Privatization of Social Security


Social Security in the United States is known as the OASDI program, which stands for; Old-Age, Survivors, and Disability Insurance. The Social Security Act however also includes other larger and well known programs, such as, Disability Insurance, Unemployment benefits, Medicare and Medicaid. The program collects money from taxes, and then distributes them out to those who are in need and qualify for benefits. The program was originally signed into law on August 14, 1935 by President Franklin Roosevelt as part of the New Deal. The goal of the act was to limit dangers in the, then modern, American life. “This included old age, poverty, unemployment and the burdens of widows and fatherless children.” The Social Security program in the United States is funded by payroll taxes. Employers and employees both pay 6.2% of wages, up to the taxable maximum, which is $106,800. If someone is self-employed then they pay the 12.4%. People who are eligible for OASDI benefits are then able to receive the benefits from the taxes paid by employees and employers. Retirees, disabled workers, spouses and widows of workers and children of deceased workers are among those who are eligible for benefits. The Social Security trust funds however hold money not needed in the current year “to pay benefits and administrative costs and, by law, invest in special Treasury bonds that are guaranteed by the U.S. Government” . The current annual budgetary surplus for the OASDI Trust Funds is expected to run out in 2016 , at this point, there will no longer be revenues from Social Security but with the OASDI trust funds; part of the benefits will still be able to be given to eligible beneficiaries. However in 2037, the entire OASDI Trust Fund surplus is expected to run out. At this point, the Trust Fund “will be sufficient to finance 76 percent of the scheduled annual benefits” .

The privatization of Social Security has become a very controversial issue in our society and government. The privatization of Social Security would mean that instead of workers paying the 6.2% tax to the government they would put their withdrawn taxes into their own private accounts. This issue has become very important, and greatly discussed, and it is clear that our government needs to decide with which direction they would like to take the Social Security program.

Many within our society are against the idea of privatizing Social Security and Greg Anrig Jr. and Bernard Wasow are two people who have made a compelling case to why this would be a bad idea. “Twelve Reasons Why Privatizing Social Security is a Bad Idea” brings light to the public why privatization would not only negatively affect people individually but also the greater economy and nation as a whole. The authors go into detail with each of their twelve points, explaining affects that privatization would have. The first point that they hit focuses on the fact that protection for workers and their families resulting from death and disability would be threatened. There are 47 million Americans who collect payments from Social Security, and one-third (almost 17 million) of these people are not retired workers. They also want to make clear that “every dollar shifted from Social Security programs to personal accounts is a dollar less to provide guaranteed income to the 37 percent of beneficiaries who are not retired workers” .

Not only would it be less beneficial to those individuals, but it would also hurt out economy as a whole. If percentage points were added to the payroll tax, in order to create private accounts, the estimated time until the Trust Funds deplete would shorten significantly, thus hurting our overall economy. In addition to the Trust Funds depleting, privatization may also cause the economy to grow more slowly. Privatizing Social Security will increase federal deficits and debt significantly while increasing the likelihood that national savings will decline” . They also bring up the fact that historically governments and business do not change their spending levels in accordance to large changes in deficit levels. However households may very likely lower their saving if they see that new accounts greatly increase their retirement wealth. This can cause an increase in consumptions spending, leading to an over rise in total spending. Other countries that have tried privatizing Social Security with the hopes of reducing long-term obligations of their programs have come to find that it has not benefited them as they hoped. A report by the World Bank, addressing retirement fund in Chile and other such countries who privatized their programs, stated, “more than half of all workers [are excluded] from even a semblance of a safety net during their old age” . Many of the countries, who were expecting positive results from privatization, instead experienced negative ones. Looking at these countries, Anrig and Wasow believe that we should learn from their mistakes, and not make the same one.

Anrig and Wasow go one to discuss six other points addressing why privatization is a bad thing as oppose to good thing. They bring up the following points; People may not be knowledge with the basics of investing, Wallstreet would actually be negatively affected (reap windfalls), the government would need to overlook millions of individual accounts, young people would be most negatively affected, while women would have the most to lose, African Americans and Hispanics would become more vulnerable, and last but not least, retirees would not be protected against inflation if there is privatization. Each of these points had compelling arguments just as their ones above. They made it clear that the privatization of Social Security would negatively affect a great amount of individuals on a personal level and on an over-all economic level. Although there are many people who thing privatization of Social Security is a bad thing, and support their claims with compelling arguments, there are also many who think it is a good thing, who also have compelling arguments. Michael Tanner proposes “The 6.2 Percent Solution” and introduces us to the Cato Project on Social Security Choice, which has presented a proposal that will “give workers ownership of and over their retirement funds” . This proposal would allow people to move their portion (6.2%) of the payroll tax to private and individually owned invested accounts. If one would choose to do this, they would agree to give up all future accrual of current Social Security benefits. The remaining 6.2 percent, which is currently paid by the employers, would be used to “pay transition costs and to fund disability and survivors’ benefits” . Those workers who choose the individual account would receive what would be known as a “recognition bond” which would be based on the value of their lifetime-to-date benefits. These bonds would be fully tradable in secondary markets and would become redeemable upon the workers retirement.

Tanner also brought up that of the federal budget, currently, 23 percent of it goes towards the Social Security program. Not only does almost of quarter of the federal budget come from Social Security, but it is also the largest tax on American families. Tanner also claims that the future will benefit if Social Security is privatized, although at times the investing may be risky. The Article “6.2 Percent Solution” also addresses issues that others say are negatives of privatized Social Security. On the point that women and minorities will be greatly hurt by privatized Social Security, Tanner rebuts by saying that the current system is actually putting these groups at a disadvantage. He says that they would be able to accumulate real wealth with this program, which they would not be able to do with the current program. Tanner, like Anrig and Wasow, made great arguments in support of his side, and it is understandable why some believe it should be privatized, and others do not.


Social Security is a large issue in our society and I believe that for the better of the individuals and the economy as a whole, Social Security should not be privatized. Although the revenue of the OASDI Trust Funds are expected to run out in 2016, I believe that the other benefits over ride this. The fact that with privatized Social Security, so many people who now receive benefits, would not, is reason enough for me. Spouses of disables workers, or deceased workers, should not have their benefits taken away from them. I also think that with privatization, too much dependence would be put on individuals, who would not make intelligent decisions with their investments. This would also put too much responsibility on the government and those who are too look over the investments. Francis X. Cavanaugh, who has supervised the thrift savings program for federal employees, estimated that “the government would need to hire ten thousand highly trained workers just to oversee the accounts and answer questions from workers” . With this is makes me wonder, if the privatization is supposed to help us financially, where would the funds come from to pay these new workers? I think that one important issue to think about when thinking about the issue of privatizing Social Security is the costs that it will have in the short run and long run in our economy. The issue of privatizing Social Security is a very large issue that will take a lot of thought and weighing of positives and negatives before coming to a decision of whether or not to reform it.


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