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    Social Security Tax System Essay

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    Revamping Our Future Social Security Tax SystemThispaper will discuss the current United States Social Security Tax system, thepurpose of that system and our goal for selecting this topic. Also, it willexplain our analysis of it’s current standing, different idea’s about what tochange in our current standing to secure and guarantee a strong future for it.

    We will conclude by recommending the best course to accomplish this goal. Contents Abstract 2 Contents 3 Title 4 Current U. S. A. Social Security Tax System4 Low Risk Investment 7 High Risk Investment 8 Graph: Social Security TaxIncreases 9 Conclusion/Recommendations 11 References 12 Revamping Our SocialSecurity Tax System to Secure its future Current U. S.

    A. Social Security TaxSystem Social Security has been around for more than 60 years. It has been animportant part of American life. It was created in 1935 shortly after the greatdepression.

    Social Security was created to be a protection for the Americanpeople against the hazards of unemployment, old age, and ill health. TodaySocial Security not only provides minimum protection for the retired worker, italso provides benefits for workers and their families due to death of a familywage earner or loss of income due to disability. Today there are about 150million workers who are protected by social security, more than 44 millionreceive retirement, survivors and disability benefits form social security. American wage earners and their families are protected by social security andthey pay taxes to help make the system work. There are two philosophies SocialSecurity bases its payments on. First, the system is designed so that there is alink between how much a wage earner pays into the system and how much he or shewill receive in benefits.

    For example, a high wage earner will receive morebenefits while a low wage earner will receive less. Second, a base for economicsecurity is provided by the Social Security system. Social Security provides avaluable package of retirement, disability and survivors insurance, whichrelieves families of financial burdens from supporting other family members. Social Security has made an enormous difference in the lives of older Americans. American workers can retire as early as age 62.

    At this age, wage earners areeligible to get reduced benefits from Social Security. Wage earners may wait forfull retirement age to be eligible for full retirement benefits. Currently, fullretirement age is 65, but will be moved up gradually starting in 2003. The newretirement age will be 67 for people born in 1960 or later.

    Social benefitspayments are paid out to more than 9 in 10 retirees. In America, only 11 percentof senior citizens live in poverty. Without Social Security benefits, thepercentage of seniors living in poverty would be much higher. Social Security isthe major source of income for about two-thirds of elderly Americans, and forabut a third Social Security is virtually their only source of income. RetiredAmericans are given a dependable monthly income from Social Security.

    Automaticincreases are tied to increases in the cost of living. Social Security givesretired American citizens a measure of deserved financial independence (and thatmeasure is becoming lower every year). Social Security is more than a retirementprogram. It is also a protection plan for American citizens.

    Valuable disabilityand survivors’ insurance protection are given to younger wage earners and theirfamilies. There are about 1 in 3 workers who are Social Security beneficiariesthat are not retired. Monthly survivors’ benefits are given to about 7. 5 millionpeople and more than 6 million workers and family members receive disabilitybenefits. Social Security provides a foundation on which to build retirementsecurity.

    Social Security, pensions and savings is a three-legged financialstool for a comfortable retirement. Unfortunately, there is only a little morethan half of all workers whose employers have pension plans; and people are notsaving for their future retirement. Pre-retirement earnings for the averageworker are about 40 percent, provided by Social Security. Financial advisors saythat the average worker will need 70 percent of pre- retirement earnings to livecomfortably. Saving is an important part of retirement planning.

    Social Securitywill begin mailing statements to workers age 25 and older. The statement willshow a worker’s earnings history, as well as giving estimates of retirement,survivors and disability benefits. This statement will help with futurefinancial planning. Demographics have been the main reason for Social Security’slong-range financing problem.

    People, today, are living longer and healthierlives. In 1935, when Social Security was created, a 65-year-old person’s averagelife expectancy was 12 1/2 more years. Today, it is about 17 1/2 years andraising. And to add to this, at about 2010, 76 million baby boomers will beretiring.

    There will be nearly twice as many older Americans as there is todayin about 30 years. And at the same time, the number of wage earners payingSocial Security taxes, per beneficiary, will drop form 3. 3 to 2. America’sretirement system will be strained caused by these changes. “SocialSecurity is an economic compact among generations.

    Many people think that theirSocial Security tax contributions are held in interest-bearing accountsearmarked for their own future retirement needs. Social Security is actually anintergenerational compact – the Social Security taxes paid by today’s workersand their employers go mostly to fund benefit payments for toady’s retirees. Social Security is now taking in more in taxes than is paid out in benefits andthe excess funds are credited to Social Security’s trust funds. There is nowabout $850 billion in the trust funds, and they are projected to grow to morethan $4 trillion in the next 20 years. But benefit payments will begin to exceedtaxes paid in 2014, and the trust funds will be exhausted in 2034 when it willbe able to pay only 75 percent of beneficiaries. At that time Social Securitywill be able to pay only about three-fourths of benefits owed.

    . . if no changesare made (The Future of Social Security, 1999). ” Today Social Security isnot in a crisis, but America must make changes to strengthen Social Security.

    Changes must be made in order to keep Social Security strong in the 21st Centuryto ensure economic security for future generations and retirees. As PresidentClinton stated, “we must educate Americans about Social Security and theissues that face it. Americans must understand the Social Security program oftoday, so they can make informed choices about the Social Security program oftomorrow. ” Low Risk Investment Since the financial support from SocialSecurity will be negative in 2014 and exhausted in 2034, Americans must investelsewhere, in order to secure a financial stable retirement. One way to secure afinancial stable retirement at a low risk investment is by securing physicalproperty. By investing in physical property, an investor would have physicalequity instead of electronic.

