Twelve Reasons Why Privatizing Social Security is a Bad Idea
Greg Anrig, Jr., Bernard Wasow, The Century Foundation, 12/14/2004
Addressing Social Security’s potential long-term financing challenges by taking the dramatic step of diverting its payroll taxes to create new personal accounts will have drastic consequences for federal finances, future retirees, and those who rely on the system the most. Learn more about twelve major reasons why less costly and less painful reforms should be considered instead.
Click on the links below to jump to different parts of the document or download in PDF format here.
Introduction
Reason #1: Today's insurance to protect workers and their families against death and disability would be threatened.
Reason #2: Creating private accounts would make Social Security's financing problem worse, not better.
Reason #3: Creating private accounts could dampen economic growth, which would further weaken Social Security's future finances.
Reason #4: Privatization has been a disappointment elsewhere.
Reason #5: The odds are against individuals investing successfully.
Reason #6: What you get will depend on whether you retire when the market is up or down.
Reason #7: Wall Street would reap windfalls from your taxes.
Reason #8: Private accounts would require a new government bureaucracy.
Reason #9: Young people would be worse off.
Reason # 10: Women stand to lose the most.
Reason #11: African Americans and Latin Americans also would become more vulnerable under privatization.
Reason #12: Retirees will not be protected against inflation.
Notes
Introduction
President George W. Bush repeatedly has emphasized that one of his foremost second-term priorities will be to transform Social Security fundamentally. Enacted in 1935 and amended many times since-including major changes in 1983-Social Security provides benefits to workers and their family members upon retirement, disability, or death. Since the program's inception, the size of those benefits always has depended on the earnings of workers over the course of their careers. President Bush wants to change the system so that the amount that each worker collects from Social Security upon retirement instead would hinge on the size of investments in his or her own personal account.
Although the President has not yet endorsed a specific plan, the President's Commission to Strengthen Social Security put forward three proposals in 2002 that likely will form the basis for his plan to create private accounts. An analysis of those proposals showed that paying for new personal accounts while continuing to provide benefits to Social Security's current beneficiaries would require some combination of federal borrowing, tax increases, and benefit cuts amounting to between $2 trillion and $3 trillion over the coming decades.
President Bush and others who support private accounts argue that such dramatic changes are necessary because Social Security faces a financing shortfall, according to projections of the system's trustees. The trustees' latest estimates, based on economic and population assumptions they call neither optimistic nor pessimistic, show that Social Security will continue to be able to pay benefits in full until its trust funds are exhausted in the year 2042. After that, funding would be sufficient to provide about 70 percent of currently promised benefits. (The Congressional Budget Office, perhaps more realistically, recently projected that the reserves would last until 2052 and would be able to pay about 80 percent of current benefits thereafter.) Private account advocates also emphasize that while today's retirees generally receive far more from Social Security than they contributed in taxes, the so-called "rate of return" for tomorrow's retirees is projected to be substantially less generous.
Much is at stake in this debate. More than 96 percent of workers pay Social Security taxes and thereby are entitled to collect benefits from the program. More than 47 million Americans today receive checks from the Social Security system. Although the average monthly payment to those individuals is a modest $895, Social Security constitutes more than half of the incomes of nearly two-thirds of retired Americans. For one in five, it is their only income. Like past generations of Americans, today's workers of all ages will need Social Security to protect them against forces beyond their control-economic ups and downs, inflation, fluctuating investment markets, and possible disability or premature death of a family member. That insurance has been essential in even the best of times, and will be all the more important in an increasingly global economy with large and growing federal budget and trade deficits.
This story was brought to us by: The Social Security Network
Please read the whole story:
http://www.socsec.org/publications.asp?pubid=503
From a Concerned Parent