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
Social "Security" meets many of the criteria for a Ponzi scheme. These are illegal, because it acts fraudulently; those who start early in the scheme take all the resources of those who started later. As the pyramid of players increases, those on the bottom lose everything and get nothing in return. For the prior three-quarters of a century, the United States has engaged in such a scheme, and the statistics bear this out -- the promised entitlements of those ready to receive payment will engage the remaining resources of everyone after them.
It's one thing to "pay it forward" willingly; it's another for the government to require compliance and take your money in this generational fraud. Of course, politicians in the 1930's had no worries; they'd be long gone when the final bills came due.
The social security system definitely needs some reform, but I'm not sure that any of these proposals are feasible. Privatization is a big risk. I doubt it will work out well for anyone. The idea of a private company charging for social security is not likely to work. I doubt many would accept the idea of means testing either. It is too much like welfare and that program needs its own reformation. If someone has been paying into social security all their working life, they aren't likely to appreciate being told they made to much money to get any back even though they've paid for it. Eliminating COLA is also a bad idea. Think about the effects of inflation. In my grandmother's day, milk cost just over 50 cents. Now it's well over $3. Who can say what it will be by the time I retire or by the time my son retires. Eliminating COLA isn't realistic.
I can but echo my concern about the privatisation of social security. In so many different countries, privitisation has not been the glittering success that leaders assumed it would be, and in some countries, various commodities have actually been renationalised after the disasters of privitisation. This is particularly true for social security, which is not some kind of business that can be thrust into the rigours of a capitalist free market system.
Privatization also assumes that private individuals will have the knowledge and self-discipline to make wise investments on a regular basis and leave that money alone so interest can compound and increase the amount available for use upon retirement. Most of us would not meet either of those requirements due to lack of interest and/or training regarding the knowledge needed and due to the fact that most of us find spending easier than saving...
Privatisation is, as previously mentioned, far too risky. The only motive a private company has (as it should) is profit for its shareholders. There is no reason for a company, particularly one that would be free from any major regulation, to keep any interest of their customers at heart as long as they are profitable. Add to that the incredible inability of most private companies to think long term and you have a recipe for disaster.
I agree with brettd. It makes no sense to me to provide social security to the rich when they are not in need of assistance. If no other changes are made, I don't see how a change in the cost of living adjustment can possibly be avoided. I don't agree with that option, but the current system cannot be maintained. Teachers in my state haven't received a cost of living raise for several years. Last year we stopped getting the years of experience raise. Our retirement system is in trouble, too, and I think the retirement age for state employees will increase.
It would be good to explore alternatives to Social Security. One alternative not mentioned is the plan that has been used in Galveston, Texas. It apparently has some problems of its own, but it seems to be in better financial shape than Social Security. I have not explored this option as fully as I wish I had, but it seems to be something worth looking into as a way out of some of the problems Social Security seems to ba having. Here is a useful link:
There is another aspect to means testing in that those who are very wealthy have no need for Social Security payments. US policy could say that those couples earning more than $1 million per year at age 65 be prohibited from receiving Social Security but required to pay Social Security taxes now (they are currently exempt about $120,000). Since they would still be paying into the system, this would add to the Social Security Trust Fund and aid its solvency through the Baby Boom generation, while affecting the lifestyle of those millionaires very little if at all. As opposed to being a welfare program, this is a social safety net for society's most vulnerable--which was why it was started in the first place--and the rich are not among the vulnerable.
I wouldn't agree with any of these.
Privatization is too risky. People whose whole portfolio was in stocks would be devastated if they had had to retire at the bottom of the recent crash. There would have to be serious oversight to ensure that people were getting out of risky investments as they reached retirement age. That defeats the purpose of privatization.
Means testing would make Soc Sec into a welfare program and there would be much less political support for it.
Elimination of COLA completely would punish those who relied on Soc Sec. Anytime we got real inflation, their ability to support themselves would decrease.