Social Security (United States) - AbsoluteAstronomy.com

United States

The United States of America is a federal constitutional republic comprising fifty states and a federal district...

, Social Security refers to the federal

Federal government of the United States

The federal government of the United States is the national government of the constitutional republic of fifty states that is the United States of America. The federal government comprises three distinct branches of government: a legislative, an executive and a judiciary. These branches and...

Old-Age, Survivors, and Disability Insurance (OASDI) program.
The original Social Security Act (1935) and the current version of the Act, as amended encompass several social welfare and social insurance

Social insurance

Social insurance is any government-sponsored program with the following four characteristics:* the benefits, eligibility requirements and other aspects of the program are defined by statute;...

programs. The larger and better known programs are:

Federal Old-Age
Retirement Insurance Benefits
Retirement Insurance Benefits or Old-age Insurance Benefits are a form of social insurance payments made by the U.S. Social Security Administration paid based upon the attainment old age...

(Retirement), Survivors, and Disability Insurance
Social Security Disability Insurance
Social Security Disability Insurance is a payroll tax-funded, federal insurance program of the United States government. It is managed by the Social Security Administration and is designed to provide income supplements to people who are physically restricted in their ability to be employed...
Unemployment benefits
Temporary Assistance for Needy Families
Temporary Assistance for Needy Families
Temporary Assistance for Needy Families is one of the United States of America's federal assistance programs. It began on July 2, 1997, and succeeded the Aid to Families with Dependent Children program, providing cash assistance to indigent American families with dependent children through the...
Health Insurance for Aged and Disabled (Medicare
Medicare (United States)
Medicare is a social insurance program administered by the United States government, providing health insurance coverage to people who are aged 65 and over; to those who are under 65 and are permanently physically disabled or who have a congenital physical disability; or to those who meet other...

)
Grants to States for Medical Assistance Programs (Medicaid
Medicaid
Medicaid is the United States health program for certain people and families with low incomes and resources. It is a means-tested program that is jointly funded by the state and federal governments, and is managed by the states. People served by Medicaid are U.S. citizens or legal permanent...

)
State Children's Health Insurance Program
State Children's Health Insurance Program
The State Children's Health Insurance Program – later known more simply as the Children's Health Insurance Program – is a program administered by the United States Department of Health and Human Services that provides matching funds to states for health insurance to families with children...

(SCHIP)
Supplemental Security Income
Supplemental Security Income
Supplemental Security Income is a United States government program that provides stipends to low-income people who are either aged , blind, or disabled. Although administered by the Social Security Administration, SSI is funded from the U.S. Treasury general funds, not the Social Security trust fund...

(SSI)
Patient Protection and Affordable Care Act
Patient Protection and Affordable Care Act
The Patient Protection and Affordable Care Act is a United States federal statute signed into law by President Barack Obama on March 23, 2010. The law is the principal health care reform legislation of the 111th United States Congress...

Social Security is a social insurance program that is primarily funded through dedicated payroll tax

Payroll tax

Payroll tax generally refers to two different kinds of similar taxes. The first kind is a tax that employers are required to withhold from employees' wages, also known as withholding tax, pay-as-you-earn tax , or pay-as-you-go tax...

es called Federal Insurance Contributions Act tax

Federal Insurance Contributions Act tax

Federal Insurance Contributions Act tax is a United States payroll tax imposed by the federal government on both employees and employers to fund Social Security and Medicare —federal programs that provide benefits for retirees, the disabled, and children of deceased workers...

(FICA). Tax deposits are formally entrusted to the Federal Old-Age and Survivors Insurance Trust Fund, the Federal Disability Insurance Trust Fund, the Federal Hospital Insurance Trust Fund, or the Federal Supplementary Medical Insurance Trust Fund.

The main part of the program is sometimes abbreviated OASDI (Old Age, Survivors, and Disability Insurance) or RSDI (Retirement, Survivors, and Disability Insurance). When initially signed into law by President

President of the United States

The President of the United States of America is the head of state and head of government of the United States. The president leads the executive branch of the federal government and is the commander-in-chief of the United States Armed Forces....

Franklin D. Roosevelt

Franklin Delano Roosevelt , also known by his initials, FDR, was the 32nd President of the United States and a central figure in world events during the mid-20th century, leading the United States during a time of worldwide economic crisis and world war...

in 1935 as part of his New Deal

New Deal

The New Deal was a series of economic programs implemented in the United States between 1933 and 1936. They were passed by the U.S. Congress during the first term of President Franklin D. Roosevelt. The programs were Roosevelt's responses to the Great Depression, and focused on what historians call...

, the term Social Security covered unemployment insurance as well. The term, in everyday speech, is used to refer only to the benefits for retirement, disability, survivorship, and death, which are the four main benefits provided by traditional private-sector pension plans. In 2004 the U.S. Social Security system paid out almost $

United States dollar

The United States dollar , also referred to as the American dollar, is the official currency of the United States of America. It is divided into 100 smaller units called cents or pennies....

500 billion in benefits.

By dollars paid, the U.S. Social Security program is the largest government program in the world and the single greatest expenditure in the federal budget, with 20.8% for social security, compared to 20.5% for discretionary defense and 20.1% for Medicare/Medicaid. Social Security is currently the largest social insurance program in the U.S. where in 2003 combined spending for all social insurance programs constituted 37% of government expenditure and 7% of the gross domestic product

Gross domestic product

Gross domestic product refers to the market value of all final goods and services produced within a country in a given period. GDP per capita is often considered an indicator of a country's standard of living....

. Social Security is currently estimated to keep roughly 40 percent of all Americans age 65 or older out of poverty.
The Social Security Administration

Social Security Administration

The United States Social Security Administration is an independent agency of the United States federal government that administers Social Security, a social insurance program consisting of retirement, disability, and survivors' benefits...

is headquartered in Woodlawn

Woodlawn, Baltimore County, Maryland

Woodlawn is an unincorporated community and a census-designated place in Baltimore County, Maryland, United States. The population was 36,079 at the 2000 census. It is home to both the headquarters of the Social Security Administration as well as the Centers for Medicare and Medicaid Services...

, Maryland

Maryland

Maryland is a U.S. state located in the Mid Atlantic region of the United States, bordering Virginia, West Virginia, and the District of Columbia to its south and west; Pennsylvania to its north; and Delaware to its east...

, just to the west of Baltimore.

The 2011 annual report by the program's Board of Trustees noted the following: in 2010, 54 million people were receiving Social Security benefits, while 157 million people were paying into the fund; of those receiving benefits, 44 million were receiving retirement benefits and 10 million disability benefits. In 2011, there will be 56 million beneficiaries and 158 million workers paying in. In 2010, total income was $781.1 billion and expenditures were $712.5 billion, which meant a total net increase in assets of $68.6 billion. Assets in 2010 were $2.6 trillion, an amount that is expected to be adequate to cover the next 10 years. In 2023, total income and interest earned on assets are projected to no longer cover expenditures for Social Security, as demographic shifts burden the system. By 2035, the ratio of potential retirees to working age persons will be 37 percent — there will be less than three potential income earners for every retiree in the population. The trust fund would then be exhausted by 2036 without legislative action.

Proposals to privatize Social Security recently became part of the Social Security debate

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" , in reference to its three components. It is primarily funded through a dedicated payroll tax...

during the Bill Clinton

Bill Clinton

William Jefferson "Bill" Clinton is an American politician who served as the 42nd President of the United States from 1993 to 2001. Inaugurated at age 46, he was the third-youngest president. He took office at the end of the Cold War, and was the first president of the baby boomer generation...

and George W. Bush

George W. Bush

George Walker Bush is an American politician who served as the 43rd President of the United States, from 2001 to 2009. Before that, he was the 46th Governor of Texas, having served from 1995 to 2000....

presidencies.

History

A limited form of the Social Security program began as a measure to implement "social insurance

Social security

Social security is primarily a social insurance program providing social protection or protection against socially recognized conditions, including poverty, old age, disability, unemployment and others. Social security may refer to:...

" during the Great Depression

Great Depression

The Great Depression was a severe worldwide economic depression in the decade preceding World War II. The timing of the Great Depression varied across nations, but in most countries it started in about 1929 and lasted until the late 1930s or early 1940s...

of the 1930s, when poverty

Poverty

Poverty is the lack of a certain amount of material possessions or money. Absolute poverty or destitution is inability to afford basic human needs, which commonly includes clean and fresh water, nutrition, health care, education, clothing and shelter. About 1.7 billion people are estimated to live...

rates among senior citizen

Senior citizen

Senior citizen is a common polite designation for an elderly person in both UK and US English, and it implies or means that the person is retired. This in turn implies or in fact means that the person is over the retirement age, which varies according to country. Synonyms include pensioner in UK...

s exceeded 50 percent.

Creation: The Social Security Act

The Social Security Act was drafted during Roosevelt's first term by the President's Committee on Economic Security, under Frances Perkins

Frances Perkins

Frances Perkins , born Fannie Coralie Perkins, was the U.S. Secretary of Labor from 1933 to 1945, and the first woman appointed to the U.S. Cabinet. As a loyal supporter of her friend, Franklin D. Roosevelt, she helped pull the labor movement into the New Deal coalition...

, and passed by Congress as part of the New Deal

New Deal

. The act was an attempt to limit what were seen as dangers in the modern American life, including old age, poverty, unemployment, and the burdens of widows and fatherless children. By signing this act on August 14, 1935, President Roosevelt became the first president to advocate federal assistance for the elderly.

Provisions of the Act

The Act is formally cited as the Social Security Act, ch. 531, , now codified as . The Act provided benefits to retirees and the unemployed, and a lump-sum

Lump sum

A lump sum is a single payment of money, as opposed to a series of payments made over time .The United States Department of Housing and Urban Development distinguishes between "price analysis" and "cost analysis" by whether the decision maker compares lump sum amounts, or subjects contract prices...

benefit at death. Payments to current retirees are financed by a payroll tax on current workers' wages, half directly as a payroll tax and half paid by the employer. The act also gave money to states to provide assistance to aged individuals (Title I), for unemployment insurance (Title III), Aid to Families with Dependent Children

Aid to Families with Dependent Children

Aid to Families with Dependent Children was a federal assistance program in effect from 1935 to 1996, which was administered by the United States Department of Health and Human Services...

(Title IV), Maternal and Child Welfare (Title V), public health services (Title VI), and the blind (Title X).

Initial opposition

Social Security was controversial when originally proposed, with one point of opposition being that it would allegedly cause a loss of jobs. However, proponents argued that there was in fact an advantage: it would encourage older workers to retire, thereby creating opportunities for younger people to find jobs, which would lower the unemployment rate.

Most women and minorities were excluded from the benefits of unemployment insurance and old age pensions. Employment definitions reflected typical white male categories and patterns. Job categories that were not covered by the act included workers in agricultural labor, domestic service, government employees, and many teachers, nurses, hospital employees, librarians, and social workers. The act also denied coverage to individuals who worked intermittently. These jobs were dominated by women and minorities. For example, women made up 90 percent of domestic labor in 1940 and two-thirds of all employed black women were in domestic service. Exclusions exempted nearly half of the working population. Nearly two-thirds of all African Americans in the labor force, 70 to 80 percent in some areas in the South, and just over half of all women employed were not covered by Social Security. At the time, the NAACP protested the Social Security Act, describing it as “a sieve with holes just big enough for the majority of Negroes to fall through.”

Some have suggested that this discrimination resulted from the powerful position of Southern Democrats

Southern Democrats

Southern Democrats are members of the U.S. Democratic Party who reside in the American South. In the 19th century, they were the definitive pro-slavery wing of the party, opposed to both the anti-slavery Republicans and the more liberal Northern Democrats.Eventually "Redemption" was finalized in...

on two of the committees pivotal for the Act’s creation, the Senate Finance Committee and the House Ways and Means Committee. Southern congressmen supported Social Security as a means to bring needed relief to areas in the South that were especially hurt by the Great Depression

Great Depression

but wished to avoid legislation which might interfere with the racial status quo in the South. The solution to this dilemma was to pass a bill that both included exclusions and granted authority to the states rather than the national government (such as the states' power in Aid to Dependent Children). Others have argued that exclusions of job categories such as agriculture were frequently left out of new social security systems worldwide because of the administrative difficulties in covering these workers.

Social Security reinforced traditional views of family life. Women generally qualified for benefits only through their husbands or children. Mothers’ pensions (Title IV) based entitlements on the presumption that mothers would be unemployed.

Historical discrimination in the system can also be seen with regard to Aid to Dependent Children. Since this money was allocated to the states to distribute, some localities assessed black families as needing less money than white families. These low grant levels made it impossible for African American mothers to not work: one requirement of the program. Some states also excluded children born out of wedlock

Marriage

Marriage is a social union or legal contract between people that creates kinship. It is an institution in which interpersonal relationships, usually intimate and sexual, are acknowledged in a variety of ways, depending on the culture or subculture in which it is found...

, an exclusion which affected African American women more than white women. One study determined that 14.4% of eligible white individuals received funding, but only 1.5 percent of eligible black individuals received these benefits.

Debates on the constitutionality of the Act

In the 1930s, the Supreme Court

Supreme Court of the United States

The Supreme Court of the United States is the highest court in the United States. It has ultimate appellate jurisdiction over all state and federal courts, and original jurisdiction over a small range of cases...

struck down many pieces of Roosevelt's New Deal legislation, including the Railroad Retirement Act

Railroad Retirement Board

The U.S. Railroad Retirement Board is an independent agency in the executive branch of the United States government created in 1935 to administer a social insurance program providing retirement benefits to the country's railroad workers....

. The Court threw out a centerpiece of the New Deal, the National Industrial Recovery Act

National Industrial Recovery Act

The National Industrial Recovery Act , officially known as the Act of June 16, 1933 The National Industrial Recovery Act (NIRA), officially known as the Act of June 16, 1933 The National Industrial Recovery Act (NIRA), officially known as the Act of June 16, 1933 (Ch. 90, 48 Stat. 195, formerly...

