Government

Activity #4B: Social Security Reform

Without a doubt, Social Security is the “third rail” of American politics. A supremely popular program, Social Security is in financial trouble. As the baby boomers retire, there will be fewer workers to fund the system resulting, according to some prominent estimates, in the eventual financial insolvency of Social Security. Even today, Social Security is the single biggest piece of the federal budget; the large influx of retirees from the baby boomers coupled with longer life expectancies is putting a very real strain on the system. Given that Social Security is a promise the federal government makes to the American people, members of Congress and various presidents often discuss ways to reform Social Security. Nearly every option is unpopular with some segment of society. Suggestions include raising the retirement age to seventy years old, paying lower benefits to wealthier individuals, allowing people to invest their Social Security obligations into the stock market via their own personal retirement accounts, cutting benefits across the board, raising Social Security payroll taxes, and raising Social Security taxes on the wealthy. Of course, most of these potential solutions are political non-starters given the power of organized interests and general public opinion that has been resistant to change when it comes to Social Security policy. Regardless of the political problem that Social Security reform has been, policymakers will eventually have to address the program by making potentially unpopular choices to help ensure Social Security’s long-term solvency.

Q 2-1. Examine the 16 policy options presented below and rank-order (from #1 to #16) the options from most preferred to least preferred.

Policy Options	Your Rank
Change the Taxation of Earnings	▓▓▓▓▓▓▓▓▓▓▓
01. Increase the payroll tax rate by 1% in 2012
02. Increase the payroll tax rate by 2% over 20 years
03. Increase the payroll tax rate by 3% over 60 years
04. Eliminate the taxable maximum
05. Raise the taxable maximum to cover 90% of earnings
Change the Benefit Formula	▓▓▓▓▓▓▓▓▓▓▓
06. Raise from 35 to 38 the years of earnings included in the Average Indexed Monthly Earnings
07. Index earnings in the Average Indexed Monthly Earnings to prices
08. Reduce all Primary Insurance Amount factors by 15%
09. Reduce the top two Primary Insurance Amount factors to roughly one-third
10. Reduce the top Primary Insurance Amount factor by one-third
Increase Benefits for Low Earners	▓▓▓▓▓▓▓▓▓▓▓
11. Introduce a new poverty-related minimum benefit
12. Enhance low-earners’ benefits on the basis of years worked
Raise the Full Retirement Age	▓▓▓▓▓▓▓▓▓▓▓
13. Raise the Full Retirement Age to 70
14. Index the Full Retirement Age to changes in longevity
Reduce Cost-Of-Living Adjustments	▓▓▓▓▓▓▓▓▓▓▓
15. Reduce COLAs by 0.5%
16. Base COLAs on the changed CPI-U

Q 2-2. Who are the winners and losers associated with most preferred policy option that you chose? (You are required to write 150 words).

Q 2-3. What are the likely political impediments to most preferred policy option that you chose? (You are required to write 150 words).