Social Security debate (United States)

This article concerns proposals to change the Social Security system in the United States. Social Security is a social insurance program officially called "Old-Age, Survivors, and Disability Insurance" (OASDI), in reference to its three components. It is primarily funded through a dedicated payroll tax. During 2006, Social Security was the largest budgeted federal spending category, at nearly $550 billion or 21% of overall spending. In 2008, spending of $610 billion is forecast.[1]
Reform proposals continue to circulate with some urgency, due to a long-term funding challenge faced by the program. Starting in 2017, program expenses begin to exceed revenues. This is due to the aging of the baby-boom generation (resulting in a lower ratio of paying workers to retirees), expected continuing low fertility (compared to the baby-boom period), and increasing life expectancy. Further, the government has borrowed and spent the accumulated surplus funds, called the Social Security Trust Fund. During 2007, the Fund held $2.2 trillion in government bonds—essentially "IOU's" or claims on the government's general fund or tax revenues. This amount is part of the total national debt of $9.4 trillion as of April, 2008. By 2041, the Fund is expected to be officially exhausted, as payments in excess of receipts draw it down to zero.[2]
President George W. Bush called for a transition to a combination of a government funded program and personal accounts ("individual accounts" or "private accounts") through partial privatization of the system. The personal accounts could be invested in various managed investment funds similar to the government employees' Thrift Savings Plan, in which the investor can choose between Treasury Bills, Corporate bonds and a stock market fund. Since the Report of the 1994-1996 Advisory Council on Social Security, the Social Security program has been the subject of widespread debate. After President Bush highlighted the issue in his 2005 State of the Union Address, the debate became especially intense.
However, critics argued that privatizing Social Security does nothing to address the long-term funding concerns. Federal Reserve Chairman Ben Bernanke said on October 4, 2006 "Reform of our unsustainable entitlement programs should be a priority." He added, "the imperative to undertake reform earlier rather than later is great."[2] The tax increases or benefit cuts required to maintain the system as it exists under current law are significantly higher the longer such changes are delayed. For example, raising the payroll tax rate to 14.1% immediately (from the current 12.4%) or cutting benefits by 11.4% would address the program's budgetary concerns indefinitely; these amounts increase to around 16% and 22% if no changes are made until 2041, when the fund is exhausted.[3]
As of June 2008, the two leading 2008 Presidential candidates have indicated preliminary views on Social Security reform. For example:
Barack Obama - Has supported raising the "cap" on the level of income subject to the payroll tax ($102,000 in 2008). There would be a "donut" for incomes between $102,000 and $250,000 (i.e., no additional tax would be levied to that income range), but the payroll tax would then resume for income above $250,000.[4] However, he has opposed raising the retirement age, privatization, or cutting benefits. He has supported private accounts for lower income Americans with a government match.[5][6]
John McCain - Has indicated resistance to raising taxes, but otherwise is willing to work with a bi-partisan commission to address the program's solvency issues. He supports private accounts as a supplement to Social Security.