, the Agricultural Adjustment Act

Agricultural Adjustment Act

The Agricultural Adjustment Act was a United States federal law of the New Deal era which restricted agricultural production by paying farmers subsidies not to plant part of their land and to kill off excess livestock...

, and New York State's minimum-wage law. President Roosevelt responded with an attempt to pack the court via the Judiciary Reorganization Bill of 1937

Judiciary Reorganization Bill of 1937

The Judicial Procedures Reform Bill of 1937, frequently called the court-packing plan, was a legislative initiative proposed by U.S. President Franklin Roosevelt to add more justices to the U.S. Supreme Court. Roosevelt's purpose was to obtain favorable rulings regarding New Deal legislation that...

. On February 5, 1937, he sent a special message to Congress proposing legislation granting the President new powers to add additional judges to all federal courts whenever there were sitting judges age 70 or older who refused to retire. The practical effect of this proposal was that the President would get to appoint six new Justices to the Supreme Court (and 44 judges to lower federal courts), thus instantly tipping the political balance on the Court dramatically in his favor. The debate on this proposal was heated and widespread, and lasted over six months. Beginning with a set of decisions in March, April, and May, 1937 (including the Social Security Act cases), the Court would sustain a series of New Deal legislation.

Two Supreme Court rulings affirmed the constitutionality of the Social Security Act.

Steward Machine Company v. Davis
Steward Machine Company v. Davis
Steward Machine Company v. Davis, 301 U.S. 548 , was a case in which the Supreme Court of the United States upheld the unemployment compensation provisions of the Social Security Act of 1935. The Act established a national taxing structure designed to induce states to adopt laws for funding and...

, 301 U.S, 548 (1937) held, in a 5–4 decision, that, given the exigencies of the Great Depression
Great Depression
The Great Depression was a severe worldwide economic depression in the decade preceding World War II. The timing of the Great Depression varied across nations, but in most countries it started in about 1929 and lasted until the late 1930s or early 1940s...

, "[It] is too late today for the argument to be heard with tolerance that in a crisis so extreme the use of the moneys of the nation to relieve the unemployed and their dependents is a use for any purpose narrower than the promotion of the general welfare
Common good
The common good is a term that can refer to several different concepts. In the popular meaning, the common good describes a specific "good" that is shared and beneficial for all members of a given community...

". The arguments opposed to the Social Security Act (articulated by justices Butler
Pierce Butler (justice)
Pierce Butler was an American jurist who served as an Associate Justice of the Supreme Court of the United States from 1923 until his death in 1939...

, McReynolds
James Clark McReynolds
James Clark McReynolds was an American lawyer and judge who served as United States Attorney General under President Woodrow Wilson and as an Associate Justice of the United States Supreme Court...

, and Sutherland
George Sutherland
Alexander George Sutherland was an English-born U.S. jurist and political figure. One of four appointments to the Supreme Court by President Warren G. Harding, he served as an Associate Justice of the U.S...

in their opinions) were that the social security act went beyond the powers that were granted to the federal government in the Constitution
United States Constitution
The Constitution of the United States is the supreme law of the United States of America. It is the framework for the organization of the United States government and for the relationship of the federal government with the states, citizens, and all people within the United States.The first three...

. They argued that, by imposing a tax on employers that could be avoided only by contributing to a state unemployment-compensation
Unemployment benefit
Unemployment benefits are payments made by the state or other authorized bodies to unemployed people. Benefits may be based on a compulsory para-governmental insurance system...

fund, the federal government was essentially forcing each state to establish an unemployment-compensation fund that would meet its criteria, and that the federal government had no power to enact such a program.
Helvering v. Davis
Helvering v. Davis
Helvering v. Davis, 301 U.S. 619 , was a decision by the United States Supreme Court, which held that Social Security was not a contributory insurance program. The Court defended the constitutionality of the Social Security Act of 1935, requiring only that welfare spending be for the common benefit...

, 301 U.S. 619 (1937), decided on the same day as Steward, upheld the program because "The proceeds of both [employee and employer] taxes are to be paid into the Treasury like internal-revenue taxes generally, and are not earmarked in any way". That is, the Social Security Tax was constitutional as a mere exercise of Congress's general taxation powers.

Implementation

Payroll taxes were first collected in 1937, also the year in which the first benefits were paid, namely the lump-sum death benefit paid to 53,236 beneficiaries.

The first reported Social Security payment was to Ernest Ackerman, who retired only one day after Social Security began. Five cents were withheld from his pay during that period, and he received a lump-sum payout of seventeen cents from Social Security.

The first monthly payment was issued on January 31, 1940 to Ida May Fuller

Ida May Fuller

Ida May Fuller was the first American to receive a monthly benefit Social Security check. She received the check, amounting to $22.54, on January 31, 1940.Fuller was born on a farm outside Ludlow, Vermont...

of Ludlow

Ludlow (town), Vermont

Ludlow is a town in Windsor County, Vermont, United States. The population was 2,449 at the 2000 census. Ludlow is the home of Okemo Mountain, a popular skiing area.-Geography:...

, Vermont

Vermont

Vermont is a state in the New England region of the northeastern United States of America. The state ranks 43rd in land area, , and 45th in total area. Its population according to the 2010 census, 630,337, is the second smallest in the country, larger only than Wyoming. It is the only New England...

. In 1937, 1938 and 1939 she paid a total of $24.75 into the Social Security System. Her first check was for $22.54. After her second check, Fuller already had received more than she contributed over the three-year period. She lived to be 100 and collected a total of $22,888.92.

Expansion and evolution

The provisions of Social Security have been changing since the 1930s, shifting in response to economic worries as well as concerns over changing gender roles and the position of minorities. Officials have responded more to the concerns of women than those of minority groups. Social Security gradually moved toward universal coverage. By 1950, debates moved away from which occupational groups should be included to how to provide more adequate coverage. Changes in Social Security have reflected a balance between promoting equality and efforts to provide adequate protection.

In 1940, benefits paid totaled $35 million. These rose to $961 million in 1950, $11.2 billion in 1960, $31.9 billion in 1970, $120.5 billion in 1980, and $247.8 billion in 1990 (all figures in nominal dollars, not adjusted for inflation). In 2004, $492 billion of benefits were paid to 47.5 million beneficiaries. In 2009, nearly 51 million Americans received $650 billion in Social Security benefits.

Economic concerns

One reason for the proposed changes in 1939 was a growing concern over the impact that the reserves created by the 1935 act were having on the economy. The Recession of 1937

Recession of 1937

The Recession of 1937–1938 was a temporary reversal of the pre-war 1933 to 1941 economic recovery from the Great Depression in the United States.-Background:...

was blamed on the government, tied to the abrupt decrease in government spending and the $2 billion that had been collected in Social Security taxes. Benefits became available in 1940 instead of 1942 and changes to the benefit formula increased the amount of benefits available to all recipients in the early years of Social Security. These two policies combined to shrink the size of the reserves. The original Act had conceived of the program as paying benefits out of a large reserve. This Act shifted the conception of Social Security into something of a hybrid system; while reserves would still accumulate, most early beneficiaries would receive benefits on the pay-as-you-go system.
Just as importantly, the changes also delayed planned rises in contribution rates. Ironically if these had been left in place they would have come into effect during the wartime boom in wages and would have arguably helped to temper wartime inflation.

Creation of the Social Security Trust Fund

The amendments established a trust fund

Social Security Trust Fund

In the United States, the Social Security Trust Fund is a fund operated by the Social Security Administration into which are paid contributions from workers and employers under the Social Security system and out of which benefit payments to retirees, survivors, and the disabled, and general...

for any surplus funds. The managing trustee

Trustee

Trustee is a legal term which, in its broadest sense, can refer to any person who holds property, authority, or a position of trust or responsibility for the benefit of another...

of this fund is the Secretary of the Treasury. The money could be invested in both non-marketable and marketable securities.

The move toward family protection

Calls for reform of Social Security emerged within a few years of the 1935 Act. Even as early as 1936, some believed that women were not getting enough support. Worried that a lack of assistance might push women back into the work force, these individuals wanted Social Security changes that would prevent this. In an effort to protect the family, therefore, some called for reform which tied women's aid more concretely to their dependency on their husbands. Others expressed apprehension about the complicated administrative practices of Social Security. Concerns about the size of the reserve fund of the retirement program, emphasized by a recession in 1937 led to further calls for change.

These amendments, however, avoided the question of the large numbers of workers in excluded categories. Instead, the amendments of 1939 made family protection a part of Social Security. This included increased federal funding for the Aid to Dependent Children and raised the maximum age of children eligible to receive money under the Aid to Dependent Children to 18. The amendment added wives, elderly widows, and dependent survivors of covered male workers to those who could receive old age pensions. These individuals had previously been granted lump sum payments upon only death or coverage through the Aid to Dependent Children program. If a married wage-earning woman’s own benefit was worth less than 50% of her husband’s benefit, she was treated as a wife, not a worker. If a woman who was covered by Social Security died, however, her dependents were ineligible for her benefits. Since support for widows was dependent on the husband being a covered worker, African American widows were severely underrepresented and unaided by these changes.

In order to assure fiscal conservatives who worried about the costs of adding family protection policies, the benefits for single workers were decreased and lump-sum death payments were abolished.

FICA

In the original 1935 law, the benefit provisions were in Title II of the Act (which is why Social Security is sometimes referred to as the "Title II" program.) The taxing provisions were in a separate title (Title VIII) (for reasons related to the constitutionality of the 1935 Act). As part of the 1939 Amendments, the Title VIII taxing provisions were taken out of the Social Security Act and placed in the Internal Revenue Code and renamed the Federal Insurance Contributions Act

Federal Insurance Contributions Act tax

(FICA). Social Security payroll taxes thus often referred to as "FICA taxes."

Since FICA taxes do not fund "retirement accounts" analogous to investment accounts such as IRAs, it has been argued that returns on these contributions are not comparable to returns on private investment instruments. But because Social Security contributions are nonetheless arguably analogous to pooled insurance premiums (as they protect workers and covered family members against loss of income from the wage earner's retirement, disability, or death) it may be appropriate to compare the return on the "risk pool of funds" garnered by Social Security with the return on the "risk pool of funds" garnered by a for-profit commercial insurance company. Like any insurance program, Social Security "spreads risk". For example, a worker who becomes disabled at a young age could receive a large return relative to the amount they contributed in FICA before becoming disabled, since disability benefits can continue for life. As in private insurance plans, everyone in the particular insurance pool is insured against the same risks, but not everyone will benefit to the same extent.

The analogy to insurance, however, is limited by the fact that paying FICA taxes creates no legal right to benefits and by the extent to which Social Security is, in fact, funded by FICA taxes. The 2010 "Obama-GOP tax deal"

Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010

The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 , was passed by the United States Congress on December 16, 2010 and signed into law by President Barack Obama on December 17, 2010....

, for example, cut FICA taxes with the impact on Social Security's solvency neutralized by a transfer from general revenues. These transfers add to the general budget deficit like general program spending.

Amendments of the 1950s

After years of debates about the inclusion of domestic labor, household employees working at least two days a week for the same person were added in 1950, along with nonprofit workers and the self-employed. Hotel workers, laundry workers, all agricultural workers, and state and local government employees were added in 1954.

In 1956, the tax rate was raised to 4.0 percent (2.0 percent for the employer, 2.0 percent for the employee) and disability benefits were added. Also in 1956, women were allowed to retire at 62 with benefits reduced by 25 percent. Widows of covered workers were allowed to retire at 62 without the reduction in benefits.

Amendments of the 1960s

In 1961, retirement at age 62 was extended to men, and the tax rate was increased to 6.0%.

In 1962, the changing role of the female worker was acknowledged when benefits of covered women could be collected by dependent husbands, widowers, and children. These individuals, however, had to be able to prove their dependency.

Medicare

Medicare (United States)

Medicare is a social insurance program administered by the United States government, providing health insurance coverage to people who are aged 65 and over; to those who are under 65 and are permanently physically disabled or who have a congenital physical disability; or to those who meet other...

and Medicaid

Medicaid

Medicaid is the United States health program for certain people and families with low incomes and resources. It is a means-tested program that is jointly funded by the state and federal governments, and is managed by the states. People served by Medicaid are U.S. citizens or legal permanent...

were added in 1965 by the Social Security Act of 1965

Social Security Act of 1965

The Social Security Amendments of 1965 was legislation in the United States whose most important provisions resulted in creation of two programs: Medicare and Medicaid. The legislation initially provided federal health insurance for the elderly and for poor families. While President Lyndon B...

, part of President Lyndon B. Johnson

Lyndon B. Johnson

Lyndon Baines Johnson , often referred to as LBJ, was the 36th President of the United States after his service as the 37th Vice President of the United States...

's "Great Society

Great Society

The Great Society was a set of domestic programs in the United States promoted by President Lyndon B. Johnson and fellow Democrats in Congress in the 1960s. Two main goals of the Great Society social reforms were the elimination of poverty and racial injustice...

" program.

In 1965, the age at which widows could begin collecting benefits was reduced to 60. Widowers were not included in this change. When divorce

Divorce

Divorce is the final termination of a marital union, canceling the legal duties and responsibilities of marriage and dissolving the bonds of matrimony between the parties...

, rather than death, became the major cause of marriages ending, divorcées were added to the list of recipients. Divorcées over the age of 65 who had been married for at least 20 years, remained unmarried, and could demonstrate dependency on their ex-husbands received benefits.

The government adopted a unified budget

Unified budget

In the United States a unified budget is a federal government budget in which receipts and outlays from federal funds and the Social Security Trust Fund are consolidated. The change to a unified budget resulted in a single measure of the fiscal status of the government, based on the sum of all...

in the Johnson administration in 1968. This change resulted in a single measure of the fiscal status of the government, based on the sum of all government activity. The surplus in Social Security trust funds offsets the total debt

Debt

A debt is an obligation owed by one party to a second party, the creditor; usually this refers to assets granted by the creditor to the debtor, but the term can also be used metaphorically to cover moral obligations and other interactions not based on economic value.A debt is created when a...

