SEA at ASUStudent Economics AssociationStudent Economics Association

What is Economics?

Economics is a social science concerned withthe logic of scarcity, cost, value, and choice

Economics is not all about money, math, and numbers

Money is just a medium of exchange; it is not a productive resource.

Does the system really need changing?

What a (New) Deal !What a (New) Deal !

1935Franklin Delano Rooseveltsigns Social Security Act in the Cabinet Room of theWhite House.

Golden Years: 1940 - 1975Ida Mae Fuller collects socialsecurity checks for 35 years(until age of 100) – receiving $22,888.92 after paying $24.75 over a three-year period.

SS Check #00-000-01 --- $22.54

1. Do you need the government to force you to save for your retirement? Does anyone?

2. Do “we”, as a society, have a responsibility to care for those who have not prepared for their retirements?

3. Do you think you will ever receive social security benefits?

4. Should the “rich” help pay for the retirement of the less fortunate? To what extent?

ChoicesChoices

Federal Insurance Contribution Act

(FICA)

Payroll Taxes: 15.3% of Earned

Income Employee pays 6.2% for SS

1.45% for Medicare Employer pays matching funds

Earnings “cap” of $90,000 (maximum tax of $11,160)

How How doesdoes Social Security Work? Social Security Work?

Federal Taxing and Spending Federal Taxing and Spending

All of this (and more) is spent as it comes in. There is no specialaccount where social security contributions are earning interest.

You do have a social security “account”: a computer entry ofwhat you have contributed, how much the government “owes”you, and when you can start collecting it.

Future taxpayers own future retirees a LOT of money.

What’s wrong with What’s wrong with Social Security?Social Security?

Statistical projections of all those IOUs add up to about $2 Trillion.

In 2006, total social security tax receipts will more than cover payments to retirees.

Over the next 60 years, projected payments will exceed socialsecurity taxes by about $7 Trillion.

What’s wrong with What’s wrong with Social Security?Social Security?

Federal Outlays, 1962 to 2001

(As a percentage of GDP)

                                                                                         

  

“Baby Boomers”Are Retiring

“Your turn”to retire…

Choices

Try to fix the current system: tinker with taxes and benefits

“Privatize”: continue forced savings, but but create personal investment accounts accounts (with some federal regulation).

Terminate social security: pay off obligations,

but government stops administering saving and retirement benefits.

Proposals to “fix” Social Security

Raise the retirement age

Raise the income cap on the Social Security portion of FICA

Raise the FICA tax rate for Social Security

Reduce scheduled benefits

Changes the definition of a retiree

Reduces the number of retirees

Reduces the number of years retirees will be paid benefits

… but this must be phased in slowly and will take a long time to implement fairly

Raising the Retirement Age

Raising the Income Cap

Increases taxable income

Increases tax revenue

Makes payroll tax

less regressive

RetirementSystem

ORWelfareSystem

???

Duh ?

Raising the FICA tax rate

More Regressive

Fewer Jobs

Laffer curve effects

Reduce Scheduled Benefits

Reduces Obligated Payments

Closes Gap Between Workers’ Payments and Retirees’ ReceiptsDefault on

Obligations !!!

““Privatization”Privatization”

Privatization: Pros & Cons

Establishes private accounts, With (same old…) forced savings

Allows for investment of savings to earn interest on money

Personal control is two-edged sword: lack of investment expertise raises significant risk of loss.

More freedomMore personal responsibility

Pay out current obligations – terminate program (the Friedman plan)

Government no longer supplies retirement

Individuals control their own money

Ends “the problem” of Social Security

Stops the losses