The Social Security Controversy
and a DBQ

by Alan Shapiro


To the Teacher:

President Bush regards Social Security reform as a top domestic priority in his second term. His chief proposal, the establishment of private investment accounts, is controversial, the subject of debate among legislators and the public.

The two-part reading below offers an overview of the origins of Social Security and its major elements, how its finances work, problems, and proposals for reform. The DBQ (document-based question) can be used as practice for such standardized tests as the New York State history Regents examination, or for class discussion.

How does Social Security work?
Does it need reform? If so, what kind?


"Flat bust, bankrupt." This is what President Bush claims the Social Security System will be in 40 years "unless the United States Congress has got the willingness to act now."

As a young person, you are unlikely to think much, if at all, about your retirement. But how old will you be in 40 years? How close to retirement? If the president is right and nothing is done, you will definitely have something to thinkóand possibly worryóabout.

When Franklin D. Roosevelt was elected president in 1932, plenty of Americans were worried. Until just a few decades before, a majority of Americans lived and worked on farms. When people grew old and no longer worked, they often depended on family for support.

But by the early 1900s, more Americans were living in cities than on farms. They didn't grow their own food, and they lived on wages earned by working in factories and offices. The 1929 stock market crash and the great depression that began soon after meant the loss of millions of jobs. Keeping food on the table for families was hard, helping parents or other needy relatives even harder.

In response to these wrenching conditions, millions of Americans joined labor unions and other social movements during the 1930s. Through these movements, they demanded that their government provide people with greater economic security. Their activism paid off: During this period the U.S. government, with the powerful support of President Roosevelt, created what amounted to a federal "safety net" aimed at protecting all Americans from poverty, hunger, and homelessness.

President Roosevelt championed the idea of a social insurance system for seniors and began speaking with advisors about one. In 1935 he proposed a self-supporting Social Security system to Congress. The ex-head of the Chamber of Commerce, Silas Hardy Strawn, called the plan an attempt "to Sovietize America." It was "socialism," said others. Senator Daniel Hastings of Delaware predicted that passage of the plan would "end the progress of a great country."

But a great majority of Americans supported Roosevelt's Social Security planóand they were prepared to fight for it. The plan passed in both Houses of Congress by big majorities, and Roosevelt signed the Social Security Act into law on August 14, 1935. On that day he said, "We can never insure one hundred percent of the population against one hundred percent of the hazardsÖ of life. But we have tried to frame a law which will give some measure of protection to the average citizen and to his family against the loss of a job and against poverty-ridden old age."

The system offered modest unemployment benefits and immediate help to poor, older people. Beginning in 1941, a worker at age 65 would receive a guaranteed pension from the federal government. To make Social Security self-supporting by building up a reserve fund for the system, workers and their employers were to pay a combined 2 percent payroll tax on the first $3,000 of a worker's income.

"Social Security does not provide, and was not meant to provide, a satisfactory retirement on its own," Roger Lowenstein wrote in the New York Times Magazine (1/16/05). "The average stipend for a 65-year-old retiring today is $1,184, or about $14,000 a year." Many Americans count on income from private pensions provided by their employers to supplement Social Security. However, Lowenstein notes, "for two-thirds of the elderly, Social Security supplies the majority of day-to-day income. For the poorest 20 percent, about seven million, Social Security is all they have."

The importance of Social Security is underlined by the fact that 8 percent of the elderly receiving Social Security benefits are poor, according to U.S. government standards. But 48 percent would be below the poverty line if they didn't receive a monthly Social Security check.

For discussion

1. What questions do students have? How might they be answered?

2. What national events promoted President Roosevelt's thinking about Social Security?

Social Security is "self-supporting." Where does the money for its benefits come from? What is a "reserve fund"?

Why did early critics view Social Security as "socialism"?

Why did so many Americans support the plan?

Have students write a short definition of Social Security, then discuss their definitions in small groups. Each group might select what it regards as the best definition for discussion by the entire class.


Over the years there have been amendments to the Social Security system. Today, for example, workers and employers pay a combined 12.4 percent payroll tax on the first $90,000 of a worker's income, and the retirement age is slowly being raised from 65 to 67.

Social Security is largely a "pay-as-you-go" system: Today's workers are paying for the benefits of today's retirees through their Social Security payroll tax. When today's workers retire, they will be relying on money from the workers of the future. When there is a surplus of money coming into the system, as there is today, that surplus is invested in government bonds. Interest from the bonds goes back into the system's reserve fund, which then buys more bonds. If money is needed for retiree benefits, the fund can cash in the necessary bonds.

From the first, many people have predicted that the government would be tempted to use money in the reserve fund for purposes other than Social Security. And it has. According to the U.S. Office of Budget Management, the government has "borrowed" some $634 billion from the fund in just the last four fiscal years. So the government now owes money to future retirees and can pay it by increasing taxes, borrowing, or cutting money from other programs. It could also decide not to pay and, instead, cut benefits.

