RETIREMENT TRUST FUNDS & FEDERAL BUDGET DEFICIT.   Term Paper ID:18374 Click to get this paper

Essay Subject: Actuarial status of funds, income change for retirees, deficit & Social Security.... More...

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Paper Abstract: Actuarial status of funds, income change for retirees, deficit & Social Security. Paper Introduction: Introduction In the summer of 1990, the federal government's budget deficit once again appears to be an uncontrollable beast, and, as usual, (1) the two major political parties attempt to blame one another for the problem, and (2) the Bush Administration and the Congress each attempts to cast the other in the role of villain. In the midst of the fight over the budget, a controversy has arisen over the retirement trust funds administered by the Social Security Administration. Somewhat inexplicably, the federal budget deficit and the retirement trust funds are, unfortunately, interrelated. It is this interrelationship which is examined in this research. The Actuarial Status of the Retirement Trust Funds Text of the Paper: The entire text of the paper is shown below. However, the text is somewhat scrambled. We want to give you as much information as we possibly can about our papers and essays, but we cannot give them away for free. In the text below you will find that while disordered, many of the phrases are essentially intact. From this text you will be able to get a solid sense of the writing style, the concepts addressed, and the sources used in the research paper. A review of the development of thefederal government budget deficits places a somewhat different light on theissue. If one accepts theassumption implicit in the argument (that older individuals will spend all,or, at least, most, of the income they receive), then this contention isvalid. Theresulting record federal budget deficits were all too predictable--foreveryone except the Administration. As the system now stands, individuals aged 62 through 7 who receivea social security pension lose 5 cents of that pension for each dollar ofearned employment income above $7,8 and through $34,2 . The Reagandeficits appear to have had Keynesian effects on the economy, to thechagrin of the Administration's economic advisers. During the same time period, thepublicly held proportion of the federal debt increased from 26.6 percent ofGNP in 1981, to 43. For this reason, among others, an earnings test is appliedto social security benefits. During the Second World War, the federal budget deficit increased,because of the need to fight an all-out war, and by the need to financethat war by an economy which had been in serious recession for 1 years.The largest of these wartime deficits was $54.9 billion in 1943, and thecumulative wartime deficit was $186.1 billion. During the four fiscal years in which Jimmy Carter was president(fiscal years 1977-198 ), the federal budget deficits totalled $226.8billion. Introduction In the summer of 199 , the federal government's budget deficit onceagain appears to be an uncontrollable beast, and, as usual, (1) the twomajor political parties attempt to blame one another for the problem, and(2) the Bush Administration and the Congress each attempts to cast theother in the role of villain. No one group(Administration or Congress, Republican or Democrat), therefore, canhonestly paint the other as all black. Socialsecurity contributions by individuals are not a tax, as most people thinkof them. The Kennedy and JohnsonAdministrations in particular, and the Nixon Administration to a lesserextent attempted to finance the war, without causing the American people tofeel an economic pinch. In the early years ofthe next century, the focus may not be on making more jobs available foryounger workers. Of that amount, $794.4 billion (79.1 percent) waspublicly held, with the remainder being held by other federal governmentaccounts. As a proportion of gross national product (GNP), gross federal debtincreased from 33.6 percent at the close of fiscal year 1981 to 53.4percent at the close of fiscal year 1987. The economic record of the 1981-1988 period knocked the props fromunder each of those arguments--at least in the short-run. Thus, although social security benefits aretheoretically the property of the individuals contributing to theretirement trust funds, the Congress, at the behest of the Administrations,has devised a way to insure that the owners of the trust funds will notreceive full benefit, should they have the temerity to continue to work formoney. Those opposed to the earnings test applied to those individualseligible to receive social security pension benefits argue that theapplication of the earnings test to social security pension benefits actsas a significant disincentive to work, for most of those individualseligible to receive such benefits. The Federal Budget Deficit, and Social Security Retirement Trust Funds Peter Grace (1989), a permanent gadfly in affairs dealing withefforts to curb federal spending, and to provide more money for the hardpressed rich, contends, correctly, that the use of the retirement