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Josh Mangano
3-10-11
Pd.2

Social Security Reform

The Social Security Act was drafted during Roosevelt's first term by the President's

Committee on Economic Security, under Frances Perkins, and passed by Congress as part of the

New Deal. The act was an attempt to limit what were seen as dangers in the modern American

life, including old age, poverty, unemployment, and the burdens of widows and fatherless

children. By signing this act on August 14, 1935, President Roosevelt became the first president

to advocate federal assistance for the elderly.

Social Security is a social insurance program that is funded through dedicated payroll

taxes called Federal Insurance Contributions Act (FICA). Tax deposits are formally entrusted to

the Federal Old-Age and Survivors Insurance Trust Fund, the Federal Disability Insurance Trust

Fund, the Federal Hospital Insurance Trust Fund, or the Federal Supplementary Medical

Insurance Trust Fund.

The main part of the program is sometimes abbreviated OASDI (Old Age, Survivors, and

Disability Insurance) or RSDI (Retirement, Survivors, and Disability Insurance). When initially

signed into law by President Franklin D. Roosevelt in 1935 as part of his New Deal, the term

Social Security covered unemployment insurance as well. The term, in everyday speech, is used

to refer only to the benefits for retirement, disability, survivorship, and death, which are the four

main benefits provided by traditional private-sector pension plans.

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Social Security was controversial when originally proposed, with one point of opposition

being that it would allegedly cause a loss of jobs. However, proponents argued that there was in

fact an advantage: it would encourage older workers to retire, thereby creating opportunities for

younger people to find jobs, which would lower the unemployment rate. While most economists

attribute the recession of 1937 and 1938 to other causes, historian Edward Berkowitz

subsequently contended that the Act was a cause of the "Roosevelt Recession".

In the original plan most women and minorities were excluded from the benefits of

unemployment insurance and old age pensions. The Government saw that most jobs were held

by white men so they only gave them retirement rights. Job categories that were not covered by

the act included workers in agricultural labor, domestic service, government employees, and

many teachers, nurses, hospital employees, librarians, and social workers. The act also denied

coverage to individuals who worked intermittently. These jobs were dominated by women and

minorities. For example, women made up 90% of domestic labor in 1940 and two-thirds of all

employed black women were in domestic service. Exclusions exempted nearly half of the

working population. Nearly two-thirds of all African Americans in the labor force, 70 to 80% in

some areas in the South, and just over half of all women employed were not covered by Social

Security. At the time, the NAACP protested the Social Security Act, describing it as ³a sieve

with holes just big enough for the majority of Negroes to fall through (Beland).´

Critics, such as libertarian Nobel Laureate economist Milton Friedman, say that ³Social

Security redistributes wealth from the poor to the wealthy.´ Workers must pay 12.4%, including

a 6.2% employer contribution, on their wages below the Social Security Wage Base ($106,800,

in 2010), but no tax on income in excess of this amount. Therefore, high earners pay a lower

percentage of their total income because of the income caps; because of this, payroll taxes are
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often viewed as being regressive. Furthermore, wealthier individuals generally have higher life

expectancies and intern are expected to receive larger benefits for a longer period of time than

lower economic taxpayers. A single individual who dies before age 62, who is more likely to be

poor, receives no retirement benefits despite his years of paying Social Security tax. On the other

hand, an individual who lives to age 100, who is more likely to be wealthy, is guaranteed

payments that are more than he paid into the system. An NBER ,The National Bureau of

Economic Recesses, volume edited by Martin Feldstein and Jeffrey Liebman called The

Distributional Aspects of Social Security points out that members of racial minorities with lower

than average life expectancies and lower than average rates of marriage may also suffer from the

program on average.

