1. Chapter 15 GOVERNMENT, THE ECONOMY, AND DOMESTIC POLICY Institutional/Current Events Focus: Maintaining the Safety Net for Seniors—Social Security. © 2011 Taylor & Francis

2. Background Social Security established in 1935 Provides lifetime monthly benefits to retired workers, disabled citizens, their spouses, and minor children. Initially, Social Security intended only to provide retirement for employees in the private sector. © 2011 Taylor & Francis

3. Background The law was subsequently changed in 1939 by extending coverage to widows, and in a few cases widowers, whose spouses died. Compensation to dependents of public and private employees who died or retired was also provided in the same year. Eleven years later, Social Security benefits were extended to those individuals who were self-employed, farm workers, members of the military, clergy, and state and local employees. © 2011 Taylor & Francis

4. Background In 1954, The Social Security Act of 1935 was amended further to provide disability insurance to those individuals who could prove loss of earnings due to a physical disability. The enactment of Medicare, which provided medical insurance to citizens ages 65 years and over, further augmented Social Security’s benefits under LBJ’s Great Society social programs. © 2011 Taylor & Francis

5. Background Finally, in 1972, amendments to the original 1935 Social Security Act guarantees cost-of- living-allocations based upon rates of inflation to all citizens 65 years of age and older. Recently, the retirement age was raised to 67. Consequently, Social Security is now the largest federal entitlement program that guarantees payments and provides medical benefits based upon contributions (taxes) from the incomes of those individuals currently employed. © 2011 Taylor & Francis

6. Background

7. Cause for Concern The Congress and the President overwhelmingly supported the Social Security Act of 1935 to provide greater security for workers. Ultimately, the growth of the entitlement program, as well as other federal expenditures, illustrates how short-term political decisions have unintended long-term effects. The 1934 mid-term election provided a clear mandate for FDR and the Democratic Party to extend government funded work programs. © 2011 Taylor & Francis

8. Cause for Concern An interesting political phenomenon has occurred which threatens the avuncular governmental programs: the quantity of retirees will begin to outnumber those individuals who are contributing to governmental entitlement programs, such as social security producing a legitimation crisis © 2011 Taylor & Francis

9. Cause for Concern Talcott Parsons and John Maynard Keynes: the modern welfare state relies upon substantial inputs (taxes from those working) to fund the retirement programs, in this case Social Security. © 2011 Taylor & Francis

10. Cause for Concern Individuals belonging to the “Baby Boomer” generation are beginning to retire at a much higher rate than those who are currently working and subsidizing Social Security. thus, the “input” (revenue) required cannot sustain the “output” (expenditures for retirees) necessary to fund social security the retirement system’s (institutional mechanism) utility is abridged. because the federal retirement system is largely underfunded, workers who are contributing to the system perceive Social Security as a failed program and are therefore not relying on the service for their retirement. © 2011 Taylor & Francis

11. Cause for Concern Consequently, retirement opportunities are being determined by other sectors of society which has led to a legitimacy crisis Further perpetuating a negative perception of government’s ability to provide for Americans’ social needs © 2011 Taylor & Francis

12. Policy Options Policy options premised on the foundation that these two entitlement programs should continued to be funded and implemented by the federal government Political leaders are limited in their responses because they seek to appease both contributors (workers) and benefactors (retirees) to gain reelection Hence, politicians are confronted with limited options to solve social security’s inadequacies © 2011 Taylor & Francis

13. The Problem

14. The Larger Problem

15. Policy Options Yet, several reforms have been proposed including: raising taxes to adjust for the input/output deficits cutting benefits to retirees borrowing money to subsidize Social Security © 2011 Taylor & Francis

16. Strengthening Social Security Reform or “shore-up” Social Security: Raising the retirement age Reducing benefits Raising taxes Allow younger workers to invest money or place it into private retirement accounts Raise the income cap on payroll taxes Increase the number of years needed to work before receiving full benefits Supplement Social Security with other revenues Establish pay-as-you-go system © 2011 Taylor & Francis

17. Political Paradox Nevertheless, politicians have chosen to advance short-term gains (reelection) Ignoring the long-term problems associated with entitlement programs Borrowing money and subsidizing social security through deficit spending. © 2011 Taylor & Francis

18. Conclusion For all these reasons, Social Security is slowly becoming insolvent. Prompting concern as the legitimacy of our government is at stake many younger workers do not believe they will receive any Social Security benefits despite the payroll tax being deducted from their paychecks for many years. Workers pay for these programs once they join the workforce and expect to receive these benefits once they retire (i.e. they are entitled to them). © 2011 Taylor & Francis

19. Conclusion Projected that by 2017, Social Security will be running a deficit, as fewer people will be “paying into the program” (contributing) than “taking out” (receiving benefits): Declining birth rates Thus less money being paid into the Treasury to support these programs Increasing number of baby boomers retiring © 2011 Taylor & Francis

20. Conclusion To complicate an already bleak scenario, the surpluses of the past have been spent on other programs and therefore the money contributed is no longer available. Further problems exist: politicians are not addressing the inevitable deficits the fact that the cost of medical treatments and pharmaceuticals have risen politicians refuse to raise taxes to fund the program. © 2011 Taylor & Francis