trustfund surpluses to fund the federal budget deficit is both morally wrong,and risky for the trust funds. Conclusion Peter Grace appears to be correct in his contention that the currentpractice of using retirement trust fund surpluses to fund the federalbudget deficit is a significant threat to the financial stability of thesocial security system. Actuarial status ofthe OASI and DI trust funds. The population, in the aggregate, is aging. Thedemographics of the American population is rapidly changing with respect toage. It is unlikely, however, that any meaningfulcorrective action will be taken as long as people such as Grace are moreinterested in casting blame away from his political favorites, when they--the Bush Administration--are the strongest opponents of reform. In point of fact, however, neither Reagan nor Bush vetoed afederal budget. Theycontend that, by permitting older workers to earn more money, the resultingincrease in spending would create more jobs for younger workers than arecreated by the disincentives of the earnings test. Publiclyheld federal debt, however, increased 2.4 times. Candidate Reagan pledged to restore economicsanity in the United States by, among other things, eliminating federalbudget deficits by the end of the third year of his first term aspresident. These data demonstrate whythe Bush Administration is anxious to retain trust fund access. Thiscalculation, however, conveniently overlooks the initial $7,8 of earnedemployment income. It has been estimated that the incomereduction process connected with retirement occurs for most people overquite a long time period stretching from the late-195 s to the early-197 s(Grad, 199 ). At the close of fiscal year 1981, gross federal debt was$1, 3.9 billion. UnderRonald Reagan, however, federal budget deficits spiraled to undreamed ofheights, and, many economists think, threaten the future economic stabilityof the country (Grace, 1989). Once again, however, federal budget deficits soared, when the VietnamWar was financed in the 196 s and 197 s. Regardless of what the Administrations (Reagan and Bush), theRepublican Party, or their lackeys say, neither side (Republicans orDemocrats, Administration or Congress) and both sides want to reducefederal spending. The problem with whathas occurred is that the Keynesian effects of the Reagan deficits may,indeed, be short-run. Social Security Bulletin, 52(6), 2-7.----------------------- 13 During the 198 s, the Reagan Administration did not have to deal withenergy price rises (in fact, quite the opposite occurred), but like thepreceding administrations in the 197 s and 198 , it had to deal withrecession, inflation, and the maintenance of social services. Following the end of theSecond World War, major problems with the federal budget eased. At the end of fiscal year 1987, gross federal debt had risen to$2,355.3 billion, with $1,897.8 (8 .6 percent) billion being publicly held. Beginning in 1991, the penaltywill drop to one-third of earned employment income above $7,8 and through$34,2 . A private insurer, of course, would be subject to severe judicialaction for similar behavior. The cumulative four year deficit increased$82.7 billion, or 57.4 percent, from Nixon/Ford to Carter, in terms ofcurrent dollars. All together, the estimated total penalty approximates8 percent of earned employment income in excess of $7,8 . When individuals are eligible to receive a social security pension,and they continue to earn employment income, they must also (1) pay socialsecurity contributions on the earned employment income--both the employeeand the employer share, (2) pay federal income tax on the income, (3) payfederal, state, and local payroll taxes on the income, and (4) pay any work-related expenses. Those individuals who think that the earnings test should beeliminated altogether offer as justification for this position thecontention the earnings test is based on a mistaken assumption that morejobs will be provided for younger workers, as a consequence of thedisincentives to work created by the earnings test for older workers. Such claims, however,are based upon an assumption that the federal government will be able torepay the trust funds when those loaned funds are required by the SocialSecurity Administration to begin paying retirement benefits to the babyboom generation (Social Security Administration, 1989). The Actuarial Status of the Retirement Trust Funds During the first term of the Reagan Administration, the federalgovernment tumbled to the fact that the baby boom generation would one daybecome eligible for social security retirement benefits. While theReagan Administration had no war on its hands, it did engage in theheaviest military spending in the history of the country--war or no war.On top of everything else, the government cut federal taxation levels. Incorrectly, however, he places all of theblame for this state of affairs on the Democrats and the Congress. References Grace, J.P. Inpoint of fact, however, the Reagan Administration proposed the ruse to theCongress, which bought it, and the Bush Administration successfullyresisted Democratic