When the topic of social security comes within description, the following questions could be noted to have an impact on the issue: WHO pays for the benefits that go to people in need? What kind of burden is this placing on those who have to pay? In some lands the benefits, such as pensions for elderly people, are paid directly out of government funds. In the Soviet Union and China the entire amount is financed by the place where a person has worked, or by supplementary payments from the government. Generally, though, the term “social security’’ is attached to programs where both the worker and the employer pay into the arrangement. For example, the system in the United States requires that part of the salary of an employee be deducted from each paycheck. During 1975 this tax rate for social security alone was 5.85 percent, which included coverage for medical benefits. The employer was also required to pay 5.85 percent. Thus, a worker who paid this 5.85-percent tax on an income of $5,000 a year had $292.50 deducted from his paychecks. And his employer had to contribute another $292.50 of the company’s funds to the program. However, not all of a person’s income is taxed for social security. In 1975 this special tax was paid up to $14,100 of an employee’s annual income. Income beyond that was not taxed for this specific purpose.
Over the decades, some people have come to regard these payments as an evergrowing burden. They feel that the tax, especially for low-income families, is really beginning to hurt. When social security was first introduced in the United States, the employee had to pay only 1 percent of his salary for this tax. The employer added another 1 percent. But in 1975 the rate was nearly six times as much. Not only has the tax rate jumped nearly sixfold, but the amount subject to the tax has risen dramatically too. At first, the maximum amount of income that could be taxed for social security was $3,000 a year. But that figure kept rising, reaching $14,100 a year in 1975. And late in 1975 the government announced that during 1976 the income taxable for social security would rise to $15,300.
Thus there has been a double-barreled rise—in the percent of income contributed, and also on a larger amount of the income. How huge this kind of tax rise has become can be seen by making a comparison: 1 percent of the $3,000 at the start was only $30; but 5.85 percent of the $14,100 in 1975 was $824.85, and in 1976 it is scheduled to be $895.05. That represents a gigantic increase in the maximum deductions from one’s paychecks—about thirty times as large as when the program began. This is far greater than any cost-of-living increase in that same period due to inflation. A main reason why some regard this as a growing tax burden is that it is in addition to all the other taxes a person has to pay. And these, too, have been increasing over the years. City sales taxes, once nonexistent, have gone up significantly, now 6 to 8 percent in some places. There are state income taxes today where there were none years ago. Property taxes have also risen. And then there is the federal income tax. Now American workers are so heavily taxed that many of them pay more than one third of their income for these various taxes.
Other countries have also seen similar increases in social security taxes. In West Germany, during 1975, the average monthly payment was 9 percent apiece from employee and employer alike on a maximum amount of 33,600 Deutsche Marks a year (about $13,400). If an employee earned less than 280 D.M. a month (about $120), then the employer was required to pay the entire 18 percent. For such reasons, economist Milton Friedman termed the last twenty years of social security “a crushing defeat for the average wage earner,” since it took such a growing portion of his meager savings. And for low-income workers, the tax represented a more significant burden, since it was greater than their federal income tax payments. Still, there is this to consider: In today’s industrial society, if workers had to pay directly for those in need, such as the pensions and medical payments that elderly members of their own families now get, could they afford it? Few would be able to. Thus, without question, social security systems do take much of the burden of caring for those in need off the workers.
The Need for Change
Certainly, with the impending growth of population the proposed system of social security in the American region also increases. ALL people want financial security, regardless of how old they are. But especially when persons are advanced in years does the need for such security become more urgent. They are at the time in life when they have to work less, or even retire. But they still want to live in reasonable comfort and dignity. To assist the elderly, and others, many countries throughout the world have “social security” systems. These are usually plans for providing benefits such as pensions for elderly persons, income for the disabled or unemployed, and medical care for those who cannot afford it. One of the largest social security systems in the world is in the United States. Since that country is a main foundation of the Western world’s economy, what happens to its social and financial affairs is of great interest elsewhere. People throughout the world might expect that the United States, with all its wealth and resources, certainly would have an adequate system for taking care of needy persons. This would include reasonable security for the elderly who retire after a lifetime of hard work.
Among the problems related to social security are two basic ones: (1) How to pay the growing costs for the increasing number of persons eligible for benefits; (2) The fact that the benefits by themselves do not provide reasonable security for many, particularly the elderly. Some economists say that the problems are not severe. But others say that they are genuinely “alarmed” at the growing difficulties. Indeed, a headline in a Detroit newspaper asked: “Social Security Now a Fraud?” The article suggested that it was. The first major problem, how to finance the program, is now coming into clearer focus. It is obvious that the present means of financing the benefits are becoming inadequate.
To meet these particular changes, privatizing the social system’s basics is the most effective process viewed by America’s government. This is not to say that there are no good features of such programs by governments. Certainly any financial help to the elderly, ill, unemployed and incapacitated is valuable and appreciated. Why, it was not long ago when there was no assistance at all by government. Only within this century, indeed, within just the past few decades, have government payments for the elderly and others in need become widespread in most countries. However, many societies in times past were rural and lived off the land. Usually, families took care of their own elderly folks, and friends would help.
