macroeconomics Paper - STATEMENT OF PROBLEM In the United...

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STATEMENT OF PROBLEM In the United States, there is a social insurance program that takes money from a payroll tax in order to provide money for people when they retire. This is known as Social Security. It is also known as Old Age, Survivors, and Disability Insurance Program. This name referred to what was covered by the insurance program. Social Security mostly covers the income of workers who retire, die, or become disabled. Before the Social Security plan, people were left to their own measures to secure their income for when they retired. The government wanted to make sure that the elderly would not be living in poverty. Due to Social Security, people look forward to retirement; however, if Social Security stays on the path it is then people will fear retirement once again. Following the Stock Market Crash, President Theodore Roosevelt decided that the American people needed to secure their futures. On August 14, 1935, President Roosevelt signed the Social Security Act. The Act was passed by Congress which put into effect the social insurance program known as Social Security. In 1937, the Federal Insurance Contribution Act (FICA) required that workers begin to pay a tax to support the system which was about two percent. Since then, the payroll tax has been gradually increasing. The Social Security Advisory Panel advises on problems that faces or will face the system. In recent years, the Panel has been reporting on the issue of the future of Social Security. Social Security replaces a person’s income that is lost when that person retires. The retirement age to receive full benefits is 65, but partial benefits can be received at the early retirement age of 62. Many economists describe the system as a “pay as you go system”. They are saying that the benefits paid to people are financed by the payroll tax revenues. The current payroll tax is about 15.3 percent. This means that the employee and employer will each pay 7.65 percent (Source). The way Social Security works is that people work and certain amount of their paycheck is cut to pay for Social Security. However, they are not paying for their retirement, in fact the money that is cut from their paycheck pays for the retirement of the previous generation. This means that people following their generation will pay for their retirement. Since then, the Social Security Act and program has gone through many revisions. The main purpose of Social Security was to provide an income for people when they got older and could work no longer; however, the security that many people relied on and used will soon not be available for the rest of the American people. In recent years, it has been known the amount of money that Social Security takes in will be far less than the amount it gives out. In 1996, the Social Security Trustees’ Report estimated that by the year 2012 the money would start to run out and by 2029 all the funds would be gone (Source). The current prediction is that by 2018 the money will start to run out and by 2042 the funds will be gone (Source). There are many factors that are considered to be part of the problem of Social
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This note was uploaded on 04/01/2008 for the course MIST 2101 taught by Professor Serrano during the Spring '08 term at University of Georgia Athens.

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macroeconomics Paper - STATEMENT OF PROBLEM In the United...

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