efforts in Congress in 1989 to eliminate the practice.After all, the Bush Administration is in enough budget deficit and "no newtaxes" trouble, without losing access to the trust fund surpluses. The Democrats and theCongress are committed to maintaining spending levels on social programs;however, they are quite ready to consider severe cuts in national defensespending. In the context of job availability, however, there is another, and,perhaps, stronger argument for the elimination of the earnings test. Thus far, the Bush Administration hasproved the equal of the Reagan Administration in deceitfulness anddeception with respect to the federal budget deficits. Thetotal penalty approximating 55 percent, however, would still constitute asignificant disincentive to employment. In the midst of the fight over the budget, acontroversy has arisen over the retirement trust funds administered by theSocial Security Administration. Thus, it ispossible for a retiree to be penalized the amount of the current maximumannual social security pension--$13,2 . When its is time to pay the piper in the mid-to-late-199 s, the effects may turn out to be quite different. Theonly reason the budgets submitted by the Administration did not projectsignificant increases in the budget deficit was because the revenue sidewas grossly overstated (some charge knowingly so by the Administration). Federal budget deficits did not originate with Nixon, Ford, Carter,or Reagan. Thus, morally, individuals are entitled to receive the socialsecurity pension benefits for which they made contributions, regardless ofany continued employment earnings. There have, however, been some other economic effects of the recordsetting deficits. Vital Speechesof the Day, 39 -394. The Social Security Administration (1989) generally proclaims thatthe retirement trust funds are actuarially sound. Grad, S. In 198 , the conventional wisdom of the economists advising candidateReagan held that high federal budget deficits would lead to higher interestrates, double-digit inflation, and increased unemployment. As a consequence, a new contributionstructure was developed, which the Administration and the Congress assuredthe American public would provide for the fiscal integrity of theretirement trust funds to a point at least midway through the next century. percent of GNP in 1987. They are, rather, payments into a trust fund. The American people are the most at fault, because theycontinue to elect a coalition government--Republicans in the Administration(18 of the past 22 years) and Democrats in the Congress (control in bothhouses in 2 of the past 22 years). With either party in control of boththe Administration and the Congress, the budget would likely be reduced.The Carter Administration made a strong beginning in this direction,reducing the deficit in its last year to $27 billion, and, in turn,contributing to the start of an economic recession, and sending nationaldefense groupies into a state of apoplexy. Thiscombination of factors was characteristic of the Kennedy and JohnsonAdministrations, which created substantial budget deficits. In the firstthree fiscal years (1985-1987) of the Reagan Administration's second term,the cumulative deficit was $6 6.2 billion. Even subsequent to the 199 reduction, the disincentivewill continue to be significant. There is also a moral problem with the earnings test. One of those effects concerned the structure of thefederal debt. There is no weakness in the argument that the earnings test acts as adisincentive to employment for most individuals eligible for a socialsecurity pension. During the 197 s and in 198 , the Nixon/Ford and CarterAdministrations encountered budgetary problems, as they attempted tomaintain social services, stimulate the economy, and avoid federal taxincreases, while the country was (1) being buffeted by enormous increasesin the price of energy, (2) attempting to return to a peacetime economy,and (3) deal with problems created by two recessions (1974 and 198 ). The new contribution structure suited the Reagan Administration to atee, because it enabled the federal government to increase revenuecollections while, at the same time, conning the American public intobelieving that countenanced only reduced federal revenue collections--through tax cuts. Not alleconomists, however, agreed with this contention; Gerald Dwyer of theFederal Reserve Bank of Atlanta concluded that deficits were the result ofinflation, and not the other way around. An individual earning $15,6 , as an example would bepenalized only 25 percent of the total income by the earnings test. Under President Reagan, the cumulative budget deficit in theAdministration's first term (fiscal years 1981-1984) was $599.9 billion.The cumulative four year deficit increased $373.1 billion, or 164.5percent, from Carter to Reagan, in terms of current dollars. When Ronald Reagan campaigned for the presidency in 198 , one of hismost consistent themes concerned the federal government's budget deficit.He continually preached of the economic evils of what he described as theirresponsibly high federal budget deficits, which