The Current System
Social Security began in 1935 to provide benefits to workers and their family members due to retirement, disability or death. It is attributed to be a major factor why the poverty rate in the US steeply declined during the last half century. Social Security is funded by the Federal Insurance Contributions Act (FICA) tax which is independent of federal income taxes. Workers and employees match equal amounts of the flat rate tax, currently 12.4% of each worker's wages. The funds are used immediately to provide for the obligations of current beneficiaries. The amount of benefits to workers depends upon their earnings during the course of their career as well as adjustments for inflation. Any surplus amount in excess of current obligations is invested in US Treasury securities.
In 1983, largely as a concern of the impending retirement of baby boomers, Social Security laws were altered to accommodate the influx of beneficiaries. The changes made were increases in payroll taxes, retirement age, and the tax cap for wealthy individuals and state government employees were added to pool of recipients.
The increase in payroll tax increased the percentage of income paid per worker, boosting revenues of the Social Security Trust Fund. The full benefit retirement age was gradually increased from 65 to 67 effectively reducing the length of payout per beneficiary. Many state & local governments provided pension plans for employees and were given the option to not participate in Social Security. To a large degree this was discouraged and new employees were no longer given the option of participation. This increased the pool of workers and subsequent revenue ...