, making it appear much smaller than it otherwise would.

1972 Amendments

In June 1972, both houses of the United States Congress

United States Congress

The United States Congress is the bicameral legislature of the federal government of the United States, consisting of the Senate and the House of Representatives. The Congress meets in the United States Capitol in Washington, D.C....

approved by overwhelming majorities 20% increases in benefits for 27.8 million Americans. The average payment per month rose from $133 to $166. The bill also set up a cost-of-living adjustment (COLA) to take effect in 1975. This adjustment would be made on a yearly basis if the Consumer Price Index

Consumer price index

A consumer price index measures changes in the price level of consumer goods and services purchased by households. The CPI, in the United States is defined by the Bureau of Labor Statistics as "a measure of the average change over time in the prices paid by urban consumers for a market basket of...

(CPI) increased by 3% or more. This addition was an attempt to index benefits to inflation

Inflation

In economics, inflation is a rise in the general level of prices of goods and services in an economy over a period of time.When the general price level rises, each unit of currency buys fewer goods and services. Consequently, inflation also reflects an erosion in the purchasing power of money – a...

so that benefits would rise automatically. If inflation was 5%, the goal was to automatically increase benefits by 5% so their real value didn't decline. A technical error in the formula caused these adjustments to overcompensate for inflation, a technical mistake which has been called double-indexing. The COLAs actually caused benefits to increase at twice the rate of inflation.

In October 1972, a $5 billion piece of Social Security legislation was enacted which expanded the Social Security program. For example, minimum monthly benefits of individuals employed in low income positions for at least 30 years were raised. Increases were also made to the pensions of 3.8 million widows and dependent widowers.

These amendments also established the Supplemental Security Income

Supplemental Security Income

Supplemental Security Income is a United States government program that provides stipends to low-income people who are either aged , blind, or disabled. Although administered by the Social Security Administration, SSI is funded from the U.S. Treasury general funds, not the Social Security trust fund...

(SSI). SSI is not a Social Security benefit, but a welfare program, because the elderly and disabled poor are entitled to SSI regardless of work history. Likewise, SSI is not an entitlement, because there is no right to SSI payments.

The negative financial outlook

Throughout the 1950s and 1960s, during the phase-in period of Social Security, Congress was able to grant generous benefit increases because the system had perpetual short-run surpluses. Congressional amendments to Social Security took place in even numbered years (election years) because the bills were politically popular, but by the late 1970s, this era was over. For the next three decades, projections of Social Security's finances would show large, long-term deficits, and in the early 1980s, the program flirted with immediate insolvency. From this point on, amendments to Social Security would take place in odd numbered years (years that were not election years) because Social Security reform now meant tax increases and benefit reductions. Social Security became known as the "Third Rail of American Politics." Touching it meant political death.

Several effects came together in the years following the 1972 amendments which rapidly changed the outlook on Social Security's long-term financial picture from positive to problematic. By the 1970s, the phase-in period, during which workers were paying taxes but few were collecting benefits, was largely over, and the ratio of elderly population to the working population was increasing. These developments brought questions about the capacity of the long term financial structure based on a pay-as-you-go program.

During the Carter

Jimmy Carter

James Earl "Jimmy" Carter, Jr. is an American politician who served as the 39th President of the United States and was the recipient of the 2002 Nobel Peace Prize, the only U.S. President to have received the Prize after leaving office...

administration, the economy suffered double-digit inflation, coupled with very high interest rates, oil and energy crises, high unemployment and slow economic growth

Economic growth

In economics, economic growth is defined as the increasing capacity of the economy to satisfy the wants of goods and services of the members of society. Economic growth is enabled by increases in productivity, which lowers the inputs for a given amount of output. Lowered costs increase demand...

. Productivity growth in the United States had declined to an average annual rate of 1%, compared to 3.2% during the 1960s. There was also a growing federal budget deficit which increased to $66 billion. The 1970s are described as a period of stagflation

Stagflation

In economics, stagflation is a situation in which the inflation rate is high and the economic growth rate slows down and unemployment remains steadily high...

, meaning economic stagnation coupled with price inflation, as well as higher interest rates. Price inflation (a rise in the general level of prices) creates uncertainty in budgeting and planning and makes labor strikes for pay raises more likely.

These underlying negative trends were exacerbated by a colossal mathematical error made in the 1972 amendments establishing the COLAs. The mathematical error which overcompensated for inflation was particularly detrimental given the double-digit inflation of this period, and the error led to benefit increases that were nowhere near financially sustainable.

The high inflation, double-indexing, and lower than expected wage growth was financial disaster for Social Security.

1977 Amendments

To combat the declining financial outlook, in 1977 Congress passed and Carter signed legislation fixing the double-indexing mistake. This amendment also altered the tax formulas to raise more money, increasing withholding from 2% to 6.15%. With these changes, President Carter remarked, "Now this legislation will guarantee that from 1980 to the year 2030, the Social Security funds will be sound." This turned out not to be the case. The financial picture declined almost immediately and by the early 1980s, the system was again in crisis.

Amendments of the 1980s

After the 1977 amendments, the economic assumptions surrounding Social Security projections continued to be overly optimistic as the program moved toward a crisis. For example, COLAs were attached to increases in the CPI. This meant that they changed with prices, instead of wages. Before the 1970s, wage measurements exceeded changes in price. In the 1970s, however, this reversed and real wages decreased. This meant that FICA revenues could not keep up with the increasing benefits that were being given out. Continued high unemployment levels also lowered the amount of Social Security tax that could be collected. These two developments were decreasing the Social Security Trust Fund reserves. In 1982, projections indicated that the Social Security Trust Fund would run out of money by 1983, and there was talk of the system being unable to pay benefits. The National Commission on Social Security Reform, chaired by Alan Greenspan

Alan Greenspan

Alan Greenspan is an American economist who served as Chairman of the Federal Reserve of the United States from 1987 to 2006. He currently works as a private advisor and provides consulting for firms through his company, Greenspan Associates LLC...

, was created to address the crisis.

The 1983 Amendments

The National Commission on Social Security Reform (NCSSR), chaired by Alan Greenspan

Alan Greenspan

, was empaneled to investigate the long-run solvency of Social Security. The 1983 Amendments to the SSA were based on the NCSSR's Final Report. The NCSSR recommended enacting a six-month delay in the COLA and changing the tax-rate schedules for the years between 1984 and 1990. It also proposed an income tax on the Social Security benefits of higher-income individuals. This meant that benefits in excess of a household income threshold, generally $25,000 for singles and $32,000 for couples (the precise formula computes and compares three different measures) became taxable. These changes were important for generating revenue in the short term.

Also of concern was the long-term prospect for Social Security because of demographic considerations. Of particular concern was the issue of what would happen when people born during the post–World War II baby boom retired. The NCSSR made several recommendations for addressing the issue. Under the 1983 amendments to Social Security, a previously enacted increase in the payroll tax rate was accelerated, additional employees were added to the system, the full-benefit retirement age was slowly increased, and up to one-half of the value of the Social Security benefit was made potentially taxable income.

The 1983 Amendments and the Social Security Trust Fund

The 1983 Amendments also included a provision to exclude the Social Security Trust Fund

Social Security Trust Fund

from the unified budget (In political jargon, it was proposed to be taken “off-budget.” Yet today Social Security is treated like all the other trust funds of the Unified Budget. It is a political way of using a cash budget instead of the more appropriate accrual budget (for all the budgets in the U.S. government), and a way of disguising total debt. This provision also provided for the exemption of Social Security and portions of the Medicare trust funds from any general budget cuts beginning in 1993. This change was one way of trying to protect Social Security funds for the future.

As a result of these changes, particularly the tax increases, the Social Security system began to generate a large short-term surplus of funds, intended to cover the added retirement costs of the "baby boomers." Congress invested these surpluses into special series, non-marketable U.S. Treasury securities held by the Social Security Trust Fund. Under the law, the government bonds held by Social Security are backed by the full faith and credit of the U.S. government.

The Supreme Court and the evolution of Social Security

The Supreme Court

Supreme Court of the United States

has established that no one has any legal right to Social Security benefits. The Court decided, in Flemming v. Nestor

Flemming v. Nestor

Flemming v. Nestor, 363 U.S. 603 , is a Supreme Court Case in which the Court upheld the Constitutionality of Section 1104 of the 1935 Social Security Act...

(1960), that "entitlement to Social Security benefits is not a contractual right". In that case, Ephram Nestor, a Bulgarian immigrant to the United States who made contributions for covered wages for the statutorily required "quarters of coverage" was nonetheless denied benefits after being deported in 1956 for being a member of the Communist party.

The case specifically held:

2. A person covered by the Social Security Act has not such a right in old-age benefit payments as would make every defeasance of "accrued" interests violative of the Due Process Clause of the Fifth Amendment. Pp. 608–611. (a) The noncontractual interest of an employee covered by the Act cannot be soundly analogized to that of the holder of an annuity, whose right to benefits are based on his contractual premium payments. Pp. 608–610. (b) To engraft upon the Social Security System a concept of "accrued property rights" would deprive it of the flexibility and [363 U.S. 603, 604] boldness in adjustment to ever-changing conditions which it demands and which Congress probably had in mind when it expressly reserved the right to alter, amend or repeal any provision of the Act. Pp. 610–611. 3. Section 202 (n) of the Act cannot be condemned as so lacking in rational justification as to offend due process. Pp. 611–612. 4. Termination of appellee's benefits under 202 (n) does not amount to punishing him without a trial, in violation of Art. III, 2, cl. 3, of the Constitution or the Sixth Amendment; nor is 202 (n) a bill of attainder
Bill of attainder
A bill of attainder is an act of a legislature declaring a person or group of persons guilty of some crime and punishing them without benefit of a judicial trial.-English law:...

or ex post facto law, since its purpose is not punitive. Pp. 612–621.[65]

The Supreme Court was also responsible for major changes in Social Security. Many of these cases were pivotal in changing the assumptions about differences in wage earning among men and women in the Social Security system.

Goldberg v. Kelly
Goldberg v. Kelly
Goldberg v. Kelly, 397 U.S. 254 , is a case in which the United States Supreme Court ruled that the Due Process Clause of the Fourteenth Amendment to the United States Constitution requires an evidentiary hearing before a recipient of certain government benefits can be deprived of such benefits...

(1970): The Supreme Court ruled that the due process
Due process
Due process is the legal code that the state must venerate all of the legal rights that are owed to a person under the principle. Due process balances the power of the state law of the land and thus protects individual persons from it...

clause of the Fourteenth Amendment
Fourteenth Amendment to the United States Constitution
The Fourteenth Amendment to the United States Constitution was adopted on July 9, 1868, as one of the Reconstruction Amendments.Its Citizenship Clause provides a broad definition of citizenship that overruled the Dred Scott v...

required there to be an evidentiary hearing before a recipient can be deprived of government benefits.
Weinberger v. Wiesenfeld
Weinberger v. Wiesenfeld
Weinberger v. Wiesenfeld, 420 U.S. 636 , was a decision by the United States Supreme Court, which unanimously held that the gender-based distinction under of the Social Security Act of 1935—which permitted widows but not widowers to collect special benefits while caring for minor children—violated...

(1975): A widower claimed that he was entitled to his deceased wife’s benefit, even though he had not been dependent on his wife. The court upheld his claims, stating that automatically granting widows the benefits and denying them to widowers violated equal protection
Equal Protection Clause
The Equal Protection Clause, part of the Fourteenth Amendment to the United States Constitution, provides that "no state shall ... deny to any person within its jurisdiction the equal protection of the laws"...

in the Fourteenth Amendment
Fourteenth Amendment to the United States Constitution
The Fourteenth Amendment to the United States Constitution was adopted on July 9, 1868, as one of the Reconstruction Amendments.Its Citizenship Clause provides a broad definition of citizenship that overruled the Dred Scott v...

.

Dates of coverage for various workers

1935 All workers in commerce and industry (except railroads) under age 65.
1939 Age restriction eliminated; seamen, bank employees added; additional domestic worker
Domestic worker
A domestic worker is a man, woman or child who works within the employer's household. Domestic workers perform a variety of household services for an individual or a family, from providing care for children and elderly dependents to cleaning and household maintenance, known as housekeeping...

s and food-processing workers removed
1946 Railroad and Social Security earnings combined to determine eligibility for and amount of survivor benefits.
1950 Regularly employed farm and domestic workers. Nonfarm self-employed (except professional groups). Federal civilian employees not under retirement system. Americans employed outside United States by American employer. Puerto Rico and Virgin Islands. At the option of the State, State and local government employees not under retirement system. Nonprofit organizations could elect coverage for their employees (other than ministers).
1951 Railroad workers with less than 10 years of service, for all benefits. (After October 1951, coverage is retroactive to 1937.)
1954 Farm self-employed. Professional self-employed except lawyers, dentists, doctors, and other medical groups. Additional regularly employed farm and domestic workers. Homeworkers. State and local government employees (except firemen and policemen) under retirement system if agreed to by referendum. Ministers could elect coverage as self-employed.
1956 Members of the uniformed services. Remainder of professional self-employed except doctors. By referendum, firemen and policemen in designated States.
1965 Interns. Self-employed doctors. Tips.
1967 Ministers (unless exemption is claimed on grounds of conscience or religious principles). Firemen under retirement system in all States.
1972 Members of a religious order subject to a vow of poverty.
1983 All federal civilian employees hired after 1983; members of Congress, the President and Vice-President and federal judges; all employees of nonprofit organizations. Covered state and local government employees prohibited from opting out of Social Security.
1990 Employees of state and local governments not covered under a retirement plan.

