Social Program is said to become insolvent by

Social programs originate in order to give tax revenue back
to the citizens who pay into the system. They are meant to give back to the
workers who have worked their entire life and wish to live with a stable
retirement. In the United States the longest retirement tax pay into plan is
Social Security. The U.S. social welfare structure has been From the earliest
colonial times, local villages and towns recognized an obligation to aid the
needy when family effort and assistance provided by neighbors and friends were
not sufficient. This aid was carried out through the poor relief system and workhouses.
Gradually, measures were adopted to provide aid on a more organized basis,
usually through cash allowances to certain categories among the poor. shaped
both by long standing traditions and by changing economic and social conditions.
Meanwhile, both the States and the Federal Government had begun to recognize
that certain risks in an increasingly industrialized economy could best be met
through a social insurance approach to public welfare. That is, the
contributory financing of social insurance programs would ensure that
protection was available as a matter of right as contrasted with a public
assistance approach whereby only those persons in need would be eligible for
benefits. The plan has lasted since 1935 on into the 21st century.
However, in the recent years the retirement tax plan has been subject to
scrutiny on Capitol Hill as a result of citizens living and working longer even
beyond the average retirement years. The tax rate itself paid by employers and
employees has also been debated among democrats and republicans. The insolvency
of the program has come to fruition and if nothing is done to ensure stability,
the Social Security Program is said to become insolvent by the year 2034. The
long standing retirement program administered by the federal government should
be kept solvent in order to achieve its original mandate of securing the long
term retirement of the American worker.

 

Origination of SSI

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            The United States experienced a severe economic depression which began in
1929 when the stock market crashed and asset prices plummeted. The roaring
1920s which had previously built the economy into a boom period had been long
forgotten once the depression hit. Runs on banks ran rapid as depositors rushed
to withdraw their savings. Farmers and the agriculture industry as a whole
shrank and deflation plagued crop prices in the market. The New Deal was
package of legislation that was introduced by President Roosevelt during the
1930s in order to save the economy from further recession. Beginning in 1932,
the Federal Government first made loans, then grants, to States to pay for
direct relief and work relief. After that, special Federal emergency relief and
public works programs were started. In 1935, President Franklin D. Roosevelt
proposed to Congress economic security legislation embodying the
recommendations of a specially created Committee on Economic Security. There
followed the passage of the Social Security Act, signed into law August 14, 1935.
The Committee of Economic Security was established in 1934 to develop a
comprehensive social insurance system covering all major personal economic
hazards with a special emphasis on unemployment and old age insurance.

            The Social
Security Board itself was created in 1935 to administer the program and set the
tax rates for workers to pay into. The Chairman of the Board reported directly
to the President until July 1939 when the Board was placed organizationally
under the newly established Federal Security Agency. The original Social
Security Board consisted of the three member Board, an Executive Director,
three Operating Bureaus, five Service Bureaus and Offices and 12 Regional
offices. The law itself established two social insurance programs on a national
scale. The choice of old age and unemployment as the risks to be covered by
social insurance was a natural development, since the Depression had wiped out much
of the lifetime savings of the aged and reduced opportunities for gainful
employment. The Act also provided Federal grants-in-aid to the States for the
means-tested programs of Old-Age Assistance, and Aid to the Blind. These
programs supplemented the incomes of persons who were either ineligible for
Social Security or whose benefits could not provide a basic living. The intent
of Federal participation was to encourage States to adopt such programs. Legislation
was enacted in 1934, 1935, and 1937 to establish a railroad retirement system
separate from the Social Security program legislated in 1935. While the
railroad retirement system has remained separate from the Social Security
system, the two systems are closely coordinated with regard to earnings
credits, benefit payments, and taxes. The railroad unemployment insurance was also
established in the 1930’s. Other programs also made advances in the period
since 1935.

