Text II. Aging and Social Security

The oldest population of the United States, persons 65 years or older, numbered 34 million in 2005 and represented more than 12.5 percent of the U.S. population, about one in every eight Americans. The oldest group itself is getting older. In 2005, the 65 to 74 age group was 8 times larger than in 1900. but the 75 to 84 group was 12 times larger and the 85-pius group was 22 times larger. The median age in 1850 was 18.9. It is now 40. The growth of the older population in the United States has brought several issues to the forefront of political debate. Among them are social security and health care.

An aging population means that the concerns of the aged will dominate national concerns. Retirement and security for the aged is one such concern. Old Age, Survivors, and Disability Insurance (OASDI), also known as social security, had been established in 108 countries by the beginning of 1990. Some of the oldest plans are those of Germany (1889), the United Kingdom (1908), France (1910), Sweden (1913), and Italy (1919). The United States did not enact a national retirement program until 1935.

The social security system in the United States, which covers both old-age, survivors', and disability insurance (commonly referred to as "social security" and hospital insurance (Medicare), is financed by a payroll tax Federal Insurance Corporation of America (FICA), levied in equal portions on the employer and the employee. The initial FICA tax rate was 1 percent of the first $3,000 of wage income paid by both parties. By 2005, this had risen to a tax rate of 7.65 percent (6.2 percent on the first $65,400 of earnings for the social security contribution and 1.45 percent on all earnings for the Medicare contribution), for each employee and employer. The social security taxes the working population pays today are used to provide benefits for current retirees. As a result, the financial viability of the system depends on the ratio of those working to those retired. The age distribution of the United States population has affected this viability. The consequence is a change in the ratio of workers to social security beneficiaries. The ratio has declined from 16.5 in 1950 to about 3 today and is expected to decline to 2 by 2030. The situation in the United States is not any different from that in other parts of the world. This trend means that the source of social security benefits is getting relatively smaller. The viability of the system depends on whether the trends of recent years continue. If birthrates remain low and if people continue to live longer, then the obligations to people who will retire in twenty-five years will..be large relative to the income of the working population at that time. The Social Security Administration estimates that if everything remains as it currently is, then beginning in the year 2030, social security taxes will be insufficient to fund benefits.

The social security tax has risen more rapidly in the past two decades than any other tax. Social security tax revenues were less than 5 percent of personal income in 1960 and currently exceed 11 percent of personal income. The revenues from the personal income tax were 3.4 percent of personal income in 1940 and rose to the current amount of more than 15 percent in the early 1990s. Social security expenditures also have risen more rapidly than any other government program. Social security outlays currently constitute 7 percent of GDP, whereas national defense is less than 5,5 percent, and education and training expenditures are less than 1 percent. From 1979 to 1990, national defense expenditures rose 53.6 percent, education and training expenditures rose 0.8 percent, GDP grew 30.2 percent, and social security grew 70.9 percent, adjusted for inflation.

If the system was funded solely by the revenues collected from the social security tax and if those revenues could be used for no other purpose than to provide benefits to social security recipients, then the worries about the system's viability would be much smaller. However, the social security system is included in the federal government's budget, and its revenues are used to pay for general government expenditures. This means that the excess of social security taxes over social security benefits of more than $60 billion in 2005 was used to pay for other government programs; the funds were not deposited in a trust fund and allowed to accumulate for future years.

If the amount paid into the social security system by an individual was equal, on average, to the amount received by that individual in retirement benefits, the worries about the viability of the system would also be less. But people who retired in the 1990s, after working since the age of twenty-one at the minimum wage level, will recover all social security taxes paid, including employer and employee shares, in less than 4 years; at the maximum taxable amount each year, the employee would have recovered the total contributions in only 5 years. Retirees in the 1990s recover the total contributions and interest earnings in 5 and 7 years. At an age of 82, the average worker who retired at age 65 will have received more than twice his and his employer's contributions to social security. Other social security issues are noted in the Economic Insight "Myths About Social Security."

Social Security has been described as a slow-motion train wreck. At the program's inception workers paid a 1 percent payroll tax. They lived, on average, only five years past retirement. The payroll tax now stands at 12.4 percent and will need to rise to 18 percent in a few years to support future retirees who now live about 15 years beyond retirement. When Social Security first started, the ratio of workers to retirees stood at 16 to 1. In less than three decades it will be 2 to 1. It has also been pointed out that the system is not only a risky investment for today's worker; it's a poor one. The return on Social Security has averaged about 1 percent, compared with 10 percent for the stock market.

