Social security in capitalist land

<b>The Sunday Story</b> In the land of rugged individualists, it may seem strange to believe, as many Americans do, that a mammoth government scheme encompassing old-age, survivors in retired workers’ families, and disability insurance is an enduring institution.

Updated - December 04, 2021 11:22 pm IST

Published - October 05, 2013 11:56 pm IST

In the land of rugged individualists, it may seem strange to believe, as many Americans do, that a mammoth government scheme encompassing old-age, survivors in retired workers’ families, and disability insurance is an enduring institution.

In spite of frequent calls by Washington conservatives to curb welfare spending on policies of this sort, the Social Security Administration (SSA) in the U.S. commands a staggering $773 billion, or 22 per cent of the budget, and provides monthly retirement benefits, averaging out at $1,262, to 36.7 million retired workers.

Additionally it covers 2.9 million spouses and children of retired workers, 6.3 million surviving children and spouses of deceased workers, and 10.9 million disabled workers and their eligible dependents, according to the 2012 statistics collected by the Center on Budget and Policy Priorities (CBPP).

Despite appearances, however, Social Security in its present-day form evolved only as recently as 1935, when President Franklin D. Roosevelt signed into law the Social Security Act following many difficult years of economic turmoil through the Great Depression.

Before that period, the traditional sources of economic security for vulnerable sections had been assets, labour, family or charity and “all failed in one degree or another,” the SSA archives note.

Mr. Roosevelt’s genius, according to Gary Burtless, Senior Fellow at the Brookings Institution, may have been his realisation that a “contributory system” requiring workers to regularly pay a proportion of their income towards their own future retirement benefit would be popular in the future, even if not at the time.

Once people started paying into the system for years, they would likely have a strong vested interest in keeping it going, as long as they got paid after retirement. Nevertheless, the challenges involved in designing and executing such an initiative were nothing short of monumental.

Despite this, the Social Security Board, charged with policy implementation, succeeded in getting the scheme running in about 18 months in part because skilled workers who lost their jobs during the Depression, for example engineers, relished the prospect of working in a safer job in the public sector and applied their skills to this task.

A core exercise was to assign a Social Security Number (SSN) to every enrolled citizen, and this was principally achieved through the local post offices, which collected completed registration forms and turned them over to Social Security field offices nearby.

By mid-1937, over 30 million SSN cards were issued through this procedure, 151 field offices were established, and shortly thereafter Federal Insurance Contributions Act taxes were collected and paid into dedicated Social Security Trust Funds.

According to the SSA archives, since then more than $8.7 trillion has been paid into the Trust Funds, with more than $7.4 trillion paid out in benefits and the remainder currently held in reserve for future benefits payments.

Survival aid

At the heart of these multi-decade achievements are several important lessons that countries such as India, in an earlier stage of formalising their social security systems, may learn from.

First, Social Security aims to have a redistributive effect. The primary goal is more about keeping low-income earners out of poverty in their old age and less about giving every pensioner a generous proportion of their working-years’ salary as a pension.

It would appear to be succeeding in this regard. According to CBPP, almost half of the elderly would be poor without Social Security and nearly 90 per cent of people aged 65 or older receive some of their family income from Social Security.

Second, Social Security benefits are modest, but they are adjusted for cost of living. Dr. Burtless describes it as a “conservatively run programme,” with payouts being at the lower end of what developed countries generally provide.

In June 2010, for example, the CBPP noted that the average retirement benefit was $1,170 a month, and this only replaced about 39 per cent of an average worker’s pre-retirement wages. However, for about 30 per cent of Americans, mostly the low-wage earners, Social Security matches 90 per cent of their pre-retirement income.

Third, once social security coverage of the eligible population jumped from 55-60 per cent in the early years to around 90 per cent by the 1950s, the stability of the system depended upon how the assets and liabilities were squared up.

The flat rate of payroll taxes levied towards Social Security is 12.4 per cent on income under $113,700, with the employer and the employee paying half of that amount. As it stands today, the CBPP notes, Social Security will be able to meet all benefits payments obligations through 2037 without any changes to the system and “relatively modest changes would place it on a sound financial footing for 75 years and beyond.”

Finally, while the system is governed by strict privacy laws regarding the sharing of personal information, the recent revelations about surveillance by the National Security Agency and other law enforcement authorities imply that it is highly likely that the social security database is made available to those organisations whenever national security concerns are cited.


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