In 1948, the last of the States adopted
a workers’ compensation program. The laws relating to work-connected accidents
gradually improved the provisions for medical benefits and rehabilitation extension
services. The scope of the basic national social insurance system was significantly
broadened in 1956 through the addition of Disability Insurance. Benefits were
provided for severely disabled workers aged 50 or older and for adult disabled
children of deceased or retired workers. In 1958, the Social Security Act was
further amended to provide benefits for dependents of disabled workers similar
to those already provided for dependents of retired workers. In 1960, the
age-50 requirement for disabled-worker benefits was removed. The 1967
amendments provided disability benefits for widows and widowers aged 50 or
older. The 1977 amendments changed the method of benefit computation to ensure
stable replacement rates over time. Earnings included in the computation were
to be indexed to account for changes in the economy from the time they were
earned. The 1983 amendments made coverage compulsory for Federal civilian
employees and for employees of nonprofit organizations. State and local
governments were prohibited from opting out of the system. The amendments also
provided for gradual increases in the age of eligibility for full retirement benefits
from 65 to 67, beginning with persons who attain age 62 in the year 2000. For
certain higher income beneficiaries, benefits became subject to income tax.

Financing

            Perhaps the most confusing aspect of Social Security financing is the
management of the trust fund cash flows on the books of the Treasury. The
methods of managing the funds can create the impression that the interest
income and even the investment holdings are mere accounting conventions.
However, if one looks past the cash flow transactions to the impact on actual
payments to and from the public, it becomes clear that an increase in trust
fund reserves will be associated with a decrease in publicly held Treasury
securities. That decrease in turn reduces the Treasury’s current cash needs for
interest payments to the public and its need to borrow to make those cash
payments. The purchase of Treasury securities from OASDI tax or interest income
and the redemption of Treasury securities to meet OASDI expenses are actually
handled by the Treasury Department, whose secretary is the managing trustee of
the trust funds. In addition to maintaining the trust fund investment holdings
on the Treasury Department books—verifying that the purchases and redemptions
are properly accounted for and that interest income is regularly credited—the
Treasury also handles the trust fund cash operations. Most of those operations
use the Treasury’s operating cash accounts, which are held at the Federal
Reserve Bank of New York and several commercial banks around the country. The
previous section described how trust fund tax income is essentially borrowed by
the general account as soon as it is received, in exchange for a security issued
to the trust funds. In practice, employers deposit workers’ payroll tax
contributions directly into the operating cash accounts, and a parallel
bookkeeping operation credits the trust funds with the appropriate securities.
Similarly, when beneficiaries receive their benefit checks, the checks are
cashed from one of these operating cash accounts, and a parallel operation
redeems the appropriate trust fund securities.

            Most of the
withdrawals and deposits, each totaling $8,273 billion, are in offsetting security
rollover transactions. Publicly held Treasury securities are continually
maturing and being rolled over into newly issued securities, an operation that
requires cash payment to the owners of maturing securities and cash receipt
from the purchasers of newly issued securities. If the government were running
a surplus, only some of the maturing securities would be rolled over into newly
issued securities, and the table would also include a “net redemptions” entry
among the withdrawals. In an important sense, net new borrowing from the public
is a residual value because if any of the legislatively controlled primary
amounts changes, net new borrowing must also change to maintain the operating
cash level. Each additional dollar of tax revenue requires one less dollar to
be borrowed from the public. Each additional dollar of general account or OASDI
benefit expenditure requires one more dollar to be borrowed from the public. In
either case, borrowing from the public is adjusted to maintain the operating cash
level. Thus, any changes to the OASDI transaction amounts would affect the
residual net new publicly held debt as well. Although OASDI taxes reduce
borrowing from the public and OASDI benefit payments increase it, the total
public debt is not affected. The securities that are issued to the trust funds
replace securities issued to the public, and public debt total Treasury
securities remains unchanged. The same holds in reverse for OASDI expenditures:
Securities redeemed to cover program expenditures are replaced by securities
issued to the public. When trust fund reserves grow each year, as they are
doing now, increasing amounts of general account debt are shifted to trust fund
holdings. When reserves are drawn down toward their longer-term levels, as will
begin to occur in a few years, the general account debt held by the trust fund
will once again be shifted to debt held by the public. Total general account
debt the gross public debt is not affected by these transactions.

Federal Budget (S.S.)

