SEA at ASU Student Economics Association

What is Economics? Economics is a social science concerned with the logic of scarcity, cost, value, and choice Economics is not all about money, math, and numbers Money is just a medium of exchange; it is not a productive resource.

Does the system really need changing?

What a (New) Deal ! 1935 Franklin Delano Roosevelt signs Social Security Act in the Cabinet Room of the White House. Golden Years: Ida Mae Fuller collects social security checks for 35 years (until age of 100) – receiving $22, after paying $24.75 over a three-year period. SS Check # $22.54

1. Do you need the government to force you to save for your retirement? Does anyone? 2. Do “we”, as a society, have a responsibility to care for those who have not prepared for their retirements? 3. Do you think you will ever receive social security benefits? 4. Should the “rich” help pay for the retirement of the less fortunate? To what extent? Choices Choices

Federal Insurance Contribution Act (FICA) Payroll Taxes: 15.3% of Earned Income Employee pays 6.2% for SS 1.45% for Medicare Employer pays matching funds Earnings “cap” of $90,000 (maximum tax of $11,160) How does Social Security Work?

Federal Taxing and Spending All of this (and more) is spent as it comes in. There is no special account where social security contributions are earning interest. You do have a social security “account”: a computer entry of what you have contributed, how much the government “owes” you, and when you can start collecting it. Future taxpayers own future retirees a LOT of money.

What’s wrong with Social Security?

Statistical projections of all those IOUs add up to about $2 Trillion. In 2006, total social security tax receipts will more than cover payments to retirees. Over the next 60 years, projected payments will exceed social security taxes by about $7 Trillion. What’s wrong with Social Security?

Federal Outlays, 1962 to 2001 (As a percentage of GDP)

“Baby Boomers” Are Retiring “Your turn” to retire…

Choices Try to fix the current system: tinker with taxes and benefits “Privatize”: continue forced savings, but but create personal investment accounts accounts (with some federal regulation). Terminate social security: pay off obligations, but government stops administering saving and retirement benefits.

Proposals to “fix” Social Security Raise the retirement age Raise the income cap on the Social Security portion of FICA Raise the FICA tax rate for Social Security Reduce scheduled benefits

Changes the definition of a retiree Reduces the number of retirees Reduces the number of years retirees will be paid benefits … but this must be phased in slowly and will take a long time to implement fairly Raising the Retirement Age

Raising the Income Cap Increases taxable income Increases tax revenue Makes payroll tax less regressive Retirement System OR Welfare System ??? Duh ?

Raising the FICA tax rate More Regressive Fewer Jobs Laffer curve effects

Reduce Scheduled Benefits Reduces Obligated Payments Closes Gap Between Workers’ Payments and Retirees’ Receipts Default on Obligations !!!

“Privatization”

Privatization: Pros & Cons Establishes private accounts, With (same old…) forced savings Allows for investment of savings to earn interest on money Personal control is two-edged sword: lack of investment expertise raises significant risk of loss. More freedom More personal responsibility

Pay out current obligations – terminate program (the Friedman plan) Government no longer supplies retirement Individuals control their own money Ends “the problem” of Social Security Stops the losses