1996-1997 Harry Singer Foundation National Essay Contest

Social Security Misconceptions

Rock Hill High School, Ironton, Ohio

    1st   Nick Hoffman                    2nd Jill Porter            3rd Amanda Thompson

"American workers have a fear that Social Security is a very bad investment. A recent survey conducted by the Employee Benefit Research Institute showed that 65% of working Americans expect to pay more into the Social Security program than they will ever get out. This is a serious problem because as Social Security programs become less and less important to higher income groups and average taxpayers, their support for the program will drastically weaken and it will be harder to keep the program alive.

For well over fifty years, Social Security was one of the wisest investments for the average working taxpayer could make. Most Americans got back far more benefits than they had paid in Social Security taxes. For years Social Security was by far the most popular of the Government's domestic programs.

Today Social Security is losing its luster. For the first time since the creation of the program, retiring United States taxpayers will be receiving less benefits than the accumulated sum of what they had paid into the program and experts speculate that it is only going to get worse and worse.

As if poor returns weren't bad enough, they lower the benefits even further by the income taxes many well off retirees now are paying on their Social Security benefits. there are even rumors that President Clifton's new economic plan will actually raise taxes on Social Security benefits. Moreover, most of the tax increase will be paid by the top 20% of the elderly.

An analysis by Families USA, a Washington based consumer organization, says the lack of opposition may not last long. When baby boomers begin retiring with their benefits choked even further by programs such as trust funds (which is actually a pseudonym for a stockpile of IOU's), these IOU's will eventually fancy have to be reduced. Experts say that the most likely way to redeem them would be to increase income taxes on the younger, working generation.

In closing, the simple fact is that people are going to have more and more trouble getting their money's worth out of the program. The Clinton Administration has been speaking of reforms for Social Security, but we have yet to see any real significant changes. the truth of the matter is, if Social Security is going to work the government is going to have to respark interest in the program from the younger American workers. They need to feel more secure about the next generation of American workers taking care of them, and to do this the Clinton Administration and Congress need to seriously look at the problems the program has, change them, and promote the changes to younger workers."
Nick Hoffman, Rock Hill High School, Ironton, Ohio

"The basic idea of Social Security is simple. During work years, employees and their employers and self-employed people pay Social Security taxes. This money pays benefits to those getting benefits and it also helps pay administrative costs of the program. Although the basic idea is simple, it is a difficulty system to understand. People have many misconceptions about this system and the many different reasons of benefiting from it. It affects our lives from the day we start working until the day we die.

'It has less value today than when it was first proposed.' This is one misconception. Originally, social security covered only the worker upon retirement. In 1939, the law was changed to pay survivors when the worker died, as well as certain dependents when the worker retired. Disability insurance was first paid in July 1957. In 1965, the program extended again with Medicare. Later, in 1972, legislation was enacted that guaranteed the benefits increase as the cost of living goes up. This system definitely has a bigger value than when it was first proposed. It also has many more benefits, allowing everyone to have a better life.

A second misconception states that, 'by putting higher taxes on the wealthy, the government is saving money.' Cordato, an economist for Institute for Research on the Economics of Taxation, feels that taxing the wealthy would harm America's economy. If the wealthy are taxed more, they would spend less trying to save money. He feels that increasing the taxes would decrease economic activity and weaken the economy, which would negate any benefits that the middle and lower class would get from their decreased tax burden. By trying to increase the taxes on the wealthy, a greater amount of non-wealthy members of a society would end up worse off. Where their activities are discouraged by higher taxes, poor and rich alike bear the cost of the end product. Higher tax rates discourage saving and elevate market interest rates, which causes the cost capital to increase. Therefore, the amount of capital available for economic growth decreases. this causes lower levels of Productivity and fewer jobs.

