family or individual will be eliminated from the program. The reforms is a cost reducing program that reduces or eliminates benefits for wealthy and/or high-income participants and beneficiaries, generally characterized as “means testing.”

(C) Elimination of cost of living: The purpose of cost of living adjustment is to ensure purchasing power of social security is not lowered by inflation. It is generally same as the percentage increase in consumer price index for urban wage earner and clerical workers (CPI-W).

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