    This physical equity would create a low riskinvestment, even if the roof caved in on Wall Street, the investor would havesomething physical to lay claim too. However, a draw back to securing physicalproperty is personal time; the investor either has to hire a propertyconsultant/manager or become one. Another draw back to securing physicalproperty is the fact that property markets are just as diversified as WallStreet it-self. Property markets fluctuate and change based on the economy anddemographics, and not everybody lives in Holly Wood or San Francisco.

    Forexample, in Southern California, a family named the Anderson’s moved to a smallrural city (1960) called Simi Valley, located 25 miles N/W of Los Angeles,paying only $13,000. 00 for a small 3 bedroom home. Later, in 1988 the Anderson’sdecided to move North and sold their home for $179,000. 00. They were reallylucky, because shortly later, their old home peeked at $190,000. 00 beforefalling to $150,000.

    00 average. However, the Anderson’s walked away with a grossof $166,000. 00 or a 1,376% increase. Another way to invest in low riskinvestment is by purchasing Government Bonds. Government Bonds are backed(Insured) by the Federal Government and are guaranteed a set % for the life ofthe Bond, which normal yields a 3% gross. High Risk Investment As it stands now,there are basically three ways to restore the system’s long-term solvency: raisetaxes, cut benefits or earn a higher return on the system’s trust funds.

    Democrats generally do not want to cut benefits, while Republicans do not wantto raise taxes. Therefore, the solution under serious consideration bypolicy-makers is to invest part or all of the Social Security trust fund insomething with a higher annual yield than it is currently earning. Another wayto classify the current reform proposals is to think of them as being groupedinto one of two general categories: minor, if any changes; and plans thatpropose more drastic changes. The latter would either include means-testing ofbenefits or investing much of the funds that now enter the pay-as-you-go systemthrough taxes into individual interest earning 401(k) retirement plans andindividual retirement accounts. Privatization advocates of argue thatredirecting Social Security funds into private accounts would generate revenuefor the system without having to raise taxes. They estimate that workers couldearn returns up to 7 percent on their Social Security contribution in comparisonto the less than 3 percent earned currently by Social Security funds invested inU.

    S. Treasury bonds. Opponents of privatization counter that the Treasury-bondsystem is stable, unlike the volatile stock market, which, they argue, couldtank at any time. Many also oppose privatization on the grounds that placingmoney in private accounts would reduce the funds available for guaranteedmonthly payment, on which many low-wage workers depend.

    Privatization opponentsalso point out the high transition costs associated with moving toward aprivatized system, which would have to be raised to support existing paymentswhile current payments are funneled into private accounts. President Clinton haspromised that much of his 1999 agenda will be devoted to a national dialogue onthe future of the Social Security system and has asked all Americans support hisplan to save it. In his 1999 State of the Union address, President Clinton putforth a proposal that calls for the transfer of 62 percent of the projectedbudget surpluses over the next 15 years — more than $2. 7 trillion — to theSocial Security system. The government would invest a portion of the transferredsurpluses in the private sector to achieve higher returns for Social Security.

    The president says this course of action will keep Social Security solvent until2055. At the heart of his plan is a proposal to allocate 11 percent of surplusesto create” universal savings accounts. ” These government-subsidized”USA accounts: would help individuals save for retirement. A portion ofindividual savings in the accounts would receive matching federal funds.

    Inaddition, Clinton says he is dedicated to working with Congress on a bipartisanplan that would shore up Social Security until 2075. These negotiations willinvolve controversial issues, whether to raise taxes, slash benefits or raisethe retirement age. Some Republicans, most notably in the House, prefer thatsome of the surplus be returned to taxpayers in the form of tax cuts. Thetaxpayers would then be free to invest this money as they choose, possibly inhigh-yield private savings accounts. But many lawmakers across the politicalspectrum say that cutting taxes would be tantamount to squandering the surplus.

    These lawmakers generally agree that the current budget surplus presents anhistoric opportunity to shore up the disintegrating Social Security system. Republicans have said that they are reserving H. R. 1 for legislation based onthe president’s Social Security plan, when and if it is offered.

    This Policy. comSpecial Report examines the present and future of the embattled Social Securitysystem. Focusing first on the workings of the system, this report explores theleading reform and privatization proposals being discussed in Washington. Thereport also features an examination of how Social Security effects women andminorities, links to Social Security calculators, polls and Policy. com featureevents on retirement security and Social Security reform. Conclusion/Recommendations We feel that something must be done to the SocialSecurity Tax System, especially as it stands now, to secure a bright and strongfuture.

    We feel that the Keynesian approach, with a mixed investment base byeach individual will satisfy its future. References Social Security. (1999). TheFuture of Social Security [Online].

    Available: http://www. ssa. gov/pubs/1055. html[1999, July]. Apfel, K.

    S. (1998). President Clinton’s State of the Union[Online]. Available: http://ssa. gov/press/state_of union_ press.

    html [1998,January 5]. Social Security at the Crossroads, Amy Steinhttp (Online). http://www. policy.

    com/issuewk/1999/0306_60/Intro60. htmlBibliographyReferences Social Security. (1999). The Future of Social Security [Online]. Available: http://www. ssa.

    gov/pubs/1055. html [1999, July]. Apfel, K. S. (1998).

    President Clinton’s State of the Union [Online]. Available: http://ssa. gov/press/state_ofunion_ press. html [1998, January 5]. Social Security at the Crossroads, AmySteinhttp (Online).

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