Background

  • 1889: Bismark creates the first Social Security Program in Germany.

  • 1935: FDR Introduces Social Security (at a time when the top marginal tax rate was ?

  • # Americans on Social Security: 51 million (2017).

  • Funded by Payroll Taxes.

  • Though most seniors have other sources of income, almost half of them would fall below the poverty line without their monthly Social Security checks.-Back to Work by Bill Clinton.

Issues

  • In 2018 Social Security is projected to take in less money than it paid out. The shortfall would increase every year, until the system hit bankruptcy in 2042.-Decision Points by George W. Bush.

  • Because it is not paid in cash, the Social Security fund is nowhere near broke, yet it has begun to run a cash-flow deficit, $45 billion in 2011. That means that this year beneficiaries’ checks will be funded in part from money borrowed from U.S. and overseas buyers of our bonds. The amount we borrow will continue to grow as the baby boomers move into retirement age, unless the rest of the government begins to operate with a surplus sufficient to cover Social Security’s outlays or slows the projected increase in the program’s cost.-Back to Work by Bill Clinton.

  • The system worked fine when there were forty workers for every beneficiary, as there were in 1935. But over time, demographics changed. Life expectancy rose. The birthrate fell. As a result, by 2005 there were only three workers paying into the Social Security system for every beneficiary taking money out. By the time a young person starting work in the first decade of the twenty-first century retires, the ratio will be two to one.-Decision Points by George W. Bush.

Potential Solutions

  • George W. Bush: The plan I embraced was the brainchild of a Democrat, Robert Pozen. His proposal, known as progressive indexing, set benefits to grow fastest for the poorest Americans and slowest for the wealthiest. There would be a sliding scale for everyone in between. By changing the benefit growth formula, the plan would wipe out the vast majority of the Social Security shortfall. In addition, all Americans would have the opportunity to earn higher returns through personal retirement accounts.-Decision Points by George W. Bush.