ShareThisFrom the time the Social Security Act was signed into law by President Franklin Delano Roosevelt in 1935, it marked the beginning of a new era for all Americans. The term “social security” was coined to refer to any program that was intended to help unemployed workers and individuals who has little or no financial resources at all. Prior to Social Security, the elderly workers were consigned to the life of poverty upon retirement.
On August 14, 1935, the Social Security Act established a system of old-age benefits for workers, benefits for victims of industrial accidents, elderly, blind, mentally ill, physically handicapped, dependent mothers and children, funding of family health programs and unemployment insurance.
The Great Depression of the 1930s caused high unemployment and economic crisis all over the United States, leading President Franklin D. Roosevelt to announce his intention to provide a Social Security program. President Roosevelt signed the Social Security Act into law on August 14, 1935. The program began by making lump sum payments to retirees until 1940, when monthly benefit payments began.
Amendments to the Social Security Act in 1939 provided for survivor and dependent benefits.
Over the years, the SSA system’s concept and assistance programs have undergone several changes to conform with the changing economic situation of the country and the population. Some of these changes include: making the workers’ families eligible to get the payments; inclusion of COLAs aka cost of living adjustments, so that the benefits of social security would increase according to the inflation without the Congress having to pass a major act; and the disability provisions.
The cost-of-living adjustments (COLA) are automatically set by a measure adopted by Congress in the 1970s that orders raises based on the Consumer Price Index (CPI), which measures inflation. If inflation is negative, as in 2009 and 2010, payments remain unchanged. Based on inflation rate, the trustees who oversee Social Security concluded that there would be no COLA for 2011.
Many of us are aware that, in recent years, the Social Security’s financial health has been in the decline and it’s getting worse. It will run at a deficit this year and will keep on running in the red each year thereafter. According to the trustees, Social Security will start paying out more in benefits than it collects in taxes in 2016 and the giant trust fund will be depleted by 2037, four years sooner than previously predicted. It first went into deficit last year and exacerbated by effects of the Great Recession. With the payroll taxes lagging and applications for benefits rising it will be strained and, ultimately, drained by the growing number of baby boomers on the brink of retirement who are entitled to Social Security benefits.
According to the nonpartisan Congressional Budget Office (CBO), for this year alone, Social Security will pay out $45 billion more in retirement, disability and survivors’ benefits than it collects in payroll taxes. And, while Congress has promised to fund revenue lost from the tax cut, it’s really nothing to rejoice about because it would only result in additional federal budget deficit, which, according to CBO, will increase to $1.5 trillion, the largest in U.S. history.
President Barack Obama said in his State of the Union address that he wanted “a bipartisan solution to strengthen Social Security for future generations.” The president, however, is yet to endorse recommendations from the National Commission on Fiscal Responsibility and Reform (NCFRR), a deficit commission he created last year with bipartisan members, including one that would gradually increase the full retirement age, from 67 to 69, over the next 65 years.
I’m almost certain that there are some people who are not aware that the federal government is using Social Security funds, not currently being used to pay recipients’ benefits, to finance other government spending. Unlike a typical private pension plan, the Social Security Trust Fund does not hold any marketable assets (very liquid securities that can be converted into cash quickly) to secure workers’ paid-in contributions. Instead, it holds non-negotiable United States Treasury Bonds and U.S. securities backed “by the full faith and credit of the government”. But will this generic guarantee by the United States be enough to ease the concern of the 58.7 million Social Security recipients of a possible government loan default? It’s really quite scary and difficult to answer, to be honest.
The Trust Fund cannot resell these government bonds on the secondary bond market. In short, the government owes the money, which is collateralized by non-negotiable U.S. Treasury Securities. These government bonds can only be sold back to the government at face value, which is to its advantage when interest rates rise. Sound one-sided? You bet it is, in favor of the U.S. government.
It’s now crystal clear to everyone of us that the U.S. government does not only owe China, Japan and other wealthy countries in the world, trillions of dollars to finance its operations. It also owes us, American taxpayers and Social Security contributors, billions of dollars in “loans”. What gives? Is the retirees’ Social Security Trust Fund that doubles as one of Uncle Sam’s financial arms, safe from risks? Well, a few years back, I would have confidently said, “Yes!” Just the goodwill alone of the United States as the richest and most powerful country in the world would be more than enough to calm anyone’s or any country’s fear of a default. Those were the good old days when the United States was still a “creditor nation” and not a “debtor nation” as it is now. And, if I were to be asked that question again today, my answer would be a resounding, “No!”
As a retiree, myself, I feel that the United States government can still do better than what it is doing now to protect beneficiaries like us. And, of course, we all know that, as far as those politicians in Washington, D.C. are concerned, senior citizens and retirees and even war veterans always have the lowest priority. And like all seniors, I’m deeply saddened by it the way I’m seething right now to think of the Social Security’s possible demise come 2037. Some of us may no longer be around then but our children and our children’s children will still be.
President Franklin Delano Roosevelt must be turning in his grave at what these politicians had done to the greatest accomplishment of his administration and one of the best U.S. legislations of all time.