sea at asu student economics association. what is economics? economics is a social science concerned...
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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
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