Any tax is a penalty of some kind of activity. wealth is a manifestation of successful productive activity (in a market economy) so taxes target at the wealth penalize such success. Wealth that is gained in the market place through involuntary activities, only enhances the well being of others. The wealth whose taxes are increased are likely to do less in the form of income generating activity. The pursuit of higher increases and the productive activity that it inspires should be encouraged by the tax system. Otherwise all tax payers would be treated unfairly. Cordato says, 'Shifting the tax burden to upper income individuals does nothing to help the truly needy in society.'

These are only two of the many different misconceptions concerning Social Security. Our tax system is very unique and complicated. Due to the fact that Social Security benefits keep expanding and changing, people are often confused about it. I feel that it is important for each person to know and understand it better than they do now."
Jill Porter, Rock Hill High School, Ironton, Ohio

"The amount of misinformation on Social Security is overwhelming. In fact, it would probably take years to clear up all of the half-truths floating around. One myth of great concern; however, is the idea that Social Security Trust funds are just glorified IOU's.

Social Security Trust funds operate quite differently from what the general public thinks. The term 'trust' tends to be misleading. Federal Trust Funds differ from traditional private sector trust funds. In private sector trusts, the beneficiary owns the income generated by the trust and usually the assets. A trustee oversees the trust's assets and acts in the interest of the beneficiary. The trustee must follow stipulations of the trust which cannot be changed. The Federal Government, on the other hand, acts as both the beneficiary and the trustee. If necessary, the government can alter the existing laws to change the nature of the trust.

If the Federal Government is both the beneficiary and the trustee, then how can it borrow from itself? Each year the Federal Government spends more money than it receives, thus acquiring a deficit. In order to compensate, it issues itself government securities. Since the securities are interest bearing, the Federal Government must then pay itself interest. This is accomplished by making transfers from one government account to another or intra-governmental transfers. Such transfers have no effect on total government spending or on the deficit. Consequently the IOU's are nothing more than accounting tricks.

In essence, the Social Security Trust fund myth is fairly easy to clear up. By examining the Federal Government's bookkeeping methods it is to perceive the intre-governmental transfers. Thus the IOU's associated with Social Security Trust Funds are really not IOU's but simply shifts in accounting."
Amanda K. Thompson, Rock Hill High School, Ironton, Ohio

"Does Social Security need to be rescued? Due to projections that the system will start spending more than it collects by 2012, many people believe the system is in need of some type of reform. To investigate and discuss the system, the Advisory Council on Social Security was formed in 1994. The thirteen member council was expected to propose an increase in taxes and cuts in benefits to rescue Social Security . However, in its final report issued in January, the council surprised many by introducing three proposals for reforming Social Security.

The least radical of the three proposals is called 'Maintain Benefits' plan. This proposal, supported by six members of the council, would keep the current system intact. In order to raise money, advocates of this plan suggest raising payroll taxes and investing up to 40% of social Security funds into the stock market. However, critics of the 'Maintain Benefits' plan fear the government's ownership of stock in private companies and the ramifications of a stock market crash.

The 'individuals Accounts' proposal, which is supported by two members of the advisory council, would require workers to put 1.6% of their pay into an individual account. All of these accounts, which would be managed by the government, would offer workers the option of stock and bond investment. At retirement, benefits would come in the form of annuities from account balances. This proposal has few strong supporters and therefore, will most likely not emerge as a strong contender for reform but may become a model for compromise.

The final proposal presented by the advisory council is the 'Private Savings Account' plan. The five advocates of this plan suggest placing 5% of the payroll tax paid by workers into a personal savings account. Workers would then decide, from a range of options, where to invest the money. The remaining payroll tax would then go to support a basic benefit. Critics of this plan argue that if allowed to choose how to invest part of their payroll tax, the average American might speculate in unstable futures.

Will any of these proposals be given the opportunity to rescue Social Security? Only time and intense debate will tell. However, one thing is certain, reform will not happen overnight and Americans must be patient if they want to see changes in Social Security occur."
Janette F. Jenkins, Rock Hill High School, Ironton, Ohio