Benefits

The largest component of OASDI is the payment of retirement

Retirement

Retirement is the point where a person stops employment completely. A person may also semi-retire by reducing work hours.Many people choose to retire when they are eligible for private or public pension benefits, although some are forced to retire when physical conditions don't allow the person to...

benefits. Throughout a worker's career, the Social Security Administration keeps track of his or her earnings. The amount of the monthly benefit to which the worker is entitled depends upon that earnings record and upon the age at which the retiree chooses to begin receiving benefits. For the entire history of Social Security, benefits have been paid almost entirely by using revenue from payroll taxes. This is why Social Security is referred to as a pay-as-you-go system. Around 2017, payroll tax revenue is projected to be insufficient to cover Social Security benefits and the system will begin to withdraw money from the Social Security Trust Fund

Social Security Trust Fund

. The existence and economic significance of the Social Security Trust Fund

Social Security Trust Fund

is a subject of considerable dispute because its assets are special Treasury bonds; i.e. the money in the trust fund has been lent back to the federal government to pay for other expenses.

Totals By Year

Year – Beneficiaries – Dollars
1937 – 53,236 – $1,278,000
1938 – 213,670 – $10,478,000
1939 – 174,839 – $13,896,000
1940 – 222,488 – $35,000,000
1950 – 3,477,243 – $961,000,000
1960 – 14,844,589 – $11,245,000,000
1970 – 26,228,629 – $31,863,000,000
1980 – 35,584,955 – $120,511,000,000
1990 – 39,832,125 – $247,796,000,000
1995 – 43,387,259 – $332,553,000,000
1996 – 43,736,836 – $347,088,000,000
1997 – 43,971,086 – $361,970,000,000
1998 – 44,245,731 – $374,990,000,000
1999 – 44,595,624 – $385,768,000,000
2000 – 45,414,794 – $407,644,000,000
2001 – 45,877,506 – $431,949,000,000
2002 – 46,444,317 – $453,746,000,000
2003 – 47,038,486 – $470,778,000,000
2004 – 47,687,693 – $493,263,000,000
2005 – 48,434,436 – $520,748,000,000
2006 – 49,122,624 – $546,238,000,000
2007 – 49,864,838 – $584,939,000,000
2008 – 50,898,244 – $615,344,000,000

Primary Insurance Amount

A worker's retirement income benefit is based on his Primary Insurance Amount

Primary Insurance Amount

The Primary Insurance Amount , for the purposes of the Social Security Administration, is the amount which is used as the beginning point in calculating any benefit payable under Title II of the Social Security Act...

, or PIA. The PIA is the average of the highest 35 years of the worker's covered earnings (before deduction for FICA). Covered earnings in any year are limited by that year's Social Security Wage Base

Social Security Wage Base

For the Old Age, Survivors and Disability Insurance tax or Social Security tax, the Social Security Wage Base is the maximum earned gross income or upper threshold on which a wage earner's Social Security tax may be imposed...

, the maximum earnings that could be subject to the OASDI portion of FICA payroll tax ($106,800 in 2010). If the worker has fewer than 35 years of covered earnings, zeros are used to bring the total number of years of earnings up to 35. Years of covered work more than 2 years before the year the worker turns 62 are indexed upward to reflect the increase in the national wage via the average wage index (AWI) from the time at which the earnings were covered in the past to the value of the AWI two years before the worker turns 62 (which is the most recent year available at the date the worker turns 62). One-twelfth of this 35-year average is the average indexed monthly earnings (AIME). The PIA then is 90 percent of the AIME up to the first (low) bendpoint, and 32 percent of the excess of AIME over the first bendpoint but not in excess of the second (high) bendpoint, plus 15 percent of the AIME in excess of the second bendpoint. Bendpoints designate the point at which the rates of return on a beneficiary's AIME change. In 2008, the bendpoints for calculating the PIA are a change from 90% to 32% at $711 and a change to 15% at $4,288. This PIA is then adjusted by automatic cost-of-living adjustments annually starting with the year the worker turns 62. Similar computations based on career average earnings determine disability and survivor benefits. These alternate computations average less years of earnings when the worker dies or is disabled before age 62 and use different base years for the inflation adjustments.

Normal retirement age

The earliest age at which (reduced) benefits are payable is 62. Full retirement benefits depend on a retiree's year of birth.

Year of birth	Normal retirement age
1937 and prior	65
1938	65 and 2 months
1939	65 and 4 months
1940	65 and 6 months
1941	65 and 8 months
1942	65 and 10 months
1943 to 1954	66
1955	66 and 2 months
1956	66 and 4 months
1957	66 and 6 months
1958	66 and 8 months
1959	66 and 10 months
1960 and later	67

This table was copied in November 2011 from the Social Security Administration web site cited above and referenced in the footnotes. There are different rules for widows and widowers. Also from that site, come the following two notes:
Notes:
1. Persons born on January 1 of any year should refer to the normal retirement age for the previous year.
2. For the purpose of determining benefit reductions for early retirement, widows and widowers whose entitlement is based on having attained age 60 should add 2 years to the year of birth shown in the table.

Those born before 1938 have a normal retirement age of 65. Normal retirement age increases by two months for each ensuing year of birth until 1943, when it reaches 66 and stays at 66 until 1955. Thereafter the normal retirement age increases again by two months for each year until 1960, when normal retirement age is 67 and remains 67 for all individuals born thereafter.

It is perhaps instructive to look at the percentages of retirees in countries around the world. The breakdown in the more well known countries is as follows: Europe, Northern America, Australia, New Zealand, and Japan has increased from 8 percent in the 1950s to 14 percent in 2000, and is predicted to reach 26 percent in 2050. The reason for these high percentages is a result of a decline in the death and fertility rates.

A worker who starts benefits before normal retirement age has their benefit reduced based on the number of months before normal retirement age they start benefits. This reduction is 5/9 of 1% for each month up to 36 and then 5/12 of 1% for each additional month. This formula gives an 80% benefit at age 62 for a worker with a normal retirement age of 65, a 75% benefit at age 62 for a worker with a normal retirement age of 66, and a 70% benefit at age 62 for a worker with a normal retirement age of 67.

A worker who delays starting retirement benefits past normal retirement age earns delayed retirement credits that increase their benefit until they reach age 70. These credits are also applied to their widow(er)'s benefit. Children and spouse benefits are not affected by these credits.

The normal retirement age for widow(er) benefits shifts the year-of-birth schedule upward by two years, so that those widow(er)s born before 1940 have age 65 as their normal retirement age.

Spouse's benefit

Any current spouse is eligible, and divorced or former spouses are eligible generally if the marriage lasts for at least 10 years. (Civil marriages of same sex couples are not recognized by OASDI for spousal benefits because the federal DOMA

Defense of Marriage Act

The Defense of Marriage Act is a United States federal law whereby the federal government defines marriage as a legal union between one man and one woman. Under the law, no U.S. state may be required to recognize as a marriage a same-sex relationship considered a marriage in another state...

law excludes them for federal recognition.) While it is arithmetic

Arithmetic

Arithmetic or arithmetics is the oldest and most elementary branch of mathematics, used by almost everyone, for tasks ranging from simple day-to-day counting to advanced science and business calculations. It involves the study of quantity, especially as the result of combining numbers...

ally possible for one worker to generate spousal benefits for up to five of his/her spouses that he/she may have, each must be in succession after a proper divorce for each after a marriage of at least ten years. Because age 70 is the latest retirement age, and because no state recognizes marriage before teenage years, there are no more than 5 successive spousal benefits in ten-year intervals. This spousal retirement benefit is half the PIA of the worker; this is different from the spousal survivor benefit, which is the full PIA. The benefit is the product of the PIA, times one half, times the early-retirement factor if the spouse is younger than normal retirement age. There is no increase for starting spousal benefits after normal retirement age. This can occur if there is a married couple in which the younger person is the only worker and is more than 5 years younger. Only after the worker applies for retirement benefits may the non-working spouse apply for spousal retirement benefits.

Note that, since the passage of the Senior Citizens' Freedom to Work Act, in 2000, the spouse and children of a worker who has reached normal retirement age can receive benefits on the worker's record whether the worker is receiving benefits or not. Thus a worker can delay retirement without affecting spousal and children's benefits. The worker may have to begin receipt of benefits, to allow the spousal/children's benefits to begin, and then subsequently suspend his/her own benefits in order to continue the postponement of benefits in exchange for an increased benefit amount.

Widow(er)'s benefits

If a worker covered by Social Security dies, a surviving spouse can receive survivors' benefits. In some instances, survivors' benefits are available even to a divorce

Divorce

Divorce is the final termination of a marital union, canceling the legal duties and responsibilities of marriage and dissolving the bonds of matrimony between the parties...

d spouse. A father or mother with minor or disabled children in his or her care can receive benefits which are not actuarially reduced. The earliest age for a nondisabled widow(er)'s benefit is age 60. The benefit is equal to the worker's full retirement benefit for spouses who are at, or older than, normal retirement age. If the surviving spouse starts benefits before normal retirement age, there is an actuarial reduction. If the worker earned delayed retirement credits by waiting to start benefits after their normal retirement age, the surviving spouse will have those credits applied to their benefit.

Children's benefits

Children of a retired, disabled or deceased worker receive benefits as a "dependent" or "survivor" if they are under the age of 18, or between 18 and 19 and have not yet graduated from high school, or are over the age of 18 and were disabled before the age of 22. In a landmark case, the 8th Circuit U.S. Court of Appeals decided that a child is entitled to survivor benefits even though she was born two years after her father's death, having been conceived by in vitro fertilization.

Disability

A worker who has worked long enough and recently enough (based on "quarters of coverage" within the recent past) to be covered can receive disability benefits. These benefits start after five full calendar months of disability, regardless of his or her age. The eligibility formula requires a certain number of credits (based on earnings) to have been earned overall, and a certain number within the ten years immediately preceding the disability, but with more-lenient provisions for younger workers who become disabled before having had a chance to compile a long earnings history.

The worker must be unable to continue in his or her previous job and unable to adjust to other work, with age, education, and work experience taken into account; furthermore, the disability must be long-term, lasting 12 months, expected to last 12 months, resulting in death, or expected to result in death. As with the retirement benefit, the amount of the disability benefit payable depends on the worker's age and record of covered earnings.

Supplemental Security Income

Supplemental Security Income

(SSI) uses the same disability criteria as the insured social security disability program, but SSI is not based upon insurance coverage. Instead, a system of means-testing is used to determine whether the claimants' income and net worth fall below certain income and asset thresholds.

Severely disabled child

Child

Biologically, a child is generally a human between the stages of birth and puberty. Some vernacular definitions of a child include the fetus, as being an unborn child. The legal definition of "child" generally refers to a minor, otherwise known as a person younger than the age of majority...

ren may qualify for SSI. Standards for child disability are different from those for adults.

Disability determination at the Social Security Administration has created the largest system of administrative courts in the United States. Depending on the state of residence, a claimant whose initial application for benefits is denied can request reconsideration or a hearing before an Administrative Law Judge (ALJ). Such hearings sometimes involve participation of an independent vocational expert (VE) or medical expert (ME), as called upon by the ALJ.

Reconsideration involves a re-examination of the evidence and, in some cases, the opportunity for a hearing before a (non-attorney) disability hearing officer. The hearing officer then issues a decision in writing, providing justification for his/her finding. If the claimant is denied at the reconsideration stage, (s)he may request a hearing before an Administrative Law Judge. In some states, SSA has implemented a pilot program that eliminates the reconsideration step and allows claimants to appeal an initial denial directly to an Administrative Law Judge.

Because the number of applications for Social Security is very large (approximately 650,000 applications per year), the number of hearings requested by claimants often exceeds the capacity of Administrative Law Judges. The number of hearings requested and availability of Administrative Law Judges varies geographically across the United States. In some areas of the country, it is possible for a claimant to have a hearing with an Administrative Law Judge within 90 days of his/her request. In other areas, waiting times of 18 months are not uncommon.

After the hearing, the Administrative Law Judge

Administrative law judge

An administrative law judge in the United States is an official who presides at an administrative trial-type hearing to resolve a dispute between a government agency and someone affected by a decision of that agency. The ALJ is usually the initial trier of fact and decision maker...

(ALJ) issues a decision in writing. The decision can be Fully Favorable (the ALJ finds the claimant disabled as of the date that (s) he alleges in the application through the present), Partially Favorable (the ALJ finds the claimant disabled at some point, but not as of the date alleged in the application; OR the ALJ finds that the claimant was disabled but has improved), or Unfavorable (the ALJ finds that the claimant was not disabled at all). Claimants can appeal Partially Favorable and Unfavorable decisions to Social Security's Appeals Council, which is in Virginia

Virginia

The Commonwealth of Virginia , is a U.S. state on the Atlantic Coast of the Southern United States. Virginia is nicknamed the "Old Dominion" and sometimes the "Mother of Presidents" after the eight U.S. presidents born there...

. The Appeals Council does not hold hearings; it accepts written briefs. Response time from the Appeals Council can range from 12 weeks to more than 3 years.

If the claimant disagrees with the Appeals Council's decision, (s)he can appeal the case in the federal district court

United States district court

The United States district courts are the general trial courts of the United States federal court system. Both civil and criminal cases are filed in the district court, which is a court of law, equity, and admiralty. There is a United States bankruptcy court associated with each United States...

for his/her jurisdiction. As in most federal court cases, an unfavorable district court decision can be appealed to the appropriate United States Court of Appeals

United States court of appeals

The United States courts of appeals are the intermediate appellate courts of the United States federal court system...

, and an unfavorable appellate court decision can be appealed to the United States Supreme Court.

Joining and quitting

Obtaining a Social Security number for a child is voluntary. Further, there is no general legal requirement that individuals join the Social Security program. Although the Social Security Act itself does not require a person to have a Social Security Number (SSN) to live and work in the United States, the Internal Revenue Code does generally require the use of the social security number by individuals for federal tax purposes:

The social security account number issued to an individual for purposes of section 205(c)(2)(A) of the Social Security Act shall, except as shall otherwise be specified under regulations of the Secretary [of the Treasury or his delegate], be used as the identifying number for such individual for purposes of this title.

