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The Social Security System Is Considered Pay-As-You-Go By Peter Diamond

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1. Peter Diamond was awarded the 2010 Nobel Prize in Economic Sciences 2010 for his analysis of markets with search frictions. His speech outlined the definition of search frictions and the role it has in the operation of markets. Among the issues being debated, Dr. Diamond’s analysis on hiring patterns in the U.S economy was important in explaining the rise in unemployment.
2. The maximum taxable earnings base at the time the article was written was $15,300. This article was written in 1976. In addition, the Social Security tax rate in 1976 was 9.9%. According to the Tax Policy Center, the rate in 2014 is 12.4%. In 2014, the maximum amount of taxable earnings is $117,000.
3. The U.S Social Security System is considered “Pay-As-You-Go” for …show more content…

There are four reasons for a government tax-transfer program. Raising revenue is an important aspect of Social Security. The total revenue that is raised for S.S is used to redistribute income across generations. Redistribution of income is used to correct the market from potential failures such as insufficient savings in retirement years. Finally, S.S is used as a paternalistic method.
5. Intra-generational redistribution is concerned with equity between people of the same generation. Intergenerational redistribution is relating to equity between several generations. In this case. Intergenerational redistribution is between the present and future generation.
6. In the article, Social Security analysis, Peter Diamond outlines three market failures that Social Security is designed to alleviate. First, Social Security serves as a safe investment opportunity. The rate of return on Social Security allows for consumers to accumulate funds for retirement in a safe manner. Second, the absence of real annuities indexed to the consumer price index. Finally, the problems in insuring the risk associated with a varying length of working life results in market failures. Workers who experience declining skills due to health issues or other

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The social security is a costing system and it occupies a big proportion in the government spending. In Barbara R. Bergmann’s article “Could Social Security Go Broke?,” she deems that there is enough fund in the social security system and the government can easily transfer the tax income from current employees and firms that employ these employees to the social security to support retirees’ lives. This point of view only can be considered as assumption, but not for the real world. After the finacial crisis in 2008, a large number of employees were laid off during that time and some employees decided to retire early, which results the labor force in American has shrunk. In the meantime, the presence of effective technology products,

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The Social Security act also has an insurance plan for the unemployed and elderly. (sources F G) This connects to the claim because this shows that by giving people social security, that they can use the money to pay debts and buy products from stores. This also helped stores gain business and to start hiring people. This helped businesses get better income and adults save more money because older people won’t have to rely on kids and grandkids to take care of them.

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- “By 1917, the top federal income tax rate had been raised to 67 percent. Though it fell in the 1920s, it would rise again during the Great Depression and, especially, World War II. In 1940, before the United States entered the conflagration, the federal income tax raised $1.5 billion ($25 billion in today’s money). By 1945, it collected $17 billion ($223 billion). The top income tax rate would not fall below 70 percent again until

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Social Security also gave financial aid to the disabled along with the unemployed. This act was crucial to the recovery to the nation because it gave people some financial stability and insured people

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Social Security is a federal insurance program that provides benefits to retired people and also those who are unemployed or disabled. Social Security consists of three programs retirement, disability and survivors. Social security is funded by a payroll tax. According to the article “How is Social Security Financed” the payroll tax makes the employers and employees each pay 6.2 percent of wages, while the self-employed pay 12.4 percent. This payroll tax is deducted from an employee’s paycheck.

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Charles Fusco, Federal Writers’ Project interview in which he offers his perspective on the New Deal, “Roosevelt Is a ‘Damned Good Man’” says, “This social security measure gives some protection to 30 million of our citizens who will receive direct benefits through unemployment compensation, through old-age pensions, and through increased services for the protection of children and the prevention of ill health.” “It will act as a protection to future Administrations against the necessity of going deeply into debt to help the needy. It is, in short, a law that will take care of human needs and at the same time provide the United States with a sound economic structure”(SQ 3, E). Social security was very important to the Success of the New Deal. The text says, “Social security was a piece of this change, signaling Americans viewed the government as responsible for ensuring that older Americans would live decent lives.

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The idea was thought of by some to be an outrageous proposal, but is now widely accepted by both liberals and conservatives everywhere. Similar to minimum wage, social security was also thought of as a radial form of collectivism back when it was established. (“Franklin D. Roosevelt” 2016) Social security works by adding a tax on everybody's pay, that is kept track of so when they retire, it can be paid back to them by the government. It is a way of guaranteeing a person saves for retirement.

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As a society we need to accept that it is up to our generation to fix this issue. Reforming Social Security will benefit everyone living in the U.S. in the long run. Restoring Social Security to its once former glory is a necessity to benefit our further generations and to create a better future for the next generation of workers. In order to accomplish this lofty goal I propose that we increase the payroll tax cap to boost Social Security’s funding and reduce benefits for the higher income earners who do not need Social Security as much as others do. The majority of Social Security’s income originates from the Social Security payroll tax.

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