Over time, the number of workers paying into the system in relation to the number of retirees receiving benefits has gone down. During the early years of Social Security there were as many as 42 workers paying into the system for every retiree. But as the country has aged, that ratio has declined. Today about three workers pay into the system for every retiree in Social Security's "pay-as-you-go" system. The smaller the number of workers in relation to retirees, the smaller the amount paid into the Social Security system. Even so, today's huge baby boomer generation is currently building up a large surplus in the Social Security trust fund. When those baby-boomers retire, they will begin drawing down that surplus (provided it hasn't already been spent by the federal government for other purposes).

The use of Social Security trust fund money by the government and the declining number of workers in relation to retirees mean that in the future, the Social Security system will have less money available for benefitsóunless some adjustments are made.

President Bush, like most Republicans, believes in privatizing many government functions. But unlike past politicians, he is proposing to apply this idea to Social Security, which is probably the government's most popular program. (Social Security has been termed the "third rail" of American politics because, like the third rail in the subway, touching Social Security was thought to result in immediate electrocution.)

Bush argues that the Social Security system is in deep trouble: "In 2018 the government will begin to pay out more in Social Security benefits than it takes in revenueóand shortfalls then will grow larger with each passing year. By 2042, when workers in their mid-twenties begin to retire, the system will be bankruptóunless we act now to save it." (

In his 2005 State of the Union message (2/2/05), the president outlined some "basic principles" that would guide his proposals for reform. He has stated that:

  • For those now retired or soon to retire, there will be no change in benefits.
  • The aim is to gradually and permanently transform Social Security without raising taxes.
  • The new plan will call for "voluntary private accounts," allowing younger workers to invest some of their Social Security taxes in the stock market. Bush argues that this will "give younger workers the opportunity to receive higher benefits than the current system can afford to pay and provide ownership, choice, and the opportunity for younger workers to build a nest egg for their retirement and pass it on to their spouse or their children."
  • The plan will continuing Social Security benefits, as in the past, for those Americans who choose not to have private accounts.
  • The plan will insure that there are "limitations on the risk of investments permitted in personal accounts that include low-risk, low-cost optionsÖsimilar to those currently available to federal employees."

As of early February 2005, the president had not announced a detailed plan. Nor had he given specific answers to a number of major questions. For instance:

  • Where will several trillion dollars come from to pay promised retiree benefits while tax money is going into private accounts? (This problem arises because as younger workers siphon away some percentage of their Social Security taxes for their own private accounts, less money will go into the Social Security system to pay current retiree's benefits.)
  • If Bush's reforms are instituted, how much will benefits be cut?
  • Since the president has said that private accounts on their own will not solve Social Security's long-term financial problems, how does he propose to solve them?
  • Does society owe anything to people who face poverty in old age because their personal accounts lost moneyóeither due to poor luck in the stock market or because they made poor investment decisions?

Critics of the Bush plan argue that the president is making the problem with Social Security sound worse than it is in order to drum up support for privatizing the system. They note that the Social Security trustees themselves (who oversee the program)óas well as the nonpartisan Congressional Budget Officeóproject that the Social Security trust fund is solvent for another 38 to 48 years, even if we make no reforms at all.

According to the Center on Budget and Policy Priorities ( the Social Security system will not be bankrupt even after the trust fund is exhausted some decades from now: "It will continue to collect both payroll taxes and the income taxes levied on a portion of Social Security benefits. With these revenues, it will be able to pay about 70 percent of benefits, according to the Social Security TrusteesÖ."

Everyone agrees that in time the Social Security system will require greater funding. But many people say the problem can be remedied with a relatively minor adjustment. Proposals to address Social Security's future shortfall include:

  • Gradually raise the current $90,000 cap on income subject to the Social Security tax. (Today, income of more than $90,000 is not taxed for Social Security.) Imposing Social Security taxes on incomes of up to $200,000 would come close to eliminating the entire Social Security deficit, according to the New York Times, 3/4/05.
  • Have Congress 40 or 50 years from now impose a payroll tax increase on employers, workers, or both to close any gap in revenues.
  • Gradually make small cuts in benefits and modest increases in payroll taxes.
  • Continue to raise the eligibility age for Social Security as Americans live longer.
  • Reduce benefits for wealthy retirees.
  • Use some combination of the above.

For discussion

1. What questions do students have? How might they be answered?

2. When workers and employers pay Social Security taxes, what does the Social Security system do with the money? Why is our government in debt to the system? What problems does that raise?

What difference does it make to the system that today there are fewer workers in relation to Social Security retirees?

Why does President Bush think that Social Security needs reforming? What would he keep the same? What changes would he make? What problems would these changes produce?

Why does the Center on Budget and Policy Priorities state, contrary to the president, that the Social Security system will not be bankrupt in 2042? Who is right? What makes you think so?

How would critics of the president's ideas solve Social Security's financial problem? Which proposals make the most sense to you? Why?

For future discussion: have a weekly Social Security report from a rotating group of students as there are new developments in the controversy. Students might also e-mail their representative and senators for their views.

