Social Security Reform of 1983

Sean O’Neill

Public Finance

November 15, 2015

Social Security Reform of 1983

        Social Security was first enacted in 1935 under President Franklin D. Roosevelt, the original purpose of Social Security was solely to be a retirement benefit paid to the primary worker of a given family. Since then it has been altered many of times, such as whois eligible to receive the Social Security benefits, how the organization will be funded, and also the formula that dictates how much each recipient will receive each month. Social Security now is paid not only to retirees, but also to survivors (meaning the widow or widower), disabled workers, and also dependents. Today there are over 59 million total beneficiaries receiving Social Security. (SSA.gov)

        Social Security has been a major issue in politics in the United States since it came out back in 1935. There have been a couple instances where the fund has almost bankrupted and they have had to restructure the formula in order to keep it alive. Keeping Social Security alive is a very important issue because if it runs out, everyone who has paid into it and has not retired will lose out on that money. The retirees that are currently receiving the benefits will also lose their benefits and it will make a financial hardship on the older generation as the will lose a large percentage of their income. Another outcome that could potentially happen is the economy could shift backwards to be similar to where it was before they enacted the Social Security program. Where the elderly workers cant afford to retire and their is no incentives for them to retire earlier so less jobs will be opened up to the younger generations. This would cause unemployment numbers to increase drastically and cause a negative impact on the overall economy.

        The last time there was a major threat of Social Security running out and it had to be adjusted to avoid bankruptcy was in the 1980s. The fund was in danger after they restructured the Social Security formula back in 1975 under the Carter administration. When Social security first came out the first check ever was paid to Ida May Fuller in 1939. She received a monthly check of $22.54, but the problem with that is once she was paid her first check that would now be the amount that she would receive every month. It was not adjusted for inflation, it was just a flat payment of $22.54 every month, and that is how Social Security was paid for a while.(SSA.gov) As time went on they thought of different ways to adjust the payments and so legislation took over and decided the increase. Then came 1975 and they decided to adjust the Social Security payments to the Cost of Living Adjusted otherwise known as “COLA”. The point of COLA was so that benefits would automatically adjust to inflation, for example if inflation went up by 4% then your benefits would increase by 4%. It turned out that there was an error with the COLA formula that overcompensated for the inflation rate and to go along with that at that time there were double digit inflation rates and that just crippled the Social Security system (Achenbaum 1986, p. 67). The way they calculated the COLA from years 1975-1982 was the Social Security benefits were payable for June and then received by the beneficiaries in July. Between those years the the automatic Cost of Living Adjusted averaged an increase each year of about 9%.