            The federal budget looks both backward and forward. It looks backward to
account for all receipts and expenditures of public money. It looks forward to
provide a framework for allocating resources over the next few years across the
agencies and functions of the federal government. The “unified budget”
framework provides a set of definitions and conventions that apply government
wide, supporting detailed Congressional appropriations at the agency level.
That framework also allows the tabulation of annual receipts and expenditures for
the entire federal government. That budget convention should be kept in mind
when interpreting the place of OASDI interest income in the budget. When an
agency has a small amount of interest income from a fund under its
jurisdiction, it might be quite appropriate to treat that interest as income of
the government at large, rather than of the agency. However, that convention is
less satisfactory for the OASDI trust fund. The Social Security Act expressly
authorizes the payment of benefits from trust fund reserves composed of
accumulated tax and interest income without needing annual reauthorization, and
the interest income is an important component of the long-term financing. OASDI
reserves will reduce publicly held debt, at least until the date at which the
reserves are projected to be depleted, and will continue to do so beyond that
date if OASDI taxes and benefits have by then been adjusted to forestall
depletion. Until those adjustments are made, however, the baseline budget will
show but only after the projected depletion date and only for budget scoring
purposes a hypothetical addition to the consolidated government debt that
cannot actually materialize.

            Social
Security benefits are partially taxable for beneficiaries whose incomes exceed
a threshold. The revenues are remitted to the OASI, DI, and hospital insurance
(HI) trust funds. The trust fund balances also earn interest from the special
interest-bearing Treasury bonds. Congress sometimes adds to the trust funds
directly from general funds. For example, when the payroll tax was cut
temporarily as a stimulus measure in 2011 and 2012, the trust funds were
reimbursed for the lost revenue. To restore long-term trust fund solvency,
policymakers will have to make changes to the program through some combination
of raising the payroll tax rate, reducing benefits, and tapping other sources
of revenue. To avoid the effect of the ever-growing deficit of benefits
relative to taxes already occurring, which add to the unified government
deficits, policymakers need to act soon. The sooner policymakers make
adjustments, the less dramatic those adjustments will need to be.

Public Debate

            The solvency of Social Security has been debated for decades since its
inception among republicans, democrats, and libertarians. Policymakers last
addressed Social Security’s solvency in 1983, when President Ronald Reagan, a
Republican Senate and a Democratic House enacted a balanced package of tax
increases and benefit cuts that ensured a half century of solvency.
Importantly, the benefit cuts were phased in and won’t be fully in place until
2022.  Currently, workers and their
employers pay a combined 12.4 percent payroll tax (6.2 percent each) on
earnings up to a cap ($118,500 in 2016). Benefits are determined by a
progressive formula based on these taxable earnings that replaces a larger
share of lower-wage workers’ earnings than of higher-wage workers’ income.
Democrats are against the privatization of social security due to the
instability and fear of the private market taking over. In their argument they point
out correctly that in prior years, Social Security did not contribute to the
federal deficit and, in fact, made the deficit smaller since it ran a surplus
for many years. These proponents of the program say that Social Security should
remain off the table for deficit reduction, since the program hasn’t
contributed to the federal deficit in the past. Democrats believe that a
dignified retirement is central to the American Dream, and its foundation is
built on two long-standing institutions charged with realizing that dream:
Medicare and Social Security. Also they are against raising the retirement age
ranging from early benefits as early as 62 to full benefits to 67.

            Republicans
and Libertarians believe that the retirement pay in plan should work in the
benefits for younger Americans.  The goal
of any reforms of Social Security should be to give it a sound fiscal basis
that will give workers control over their investments, as well as a sound
return on their investments. Republicans believe that the sooner we act the
better, as this will not only give those closer to retirement reassurance that
they will see their benefits, but will also give younger workers more time to
plan their own retirement within the new system. Republicans stress that the
reforms they seek should not include tax increases, and should not affect
anyone currently receiving Social Security, or close to receiving Social
Security. Most Democrats believed that the government and employers should play
a role in retirement funding. In terms of whether or not employers should
counsel their employees on managing their retirement savings. The disagreement
revolves around the role of government in the retirement years regarding a
steady pension. The Trump administration has been attempting to spin its
proposed $64 billion in cuts to Social Security Disability Insurance as somehow
not cutting Social Security. The Social Security Administration has undertaken
many demonstration projects over the years to test new ways to encourage
beneficiaries to return to work, and they have consistently shown limited
results or proven not cost-effective. In the end the insolvency of entitlements
including Social Security, Medicare, and Medicaid are coming to fruition and if
no real solution is met within the next 10 to 15 years, the programs will have
insufficient funds for beneficiaries.

 

            

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