Transcript US Social Security - College of Business

U.S Social Security
Luyi Chen, Ying Qin, Siqi Wang
History
 Social Security Act
 English colonists (1601 Elizabethan Poor Law )
 Social trends occurred in 19th century
 Industrial Revolution
 population shift from the countryside to cities
 longer life expectancy
 the fading of the extended family
 Great Depression triggered a crisis
 Passed and signed into law by Roosevelt in 1935
 Originally only covered the workers
Key Dates for Social Security Act
 Adjustments
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Coverage expansion for dependents and
survivors benefits in 1939
Cost of living adjustments in 1950
Lowering retirement age to 62 in 1961
Benefits are taxed first time in 1983
Benefits
 First Payment
 Began in 1942
 Single, lump-sum refund
 Ernest Ackerman (retired one day
after Social Security began)
 A nickel 15 cents
 1939 Amendment (1942 to 1940)
 Monthly payment began 1940
 Ida May Fuller
How Social Security Financed?
 Mainly financed by payroll taxes on wages and self-employment
income
 96% of workforce is required to pay
 Exception:
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state and local government workers
Election workers who earn $1,200 or less per year
Ministers who elect not be covered
Federal workers (pre-1984)
College students
Self-employed workers (<$400 per year)
 Funds collected 744.9 Billion in revenues
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84% from payroll taxes
2% from taxes on SS benefits
Remaining from interest earned on the government bonds
Continued…2006
Current Benefit Policy
 Must meet the eligibility requirement to
receive the benefits
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Work at least 10 years
40 work credit to be insured
Disability: at least 20 work credit during last 40
years of calendar quarters
% women insured are increasing
Men vs. Women
Monthly Benefit
Benefits received base on Normal
Retirement Age
Current Benefit Policy
 Spousal and Children:
 Spousal benefit:
Not worked:50% of the husband/wife at NRA
 Has own retirement benefit
 Unmarried children under 18 or disabled before 22 or
between 18 and 19 and a full-time student can receive
benefit (one-half of full retirement benefit amount )
 Limit: 150 to 180 percent of your retirement benefit
 Prohibits payments to:
 Individuals residing in certain countries
 Individuals confined to a prison or commit a crime
 Aliens live outside the US for 6 months or more
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Current Situation
 “ In Crisis”
 Will not change the system in any way for
those born before 1950
 1/3 of Americans older than 65 receive
income from SS (90% of total income)
 Pay-as-you-go system:
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16 workers support one beneficiary
Today 3.3 workers support one beneficiary
Estimated to continue to decrease
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What caused the problem?
 The decreasing number of workers
supporting the system
 Continuous developing technologies
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Improve living conditions live longer
 Early retirement age
 Indexed to wage growth instead of inflation
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Benefits grow much faster than the rest of the
economy
Suggested Solutions
 Limiting benefits for wealthy retirees
 Indexing benefits to price instead of wages
 Increasing retirement age
 Changing the benefit formula to create
disincentives for early retirements
 Increasing taxes
 Reform earlier, save much more
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The delay will result in higher tax only
Create Private Retirement Accounts
 Proposed by President Bush
 Allow younger workers to put part of payroll
taxes into personal accounts
 Entirely voluntary
 Wide ranges of investment choices
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Stocks
Bonds
Many more…
 Pass on to their children
Results
 Will not save SS because of risks of
investments decisions
 Failed
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Unable to even gain strong support from the
Republican-control Congress
Questions
 Q: Will the new system continue provide benefit for
nonworking spouses, people with intermittent work
histories, workers with low income, and people with
disabilities?
 Q: Higher risk because of investment decisions?
 Q: Create Federal Debt?
 Increase government spending
 Widen annual deficits
Private Accounts
 Increase Federal Debt and Interest Payments
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President Bush
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Robert Pozen
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$19.1 trillion in additional debt (equal to 20.8 % of GDP) by
2050
Senator Chuck Hagel
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$3.5 trillion in additional debt (equal to 3.8 % of GDP) by 2050
Senator Lindsey Graham
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$17.7 trillion in additional debt (equal to 19.3 % of GDP) by
2050
$24.2 trillion in additional debt (equal to 26.5 % of GDP) by
2050
Senator John Sununu and Representative Paul Ryan
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$85.8 trillion in additional debt (equal to 93.7 % of GDP) by
2050
Republicans vs. Democrats
 Republicans
 Republican Candidate Fred D. Thompson
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401(K) style proposal
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Automatically transfer into the personal accounts
Matching $2.50 for every $1 up to $1,000 monthly
An incentive to attract Americans to save more
Invest in high yield instruments
Increase tax revenue through the program
Republican Candidate Giuliani
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Support for Bush's failed plan to privatize social
security
Republicans vs. Democrats
 Democrats
 Senator Clinton
 Private accounts would be harmful to Americans
 Stock market fluctuations, women and family assistance,
disabled workers and survivors, federal government debt
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Propose Universal 401(k) Plan
 Government match first $1,000
 Up to $500 for individuals in the $60,000 to $100,000
bracket
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Senator Obama
 Oppose any effort to create private accounts
 Raise the retirement age
 Cut benefits
 Adjust the cap on the payroll tax
Questions???