Supporters of Social Security counter most often by saying that despite its regressive tax

formula, Social Security benefits are calculated using a progressive benefit formula that replaces

a much higher percentage of low-income workers' pre-retirement income than that of higher-

income workers (although these low-income workers pay a higher percentage of their pre-

retirement income). They also pointed out in numerous studies that show, relative to high-

income workers, Social Security disability and survivor benefits paid on behalf of low-income

workers more than offset any retirement benefits that may be lost because of shorter life

expectancy. Other research asserts that survivor benefits, allegedly an offset, actually exacerbate

the problem because survivor benefits are denied to single individuals, including widows/

widowers married less than nine months (except in certain situations), divorced widows/

widowers married less than 10 years, and co-habiting or same-sex couples, unless they are

legally married in their state of residence. In addition unmarried individuals tend to be less

wealthy and minorities.

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By dollars paid, the U.S. Social Security program is the largest government program in

the world and the single greatest expenditure in the federal budget, with 20.8% for social

security, compared to 20.5% for discretionary defense and 20.1% for Medicare/Medicaid. Social

Security is currently the largest social insurance program in the U.S., constituting 37% of

government expenditure and 7% of the gross domestic product and is currently estimated to keep

roughly 40% of all Americans age 65 or older out of poverty.

However, there has been an ongoing debate to when the right age of retirement is; some

feel that they should be able to tap into their benefits early. But as it stands now the earliest age

at which (reduced) benefits are payable is 62. Full retirement benefits depend on a retiree's year

of birth. ³Those born before 1938 have a normal retirement age of 65. Normal retirement age

increases by two months for each ensuing year of birth until the 1943 year of birth, when it stays

at age 66 years until the year of birth 1955. Thereafter the normal retirement age increases again

by two months for each year ending in the 1960 year of birth, when normal retirement age stops

at age 67 for all born thereafter (Redmond).´ Since the retirement age increases each year it is

important to look at how the rest of the world is vastly approaching retirement age as well. The

breakdown in the more well known countries is as follows: Europe, Northern America, Australia,

New Zealand, and Japan has increased from 8 percent in the 1950s to 14 percent in 2000, and is

predicted to reach 26 percent in 2050. The reason for these high percentages is a result of a

decline in the death and fertility rates (Mitchell).

Political Corruption has been in question for Social Security for many years but the

critics of Social Security have said that the politicians who created Social Security exempted

themselves from having to pay the Social Security tax. When the federal government created

Social Security, all federal employees, including the President and members of Congress, were
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exempt from having to pay the Social Security tax, and they received no Social Security benefits.

This law was changed by the Social Security Amendments of 1983, which brought within the

Social Security system all members of Congress, the President and the Vice President, federal

judges, and certain executive-level political appointees, as well as all federal employees hired in

any capacity on or after January 1, 1984(Altmeyer).

Current issues involve things like Social Security¶s contrast with a private pension, the

Federal Court¶s interpretation of benefits, and the acts Constitutionality.

Although Social Security is sometimes compared to private pensions, this is an incorrect

comparison since Social Security is a social insurance and not a retirement plan. The payment of

disability benefits also differs in Social Security from most private pensions. In other ways the

two systems are fundamentally different as well, a private pension fund accumulates the money

paid into it; eventually using those reserves to pay pensions to the workers who contributed to

the fund; and a private system is not universal. Social Security cannot be "prefunded" by

investing in marketable assets such as equities, because federal law prohibits it from investing in

assets other than those backed by the U.S. government.

The United States Court of Appeals for the Seventh Circuit has suggested that the Social

Security Act has a moral design and should be liberally interpreted in favor of citizens when

deciding what counted as covered wages for purposes of meeting the coverage requirements to

make a worker eligible for benefits. That court has also stated: ". . . The regulations should be

liberally applied in favor of beneficiaries" when deciding a case in favor of a felon who had his

disability payments were terminated upon entering prison. According to the court, the Social

Security Act "should be liberally construed in favor of those seeking its benefits can not be

doubted." ³The hope behind this statute is to save men and women from the rigors of the poor
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house as well as from the haunting fear that such a lot awaits them when journey's end is

near´(Social Security).