Importantly, most parents apply for Social Security numbers for their dependent children in order to include them on their income tax returns as a dependent. Everyone filing a tax return, as taxpayer or spouse, must have a Social Security Number or Taxpayer Identification Number (TIN) since the IRS is unable to process returns or post payments for anyone without an SSN or TIN.

The FICA taxes are imposed on all workers and self-employed persons. Employers are required to report wages for covered employment to Social Security for processing Forms W-2 and W-3. There are some specific wages which are not a part of the Social Security program (discussed below). Internal Revenue Code provisions section 3101 imposes payroll taxes on individuals and employer matching taxes. Section 3102 mandates that employers deduct these payroll taxes from workers' wages before they are paid. Generally, the payroll tax is imposed on everyone in employment earning "wages" as defined in 3121 of the Internal Revenue Code. and also taxes net earnings from self-employment.

Trust fund

Social Security taxes are paid into the Social Security Trust Fund

Social Security Trust Fund

maintained by the U.S. Treasury

United States Department of the Treasury

The Department of the Treasury is an executive department and the treasury of the United States federal government. It was established by an Act of Congress in 1789 to manage government revenue...

(technically, the "Federal Old-Age and Survivors Insurance Trust Fund", as established by ). Current year expenses are paid from current Social Security tax revenues. When revenues exceed expenditures, as they have in most years, the excess is invested in special series, non-marketable U.S. Government bond

Government bond

A government bond is a bond issued by a national government denominated in the country's own currency. Bonds are debt investments whereby an investor loans a certain amount of money, for a certain amount of time, with a certain interest rate, to a company or country...

s, thus the Social Security Trust Fund indirectly finances the federal government's general purpose deficit spending. In 2007, the cumulative excess of Social Security taxes and interest received over benefits paid out stood at $2.2 trillion. The Trust Fund is regarded by some as an accounting trick which holds no economic significance. Others argue that it has specific legal significance because the Treasury securities it holds are backed by the "full faith and credit" of the U.S. government, which has an obligation to repay its debt.

The Social Security Administration's authority to make benefit payments as granted by Congress extends only to its current revenues and existing Trust Fund balance, i.e., redemption of its holdings of Treasury securities. Therefore, Social Security's ability to make full payments once annual benefits exceed revenues depends in part on the federal government's ability to make good on the bonds that it has issued to the Social Security trust funds. As with any other federal obligation, the federal government's ability to repay Social Security is based on the power to tax and the commitment of the Congress to meet its obligations.

In 2009 the Office of the Chief Actuary of the Social Security Administration calculated an unfunded obligation of $15.1 trillion for the Social Security program. The unfunded obligation is the difference between the present value of the cost of Social Security and the present value of the assets in the Trust Fund and the future scheduled tax income of the program. In the Actuarial Note explaining the calculation, the Office of the Chief Actuary wrote that "The term obligation is used in lieu of the term liability, because liability generally indicates a contractual obligation (as in the case of private pensions and insurance) that cannot be altered by the plan sponsor without the agreement of the plan participants."

Office of Disability Adjudication and Review (ODAR)

"The Office of Hearings and Appeals (OHA) administers the hearings and appeals program for the Social Security Administration (SSA). Administrative Law Judges (ALJs) conduct hearings and issue decisions. The Appeals Council considers appeals from hearing decisions, and acts as the final level of administrative review for the Social Security Administration." In 2006, OHA was renamed to ODAR.

Benefit payout comparisons

The current formula used in calculating the benefit level (primary insurance amount or PIA) is very progressive so that sizable benefits could be obtained with much less than the thirty five to forty years of covered wages. Workers who spend their entire careers in covered employment would be unfairly treated relative to workers who spend the first half of their careers not covered (as in municipal employment) by OASDI but are covered by an alternative plan. These people who later switch into covered employment would be entitled to both the alternative non OASDI pension (presumably from a state or municipality) and get an Old Age retirement benefit from Social Security. The progressivity of the PIA formula would in effect allow these workers to double dip. Therefore, there are two provisions that mitigate the effect of the double dipping: one for those who obtain OASDI benefits from a spouse who is a covered worker and the other for those who split their careers in covered and noncovered employment. This latter double dip has a claw back factor which starts at maximum at 10 years and grades out to zero at 30 years so that there is no clawback for those with 30 years or more of covered wages. This is to prevent those with abnormally low AIMEs due to few years of covered status from being treated as lifetime (say 44 years) career low wage earners with low AIMEs.

International agreements

People sometimes relocate from one country to another, either permanently or on a limited-time basis. This presents challenges to businesses, governments, and individuals seeking to ensure future benefits or having to deal with taxation authorities in multiple countries. To that end, the Social Security Administration has signed treaties, often referred to as Totalization Agreements, with other social insurance programs in various foreign countries.

Overall, these agreements serve two main purposes. First, they eliminate dual Social Security taxation, the situation that occurs when a worker from one country works in another country and is required to pay Social Security taxes to both countries on the same earnings. Second, the agreements help fill gaps in benefit protection for workers who have divided their careers between the United States and another country.

The following countries have signed totalization agreements with the SSA (and the date the agreement became effective):

Italy
Italy
Italy , officially the Italian Republic languages]] under the European Charter for Regional or Minority Languages. In each of these, Italy's official name is as follows:;;;;;;;;), is a unitary parliamentary republic in South-Central Europe. To the north it borders France, Switzerland, Austria and...

(November 1, 1978)
Germany
Germany
Germany , officially the Federal Republic of Germany , is a federal parliamentary republic in Europe. The country consists of 16 states while the capital and largest city is Berlin. Germany covers an area of 357,021 km2 and has a largely temperate seasonal climate...

(December 1, 1979)
Switzerland
Switzerland
Switzerland name of one of the Swiss cantons. ; ; ; or ), in its full name the Swiss Confederation , is a federal republic consisting of 26 cantons, with Bern as the seat of the federal authorities. The country is situated in Western Europe,Or Central Europe depending on the definition....

(November 1, 1980)
Belgium
Belgium
Belgium , officially the Kingdom of Belgium, is a federal state in Western Europe. It is a founding member of the European Union and hosts the EU's headquarters, and those of several other major international organisations such as NATO.Belgium is also a member of, or affiliated to, many...

(July 1, 1984)
Norway
Norway
Norway , officially the Kingdom of Norway, is a Nordic unitary constitutional monarchy whose territory comprises the western portion of the Scandinavian Peninsula, Jan Mayen, and the Arctic archipelago of Svalbard and Bouvet Island. Norway has a total area of and a population of about 4.9 million...

(July 1, 1984)
Canada
Canada
Canada is a North American country consisting of ten provinces and three territories. Located in the northern part of the continent, it extends from the Atlantic Ocean in the east to the Pacific Ocean in the west, and northward into the Arctic Ocean...

(August 1, 1984)
United Kingdom
United Kingdom
The United Kingdom of Great Britain and Northern IrelandIn the United Kingdom and Dependencies, other languages have been officially recognised as legitimate autochthonous languages under the European Charter for Regional or Minority Languages...

(January 1, 1985)
Sweden
Sweden
Sweden , officially the Kingdom of Sweden , is a Nordic country on the Scandinavian Peninsula in Northern Europe. Sweden borders with Norway and Finland and is connected to Denmark by a bridge-tunnel across the Öresund....

(January 1, 1987)
Spain
Spain
Spain , officially the Kingdom of Spain languages]] under the European Charter for Regional or Minority Languages. In each of these, Spain's official name is as follows:;;;;;;), is a country and member state of the European Union located in southwestern Europe on the Iberian Peninsula...

(April 1, 1988)
France
France
The French Republic , The French Republic , The French Republic , (commonly known as France , is a unitary semi-presidential republic in Western Europe with several overseas territories and islands located on other continents and in the Indian, Pacific, and Atlantic oceans. Metropolitan France...

(July 1, 1988)
Portugal
Portugal
Portugal , officially the Portuguese Republic is a country situated in southwestern Europe on the Iberian Peninsula. Portugal is the westernmost country of Europe, and is bordered by the Atlantic Ocean to the West and South and by Spain to the North and East. The Atlantic archipelagos of the...

(August 1, 1989)
Netherlands
Netherlands
The Netherlands is a constituent country of the Kingdom of the Netherlands, located mainly in North-West Europe and with several islands in the Caribbean. Mainland Netherlands borders the North Sea to the north and west, Belgium to the south, and Germany to the east, and shares maritime borders...

(November 1, 1990)
Austria
Austria
Austria , officially the Republic of Austria , is a landlocked country of roughly 8.4 million people in Central Europe. It is bordered by the Czech Republic and Germany to the north, Slovakia and Hungary to the east, Slovenia and Italy to the south, and Switzerland and Liechtenstein to the...

(November 1, 1991)

Finland
Finland
Finland , officially the Republic of Finland, is a Nordic country situated in the Fennoscandian region of Northern Europe. It is bordered by Sweden in the west, Norway in the north and Russia in the east, while Estonia lies to its south across the Gulf of Finland.Around 5.4 million people reside...

(November 1, 1992)
Ireland
Ireland
Ireland is an island to the northwest of continental Europe. It is the third-largest island in Europe and the twentieth-largest island on Earth...

(September 1, 1993)
Luxembourg
Luxembourg
Luxembourg , officially the Grand Duchy of Luxembourg , is a landlocked country in western Europe, bordered by Belgium, France, and Germany. It has two principal regions: the Oesling in the North as part of the Ardennes massif, and the Gutland in the south...

(November 1, 1993)
Greece
Greece
Greece , officially the Hellenic Republic , and historically Hellas or the Republic of Greece in English, is a country in southeastern Europe....

(September 1, 1994)
South Korea
South Korea
The Republic of Korea , , is a sovereign state in East Asia, located on the southern portion of the Korean Peninsula. It is neighbored by the People's Republic of China to the west, Japan to the east, North Korea to the north, and the East China Sea and Republic of China to the south...

(April 1, 2001)
Chile
Chile
Chile ,officially the Republic of Chile , is a country in South America occupying a long, narrow coastal strip between the Andes mountains to the east and the Pacific Ocean to the west. It borders Peru to the north, Bolivia to the northeast, Argentina to the east, and the Drake Passage in the far...

(December 1, 2001)
Australia
Australia
Australia , officially the Commonwealth of Australia, is a country in the Southern Hemisphere comprising the mainland of the Australian continent, the island of Tasmania, and numerous smaller islands in the Indian and Pacific Oceans. It is the world's sixth-largest country by total area...

(October 1, 2002)
Japan
Japan
Japan is an island nation in East Asia. Located in the Pacific Ocean, it lies to the east of the Sea of Japan, China, North Korea, South Korea and Russia, stretching from the Sea of Okhotsk in the north to the East China Sea and Taiwan in the south...

(October 1, 2005)
Denmark
Denmark
Denmark is a Scandinavian country in Northern Europe. The countries of Denmark and Greenland, as well as the Faroe Islands, constitute the Kingdom of Denmark . It is the southernmost of the Nordic countries, southwest of Sweden and south of Norway, and bordered to the south by Germany. Denmark...

(October 1, 2008)
Czech Republic
Czech Republic
The Czech Republic is a landlocked country in Central Europe. The country is bordered by Poland to the northeast, Slovakia to the east, Austria to the south, and Germany to the west and northwest....

(January 1, 2009)
Poland
Poland
Poland , officially the Republic of Poland , is a country in Central Europe bordered by Germany to the west; the Czech Republic and Slovakia to the south; Ukraine, Belarus and Lithuania to the east; and the Baltic Sea and Kaliningrad Oblast, a Russian exclave, to the north...

(March 1, 2009)
Mexico
Mexico
The United Mexican States , commonly known as Mexico , is a federal constitutional republic in North America. It is bordered on the north by the United States; on the south and west by the Pacific Ocean; on the southeast by Guatemala, Belize, and the Caribbean Sea; and on the east by the Gulf of...

(Signed on June 29, 2004, but not yet in effect)

Social Security number

A side effect of the Social Security program in the United States has been the near-universal adoption of the program's identification number, the Social Security number, as the U.S. national identification number

National identification number

A national identification number, national identity number, or national insurance number is used by the governments of many countries as a means of tracking their citizens, permanent residents, and temporary residents for the purposes of work, taxation, government benefits, health care, and other...

. The social security number, or SSN, is issued pursuant to section 205(c)(2) of the Social Security Act, codified as . The government originally stated that the SSN would not be a means of identification, but currently a multitude of U.S. entities use the Social Security number as a personal identifier. These include government agencies such as the Internal Revenue Service

Internal Revenue Service

The Internal Revenue Service is the revenue service of the United States federal government. The agency is a bureau of the Department of the Treasury, and is under the immediate direction of the Commissioner of Internal Revenue...

, the military (which prints it on service members' dog tags and uses it in a number of ways to identify personnel, including the name, rank and "serial number" one would furnish the enemy as a POW) as well as private agencies such as banks, colleges and universities, health insurance companies, and employers.

The Social Security Administration admits that the Social Security Act does not require a person to have a Social Security Number to live and work in the United States, nor does it require an SSN simply for the purpose of having one.

The Privacy Act of 1974

Privacy Act of 1974

The Privacy Act of 1974, 5 U.S.C. § 552a, Public Law No. 93-579, establishes a Code of Fair Information Practice that governs the collection, maintenance, use, and dissemination of personally identifiable information about individuals that is maintained in systems of records by federal agencies...

was in part intended to limit usage of the Social Security number as a means of identification. Paragraph (1) of subsection (a) of section 7 of the Privacy Act, an uncodified provision, states in part:

(1) It shall be unlawful for any Federal, State or local government agency to deny to any individual any right, benefit, or privilege provided by law because of such individual's refusal to disclose his social security account number.