But with the onset of the industrial age, workers left the farms by the millions and crowded into cities, where the factories were located. Especially was this the case in Europe and North America. In the cities families and relatives tended not to be as close as before. Friendships were more difficult to cultivate. So relatives and friends were not as likely, or able, to help to care for the needs of the elderly as when they all lived as closer-knit units in a rural society. But as the industrial labor force grew in strength, it was able to bargain for more benefits. Gradually governments were pressured to help. Among the first industrial nations to put into operation some sort of social security arrangement was Germany. Accident insurance was introduced there in 1883, and health insurance the next year. Compulsory social security assistance came in 1891. The need for government help became far more apparent after the Great Depression of the 1930’s. Then millions of people were thrown out of work in all the industrial lands. For instance, the book Social Security in Canada says of that land: “The widespread unemployment during the depression of the 1930’s forced the development of a number of unemployment assistance measures.”
In the United States, President Franklin D. Roosevelt signed the Social Security Act into law in 1935. At first, only retirement benefits were provided. Later, survivor benefits were added. Then the program was broadened to include disability and unemployment benefits.
In 1975 more than thirty million individual Americans received regular monthly cash payments from the government for the old age, disability and survivors provisions of the act. More than ten million received unemployment benefits in the recent recession, and millions of others got help for medical bills, for dependent children and for other reasons. But in most lands the largest element in social security payments are those made to elderly retired people. Usually, the retirement age is about sixty-five, with reduced benefits if one chooses to collect earlier, for instance, in the United States, at the age of sixty-two.
The problems of social security, as the system is now arranged, are expected to increase greatly before long. Last year, in the United States, social security payments exceeded taxes collected for that purpose by about three billion dollars. This trend is picking up speed, as the number of elderly who are retiring increases. The amounts that will have to be paid out in the future to workers who are now contributing to social security are staggering. Some economists believe that those benefits never will be paid. The Wall Street Journal noted that these obligations now already contracted, without considering increases in payments to offset inflation, will amount to at least a ‘2.5 trillion (2,500 billion dollars) projected deficit in the Social Security System.’ It added: “As liberals like to argue, the nation owes this debt to itself, and it will be paid off by raising taxes in the future. Of course this is nonsense. Increasing future taxes by these magnitudes can only disintegrate the tax base.” What is wrong? For one thing, those who set up the social security program felt that an ever-growing population would supply an ever-larger number of young workers who would pay the taxes and take care of the elderly who were retiring. But that is not how things have worked out. Population trends in the United States are down, not up, as families are having fewer children. Thus the huge flood of new workers to pay taxes has not materialized. Instead, there is a growing tide of older retired people that must be supported by proportionately fewer workers. In Vital Speeches of the Day, corporation official William Cotter, who was part of a group appointed by the government to look into the problem, said this:
“Since current retirees will now receive their benefits from current workers, the number of workers per retiree becomes an important calculation.
“When the system was instituted, there were 7 workers providing taxes for each retiree receiving benefits. At the present time, there are just 3 workers for every retiree. And that ratio is declining.
“Our task force, using Bureau of the Census population extrapolations, estimated that by the end of the century, there will be but 3 workers for every two retirees.”
Obviously that will mean an impossible tax burden to bear. This is why some experts feel that the program is headed toward certain bankruptcy, or, at the very least, radical change. They say that since the system cannot pay for itself even now, there is no way it can do so when far heavier burdens are placed upon it in the future. Thus, a special investment bulletin from the American Institute for Economic Research declared: “That benefits for those entitled to receive them under the Social Security Act and numerous private pension plans are in jeopardy is readily apparent.
“The old age pension aspect of Social Security has become a self-destruct mechanism tending to impoverish those who must pay Social Security taxes in the years ahead and to increase the risk that those entitled to benefits may not receive them.” Can the government come to the rescue? That is what some hope. But as The Wall Street Journal points out: “The federal government, believe it or not, is in the same boat.”
The government of the United States, as is the case with many others, is having the same difficulty—expenses keep growing faster than income. The deficit in the government’s budget for fiscal 1975 was about $43 billion. The deficit for fiscal 1976 is expected to be about $70 billion. These are the largest deficits in peacetime history. And the national debt is approaching $600 billion. Since government debts are so huge already, any hope that the vast future payments of social security can be made by government funds is unrealistic, many economists feel.
Thus, Dr. Robert N. Butler, author of the book Why Survive?, stated: “In truth, it is easier to manage the problem of death than the problem of living as an old person” on a low pension in an expensive society. He noted that “some 30 per cent of the housing of older people had no inside flush toilets, some 40 per cent had no bath or shower with hot water, and some 54 per cent minimal heat in winter.” Obviously, then, for a large number of old people, “social security” provides very little real security. Unless one has other income, or is cared for by one’s family, he or she will be in a desperate condition although living in a relatively rich country. This is the particular reason why it has been an utmost concern for the American government to hold the issue of privatizing the social funds through investing them as stock shares in the international trade as the strongest way by which social security funds could be held strongly for future developments.