Chapter 17
The Social Security Act of 1935 essentially introduced U.S. citizens to the welfare state. The primary purpose of the law was to provide adequate income to American retirees at a time when an economic depression was making it difficult for many seniors to make ends meet. Social Security today has become a central feature of American work life and retirement. Without this public retirement system, more than half of America’s senior citizens would have been forced to live on incomes that place them below the poverty level. The retirement portion of today’s Social Security system requires American workers and their employers to provide the revenue to keep the system afloat, while payments are made to retirees. Payment benefits are based on a formula that takes into account the amount of money a retiree contributed to the system and the age at which that individual retired.
Because revenues currently outpace outlays, the system today is financially healthy. Most economists agree, however, that the financial security of the Social Security system will soon be threatened, because payments to Social Security recipients will start to outpace contributions to the system within the next decade. This problem will be caused by the large population of baby boomers who are now beginning to retire and are beginning to draw money from the system rather than contribute to it. Though a number of proposals have been offered to fix this impending problem, none so far have been adopted. Recently the administration of President George W. Bush proposed a number of measures to privatize the system. The nation’s focus on international events, a poorly performing stock market (which would be used to accomplish privatized retirement savings account under the Bush plan), and strong opposition from the Democrats doomed these proposals.