However, paragraph (2) of subsection (a) of section 7 of the Privacy Act provides in part:

(2) the provisions of paragraph (1) of this subsection shall not apply with respect to –

(A) any disclosure which is required by Federal statute, or

(B) the disclosure of a social security number to any Federal, State, or local agency maintaining a system of records in existence and operating before January 1, 1975, if such disclosure was required under statute or regulation adopted prior to such date to verify the identity of an individual.

The exceptions under section 7 of the Privacy Act include the Internal Revenue Code requirement that social security numbers be used as taxpayer identification numbers for individuals.

Demographic and revenue projections

In each year since 1982, OASDI tax receipts, interest payments and other income have exceeded benefit payments and other expenditures, for example by more than $150 billion in 2004. As the "baby boomers" move out of the work force and into retirement, however, expenses will come to exceed tax receipts and then, after several more years, will exceed all system income, including interest. At that point the system will begin drawing on its Treasury Notes, and will continue to pay benefits at the current levels until the Trust Fund is exhausted. At that point, benefits will be reduced to about three-fourths of current levels unless additional revenue is found.

In 2005, this exhaustion of the Trust Fund was projected to occur in 2041 (by the Social Security Administration) or 2052 (by the Congressional Budget Office). Thereafter, however, the projection for the date of this event was moved up by a few years after the recession worsened the system's financial picture. The 2011 OASDI Trustees Report stated:

Annual cost exceeded non-interest income in 2010 and is projected to continue to be larger throughout the remainder of the 75-year valuation period. Nevertheless, from 2010 through 2022, total trust fund income, including interest income, is more than is necessary to cover costs, so trust fund assets will continue to grow during that time period. Beginning in 2023, trust fund assets will diminish until they become exhausted in 2036. Non-interest income is projected to be sufficient to support expenditures at a level of 77 percent of scheduled benefits after trust fund exhaustion in 2036, and then to decline to 74 percent of scheduled benefits in 2085.

In 2007, the Social Security Trustees suggested that either the payroll tax could increase to 16.41 percent in 2041 and steadily increased to 17.60 percent in 2081 or a cut in benefits by 25 percent in 2041 and steadily increased to an overall cut of 30 percent in 2081.

The Social Security Administration projects that the demographic situation will stabilize. The cash flow deficit in the Social Security system will have leveled off as a share of the economy. This projection has come into question. Some demographers argue that life expectancy will improve more than projected by the Social Security Trustees, a development that would make solvency worse. Some economists believe future productivity growth will be higher than the current projections by the Social Security Trustees. In this case, the Social Security shortfall would be smaller than currently projected.

Tables published by the government's National Center for Health Statistics show that life expectancy at birth was 47.3 years in 1900, rose to 68.2 by 1950 and reached 77.3 in 2002. The latest annual report of the Social Security trustees projects that life expectancy will increase just six years in the next seven decades, to 83 in 2075. A separate set of projections, by the Census Bureau

United States Census Bureau

The United States Census Bureau is the government agency that is responsible for the United States Census. It also gathers other national demographic and economic data...

, shows more rapid growth.

("Social Security Underestimates Future Life Spans, Critics Say") The Census Bureau projection is that the longer life spans projected for 2075 by the Social Security Administration will be reached in 2050. Other experts, however, think that the past gains in life expectancy cannot be repeated, and add that the adverse effect on the system's finances may be partly offset if health improvements induce people to stay in the workforce longer.

Actuarial science, of the kind used to project the future solvency of social security, is by nature inexact. The SSA actually makes three predictions: optimistic, midline, and pessimistic (until the late 1980s it made 4 projections). The Social Security crisis that was developing prior to the 1983 reforms resulted from midline projections that turned out to be too optimistic. It has been argued that the overly pessimistic projections of the mid to late 1990s were partly the result of the low economic growth (according to actuary David Langer) assumptions which resulted in the projected exhaustion date being pushed back (from 2028 to 2042) with each successive Trustee's report. During the heavy-boom years of the '90s, the midline projections were too pessimistic. Obviously, projecting out 75 years is a significant challenge and, as such, the actual situation might be much better or much worse than predicted.

The Social Security Advisory Board has on three occasions since 1999 appointed a Technical Advisory Panel to review the methods and assumptions used in the annual projections for the Social Security trust funds. The most recent report of the Technical Advisory Panel, released in June 2008 with a copyright date of October 2007, includes a number of recommendations for improving the Social Security projections.

Increased spending for Social Security will occur at the same time as increases in Medicare

Medicare (United States)

, as a result of the aging of the baby boomers. One projection illustrates the relationship between the two programs:

From 2004 to 2030, the combined spending on Social Security and Medicare is expected to rise from 7% of national income (gross domestic product) to 13%. Two-thirds of the increase occurs in Medicare.

Online benefits estimate

On July 22, 2008 the Social Security Administration introduced a new online benefits estimator. A worker who has enough Social Security credits to qualify for benefits, but who is not currently receiving benefits on his or her own Social Security record and who is not a Medicare beneficiary, can obtain an estimate of the retirement benefit that will be provided, for different assumptions about age at retirement.

Tax on wages and self-employment income

Benefits are funded by taxes imposed on wages of employees and self-employed persons. As explained below, in the case of employment, the employer and employee are each responsible for one half of the Social Security tax, with the employee's half being withheld from the employee's pay check. In the case of self-employed persons (i.e., independent contractors), the self-employed person is responsible for the entire amount of Social Security tax.

The Federal Insurance Contributions Act

Federal Insurance Contributions Act tax

(FICA) (codified in the Internal Revenue Code

Internal Revenue Code

The Internal Revenue Code is the domestic portion of Federal statutory tax law in the United States, published in various volumes of the United States Statutes at Large, and separately as Title 26 of the United States Code...

) imposes a Social Security withholding tax equal to 6.20% of the gross wage amount, up to but not exceeding the Social Security Wage Base ($97,500 for 2007; $102,000 for 2008; and $106,800 for 2009, 2010, and 2011). The same 6.20% tax is imposed on employers. For 2011, the employee's contribution was reduced to 4.2%, while the employer's portion remained at 6.2%. For each calendar year for which the worker is assessed the FICA contribution, the SSA credits those wages as that year's covered wages. The income cutoff is adjusted yearly for inflation and other factors.

A separate payroll tax of 1.45% of an employee's income is paid directly by the employer, and an additional 1.45% deducted from the employee's paycheck, yielding a total tax rate of 2.90%. There is no maximum limit on this portion of the tax. This portion of the tax is used to fund the Medicare

Medicare (United States)

program, which is primarily responsible for providing health benefits to retirees.

The combined tax rate of these two federal programs was 15.30% (7.65% paid by the employee and 7.65% paid by the employer) and dropped to 13.30% (5.65% paid by the employee and 7.65% paid by the employer) in 2011.

For self-employed workers

Self-employment

Self-employment is working for one's self.Self-employed people can also be referred to as a person who works for himself/herself instead of an employer, but drawing income from a trade or business that they operate personally....

(who technically are not employees and are deemed not to be earning "wages" for Federal tax purposes), the self-employment tax, imposed by the Self-Employment Contributions Act of 1954, codified as Chapter 2 of Subtitle A of the Internal Revenue Code

Internal Revenue Code

, , is 15.3% of "net earnings from self-employment." In essence, a self-employed individual pays both the employee and employer share of the tax, although half of the self-employment tax (the "employer share") is deductible when calculating the individual's federal income tax.

If an employee has overpaid payroll taxes by having more than one job or switching jobs during the year, the excess taxes will be refunded when the employee files his federal income tax return

Income tax in the United States

In the United States, a tax is imposed on income by the Federal, most states, and many local governments. The income tax is determined by applying a tax rate, which may increase as income increases, to taxable income as defined. Individuals and corporations are directly taxable, and estates and...

. Any excess taxes paid by employers, however, are not refundable to the employers.

Wages not subject to tax

Workers are not required to pay Social Security taxes on wages from certain types of work:

Wages received by certain state or local government workers participating in their employers' alternative retirement system.
Net annual earnings from self-employment of less than $400.
Wages received for service as an election worker, if less than $1,400 a year (in 2008).
Wages received for working as a household employee, if less than $1,700 per year (in 2009–2010).
Wages received by college students working under Federal Work Study programs, graduate students receiving stipends while working as teaching assistant
Teaching assistant
A teaching assistant is an individual who assists a professor or teacher with instructional responsibilities. TAs include graduate teaching assistants , who are graduate students; undergraduate teaching assistants , who are undergraduate students; secondary school TAs, who are either high school...

s, research assistant
Research assistant
A research assistant is a researcher employed, often on a temporary contract, by a university or a research institute, for the purpose of assisting in academic research...

s, or on fellowships
Scholarship
A scholarship is an award of financial aid for a student to further education. Scholarships are awarded on various criteria usually reflecting the values and purposes of the donor or founder of the award.-Types:...

, and most postdoctoral researcher
Postdoctoral researcher
Postdoctoral research is scholarly research conducted by a person who has recently completed doctoral studies, normally within the previous five years. It is intended to further deepen expertise in a specialist subject, including acquiring novel skills and methods...

s. Eliminated starting January 2011.
Earnings received for serving as a minister (or for similar religious service) if the person has a conscientious objection
Conscientious objector
A conscientious objector is an "individual who has claimed the right to refuse to perform military service" on the grounds of freedom of thought, conscience, and/or religion....

to public insurance because of personal religious considerations, but only for "qualified services" performed for a religious organization.
Other minor exceptions.

Federal income taxation of benefits

The benefits received by retirees were not originally taxed as income in the year of receipt. Beginning in tax year 1984, with the Reagan

Ronald Reagan

Ronald Wilson Reagan was the 40th President of the United States , the 33rd Governor of California and, prior to that, a radio, film and television actor....

-era reforms to repair the system's projected insolvency, retirees with incomes over $25,000 (in the case of married persons filing separately who did not live with the spouse at any time during the year, and for persons filing as "single"), or with combined incomes over $32,000 (if married filing jointly) or, in certain cases, any income amount (if married filing separately from the spouse in a year in which the taxpayer lived with the spouse at any time) generally saw part of the retiree benefits subject to Federal income tax. In 1984, the portion of the benefits potentially subject to tax was 50%.
Under the Deficit Reduction Act of 1993, the portion of benefits potentially subject to tax was increased to 85% beginning with the 1994 tax year.

Claim that it discriminates against the poor and the middle class

Critics, such as libertarian Nobel Laureate economist

Economist

An economist is a professional in the social science discipline of economics. The individual may also study, develop, and apply theories and concepts from economics and write about economic policy...

Milton Friedman

Milton Friedman was an American economist, statistician, academic, and author who taught at the University of Chicago for more than three decades...

, say that Social Security redistributes wealth from the poor to the wealthy. Workers must pay 12.4 percent, including a 6.2 percent employer contribution, on their wages below the Social Security Wage Base

Social Security Wage Base

($106,800, in 2010), but no tax on income in excess of this amount. Therefore, high earners pay a lower percentage of their total income because of the income caps; because of this, payroll taxes are often viewed as being regressive

Regressive tax

A regressive tax is a tax imposed in such a manner that the tax rate decreases as the amount subject to taxation increases. "Regressive" describes a distribution effect on income or expenditure, referring to the way the rate progresses from high to low, where the average tax rate exceeds the...

. Furthermore, wealthier individuals generally have higher life expectancies and thus may expect to receive larger benefits for a longer period than poorer taxpayers. A single individual who dies before age 62, who is more likely to be poor, receives no retirement benefits despite his years of paying Social Security tax. On the other hand, an individual who lives to age 100, who is more likely to be wealthy, is guaranteed payments that are more than he paid into the system. An NBER volume edited by Martin Feldstein

Martin Feldstein

Martin Stuart "Marty" Feldstein is an economist. He is currently the George F. Baker Professor of Economics at Harvard University, and the president emeritus of the National Bureau of Economic Research . He served as President and Chief Executive Officer of the NBER from 1978 through 2008...

and Jeffrey Liebman

Jeffrey Liebman

Jeffrey B. Liebman, an American economist, is currently the Executive Associate Director of the Office of Management and Budget within the Obama Administration. Liebman was formerly the Malcolm Wiener Professor of Public Policy John F. Kennedy School of Government at Harvard University...

called The Distributional Aspects of Social Security points out that members of racial minorities with lower than average life expectancies and lower than average rates of marriage may also suffer from the program on average.

Supporters of Social Security say that despite its regressive tax formula, Social Security benefits are calculated using a progressive benefit formula that replaces a much higher percentage of low-income workers' pre-retirement income than that of higher-income workers (although these low-income workers pay a higher percentage of their pre-retirement income). They also point to numerous studies that show that, relative to high-income workers, Social Security disability and survivor benefits paid on behalf of low-income workers more than offset any retirement benefits that may be lost because of shorter life expectancy. Other research asserts that survivor benefits, allegedly an offset, actually exacerbate the problem because survivor benefits are denied to single individuals, including widow(er)s married less than nine months (except in certain situations), divorced widow(er)s married less than 10 years, and co-habiting or same-sex couples, unless they are legally married in their state of residence. Unmarried individuals tend to be less wealthy and minorities.

Claim that politicians exempted themselves from the tax

Critics of Social Security have said that the politicians who created Social Security exempted themselves from having to pay the Social Security tax. Indeed, when the federal government created Social Security, all federal employees, including the President and members of Congress, were exempt from having to pay the Social Security tax, and they received no Social Security benefits. This law was changed by the Social Security Amendments of 1983, which brought within the Social Security system all members of Congress, the President and the Vice President, federal judges, and certain executive-level political appointees, as well as all federal employees hired in any capacity on or after January 1, 1984. Many state and local government workers, however, are exempt from Social Security taxes because they contribute instead to alternative retirement systems set up by their employers.

Claim that the government lied about the maximum tax

George Mason University economics professor Walter E. Williams

Walter E. Williams

Walter E. Williams, is an American economist, commentator, and academic. He is the John M. Olin Distinguished Professor of Economics at George Mason University, as well as a syndicated columnist and author known for his libertarian views.- Early life and education :Williams family during childhood...

claimed that the federal government has broken its own promise regarding the maximum Social Security tax. Williams used data from the federal government to back up his claim.