he attributed wholly tothe Carter Administration. This cumulative Carter Administration deficit followed acumulative deficit of $144.1 billion in the 1973-1976 fiscal year period ofthe Nixon/Ford presidency. Social Security Administration. The deficit time bomb. When a closerlook was taken, it was discovered that the retirement funds would notlikely be able to remain solvent when the baby-boomers retired, unlesschanges were made to the system. (1989, April). Therefore, both the ReaganAdministration and the Congress were in a position to finance the federaldeficit out of social security collections, rather than cause the Americantaxpayer to pay for the deficit directly, or, heaven forbid, reducespending. Thelargest annual deficit during this period was $66.4 billion in 1576--President Ford's last year in office. No matter that the increased contributions were supposedto be for retirement trust funds, the Administration recommended, and theCongress passed a law requiring trust fund surpluses to be invested infederal government securities (Grace, 1989). In theprivate sector, of course, the practice is referred to as the comminglingof client and professional or corporate funds, and when uncovered, usuallyresults in disbarment for attorneys, loss of license for investment andreal estate brokers, and often a little jail time for both types. The biggest differences between Nixon/Ford and Carter, on the onehand, and Reagan, on the other, in the context of fiscal management wasthat the earlier administrations did not attempt to simultaneously increasefederal government spending, and reduce federal taxation levels. At least in the context of federal budget deficits, PresidentReagan's objectives were not attained. Thus, from 1981 to 1987, gross federal debt increased 2.3 times. Income change at retirement. In such a situation,any disincentive to work would be counter productive. Thus, it is clear that both sides are squarely on the side ofresponsible spending reductions--as long as the great majority of thespending cuts are applied to the other guy's pet programs. The contributionsmade by employers may be viewed as a tax on employers; however, the fundspaid in are contributions for individual workers based on their employmentearnings. (199 , January). (1989, June). The 1988 fiscal year deficitwas $17 billion; thus, the four-year deficit for President Reagan's secondterm was $776.2 billion--a 28 percent increase over the first term, and a242.2 percent over the cumulative Carter Administration deficit which,during the 198 election, was decried by candidate Reagan as beingirresponsible, and severely damaging to the economy. Further, the direct penalty earnings testconstitutes only a part of the total penalty imposed on affected persons. The Republicans and the Administrations are quite keenon keeping spending on national defense high; however, they are quiteamenable to spending cuts on social programs. Somewhat inexplicably, the federal budgetdeficit and the retirement trust funds are, unfortunately, interrelated.It is this interrelationship which is examined in this research. The Administrations (Reagan and Bush) and the Republicans will tellall who will listen that the deficits are really the fault of the Congress(Grace, 1989). No one wears a white hat in thebudget deficit problem, because no one is willing to give in on what isdear to them. The BushAdministration has kept up the good work. The federal budgets were and continue to be the result ofnegotiations between the Administrations and the Congress. Rather, the emphasis may be on providing the workersrequired, regardless of age, for the available jobs. Income Change for Individuals at Retirement The full retirement process does not occur at one fell swoop for mostindividuals in the United States. The Reagan Administration made a lot of noise about controllingfederal spending, but each budget submitted by the Administration (not thebudgets actually enacted into law) provided for increased spending. SocialSecurity Bulletin, 53(1), 2-1 . The level of publiclyheld federal debt is significant, because it is on this portion of the debtthat the federal government must make interest payments to entitiesexternal to the government. The last federal budget surplus occurred in fiscal 1969, andthat is the only one which has been recorded in the past 25 years. As will be pointedout in a later discussion in this research, the acceptance of such anassumption requires a gigantic leap of faith (Grace, 1989). The largest of these deficits was $25.2 billion in1968, and the cumulative deficit for the 1964-1971 period was $73.8billion. In turn, this disincentive to work notonly penalizes most individuals aged 62 and older in the society, it alsopenalizes the rest of society, and it likely works against one of thegovernment's objectives in the application of the earnings test--maintaining the fiscal integrity of the social security system. If this paper is not what you are looking for, you can search again: Search for: or Click here to request an essay written just for you.

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