Note: The official website of the Social Security Administration ( provides a historical archive that includes excerpts from the "fireside chats" of President Roosevelt in the early 1930s and remarks by other leading political figures, chronologies, etc.

DBQ: Private Accounts to Reform Social Security?

This document-based question includes items A-D. Item E suggests using the DBQ for class discussion.


Read each paragraph, and then answer the question following it. After you have read all of the paragraphs, write an essay in response to item E.


Here is why personal accounts are a better deal. Your money will grow, over time, at a greater rate than anything the current system can deliver, and your account will provide money for retirement over and above the check you will receive from Social Security. In addition, you'll be able to pass along the money that accumulates in your personal account, if you wish, to your children or grandchildren. And best of all, the money in the account is yours, and the government can never take it away. The goal here is greater security in retirement, so we will set careful guidelines for the personal accounts. We will make sure the money can only go into a conservative mix of bonds and stock funds. We will make sure that your earnings are not eaten up by hidden Wall Street fees. We will make sure there are good options to protect your investments from sudden market swings on the eve of your retirementÖ.And we will make sure this plan is fiscally responsible, by starting personal retirement accounts graduallyÖeventually permitting all workers to set aside four percentage points of their payroll taxes in their accounts.

óPresident George W. Bush, State of the Union Address, 2/2/05

Question: What are two reasons why the president thinks that younger workers would be better off with personal savings accounts than with Social Security?


[In his State of the Union address] BushÖmade his proposed private Social Security accounts sound like a sure thing, which they are not. He said they "will" grow fast enough to provide a better return than the present system. History suggests that will be so, but nobody can predict what stock and bond markets will do in the future. Bush left out any mention of what workers would have to give up to get those private accountsóa proportional reduction or offsetóin guaranteed Social Security retirement benefits. He also glossed over the fact that money in private accounts will be "owned" by workers only in a very limited sense....Many retirees, and possibly the vast majority, wouldn't be able to touch their Social Security nest egg directly, even after retirement, because the government would take some or all of it back and convert it to a stream of payments guaranteed for life.

ó, 2/3/05

Question: According to, what are two reasons why private Social Security accounts would not be "a sure thing"?


The Social Security system was created in 1935 and over the decades has helped to protect millions of workers from poverty in their senior years. But demographic realities have changed over the past 70 years and are still changing. If Social Security doesn't change with them, the system that so many depend on today will be unable to meet its promises to tomorrow's retirees and will burden the next generations, our children and grandchildren, with backbreaking taxesÖ. Social Security can be fixed without altering the benefits of those who rely on it today and of those soon to retire. The Heritage Foundation believes that workers should be able to use Social Security to create nest eggsóthat they own, that Congress can never legislate awayóto increase their retirement income and to build a better economic future for their families. Social Security reform that puts an end to the system's unfunded liabilities and allows workers to create personal retirement accounts would assure workers a better rate of return that Social Security today can offer and would say future generations from the burden of paying for what has become an outdated systemÖ.The time for reform is now.

óThe Heritage Foundation (, January 2005

Question: According to the Heritage Foundation, what is a reason why the time for Social Security reform is now?


ÖThe administration wants workers to divert some of the payroll taxes that currently pay for Social Security into private investment accounts, in exchange for a much-reduced government benefit. To replace the taxes it would otherwise have collectedómoney it needs to pay benefits to current and near retireesóthe government would borrow an estimated $2 trillion over the next 10 years or so and even more thereafter. In effect, the administration's play would get rid of the financial burden of Social Security by getting rid of Social Security. The plan shifts the financial risk of growing old onto each individual and off of the governmentówhere it is dispersed among a very large population, as with any sensible insurance policy. In a privatized system, you may do fine, but your fellow retirees may not, or vice versaÖ.The only hands-down winner would be Wall Street, as fees to manage millions of accounts poured in. (Those fees, not incidentally, would come out of your return)Ö.For a society to be functional and humane, it's not enough that some people have a chance to be rich in old age. Rather, all old people must have the dignity of financial security, and that requires universal coverage.

New York Times editorial, 1/3/05

Question: What is one reason why the New York Times opposes private investment accounts?


President Bush wants to change the Social Security system by creating private savings and investment accounts. This proposal is controversial and the subject of public debate.

Using information from the documents and your knowledge of Social Security, write a well-organized essay that includes an introduction, several paragraphs, and a conclusion in which you:

  • compare and contrast viewpoints about the president's proposal to create private accounts
  • discuss your own viewpoint and the reasons for it.

For Discussion

Have students read the DBQ and answer in writing items AD Then divide them into groups of four to six 1) to discuss their answers and 2) to chart a response to the first item in E, which calls for comparing and contrasting viewpoints.

The entire class might then consider the major points of comparison and contrast in reports from each group, followed by a class discussion of personal viewpoints and the reasons for them.

This essay was written for TeachableMoment.Org, a project of Morningside Center for Teaching Social Responsibility. We
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