According to a 1936 pamphlet on the Social Security website, the federal government promised the following maximum level of taxation for Social Security, "... beginning in 1949, twelve years from now, you and your employer will each pay 3 cents on each dollar you earn, up to $3,000 a year. That is the most you will ever pay."

However, according to the Social Security website, by the year 2008, the tax rate was 6.2% each for the employer and employee, and the maximum income level that was subject to the tax was $102,000 raising the bar to $6,324 maximum contribution by both employee and employer (total $12,648).

In 2005, Williams wrote, "Had Congress lived up to those promises, where $3,000 was the maximum earnings subject to Social Security tax, controlling for inflation, today's $50,000-a-year wage earner would pay about $700 in Social Security taxes, as opposed to the more than $3,000 that he pays today."

According to the Social Security website, "The tax rate in the original 1935 law was 1% each on the employer and the employee, on the first $3,000 of earnings. This rate was increased on a regular schedule in four steps so that by 1949 the rate would be 3% each on the first $3,000. The figure was never $1,400, and the rate was never fixed for all time at 1%."

Claim that it gives a low rate of return

Critics of Social Security claim that it gives a low rate of return, compared to what is obtained through private retirement accounts. For example, critics point out that under the Social Security laws as they existed at that time, several thousand employees of Galveston County, Texas were allowed to opt out of the Social Security program in the early 1980s, and have their money placed in a private retirement plan instead. While employees who earned $50,000 per year would have collected $1,302 per month in Social Security benefits, the private plan paid them $6,843 per month. While employees who earned $20,000 per year would have collected $775 per month in Social Security benefits, the private plan paid them $2,740 per month, at interest rates prevailing in 1996. While some advocates of privatization of Social Security point to the Galveston pension plan as a model for Social Security reform, critics point to a GAO report to the House Ways and Means Committee, which indicates that, for low and middle income employees, particularly those with shorter work histories, the outcome may be less favorable.

Claim that it is a Ponzi scheme

Critics have drawn parallels between Social Security and Ponzi scheme

Ponzi scheme

A Ponzi scheme is a fraudulent investment operation that pays returns to its investors from their own money or the money paid by subsequent investors, rather than from any actual profit earned by the individual or organization running the operation...

s, e.g.:
Paul Krugman

Paul Krugman

Paul Robin Krugman is an American economist, professor of Economics and International Affairs at the Woodrow Wilson School of Public and International Affairs at Princeton University, Centenary Professor at the London School of Economics, and an op-ed columnist for The New York Times...

has also echoed this 'Ponzi Scheme' allegation. Commenting on the redistributionary nature of Social Security, Krugman once wrote "Social Security is structured from the point of view of the recipients as if it were an ordinary retirement plan: what you get out depends on what you put in. So it does not look like a redistributionist scheme. In practice it has turned out to be strongly redistributionist, but only because of its Ponzi game aspect, in which each generation takes more out than it put in. Well, the Ponzi game will soon be over, thanks to changing demographics, so that the typical recipient henceforth will get only about as much as he or she put in (and today's young may well get less than they put in)."

One criticism of the analogy is that while Ponzi scheme

Ponzi scheme

s and Social Security have similar structures (in particular, a sustainability problem when the number of new people paying in is declining), they have different transparencies. In a Ponzi scheme the fact there is no return generating mechanism beyond just contributions from new entrants is obscured whereas Social Security payouts have always been openly underwritten by incoming tax revenue

Tax revenue

Tax revenue is the income that is gained by governments through taxation.Just as there are different types of tax, the form in which tax revenue is collected also differs; furthermore, the agency that collects the tax may not be part of central government, but may be an alternative third-party...

. Private sector Ponzi schemes cannot be sustained indefinitely, whereas Social Security's benefits can theoretically always be sustained by raising taxes on new participants and reducing promised payouts. Because of these and other issues, Robert E. Wright

Robert E. Wright

Robert E. Wright is a business, economic, financial, and monetary historian and the inaugural Rudy and Marilyn Nef Family Chair of Political Economy at Augustana College in Sioux Falls, South Dakota...

calls Social Security a "quasi" pyramid scheme in his book, Fubarnomics.

Estimated net Social Security benefits under differing circumstances

In 2004, Urban Institute economists C. Eugene Steuerle

C. Eugene Steuerle

C. Eugene "Gene" Steuerle is an American economist, Richard B. Fisher chair and Institute Fellow at the Urban Institute in Washington, D.C., and a columnist under the title The Government We Deserve.-Work and career:Steuerle has served as:...

and Adam Carasso created a Web-based Social Security benefits calculator. Using this calculator it is possible to estimate net Social Security benefits (i.e., estimated lifetime benefits minus estimated lifetime FICA taxes paid) for different types of recipients. In the book Democrats and Republicans – Rhetoric and Reality Joseph Fried used the calculator to create graphical depictions of the estimated net benefits of men and women who were at different wage levels, single and married (with stay-at-home spouses), and retiring in different years. These graphs vividly show that generalizations about Social Security benefits may be of little predictive value for any given worker, due to the wide disparity of net benefits for people at different income levels and in different demographic groups. For example, the graph below (Figure 168) shows the impact of wage level and retirement date on a male worker. As income goes up, net benefits get smaller – even negative.
However, the impact is much greater for the future retiree (in 2045) than for the current retiree (2005). The male earning $95,000 per year and retiring in 2045 is estimated to lose over $200,000 by participating in the Social Security system.

In the next graph (Figure 165) the depicted net benefits are averaged for people turning age 65 anytime during the years 2005 through 2045. (In other words, the disparities shown are not related to retirement.) However, we do see the impact of gender and wage level. Because women tend to live longer, they generally collect Social Security benefits for a longer time. As a result, they get a higher net benefit, on average, no matter what the wage level.

The next image (Figure 166) shows estimated net benefits for married men and women at different wage levels. In this particular scenario it is assumed that the spouse has little or no earnings and, thus, will be entitled to collect a spousal retirement benefit. According to Fried:

"Two significant factors are evident: First, every column in Figure 166 depicts a net benefit that is higher than any column in Figure 165. In other words, the average married person (with a stay-at-home spouse) gets a greater benefit per FICA tax dollar paid than does the average single person – no matter what the gender or wage level. Second, there is only limited progressivity among married workers with stay-at-home spouses. Review Figure 166 carefully: The net benefits drop as the wage levels increase from $50,000 to $95,000; however, they increase as the wage levels grow from $5,000 to $50,000. In fact, net benefits are lowest for those earning just $5,000 per year."

The last graph shown (Figure 167) is a combination of Figures 165 and 166. In this graph it is very clear why generalizations about the value of Social Security benefits are meaningless. At the $95,000 wage level a married person could be a big winner – getting net benefits of about $165,000. On the other hand, he could lose an estimated $152,000 in net benefits if he remains single. Altogether, there is a "swing" of over $300,000 based upon the marriage decision (and the division of earnings between the spouses). In addition there is a large disparity between the high net benefits of the married person earning $95,000 ($165,152) versus the relatively low net benefits of the man or woman earning just $5,000 ($30,025 or $41,890, depending on gender). In other words, the high earner, in this scenario, gets a far greater return on his FICA tax investment than does the low earner.
In the book How Social Security Picks Your Pocket other factors affecting Social Security net benefits are identified: Generally, people who work for more than 35 years get a lower net benefit – all other factors being equal. People who do not live long after retirement age get a much lower net benefit. Finally, people who derive a high percentage of income from non-wage sources get high Social Security net benefits because they appear to be "poor," when they are not. The progressive benefit formula for Social Security is blind to the income a worker may have from non-wage sources, such as spousal support, dividends and interest, or rental income.

Current controversies

Proposals to reform of the Social Security system have led to heated debate, centering around funding of the program. In particular, proposals to privatize funding have caused great controversy.

Contrast with private pensions

Although Social Security is sometimes compared to private pensions, the two systems are different in a number of respects. It has been argued that Social Security is an insurance plan as opposed to a retirement plan. Unlike a pension, for example, Social Security pays disability benefits. A private pension fund accumulates the money paid into it, eventually using those reserves to pay pensions to the workers who contributed to the fund; and a private system is not universal. Social Security cannot "prefund" by investing in marketable assets such as equities, because federal law prohibits it from investing in assets other than those backed by the U.S. government. As a result, its investments to date have been limited to "special" non-negotiable securities issued by the U.S. Treasury, although some argue that debt issued by the Federal National Mortgage Association

Federal National Mortgage Association

The Federal National Mortgage Association , commonly known as Fannie Mae, was founded in 1938 during the Great Depression as part of the New Deal. It is a government-sponsored enterprise , though it has been a publicly traded company since 1968...

and other quasi-governmental organizations could meet legal standards. Social Security cannot by law invest in private equities, although some other countries (such as Canada) and some states permit their pension funds to invest in private equities. As a universal system, Social Security generally operates as a pipeline, through which current tax receipts from workers are used to pay current benefits to retirees, survivors, and the disabled. When there is an excess of taxes withheld over benefits paid, and by law this excess is invested in Treasury securities (not in private equities) as described above.

Two broad categories of private pension plans are "defined benefit pension plans" and "defined contribution pension plans." Of these two, Social Security is more similar to a defined benefit pension plan. In a defined benefit pension plan, the benefits ultimately received are based on some sort of pre-determined formula (such as one based on years worked and highest salary earned). Defined benefit pension plans generally do not include separate accounts for each participant. By contrast, in a defined contribution pension plan each participant has a specific account with funds put into that account (by the employer or the participant, or both), and the ultimate benefit is based on the amount in that account at the time of retirement. Some have proposed that the Social Security system be modified to provide for the option of individual accounts (in effect, to make the system, at least in part, more like a defined contribution pension plan). Specifically, on February 2, 2005, President

President of the United States

George W. Bush

made Social Security a prominent theme of his State of the Union Address

State of the Union Address

The State of the Union is an annual address presented by the President of the United States to the United States Congress. The address not only reports on the condition of the nation but also allows the president to outline his legislative agenda and his national priorities.The practice arises...

. He described the Social Security system as "headed for bankruptcy", and outlined, in general terms, a proposal based on partial privatization

Privatization

Privatization is the incidence or process of transferring ownership of a business, enterprise, agency or public service from the public sector to the private sector or to private non-profit organizations...

. Critics responded that privatization would worsen the program's solvency outlook and would require huge new borrowing. See Social Security debate (United States)

Social Security debate (United States)

.

Both "defined benefit" and "defined contribution" private pension plans are governed by the Employee Retirement Income Security Act

Employee Retirement Income Security Act

The Employee Retirement Income Security Act of 1974 is an American federal statute that establishes minimum standards for pension plans in private industry and provides for extensive rules on the federal income tax effects of transactions associated with employee benefit plans...

(ERISA), which requires employers to provide minimum levels of funding to support "defined benefits" pensions. The purpose is to protect the workers from corporate mismanagement and outright bankruptcy

Bankruptcy

Bankruptcy is a legal status of an insolvent person or an organisation, that is, one that cannot repay the debts owed to creditors. In most jurisdictions bankruptcy is imposed by a court order, often initiated by the debtor....

, although in practice many private pension funds have fallen short in recent years. In terms of financial structure, the current Social Security system is analogous to an underfunded "defined benefit" pension ("underfunded" meaning not that it is in trouble, but that its "savings" are not enough to pay future benefits without collecting future tax revenues).

Court interpretation of the Act to provide benefits

The United States Court of Appeals for the Seventh Circuit has indicated that the Social Security Act has a moral purpose and should be liberally interpreted in favor of claimants when deciding what counted as covered wages for purposes of meeting the quarters of coverage requirement to make a worker eligible for benefits. That court has also stated: ". . . [T]he regulations should be liberally applied in favor of beneficiaries" when deciding a case in favor of a felon who had his disability payments retroactively terminated upon incarceration. According to the court, that the Social Security Act "should be liberally construed in favor of those seeking its benefits can not be doubted." “The hope behind this statute is to save men and women from the rigors of the poor house as well as from the haunting fear that such a lot awaits them when journey's end is near.”

Constitutionality

The constitutionality of Social Security is intricately linked to the evolving nature of Supreme Court jurisprudence on federal power (the 20th century saw a dramatic increase in allowed congressional action). When Social Security was first passed, there were significant questions over its constitutionality as the Court had found another pension scheme, the original Railroad Retirement Act, to violate the due process clause of the Fifth Amendment

Fifth Amendment to the United States Constitution

The Fifth Amendment to the United States Constitution, which is part of the Bill of Rights, protects against abuse of government authority in a legal procedure. Its guarantees stem from English common law which traces back to the Magna Carta in 1215...

. Some, such as University of Chicago

University of Chicago

The University of Chicago is a private research university in Chicago, Illinois, USA. It was founded by the American Baptist Education Society with a donation from oil magnate and philanthropist John D. Rockefeller and incorporated in 1890...

law professor Richard Epstein and Robert Nozick

Robert Nozick

Robert Nozick was an American political philosopher, most prominent in the 1970s and 1980s. He was a professor at Harvard University. He is best known for his book Anarchy, State, and Utopia , a right-libertarian answer to John Rawls's A Theory of Justice...

, have argued that Social Security should be unconstitutional.

In the 1937 U.S. Supreme Court case of Helvering v. Davis

Helvering v. Davis

Helvering v. Davis, 301 U.S. 619 , was a decision by the United States Supreme Court, which held that Social Security was not a contributory insurance program. The Court defended the constitutionality of the Social Security Act of 1935, requiring only that welfare spending be for the common benefit...

, the Court examined the constitutionality of Social Security when George Davis of the Edison Electric Illuminating Company of Boston sued in connection with the Social Security tax. The U.S. District Court for the District of Massachusetts first upheld the tax. The District Court judgment was reversed by the Circuit Court of Appeals. Commissioner Guy Helvering of the Bureau of Internal Revenue (now the Internal Revenue Service) took the case to the Supreme Court, and the Court upheld the validity of the tax.

