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Social Security a Pay as You Go System

Uploaded by wendimill on Nov 03, 2011

Social Security is the cornerstone of American social policy, but it is also a lightning rod for reformers. Even in the beginning of the process, Congress could not agree on how it should proceed, threatening to drop the old-age insurance from an omnibus security bill that included welfare, unemployment compensation, job training, child welfare and some public health components. Now, in the late 90’s, Social Security is being threatened by financial problems. Needless to say, there are quite a few ideas on how to reform the system.
Although financially stable for decades, the now-antiquated system is facing hard times. Reports of the system's imminent insolvency have turned cries of support into alarm. The Social Security system is expected to begin running a deficit within only 15 years (paying out more in benefits than it collects in taxes). Without reform it will be unable to pay promised benefits by around 2034. What began as a plan for increased financial security has instead thrown the country towards a future of economic uncertainty.
Congress designed Social Security to operate as a pay-as-you-go system. That means no money is actually set aside by the government to pay benefits in the future. When workers pay taxes into the Social Security "trust fund," most of the money is immediately paid out as benefits to today's retirees. The leftovers go straight to the Treasury in exchange for federal IOUs and are used to finance the national budget. But when Social Security begins running a deficit in 2012, there will be no more leftovers, and the government must begin paying back its IOUs to keep the system afloat. Because no money has actually been saved for this purpose, Congress will be forced to significantly increase public debt, cut spending or raise taxes.

Even worse, unless something is done, the entire Social Security system will use up its government IOUs and go bankrupt by 2034. No wonder citizens of all ages are alarmed -- will they ever see their Social Security dollars again? Changing demographics have spurred the impending crisis. Today, fewer workers support each beneficiary. The baby boomers are aging and not having as many children, and people are living longer, thus collecting benefits for a longer period of time. Since the system is pay-as-you-go, these demographic changes spell trouble. A smaller and smaller group of workers will have to provide for more and more recipients.
The...

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Uploaded by:   wendimill

Date:   11/03/2011

Category:   History

Length:   6 pages (1,271 words)

Views:   1725

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