Politicians are willing to sit back, perhaps with a big bag of popcorn, and watch a badly filmed horror movie that ends with an impending doom. It’s title? Social Security.
Social Security, a federal insurance program, provides economic security and benefits to retirees, the unemployed and the disabled. About one in four households in the U.S. depend on Social Security incomes, according to the National Academy of Social Insurance.
It’s a pay-as-you-go system, which means today’s workers pay for those who are in need or retiring. Eventually, those workers are meant to be supported by the following generations.
The system was first established during the Great Depression in the 1930s as a short-term plan but has been adopted as a necessity. In the midst of the Great Recession, Social Security is no longer a viable escape route. Instead, it has become a serious problem for the nation.
Researchers Robert Novy-Marx and Joshua D. Rauh discovered in their study that the 50 states are collectively facing about $5.17 trillion in pension obligations, but they only have about $1.94 trillion saved for state pension funds. That’s a difference of $ 3.2 trillion. Most of the states are already broke and are on the verge of bankruptcy.
The future of the federal insurance plan already appears bleak, and the situation is only getting worse. The baby boomers – those born between 1946 and 1964 – are reaching retirement, and the system is projected to be unable to sustain the high numbers. The odds are the system will crash with them.
A common misconception throughout the United States is that the government will be able to maintain Social Security without either cuts to the system or a significant raise of taxes. Those, however, remain the only options with the current Social Security program.
Solving this problem by raising taxes would ignore the severe economic damage that a significant increase of taxes would involve. According to a study by U.S. congressman Paul Ryan, just lifting the cap on income subject to Social Security taxes would raise the top marginal tax rate to more than 50 percent when combined with the current administration’s other tax policies.
The other option with the present Social Security system is cuts to the program. This idea is laughable to politicians and elected leaders. Cutting the funds that support millions of Americans is one of the best ways to lose an election. When President Barack Obama said in the presidential debates that he was looking to “tweak” Social Security, it was labeled by Dean Baker, co-editor of The Huffington Post, as “President Obama’s Greatest Failure.”
What’s the solution?
Truly turn the system over to the American people. Currently, Social Security is basically run by government officials. In fact, the only way the public is involved is to provide the money. And the money that is paid often doesn’t go directly to Social Security. Most of the time, the money funds other government programs and Social Security is supported with borrowed money. Through privatization of Social Security, citizens can control their retirement plans and not depend on an uncertain future founded on borrowed money.
“Workers would be able to ‘own’ all or a portion of their Social Security contributions in an individual account,” says Paul Kasriel, chief economist at Northern Trust. “These funds would be invested in the financial markets, where individuals would have the chance to earn higher returns.”
Many argue this would be a near-impossible shift from the current system and the short-term economy would suffer. Others say it was attempted and failed by former President George W. Bush.
A near-impossible shift is a better option than an inevitable disaster. A short-term economy downfall would be better than the long-term pain that is bound to come. And due to efforts from opposing parties, the attempt by Bush ended before it could even begin.
Many Americas have become so preoccupied by their own benefits that they’re afraid to take the next step. To all the upcoming generations this message is clear: you better start shoving money under your mattresses because you’re going to need it.
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