Overview of Social Security

Overview of Social Security

When we hear the words "Social Security", we usually think of growing old and saving money for retirement, but the truth is that Social Security has been around for about seventy years and has played a very important role in our government. Today, Social Security is part of almost everyone's life; it protects more than 150 million workers and pays benefits to more than 45 million people. The purpose of this paper is to give a better view of Social Security from many different standpoints. In the first section of this paper I will explain what Social Security is and how it works. In the second section of this paper I will explain President Bush's plans for reforming Social Security. In the third section of this paper I will explain Krugman's views on privatizing the Social Security program and if there is a crisis or not from Krugman's standpoint. In the last section of this paper I will explain Chile's system of privatization and how it has functioned.

In this first section of the paper I will explain how Social Security was created, explain its purposes, explain how it is financed and funded, and to finally explain some benefits that Social Security has to offer. The creation of Social Security dates back to the era of the Civil War when the first full pension system was developed, even though it was not actually official until 1935. There were forms of Social Security created following the Civil War because of the widowers and orphans that were left without husbands and fathers due to the casualties of the war. The widows and orphans could receive pensions in an amount equal to what would have been payable to their deceased soldier if he had been disabled. Then in 1890 the program was changed so that any disabled veteran could receive benefits. Sixteen years later, in 1906, old-age now qualified the veterans for benefits and made it possible for over 90% of the veterans to receive benefits in 1910.

Now that I have gone back to the ancestry of how Social Security was created, I will inform you with a history of how it officially became started in the U.S. during 1934. Before the Industrial Revolution most people lived or worked on farms and were provided with economic security by their extended family. Once America had a taste of the Industrial Revolution, economic security provided by the extended family became less common. Years after the revolution, America experienced something more severe than a revolution, and that unfortunately happened to be the Great Depression. The depression caused a great deal of unemployment, and high inflation rates which caused a problem in the nation's economic life and a fall in prices. The proposal to provide a program for Social Security was introduced by Franklin D. Roosevelt on June 8th, 1934. President Roosevelt proposed this to Congress along with a committee on economic security composed of five people. The committee was based on executive order and included the following people: Frances Perkins, Henry Morgenthau, Jr., Henry A. Wallace, Homer S. Cummings, and Harry L. Hopkins. The committee was designed to study all the detail and problems with economic insecurity. On January 17th 1935, the president introduced the report to both houses of Congress, it was passed by both, and the Social Security Act was signed into law on August 14th, 1935. The new act established a program that provided retired workers who were sixty-five or older with a continuous income after they retired. Soon after, a Social Security board was created by the president that included John G. Winant, Arthur J. Altmeyer; and Vincent M. Miles. The main purpose of the board was to give information to the public on how earnings should be reported, how benefits were provided and which ones were available to them. The first payments of Social Security began in 1942 and retirees were paid by one lump sum refund payment. Ernest Ackerman was the first recorded retiree who retired one day after the Social Security act went into affect and received a lump sum payment of seventeen cents. The first two amendments that were added to the program were payments to the spouse and children of a retired worker and benefits paid to the family in the event of a death of a worker. Since then, Social Security has been tweaked and more amendments have been added to the program but I would be here a long time if I tried to list them all. Now that we have some back round information on Social Security, I will explain the purpose and benefits of Social Security.

The main purpose of Social Security is to save money so that we can have an income once we retire. Social Security has some other critical purposes that some of us may not know about. Social Security is dedicated to ensuring that our earnings are figured correctly, ensuring an accurate report of wages and work credit, providing assistance to the public on what benefits they are qualified for, and aiding Social Security employees in requesting Medicare cards. Not only does Social Security help you save for retirement, but many benefits are granted to people for various reasons. Some of the most common benefits that are granted are payments to the spouse and children of a retired worker, payments to the widow and children of a deceased worker, and payments to a worker that is disabled. These benefits help people that cannot work anymore due to accidents at work, and they also help families of deceased workers that only had one source of income flowing in.

Since we have a good understanding of the purpose and benefits of Social Security, I will describe how Social Security is funded and also how the program is financed through our taxes. All U.S. citizens pay taxes, and one commonly known tax that we pay is the Social Security tax, which is the tax that current workers pay today . Once someone retires, they collect monthly benefits from their Social Security savings. Social Security also takes a portion of those taxes and puts them towards our Medicare coverage (Free Advice, 2001). Employers and employees each pay 6.2% of the employee's salary and the self-employed pay 12.4% of their earnings. Social Security is financed through a payroll tax, and wages are taxed up to the taxable maximum of $90,000. In 2003, the total Old-Age and Survivors Insurance and Disability Insurance income was $534 billion, which came from payroll.

Now that we know how Social Security is financed, I will talk about how it is funded and why we have trust funds. The Social Security system is comprised of four trust funds, which are Old-Age and Survivors Insurance (OASI), Disability Insurance (DI), Hospital Insurance (HI), and the Supplemental Medical Insurance (SMI). If the worker retires, become disabled, or dies,