Most individuals like to think that they do not get their money’s worth when it comes to paying their social security taxes. However, this opinion is mostly based on opinion and misconceptions instead of accurate figures and facts. A report released by actuaries from Social Security revealed that the taxes are a really good investment considering the real return rates that hypothetical works are estimated to get from the contributions they make (Vernon, 2012) . Most people think that the contributions made to the 401(k) plan are accumulated in an account that is under their name and issued to them after they retire. This is not the case. The taxes paid make the individual and his beneficiaries entitled to a monthly income in case of the person’s death or retirement. The amounts that the beneficiaries and individuals are entitled to receive is calculated by a benefit formula put in place by social security and is not the accumulation of taxes paid. A move by President George W. Bush in 2005 to make part of Social Security private failed. However, most experts think that this was a good idea as it would help people to invest in asset markets instead of directly contributing to Social Security. The figure below from illustrates that a young worker whose income is average is likely to receive retirement benefits that include the individual’s and employer’s total contribution and an extra 5.7% annual rate of return computed annually (Morrissey, 2018) .
Medicare and Social Security are funds that are crucial to the welfare of every citizen. Social Security is financed by taxes from the citizens whereas Medicare is financed by the body that administers Social Security. A dedicated payroll tax system is used to deduct 6.2 percent of every employee and employer’s wages to cater for Social Security. However, the maximum tax amount that one can pay to Social Security is limited to $128,400. Individuals who are self-employed pay double the set percentage tax. The 2017 report from Social Security indicates that 88 percent of insurance directed to survivors, the elderly, and the disabled came from the tax. 9 percent was provided by the interest that the money had generated whereas 4 percent was contributed by revenue. The amount that the working class pay for Social Security is defined in the law. Medicare, on the other hand, is derived from the Social Security funds that individuals pay in the form of tax. 1.45 percent of an employee’s or employer’s salary heads to Social Security and is then redirected to the Federal Insurance Contributions Act (FICA). Individuals who are self-employed pay 2.9% direction to FICA. Medicare tax has no limit to the amount on which it is imposed. Every person gets to pay the levy which is imposed on every penny he/she earns.
Delegate your assignment to our experts and they will do the rest.
Figures in the National Budget indicate that entitlement programs such as Medicare and Medicaid represent the biggest threat to the U.S. budget deficit. The cost of Medicare is on the rise and so is the burden placed taxpayers. This is not exacerbating the programs financial condition which is considered to be poor. Approximately, 75 percent of Medicare patients use the traditional program. To prevent the program and the economy from crippling through an increase in debt, some reforms have to be made. For instance, changes have to be made on the price control system. Traditional Medicare utilized cost control which is a conventional method that ratchets down reimbursements that the government made to hospitals and various stakeholders and hence limiting the government’s control on the price of the program. The costs tend to be shifted to seniors taking the form of reduced access to health care. At the same time, younger working Americans are the ones who feel the pain of paying higher premiums and hence experiencing loses. Better short and long-term policies have to be implemented for the congress and administration to solve the cost problem in Medicare. As a short-term reform, a law to allow some part of the temporary Part A premium and to pay for the deficits in Hospital Insurance Trust Fund could be implemented over a short period, say five years. As for the long-term reform, the government could look to implement a system of financing with a defined contribution that includes premium support. This feature can be modeled after Medicare Part D’s best features and combine them with the desirable qualities of the Federal Employees Health Benefits Program (Moffit & Senger, 2013) . The benefit of such a model would be that more intense competition is likely to be injected in the program and incentives of patients, plans, and providers would be aligned. This will benefit taxpayers.
The federal government should also increase the budgetary allocation for the elderly on Social Security and Medicare. This is because to really secure retirement for a population that is increasingly ageing, higher federal spending is required. The population of senior citizens is growing immensely by the day. As of January 2018, the population of US citizens aged 65 and above stood at 52 million. This figure is projected to shoot to 84 million by 2047 (Retirement Security for an Aging Population Requires Higher Federal Spending, 2018) . Consequently, the number of people that will be under Social Security and Medicare support will be more. As the population grows older, budget analysts have, over time, forecast an increase in spending by the Federal government. The baby-boom generation has already begun retiring with the oldest ones turning 73 in 2020. The youngest ones are nine years shy of being eligible for their Medicare and Social Security benefits. As such, there is an increasing demand for the Medicare, Social Security, and Medicaid budget to grow. In simple terms, to ensure proper security during retirement, the US will have to spend more. Over the next three decades, CBO estimates that the federal government will increase the amount it spends on health care programs by 3.5 % (Retirement Security for an Aging Population Requires Higher Federal Spending, 2018) .
The federal government is certainly trying its best to ensure that federal health care programs stay intact and improve over time. To do this, structures have been formulated and implemented over time with the aim of making things better. However, the outcome has not been as expected. Most experts argue that Medicare and Social Security are in worse shape now more than ever (Social Security And Medicare Are In Worse Shape Than You Think, 2017) . According to the Social security report, the ‘trust funds’ will be no more in the next 15 years. Furthermore, the unfunded liability of the program had increased by 1.1 trillion between 2016 and 2017. In 2016, Social Security lost $54 billion. In inflation is adjusted, then the annual shortfall of the program is expected to get to $215 billion within the next 10 years (Social Security And Medicare Are In Worse Shape Than You Think, 2017) . These statistics indicate that however much the government is pumping in efforts to manage Social Security and Medicare, the situation is only getting worse.
The government seems to have run out of ideas on how to deal with the rising cost of Medicare and Social Security. In my opinion, it has to turn back to the option that it has been avoiding over the years. This is increasing the age that retired individuals need to attain before beginning to enjoy the benefits of the two programs. Averagely, Americans are living longer than they used to. Increasing the age from 65 to 69 or 70 will lower the population that is supported by the two programs. Furthermore, it will push Americans to embrace a healthier lifestyle. As for the Welfare Reform Act of 1996 which is proving to become more expensive for the federal government, lawmakers have no option but to directly increase the funding. This means that more investments have to be done by the federal government (Sheffield & Rector, 2016)
References
Moffit, R., & Senger, A. (2013, March 22). Medicare’s Rising Costs — and the Urgent Need for Reform . Retrieved from The Heritage Foundation: https://www.heritage.org/health-care-reform/report/medicares-rising-costs-and-the-urgent-need-reform
Morrissey, M. (2018, April 23). Social Security is looking like a pretty good investment these days . Retrieved August 21, 2019, from Working Economics Blog: https://www.epi.org/blog/social-security-is-looking-like-a-pretty-good-investment-these-days/
Retirement Security for an Aging Population Requires Higher Federal Spending . (2018, January 9). Retrieved August 22, 2019, from House Committee on the Budget: https://budget.house.gov/publications/report/retirement-security-aging-population-requires-higher-federal-spending
Sheffield, R., & Rector, R. (2016, February 24). Setting Priorities for Welfare Reform . Retrieved August 22, 2019, from The Heritage Foundation: https://www.heritage.org/welfare/report/setting-priorities-welfare-reform
Social Security And Medicare Are In Worse Shape Than You Think . (2017, July 14). Retrieved August 22, 2019, from Investor's Business Daily: https://www.investors.com/politics/editorials/social-security-and-medicare-are-in-worse-shape-than-you-think/
Vernon, S. (2012, September 12). Are your Social Security taxes a good investment? Retrieved August 21, 2019, from CBS NEWS: https://www.cbsnews.com/news/are-your-social-security-taxes-a-good-investment/
