When would you expect the Social Security system to begin t

- When would you expect the Social Security system to begin to experience difficulties, if any? Why?

- What are the pros and cons of replacing social security with private funds? Do you support privatization or not support it? Provide arguments to support your side.

Solution

Answer-1

Social Security program has an objective to provide benefits to the elderly and to the poor both monetary and non-monetary. Under the present system of social security, workers working today are taxed and the tax money so obtained is disbursed or paid to the retirees and elderly. Today’s workers are told how much money is in their personal social security accounts. This is obviously misleading because their so called money has already been paid to the elderly. Thus government’s predictive promise of paying today’s workers their social security seems only a little bit optimistic

Answer-2

A shift from current program of Social Security to personalized fully funded program will be advantageous for today’s workers. Since they are not required to pay Social Security taxes any more, their personal disposable income will rise. They will themselves plan for their retirement and hence might start saving more. This may result in an increase in the current U.S. saving rate.

The government, which was taxing today’s workers in old Social Security program, will now have to think of some other method of providing them Social Security benefits. It cannot transfer wealth to the elderly in the same way as it does for the poor. Ultimately such transition will be a burden on the government and might increase its spending further more.

One difficulty is very clear. Future of those who are retiring now is gloomy. Because they are not working now and thus earning nothing, they are not expected to have a retirement plan. If the government wishes to provide them their respective benefits, it must either borrow or charge tax to finance such spending. If the government borrows, its debt will increase. If it charges tax, it will hamper the growth. Another difficulty is the sharp fall in government tax revenues because taxes on Social Security constitute a major part of U.S. federal tax revenue.