Since President George W. Bush delivered his State of the Union address on February 2, 2005, in which he formally introduced his proposal to incorporate personal/private accounts into the Social Security program--one's terminology varies depending on their political perspective and support for or opposition to the plan--the issue of reforming the Social Security system has been hotly debated by political leaders, pundits, and citizens alike. Regardless of one's views toward the plan, individuals on either side of the debate have yet to question how the president's proposal would alter the financing scheme currently used to fund the Social Security program. At present, 6.2 percent of workers' salaries are invested in the Social Security trust fund. Employers match this contribution for each of their employees. Those who are self-employed pay the entire 12.4 percent themselves. Under the president's proposal, individuals would be allowed to invest up to four percent of their payroll tax contribution to Social Security in individual accounts rather than having those funds deposited into the federal government's trust fund. Upon retirement, individuals would live off a reduced Social Security benefit plus the income from their investments rather than from the traditional stipend provided by the Social Security Administration. The remaining 2.2 percent of each worker's salary would continue to go into the government's Social Security trust fund to cover payments to existing beneficiaries.
One of the primary advantages of his plan that the president touts is the fact that individual accounts offer the opportunity to receive higher yields on one's investment than are currently available through Social Security. Additionally, benefits can be passed to loved ones through inheritance after one's death. Opponents express concern that the president's proposal would divert money out of Social Security, thereby weakening the system overall, and that it would fundamentally alter the nature of Social Security as a "safety net" program designed to keep the elderly out of poverty.
That President Bush's proposal has caused intense debate since its formal introduction should come as no surprise given the central role that Social Security has come to play in American life since its creation in 1935. (1) Coverage is nearly universal, with approximately ninety-five percent of older Americans either currently receiving or are eligible to receive benefits upon their retirement. For two-thirds of the elderly, Social Security makes up the largest portion of their monthly income, and for nearly one-fifth, it is their only source of income) Equally important, Social Security benefits are not limited to seniors. They are also extended to the survivors of deceased workers, including parents, children, spouses, former spouses who have not remarried, and to disabled workers, their spouses, and their children. (3) In addition, since 1965 the program also provides health care coverage through Medicare. (4)
Although the issue of personalizing/privatizing Social Security has taken center stage at present, the reality is that reforming the program in some way is hardly a new idea. Reforms have been debated regularly since 1982, when the Social Security trust fund was forced to borrow nearly $600 million in order to pay required benefits on time? Proposals for reforming Social Security were central features of both major party candidates' campaigns in the 2000 and 2004 presidential elections. (6) During both of his campaigns, President Bush promoted the program currently being debated--establishing individual accounts which would supplement reduced government benefits. (7) Both Democratic candidates, Vice President AI Gore in 2000 and Senator John Kerry in 2004, proposed significantly different alternatives for saving the system. Gore proposed financing the program's coming shortfall by tapping into the government's general or non-Social Security tax revenues. …