The Social Security Program in the US was structured based on changing economic and social conditions as well as long standing traditions. For instance, obligations to help the needy became a necessity when efforts from friends and family were not sufficient from the earliest colonial times. As the society became more organized, measures were developed to offer allowances to specific categories of people. Soon, both the Federal and State governments due to the need to recognize risks that face employees in the industrialized economy implemented a social insurance approach to public welfare (Crawford, and Rigoli 110). Retirement programs for civil employees and provision of benefits and services for individuals in the Armed Forces were formed to offer compensations arising from retirement or disability to individuals in these categories. Since then, the development of social security programs has been incremental and pragmatic (Crawford, and Rigoli 110).
Currently, the Social Security program in the United States forms the largest social welfare structure for maintaining income. Developed on principles from social insurance, the Social Security program is designed with structures aimed at partial replacement of loss of income due to retirement, death, or disability. The program covers nearly 96% of all jobs in the United States (Social Security Administration). The Social Security program is financed from payroll taxes levied under Self-Employment Contribution Act (SECA) and Federal Insurance Contribution Act (FICA). The Social Security Program forms one of the important income sources for retired employees. Statistics shows that it accounts for more than 50% of incomes for 3 in 5 beneficiaries above 67 years (Social Security Administration).
Effects of Increasing the Retirement Age to 70
A reduction in the retirement age for American workers to 70 years will most likely boost the long-range financial problems of the social security program. Coupled with the changing demographic factors and the increased numbers of retiring workers, it is certain that increasing the retirement age will help save the security system. The following factors are possible effects of increasing the retirement age:
It delays the retirement age of baby boomers. Arguably, the baby boomer generation forms a larger portion of retiring employees. The oldest members of the baby boomer generation were eligible for social security retirements begun in 2008. However, increasing the retirement age will minimize the financial impacts of having to pay millions of retiring workers (O’Leary, Arif, and Wittenburg 14). Simply put, this effect reduces the level of retirement benefits
Reduce Benefits- An increase in the minimum retirement age will constitute a benefit decrease under the prevailing laws because individuals will earn slightly reduced amounts. It also increases the total value of lifetime benefits
Increase the level of work retirement. Workers aged above 67 years will remain active in the workforce and thereby, increasing the amount of monthly deductions in the Security Program (O’Leary, Arif, and Wittenburg 15). The pool of retirement income for the Social Security Program will increase
It increases the life span of workers. An increase in the retirement age will mean that workers will continue to work longer and as such, they will work for more years. Statistics show a positive relationship between income and longevity, and their life expectancy will increase with an increase in income and level of health insurance offered.
It preserves the benefits of current retirees and as well, the disability benefits. This move does not reduce the benefits eligible to disabled workers and it does, however, not have a negative effect on the current benefits of beneficiaries, and retirees
Effects of increasing the cap on taxable earnings
It is estimated that Social Security Taxes will account for a greater percentage of promised benefits after the Social Security Trust funds have been exhausted (Goss 112). Raising the cap on taxable earnings is likely to minimize or eliminate long-term deficits associated with the Social Security program. The taxable base provides a cap on the benefits and contributions made to the social security system.
Speaking of contributions, it determines the highest amount of each worker’s covered earnings subject to the payroll tax
As a benefit, it determines the maximum amount of earnings included during the calculation of benefits
Raising the taxable base to cater for 90% of all earnings is more likely to reduce the long-term financial shortfall of the Social Security. A cap that covers 90 per cent of all wages will be approximately $150,000. This will enable the social security program to remain solvent until 2037. However, a benefit structure that is calculated depending on the full contribution base should be adopted to ensure that the social security program obtains higher monthly contributions from those individuals that earned more than the maximum taxable wage (Wright). Additional taxes must also be credited on the amounts paid on higher benefits. In turn, this severs the benefit-contribution connection because individuals earning more will have to pay higher taxes without necessarily being awarded accompanying benefits. Since the benefit formula for the security system is progressive low wage workers will earn more returns than high wage workers. Therefore, raising the cap on taxable earnings is more likely to increase the ability of the social security system to remain solvent.
Work Cited
Crawford, Constance, and Rigoli, Raymond. “A comparative analysis of social
services and social security programs in the international Arena”. Global Journal
of Business Research. 4.3, 2010, 109-118
Goss, Stephen. “The Future Status of the Social Security Program”. Bulletin. 70.3,
2010, 111-125
O’Leary, Paul, Arif, Mamun, and Wittenburg, David. “Employment among Social
Security Disability Program Beneficiaries, 2006-2007. 71.3, 2011, 11-34
Social Security Administration. Social Security Programs in the United States. SSA
Publication. 2009.
Wright, Robert. Fubarnomics: A Lighthearted, Serious Look at America's
Economic Ills. Buffalo, New York: Prometheus Books. 2010. Print
