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Social Security

Free «Social Security» Essay Sample

Social security comprises various programs that provide economic security to some social categories. In most countries, such programs cover the disabled and retired individuals, as well as deceased workers. In the United States, social security programs are funded by the social security taxes paid by about 158 million Americans. In every fourth household, at least one family member receives income from the Social Security fund. The program is also called – pay-as-you-go. It means that if the working person pays social security taxes to this platform, he/she will get these taxes back as social payments in the future. Both the employers and employees pay monthly taxes to the Social Security program (Young, 2010). In the US, employees pay 6.25% of their salary while employers pay a combined tax of approximately 12.4% of the total returns. In addition, individuals, who earn higher incomes, are expected to recompense the federal taxes in order to compensate for Social Security needs. The trust funds are managed by a board of trustees. Moreover, the Social Security trust funds act as the only source of income for the older Americans. Traditionally, for a person to start earning social security income, he or she had to retire at the age of 65. However, the current full-benefit retirement age is 67 years. The paper studies the solvency problems of Social Security.

Financial Crisis and Demographic Pressures

For a long period, Social Security has been experiencing financial problems due to the long-term shortfalls. According to Freedman (2013), the main causes of this crisis are the weak economy and demographic pressures. In addition, the nation is now undergoing the retirement crisis. It happens because people had not saved enough money before the great recession that could have served as a makeup for the tradition pensions that were not fully reimbursed (Young, 2010).

The Political Will Problems

The economists consider political will a faux problem because they believe it is easier for the federal government to manage the current solvency issue with enacting the laws that increase the payroll tax cap on income. For instance, raising the health care cost that may cause long-term solvency problems can be solved through the enactment of the Medicare for All bill. This bill aims at creating a single-payer for almost all health care services. Fiscal policy economists and analysts believe that the federal government eliminates faux issues because there are no economic limits. As a result, the government can fund the Social Security activities through either borrowing or taxing. This strategy allows maintaining the deficit spending at a lower level, creating the spiraling interest rates especially in the bond market. In such a manner, it solves the solvency issues of the United States. According to the fiscal analysts, the government can avoid long-term solvency problems by cutting down the deficits now. In addition, it can implement the long-term deficits by minimizing the plans that cut entitlement. Consequently, this strategy will substantially reduce costs to the economy and decrease unemployment (Young, 2010).

The Austerity Problems

Economic conflicts have led to an increase in the Social Security taxes; hence, today, there is a need to curb the rate of austerity and manage its derailment in the following ways. First, effort has been put forward to reduce the impact of austerity on the economy. In such a manner, the unemployment levels have increased especially among the youth workers due to the increased debts and deficits that are a result of a cut in the government spending. Secondly, the academic studies have provided knowledge that helps in understanding the errors associated with austerity. For instance, research supports the idea that the public debt ratio negatively affects the countries’ GDP by lowering its growth. In turn, low rate of the GDP growth results in high public debt. Lastly, it is essential to decrease the rate of austerity because the deficit mitigates the outcomes of executive conflicts. Reducing these deficits postpones the economic recovery; hence, political sentiment is built against the excess austerity efforts (Diamond & Orszag, 2004).

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Solutions to the Long-Term Solvency Problems of Social Security

Faux problems, long-term financial crisis, and demographic pressures can be solved in the following ways. First, the federal government should not involve in the public retirement plans and extension of Social Security to both local and state employees, who are currently not covered under the system. According to NCSL, the local and state governments should voluntarily coordinate their retirement plans with the Social Security rather than impose mandatory coverage on all employees (“Social security,” 2013). In such a manner, the extension of the mandatory coverage to local and state employees by the federal government cannot manage the long-term solvency problems of Social Security.

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