So what's the alternative? There have been many proposals—increasing taxes, increasing the eligibility age, means testing, and holding down cost-of-living increases. The eligibility age, the age when individuals can start collecting Social Security, is to begin rising in 2000 until it reaches age 67 for those born in 1960 or later. Means testing has been resisted but is under serious consideration. Means testing would put a limit on the income one could earn and still collect Social Security.

One of the more controversial proposals has been to privatize the system. This is what Chile, Australia, Turkey, Sweden, Italy, Argentina, Mexico, the Philippines, Great Britain, and several other nations have done. Privatization allows individuals to choose among an approved list of possible investments rather than giving the money to the government. What the individual earns on those investments would be the individual's retirement funds. Unlike the government program, which is a pay-as-you-go system and which provides defined benefits for contributors, the private system will pay what; individual investments earn. Some systems, like Chile's, are fully privatized; workers are required to save a portion of their own salary for retirement but give no money directly to the government. Others, like Great Britain's, are partially privatized; workers still contribute payroll taxes, but only part of this money is used to support a government-run system of basic pensions; the rest may .be used for a private plan chosen by the worker. In Australia, workers are required to contribute 9 percent of their income to a fund of their choice. Those critical of privatization note that with private investments there's no guaranteed return. Who would want to risk their life savings in the stock market? Social Security, in contrast, is a sure thing. Most of the privatization plans have met this criticism by ensuring that no one contributing to the new plan will earn less than what they would have received under the former government-run plan. The form of privatization differs from country to country, but the results have been uniformly positive. In every case, the returns individuals have received exceed those of the government system. In addition, the national savings rates have increased and government borrowing and debt creation decreased.

Exercises

I.Learn the pronunciation:

Payroll, levy, viability, consequence, beneficiaries, retiree, insufficient, constitute,

recipient, deposit, accumulate, eligibility, Chile, Argentina, the Philippines,

//. Find synonyms to the following words and word combinations:

Security / growth / issues concerns / forefront / to enact / survivors / payroll tax /

the working population / to adjust for inflation / proposals / the eligibility age / to

save a portion of salary / a government-run system / a sure thing.

///. Fill in the blanks with prepositions where necessary; translate the phrases from the text into Russian; learn them:

To bring issues ... the forefront ... political debate; to dominate ... concerns; security ... the aged; to enact ... a retirement program; commonly referred ... as; to be financed ... a payroll tax; to levy ... equal portions; to be risen ... a tax rate; earnings ... the social security contribution; a change ... the ratio ... workers; adjusted ... inflation; to be collected ... the social security tax; the excess of social security taxes ... social security benefits; to pay ... other government programs; ,.. average; the worries ... the viability of the system; ... an age of 82; contributions ... socia! security; to hold ... cost-of-living increases; to put a limit... the income; to receive .. .the government-run plan; to differ ... country ... country.

IV, Put the words from the text into the following sentences and translate them into

Russian:

1. The first ... of social security in the United States was Ida Mac Fuller in 1940.

2. The typical .,. collects more than twice the amount represented by employer

and employee contributions plus interest.

3. The ... of the system are determined by a scientific formula designed to

ensure that the fund remains viable.

4. The system of annually adjusting benefits as the cost of living

increases dates only from 1975, and it came about as the result of political machinations, not foresight.

5. U.S. Congress, irritated at being outflanked, passed the adjustment

program to show that it, too, cared about the elderly.

6. In fact, there are at least a million individuals currently collecting social

security benefits who also have ... exceeding $100,000 per year.

V. Answer the following questions:

1) Why do people worry about social security?

2) What does the financial viability of the social security system depend

on?

3) What is the alternative to the social security in the USA?

4) Why do other nations (e.g. Chile, Australia, Turkey, etc.) try to use

controversial proposals? Describe these proposals.

5) Do you think that the form of privatization differs from country to

country? Give some examples.

VI. Discuss the following problems and compare the discussed problems with the

similar ones in Russia:

1. Social security, otherwise known as Old Age, Survivors, and Disability

Insurance, is financed by, a tax imposed on employers and.employees.

2. Social security is funded by the current working population's contributions

being used to provide benefits to the current retirees. As the population ages,

the ratio of contributors to beneficiaries declines.

3. Solutions to the Social Security problem include means testing, increasing

eligibility age and privatization.

VII. Read and render the text.

Date: 2016-01-03; view: 984