Social Security
Dear Mr. President,
Social security program is the backbone of the American society. The current shortfalls in the fund will adversely affect many people in the coming years. Therefore, it is imperative that a long-term solution be found to solve this problem once and for all. The social security fund depends on payroll taxes paid by both workers and employers and the retirement age. Hence, the fiscal problems can only be solved by adjusting three key measures: payroll taxes, pension payouts, and retirement age.
Firstly, the government can increase the payroll tax. Currently, workers pay 6.2% of their compensation into the social security fund (Brandon, 2013). Increasing the tax rate by 1% would cover more than half of the deficit. The tax increase should be gradual over an extended period, about five to ten years, to enable people adjust their spending accordingly. I acknowledge that taxes are unpopular to many people since they want more earnings to secure their wellbeing and that of their families. In addition, the increase is likely to suppress the lowest income earners more than those in high-income brackets. Thus, the government can compensate for the increase by raising the minimum wage cap by a few percentage points, 1.5% to 2%. Furthermore, the government can encourage private employers to increase the salary benefits of their employees to compensate for the increase in payroll taxes.
Taxes alone are unable to curb the social security problem. Hence, the government should increase the upper limit for earnings. Currently, social security taxes only apply to a maximum of $113, 700 of an individual’s income (Brandon, 2013). Any amount beyond the threshold remains untaxed. The increase should be implemented gradually over a number of years to enable people to adjust to it. This policy will affect about 5% of workers that earn more than the cap. The bright side to this policy is that the affected employees will contribute more amounts to their retirement savings, and thus will receive higher benefits upon retirement. In addition, the higher benefits will enable them maintain their social status and standard of living when they retire.
The source of the deficit is the aging of baby boomers. The rate of aging of the baby boom generation is higher than the rate of securing employment by able-bodied people in the current generation. In a few years, the society will have more retirees than workers. Statistics project that there will be about 77 million older Americans by 2033, each requiring 2.1 workers to shoulder their benefits (Hamilton, 2014). This factor is compounded by the increased life expectancy that lengthens the duration of collecting retirement benefits. Statistics show that 65 year old men can now live up to 84.3 years while women of the same age can live up to 86.6 years (Hamilton, 2014). Some might live up to 90 years or more. The government can increase the retirement age from 65 years to 68 or 70 years. This policy will slow down the rate to baby boomers’ retirement and reduce the strain on social security payouts. This policy should accompany the aforementioned tax and cap increases since there is no point in raising taxes if the working population reduces significantly through retirement. Moreover, additional working years will inject more fund into the social security kitty and ensure the success of the tax and cap increases in reducing the deficit.
Economic conditions such as financial crises and rising interest rates have negative impacts on earnings. During such periods, employers cut their budgets by halting their recruitment programs, laying off workers or reducing the incentives paid to employees. The result is a reduction in earnings and a rise in unemployment. Consequently, the amounts collected through social security taxes reduce significantly. While revenues reduce, retirement payouts increase, thus exacerbating the deficit. The government should initiate programs aimed at increasing employment opportunities for the younger generation. Such programs include partnering with private organizations in providing entrepreneurial training to both young adults and the middle-aged. The government can also provide non-interest loans such as youth funds and small business funds to encourage entrepreneurship. Young adults will be able to open small businesses and grow them over the years, thus providing a wider base for social security fund collection. The American society believes it is their right to receive retirement benefits. As a result, majority depend solely on social security fund upon retirement. The government should encourage middle-aged adults to venture into small businesses, whose income will supplement their future benefits when they retire. This strategy will reduce both the strain on the fund and the aged population’s overdependence on the younger generation.
In conclusion, no single strategy can work on its own. Several policies must be implemented simultaneously to complement each other to obtain any significant success. Increasing social security taxes and payroll cap are effective in generating more revenue both in the short-term and long-term. However, taxes are unfavorable to many people and weigh more on low-income earners than high-income earners. Thus, a raise on the minimum wage should accompany tax increases. Nevertheless, such policies are ineffective in the reality of declining workforce and employment. Extending the legal retirement age will ensure that the labor force is adequate to support the tax initiatives. Entrepreneurship activities will generate more funds for the kitty as more people engage in employment. In addition, they will provide people with supplementary sources of income upon retirement. With these initiatives in place, I believe that the deficit will be erased, and people can venture into the future with certainty of a healthy and peaceful aging.
References
Brandon, E. (2013, February 13). 5 Ways to Fix Social Security. US News & World Report. Retrieved December 3, 2014, from http://money.usnews.com/money/blogs/planning-to-retire/2013/02/13/5-ways-to-fix-social-security
Hamilton, M. M. (2014, September 21). Washington cannot seem to fix Social Security. Maybe you should try. The Washington Post. Retrieved December 3, 2014, from http://www.washingtonpost.com/news/get-there/wp/2014/09/21/washington-cannot-seem-to-fix-social-security-maybe-you-should-try/
