The Hindu Business Line : Insecurity in the US

THIS insecurity has nothing do to with 9/11. It is to do with the creeping crisis in social security. According to some, it is a crisis engineered by President Bush in an attempt to go down in history as the ``President who fixed social security''.

So what is social security and what is the problem with it? Social security was instituted in 1935 by President Franklin D. Roosevelt and is a state-mandated insurance scheme for retirees, persons with disabilities and their dependents. Funded by payroll taxes, it provides monthly income to over 48 million (one-sixth of the population) Americans. The importance of social security can be gauged by the fact that over 50 per cent of the beneficiaries would be below poverty line without it.

Social security starts at the age of 65 and provides a monthly income that varies between $500 and $1500. Every citizen has to pay social security tax while he or she is employed and is entitled to social security on retirement. The benefit one receives depends on the number of years he has worked.

So what is the crisis? It has to do with a population that is aging and the resulting diminishing ratio of workers to social security beneficiaries.

Social security is termed as a pay-as-you-go scheme. The tax collected is used to pay beneficiaries and the remainder is invested in the US treasuries. Today, the revenue stands at about $500 billion and exceeds the outlay by about $150 million. However, the worker-to-beneficiary ratio, which used to be 16:1 in the 1950s, is now 3:1, and is expected to drop to 2:1 in 40 years.

A pay-as-you-go scheme is fine as long as what is paid out is less than what is collected. Due to the growing size of the aging population, outlays are expected to exceed revenue in the next 20 years and savings collected from previous years are likely to be exhausted in the next 50 years.

Either taxes will have to be increased or benefits will have to be cut. Critics point out that the problem can be easily solved by increasing tax on the wealthier segments of the population.

However, the President wants to solve the problem by getting people to adopt voluntary personal retirement plans and accept a reduced level of benefit. Naturally, the public see this as a betrayal of the social contract. The public is also sceptical of an insurance scheme that relies on stock market investments as a market crash could wipe out their personal retirement plans.

So where does this leave the US citizen? As Oscar Wilde said, "It is hard to make predictions, especially about the future."

R. Sundaram

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