During the 1930s President Franklin Delano Roosevelt was in the midst of promoting the passage of a large number of social welfare programs under the New Deal

New Deal

and the High Court struck down many of those programs (such as the Civilian Conservation Corps

Civilian Conservation Corps

The Civilian Conservation Corps was a public work relief program that operated from 1933 to 1942 in the United States for unemployed, unmarried men from relief families, ages 18–25. A part of the New Deal of President Franklin D...

and the National Recovery Act) as unconstitutional. Modified versions of the affected programs were afterwards approved by the Court, including Social Security.

When Helvering v. Davis was argued before the Court, the larger issue of constitutionality of the old-age insurance portion of Social Security was not decided. The case was limited to whether the payroll tax was a suitable use of Congress's taxing power. Despite this, no serious challenges regarding the system's constitutionality are now being litigated, and Congress's spending power may be more coextensive, as shown in cases like South Dakota v. Dole

South Dakota v. Dole

South Dakota v. Dole, 483 U.S. 203 , was a case in which the United States Supreme Court considered federalism and the power of the United States Congress under the Taxing and Spending Clause.-Background:...

during the Reagan Administration.

Social security number theft

Because Social Security Numbers have become useful in identity theft

Identity theft

Identity theft is a form of stealing another person's identity in which someone pretends to be someone else by assuming that person's identity, typically in order to access resources or obtain credit and other benefits in that person's name...

and other forms of crime

Crime

Crime is the breach of rules or laws for which some governing authority can ultimately prescribe a conviction...

, various schemes have been perpetrated to acquire valid Social Security Numbers and related identity information.

In February 2006, the Social Security Administration received several reports of an email message being circulated addressed to “Dear Social Security Number And Card owner” and purporting to be from the Social Security Administration. The message informs the reader “that someone illegally is using your Social Security number and assuming your identity” and directs the reader to a website designed to look like Social Security’s Internet website.

“I am outraged that someone would target an unsuspecting public in this manner,” said Commissioner Jo Anne B. Barnhart

Jo Anne B. Barnhart

Jo Anne Barnhart was the 14th Commissioner of Social Security, filling a six-year term of office that ran through January 19, 2007.-Biography:...

. “I have asked the Inspector General to use all the resources at his command to find and prosecute whoever is perpetrating this fraud.”

Once directed to the phony website, the individual is reportedly asked to confirm his or her identity with “Social Security and bank information.” Specific information about the individual’s credit card number, expiration date and PIN

Personal identification number

A personal identification number is a secret numeric password shared between a user and a system that can be used to authenticate the user to the system. Typically, the user is required to provide a non-confidential user identifier or token and a confidential PIN to gain access to the system...

is then requested. “Whether on our online website or by phone, Social Security will never ask you for your credit card information or your PIN” Commissioner Jo Anne B. Barnhart

Jo Anne B. Barnhart

Jo Anne Barnhart was the 14th Commissioner of Social Security, filling a six-year term of office that ran through January 19, 2007.-Biography:...

reported.

Social Security Administration Inspector General O’Carroll recommended people always take precautions when giving out personal information. “You should never provide your Social Security number or other personal information over the Internet or by telephone unless you are extremely confident of the source to whom you are providing the information,” O’Carroll said. See Press Release.

Fraud in the acquisition and use of benefits

Given the vast size of the program, fraud

Fraud

In criminal law, a fraud is an intentional deception made for personal gain or to damage another individual; the related adjective is fraudulent. The specific legal definition varies by legal jurisdiction. Fraud is a crime, and also a civil law violation...

occurs. The Social Security Administration

Social Security Administration

has its own investigatory group, Continuing Disability Investigations (CDI). In addition, the Social Security Administration

Social Security Administration

may request investigatory assistance from other federal law enforcement agencies including the Office of the Inspector General and the FBI.

Restrictions on potentially deceptive communications

Because of the importance of Social Security to millions of Americans, many direct-mail

Direct marketing

Direct marketing is a channel-agnostic form of advertising that allows businesses and nonprofits to communicate straight to the customer, with advertising techniques such as mobile messaging, email, interactive consumer websites, online display ads, fliers, catalog distribution, promotional...

marketers packaged their mailings to resemble official communications from the Social Security Administration, hoping that recipients would be more likely to open them. In response, Congress amended the Social Security Act in 1988 to prohibit the private use of the phrase "Social Security" and several related terms in any way that would convey a false impression of approval from the Social Security Administration. The constitutionality

Constitutionality

Constitutionality is the condition of acting in accordance with an applicable constitution. Acts that are not in accordance with the rules laid down in the constitution are deemed to be ultra vires.-See also:*ultra vires*Company law*Constitutional law...

of this law was upheld in United Seniors Association, Inc. v. Social Security Administration, 423 F.3d 397 (4th Cir. 2005), cert den 547 U.S. 1162; 126 S.Ct. 2346 (2006) (text at Findlaw).

Consumption smoothing and the annuity market Life annuity

Social Security provides insurance for the possibility of living longer than expected, when a person has consumed all the resources saved for retirement. Annuity is one answer to such an eventuality. A person will buy an annuity and will pay a certain amount during his working life up to around 65 and then receive benefits in return upon retirement. The larger the premium, the larger the benefits he will receive when all the other things remain same. The second concept of consumption smoothing means that a person reduces his consumption when he is earning at the highest level and saves for the years when he will be old and not able to earn at this level but wants to achieve a certain level of consumption for him or his family. A risk averse person will be willing to buy an annuity and reduce his consumption in return for a guaranteed level of income after his retirement and for his family after his death. But this has some problems like adverse selection

Adverse selection

Adverse selection, anti-selection, or negative selection is a term used in economics, insurance, statistics, and risk management. It refers to a market process in which "bad" results occur when buyers and sellers have asymmetric information : the "bad" products or services are more likely to be...

due to asymmetric information.

Economize on decision making and administrative costs

It means that in order to properly decide what amount of money one should save and how to invest so that its returns can be used in the old age for one’s benefits. These are difficult things and by joining the social security relieve one from these issues but still problem with government program remains that it will not satisfy the choices of many people. In the same manner, the supply side has to deal with the issues of moral hazard, adverse selection and for this purpose they want a lot of information on life expectancies in order to determine annuities. Annuities also have to pay to the sales people high commissions. But making compulsory to join for everyone in a program saves all these costs.

Income redistribution

This is so planned that the benefits are lesser for the people with high income averages and high for the low income people. In this way, social security redistributes the incomes. Moreover, there is also intergenerational redistribution of income also. In the pay as you go system, the present generation of workers pays for the benefits of the earlier generation.

Saving behavior

Social security affects the saving behavior of the people in three different ways. In the wealth substitution effect when a person is paying for his social security, it is expected that he will save less because he knows that in the event of his old age social security will take care of him. In the retirement effect, increases the savings because people would like to retire earlier and this will induce them to save more because now they have to pay for more years after retirement. The bequest effect also increases saving. Because people want to save for children, when they will pay for social security, this will decrease resources and they will save.

Improved income status of the aged

Social security has decreased poverty in the elderly people. During 1974-2003, the median real income among the population above 15 increased by 30% and in the population over 65 this increase was 45%. But still the problem persists and still the women especially widows are likely to experience economic stress.

Social Security Solvency: Cost and Benefit Analysis

A cost and benefit analysis is given here in order to make the Social Security solvent and maintain the current system.

Raising the maximum taxable earning levels

At present the limit is $106,800. But if the cap is lifted and it includes all taxable income, it will be able to tackle the problem of increasing benefits, from an increase of revenues. A benefit of lifting the cap on the taxable income, but not increasing the benefits make some suggest that the revenue from high income earners will lead to solvency of social security.

Increasing retirement age

Because the life expectancy has increased and will increase further, even in the absence of other demographic factors the retirement age must be increased to maintain a sustainable system. Since payments began in 1940, life expectancy has increased by 5.1 years for men and 6 for women, yet the retirement age has only been increased by 2 years. To make expected time in retirement the same as in 1940, the retirement age would have to be increased to 73. If the retirement age is increased to 68 it will increase the payroll tax by 0.52 percentage point but it still falls far short of required 3.5 percentage point increase in payroll tax. The cost will be more working years and less leisure and benefit will be that payroll tax will be slightly low.

Reducing cost of living adjustment(COLA)

At present, a retiree’s benefit is each year increased by the cost of living measured in CPI. According to some economists the CPI overestimates the price increases so it is appropriate to adjust benefits less than CPI (Boskin et al., 1998). If the benefits adjustments is delinked from CPI and it will reduce cost of living and the reduction in cost of living will increase benefits by 0.79 dollar for every dollar reduced.

Changing of the benefit formula

At present, AIME is calculated on the average of 35 years of earnings, as discussed earlier, if the retirement is increased to 68 then the average for calculation of AIME may be increased to 38 years earnings. It will decrease the lifetime earnings and it will decrease the benefits. This would increase the payroll tax by 0.26 percentage points. Another variant of this can be, now AIME uses the indexing based on average wage growth for 35 years but if it was based on CPI then it will also reduce the benefits. It will help in sustainable solvency because the wages tend to rise more as compared to prices. In order to help the poor, the lowest income 30% of the retirees may be given benefits based on wage indexing and all the rest on price indexing or the mix of both indexes.

External links

OASDI
Calculators
More information
- AARP – American Association of Retired People
- TimeLines of US SSI Numbers (Years Numbers States)
- Social Security Disability Advocacy, Debate, and Professional News
- Health Hippo: Evaluations of Social Security Disability
- Social Security Information Project
- Global Action on Aging Warning about the perils of stock-exchange "funded" pension systems
- Commission to Strengthen Social Security
- Social Security Disability in North Carolina
- 75th Anniversary of Social Security at the Franklin D. Roosevelt Presidential Museum and Library
Articles
- Social Security Benefits Vary by Age Taken
- NBER paper, Internal Rate of Return coauthored by Olivia Mitchell, member of President's Commission
- Social Security Q & A by economist Doug Orr from Dollars & Sense
  Dollars & Sense
  Dollars & Sense is a magazine dedicated to providing left-wing perspectives on economics.Published six times a year since 1974, it is edited by a collective of economists, journalists, and activists committed to the ideals of social justice and economic democracy.It was initially sponsored by the...
  
  magazine
- Social Security at Wikia
  Wikia
  Wikia is a free web hosting service for wikis . It is normally free of charge for readers and editors, deriving most of its income from advertising, and publishes all user-provided text under copyleft licenses. Wikia hosts several hundred thousand wikis using the open-source wiki software MediaWiki...
- Time Archives A Collection regarding Social Security's progression and perception over time
- Article on impact of raising Social Security tax cap from Dollars & Sense
  Dollars & Sense
  Dollars & Sense is a magazine dedicated to providing left-wing perspectives on economics.Published six times a year since 1974, it is edited by a collective of economists, journalists, and activists committed to the ideals of social justice and economic democracy.It was initially sponsored by the...
  
  magazine, March/April 2008
- The Social Security Administration's Cracked Crystal Ball from Dollars & Sense
  Dollars & Sense
  Dollars & Sense is a magazine dedicated to providing left-wing perspectives on economics.Published six times a year since 1974, it is edited by a collective of economists, journalists, and activists committed to the ideals of social justice and economic democracy.It was initially sponsored by the...
  
  magazine, November/December 2004
- Social Security, article in Encarta Encyclopedia
- Arno Tausch (2005)‚ World Bank Pension reforms and development patterns in the world system and in the “Wider Europe”. A 109 country investigation based on 33 indicators of economic growth, and human, social and ecological well-being, and a European regional case study’. A slightly re-worked version of a paper, originally presented to the Conference on “Reforming European pension systems. In memory of Professor Franco Modigliani
  Franco Modigliani
  Franco Modigliani was an Italian economist at the MIT Sloan School of Management and MIT Department of Economics, and winner of the Nobel Memorial Prize in Economics in 1985.-Life and career:...
  
  . 24 and 25 September 2004”, Castle of Schengen, Luxembourg Institute for European and International Studies

The source of this article is wikipedia, the free encyclopedia. The text of this article is licensed under the GFDL.

History

Creation: The Social Security Act

Provisions of the Act

Initial opposition

Debates on the constitutionality of the Act

Implementation

Expansion and evolution

Economic concerns

Creation of the Social Security Trust Fund

The move toward family protection

FICA

Amendments of the 1950s

Amendments of the 1960s

1972 Amendments

The negative financial outlook

1977 Amendments

Amendments of the 1980s

The 1983 Amendments

The 1983 Amendments and the Social Security Trust Fund

The Supreme Court and the evolution of Social Security

Dates of coverage for various workers

Benefits

Totals By Year

Primary Insurance Amount

Normal retirement age

Spouse's benefit

Widow(er)'s benefits

Children's benefits

Disability

Joining and quitting

Trust fund

Office of Disability Adjudication and Review (ODAR)

Benefit payout comparisons

International agreements

Social Security number

Demographic and revenue projections

Online benefits estimate

Tax on wages and self-employment income

Wages not subject to tax

Federal income taxation of benefits

Claim that it discriminates against the poor and the middle class

Claim that politicians exempted themselves from the tax

Claim that the government lied about the maximum tax

Claim that it gives a low rate of return

Claim that it is a Ponzi scheme

Estimated net Social Security benefits under differing circumstances

Current controversies

Contrast with private pensions

Court interpretation of the Act to provide benefits

Constitutionality

Social security number theft

Fraud in the acquisition and use of benefits

Restrictions on potentially deceptive communications

Consumption smoothing and the annuity market Life annuity

Economize on decision making and administrative costs

Income redistribution

Saving behavior

Improved income status of the aged

Social Security Solvency: Cost and Benefit Analysis

Raising the maximum taxable earning levels

Increasing retirement age

Reducing cost of living adjustment(COLA)

Changing of the benefit formula

See also

Further reading

External links