ABSTRACT
Created by the Social Security Act of 1935, Social Security replaces labour income lost due to retirement, death, or disability, by paying monthly benefits to retired and disabled workers, their dependents, and their survivors. Self-employed persons pay taxes on income from self-employment. These taxes on labour income furnish the chief source of revenue to pay benefits under Old-Age and Survivors Insurance (OASI), which pays benefits to retired workers and their families and to the survivors of deceased workers, and Disability Insurance (DI), which pays benefits to disabled workers and their dependents. Social Security has plunged into crisis twice, due to a combination of excessive benefit generosity and unforeseen adverse economic developments—oil price shocks and inflationary recessions—which necessitated very costly rescues in 1977 and 1983. Social Security is weaker than they think—and the case for pessimism stronger than they'll admit. Even if tinkering could avert bankruptcy, Social Security would still eventually pose severe fiscal and economic burdens.
