Social Security Misconceptions

"Social Security is a major focus of political debate today. There are opposing sides to each issue concerning Social Security, and different people defend each side. All of these present their arguments to the public, which gives the people a mixed message and causes many misconceptions. Each side presents its ideas as absolute fact, and this leads to confusion over what is the real truth. Two of these confusing issues are whether or not Social Security will run out of money, and whether the system helps or hurts the United States economy.

The first topic is whether or not Social Security can continue to pay benefits indefinitely or if it will go bankrupt sometime in the near future. The majority of the public believes the latter. A recent poll found that 'more people 18-34 believe in UFOs than the future of Social Security'. One [reason] is the fact that the baby boom generation will soon reach retirement age. This will cause an increase in the number of people receiving benefits [and the baby bust will] decrease the number in the work force to pay for those benefits. In 1950, there were sixteen workers for each individual receiving benefits. When the baby boomers [begin] to retire, there will be two workers for each recipient. Having less people to pay more benefits could cause the system to run out of money. Supporters of Social Security argue that this will not happen because surpluses will accumulate in trust funds now, enabling payment to baby boomers later. Their opponents, however, say that there is no real trust fund; it is a bookkeeping deception. The money Social Security collects actually goes into the general treasury of the United States, and all that the trust funds contain are IOUs from the federal government .[With] no accumulation of money, there [is] nothing to give the baby boomers. A final argument: Social Security was set up poorly from the beginning [as] a form of insurance. In practice, it is a ponzi scheme which works very much like an illegal chain letter. The system is both actuarially unsound and bankrupt, and soon the chain must break. According to [one] source, Social Security was bound to fail from the very beginning.

Taking the opposite stand on this issue are many politicians and the Social Security Administration itself. They argue that Social Security is in no danger and will continue to work in the future. The Social Security Administration says that the latest report indicates that the Social Security system, as currently structured, will be able to pay benefits well into the next century. They also say that, until the baby boom generation reaches retirement age, the Social Security pension and disability trust funds are projected to build up substantial reserves. So, in their eyes, there is no need to worry about the baby boomers throwing everything off, because the extra money they are contributing now will go to pay their [own] benefits down the road. The Social Security Administration also contends that the number of people in the work force is actually increasing, due to the rising number of women and immigrants needing jobs. More people paying into the system would strengthen it for the future. Still others supporting Social Security say that even if the system is currently on the road to bankruptcy, it will not be allowed to die away; too many people depend on it. Elderly citizens provide a strong political base which will force Congress or the President, to find a way to reform Social Security before it is no longer effective.

A second issue is that of the system's effect on the economy. Some people argue that Social Security is a drain on the economy. The U.S. is currently around six trillion dollars in debt. Any system that may cause this figure to increase is harmful to the economy. Social Security is one such system. Some studies show that Social Security and Medicare spending are the main cause of our large deficit and our growing debt, and the burden of debt threatens the economy and the livelihood of future generations. Another argument against Social Security is that\'c9taxes cause distortions in the economy, which are burdensome to taxpayers but produce no additional revenue for the government. This [means] that any tax does more harm to the economy than good, so Social Security, as a tax, is essentially harmful. Finally, if the Social Security system collapses, the people currently receiving benefits will lose a major source of income, which may plunge many of them into poverty and cause even more damage to the economy.

But another [argument claims] that Social Security not only does not harm the economy, it actually helps it. One source claims that 'Far from contributing to the deficits, Social Security with its surpluses is actually helping to reduce government borrowing'. This is because the trust funds are invested in federal bonds, giving the government more money and helping to balance the budget. An [additional] argument for Social Security is that it keeps people out of poverty. It has made a substantial contribution to raising people's income above the poverty level. It is estimated that if there were no Social Security, there would be almost four aged poor persons for every one that is now classified as poor. This makes up for any cost the system may inflict on the economy.

Social Security is perhaps the most confusing system in the United States government, but it affects every American. This makes it necessary for the public to [be] informed. The system has benefits and drawbacks that Americans need to know about, but until politicians and the media stop giving people contradictory information, the public may never know the whole truth."
Amy Hubert, Concordia High School, Concordia, Kansas

"American workers...fear that Social Security is a very bad investment. A recent survey conducted by the Employee Benefit Research Institute showed that 65 percent 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 the average working taxpayer could make. Most Americans got back far more 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.

As if poor returns weren't bad enough [returns are lowered] 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. [However] most of the tax increase will be paid by the [wealthiest] 20 percent 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 retire...IOUs will have to be [redeemed]. Experts say that the most likely way to redeem them would be to increase income taxes on the younger, working generation....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...interest...younger American workers [and help them] feel more secure about [a future] generation of American workers taking care of them. 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 difficult system to understand [and]...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 [and] in 1965, the program [expanded to include] Medicare. Later, in 1972, legislation was enacted that guaranteed that benefits increase [along with] the cost of living. This system definitely [is worth more] 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 [the] 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 [in an attempt] 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 [number] of non-wealthy members of 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, elevating market interest rates which cause the cost [of] capital to increase. Therefore, the amount of capital available for economic growth decreases, [which in turn] causes lower levels of productivity and fewer jobs.

Any tax is a penalty on some kind of activity. Wealth is a manifestation of successful productive activity (in a market economy) so taxes targeted at the wealthy penalize success. Wealth that is gained in the market place\'c9enhances the well being of others. The wealthy whose taxes are increased, are likely to [engage in] less...income generating activity. Productive activity\'c9should be encouraged by the tax system...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\'c9misconceptions concerning Social Security. Our tax system is 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 [surrounding] 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 is the idea that Social Security trust funds are just glorified IOUs.

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\emdash intra-governmental transfers. Such transfers have no effect on total government spending or on the deficit, consequently the IOUs are nothing more than accounting tricks."
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, [1997] the Council surprised many by introducing three proposals for reforming Social Security.

The least radical of the three proposals is to maintain benefits. 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 percent of Social Security funds in the stock market. However, critics of this...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 percent 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 a private savings account. The five advocates of this plan suggest placing five percent 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 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