"Today, the Social Security Trustees released their 2011 report on the financial status of both Social Security and Medicare. The reports make clear that both programs are on unsustainable paths, and reforms will be necessary to make them solvent. This analysis focuses on the financial status of Social Security."
Born from President Franklin Roosevelt's New Deal entitlement policies, Social Security functions as a system of social insurance in which a portion of workers and employers earnings are taxed to fund government-managed trust funds. These funds pay out retirement benefits, disability payments upon injury, and in some cases death benefits. Currently, over 54 million Americans receive some supplemental income from the program.
From its beginning in 1935, the Social Security was arranged to transfer wealth from current workers to Americans of retirement age. Ostensibly starting in 1939, the program was supposed to build a trust-fund of managed assets that would provide security for the program and ensure its ability to provide financial assistance to accepted individuals. Even before Social Security was put into effect, many questioned the veracity and practicality of such a goal.
In 1965, President Lyndon B. Johnson and the Congress added Medicare and Medicaid to the Social Security program. Additionally, they made the separate Social Security Trust Fund a part of the general federal budget. In other words, any net tax revenue from Social Security no longer went into a separate fund, but rather went into the general federal budget and the money could be spent on any government program. By the late 1960s, the funds from Social Security were used to offset the federal government’s deficit spending.
In 1960, the Supreme Court ruled in Flemming v. Nestor that individuals do not have a right to the money that they paid into the program. According to the Social Security Administration:
“There has been a temptation throughout the program's history for some people to suppose that their FICA payroll taxes entitle them to a benefit in a legal, contractual sense. That is to say, if a person makes FICA contributions over a number of years, Congress cannot, according to this reasoning, change the rules in such a way that deprives a contributor of a promised future benefit.
In its ruling, the Court rejected this argument and established the principle that entitlement to Social Security benefits is not contractual right.”
By the late 1970s and early 1980s, Social Security was nearly bankrupt as a program. While various changes and reforms had been made, much of the reform culminated in 1983 when major changes were made to taxes and payouts. As a result of the changes, Social Security ran a short-term surplus. This surplus was used to buy the federal government’s debt. By 2011, the Federal Old-Age and Survivors Insurance Trust Fund holds roughly $2.5 trillion of the United States’ $14.3 trillion national debt.
Recent forecasts, however, question the sustainability of the program - numerous studies have suggested the baby boomer generation will eventually suck the whole system dry. In 2010, Social Security ran a deficit with more money going out to payees than tax revenue generated. In 2011, the program is expected to be in the red as well. While some analysts agree with these predictions, others believe that with modest reforms the system possesses the longevity to last through such conditions.
Still, others question the morality of the program itself. They ask: Should the government take from the current generation to pay for the retirements of the following generation? Should individual Americans be responsible for their own retirement? Should Americans have control over their own finances? Can the system be "sunsetted" so as to continue providing for those dependent upon Social Security while allowing current and future generations to have control over their finances and responsibility for their retirement?
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