In general, older generations are receiving reasonable rates of return from Social Security, especially among couples with dependent spouses. But almost all future retirees will, on the average, have worse rates of return than they would have received if their tax payments had been privately invested.
Social Security reform has emerged as one of the defining issues of the 2000 election. Proposals to "save" Social Security have fueled an onslaught of criticism and praise of the current system – some accurate, some in the neighborhood and some not even close. A number of myths and half-truths about Social Security have clouded the dialogue.
Polls consistently demonstrate the popularity of personal retirement accounts as an alternative to the current Social Security system. Younger voters overwhelmingly favor moving to a new system in which they can invest a portion of their payroll tax in a personal account that they can own and control. Indeed, Social Security reform has moved to the top of the agenda in the 2000 presidential race, with both candidates proposing competing visions of reform – and both including some form of personal retirement accounts.
Since 1993, middle- and upper-income Social Security recipients have been subject to income tax on up to 85 percent of their benefits. On July 27, the House of Representatives voted to repeal this provision, leaving up to 50 percent of benefits still subject to taxation. The tax reduction would total $117.4 billion over 10 years. The vote was 265-159, with 213 Republicans and 52 Democrats in favor – a margin not large enough to override a presidential veto. The Senate must now consider the bill.
Social Security has emerged as a key election year issue. Proposals have been introduced in Congress to allow younger workers to save a portion of their payroll taxes in personal retirement accounts. To help you understand how such personal accounts could affect retirement benefits, the NCPA has developed a Social Security calculator that compares the return from the Social Security payroll tax with the return if the entire amount were invested in a personal retirement account. (The calculator is not based on any of the proposals, all of which call for investing only a portion of the total payroll tax.)
The Social Security earnings test is among the most unfair and counterproductive policies ever imposed by the federal government. On the one hand, we are continually told that workers have a "right" to Social Security whenever there is a proposal to modify cost of living adjustments. But on the other hand, we take away benefits from many seniors simply because they have chosen to work past the normal retirement age.
This study uses a simulation model to evaluate a number of proposals to reform the Social Security system. Our analysis is sufficiently broad to allow us to form some general conclusions about the process of Social Security reform.
Politicians in both major parties now recognize that the existing Social Security system is unsustainable and must be reformed. The following are five principles that should govern our thinking about reform.
Social Security is not just a retirement system; it is social insurance that also provides disability income for individuals who are injured and cannot work, as well as a death benefit and survivors benefits for widows and widowers age 60 or older and children under age 18.
Introduction The debate over Social Security reform has evolved significantly over the past few years – and especially the past few months. Almost everyone agrees that Social Security is in financial trouble. Both Republicans and Democrats have been looking for solutions and evaluating reform options, leading to a whole new vocabulary of reform.
The debate over Social Security reform has for the most part ignored the inequities in how the system treats families. These inequities derive from the adjustments that Social Security makes to benefits where spouses, survivors and divorced former partners of workers are involved.
As an alternative to the current pay-as-you-go Social Security system, many reform plans would allow individuals to invest a portion of their payroll tax dollars in private investment accounts. Critics claim the costs of administering such accounts would be as high as 20 percent. Is this criticism valid?
Chile, the first nation in the Western Hemisphere to establish a social security system, was the first nation in the world to privatize its system. Since Chile instituted a privatized system in 1981, seven other Latin American countries have adopted the Chilean model to some degree.
The exploding cost of Social Security threatens to become the greatest financial crisis in American history. The unfunded liability of the system is twice as large as our national debt and exceeds the combined cost of all the wars fought in our nation's history. More than a financial crisis, the current Social Security system is fast becoming a human tragedy that will force us to choose between economic opportunity for our children and retirement security for our parents.
The U.S. Social Security system is broke. It does not have the assets to pay promised benefits. Unless the system is fundamentally changed, solvency will require either massive tax increases for future workers or draconian cuts in benefits for future retirees.
Social Security privatization is the single most important political reform sweeping the globe today. Following Chile's highly successful move to private pensions in 1981, Argentina, Peru and Colombia privatized their social security systems in the early 1990s. Mexico privatized in 1997.
Each generation of retirees depends on the government to provide Social Security and health care benefits by taxing the next generation. But in America, as in most other developed countries, the number of taxpaying workers for every retiree is falling and is expected to continue falling. This implies that the tax burden for workers will continue to rise indefinitely into the future. As a result, our pay-as-you-go approach to elderly entitlements is on a collision course with reality.
Most people realize that the Social Security Trust Funds are trust funds in name only and consist of nothing more than IOUs the government owes to itself. However, employees of three Texas counties that opted out of the Social Security program more than a decade ago are earning an average 6.5 percent interest, compounded daily, on their vested personal retirement accounts.
From the inception of Social Security in 1935, politicians have encouraged people to think of the system as similar to private pensions. Private pension plans that invest a person's contributions in secure, interest-bearing instruments do not go broke.
A 1994 poll found that more people in their twenties believed in Unidentified Flying Objects than believed they would collect Social Security retirement benefits.
Social security programs in most countries, including the United States, follow the model first adopted in Europe: they are financed by mandatory payroll taxes and provide benefits to current retirees. A financial crisis facing these pay-as-you-go systems is approaching rapidly as fertility rates decline and life expectancies increase worldwide.
Unlike most countries in the world today, which finance their social security systems on a pay-as-you-go basis, Singapore requires people to save for their own retirement.
President Clinton proposes to increase the tax on Social Security benefits. Although the administration calls this an "entitlement spending reduction," what it proposes is a tax that will fall primarily on elderly investment income. The remainder of the burden will fall on the wages of elderly workers.
The social security systems of nearly all developed countries and many less developed countries face a severe financial crisis as we move into the 21st century.
Black and White workers earning the same wages pay identical Social Security taxes. Yet because their higher mortality rates, black workers will receive far less in Social Security benefits then their white cohorts.