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Should Social Security Be Privatized?
Social Security privatization
Over the past 80 years, Social Security has become the largest single government program in the world, accounting for 26% ($906 billion) of total US federal spending in 2014 ($3.5 trillion). Since 2010, the Social Security trust fund has been paying out more in benefits than it collects in employee taxes, and is projected to run out of money by 2034. One proposal to replace the current government-administered system is the partial privatization of Social Security, which would allow workers to manage their own retirement funds through personal investment accounts.

Proponents of privatization say that workers should have the freedom to control their own retirement investments, that private accounts will give retirees higher returns than the current system can offer, and that privatization may help to restore the system's solvency.

Opponents of privatization say that retirees could lose their benefits in a stock market downturn, that many individuals lack the knowledge to make wise investment decisions, and that privatization does nothing to address the program's approaching insolvency. Read more...
Did You Know?
Pro & Con Arguments
Top Pro & Con Quotes
Background
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Comments

Over the past 80 years, Social Security has become the largest single government program in the world, accounting for 26% ($906 billion) of total US federal spending in 2014 ($3.5 trillion). Since 2010, the Social Security trust fund has been paying out more in benefits than it collects in employee taxes, and is projected to run out of money by 2034. One proposal to replace the current government-administered system is the partial privatization of Social Security, which would allow workers to control their own retirement funds through personal investment accounts.

Proponents of privatization say that workers should have the freedom to control their own retirement investments, that private accounts will give retirees higher returns than the current system can offer, and that privatization may help to restore the system's solvency.

Opponents of privatization say that retirees could lose their benefits in a stock market downturn, that many individuals lack the knowledge to make wise investment decisions, and that privatization does nothing to address the program's approaching insolvency. Read more...

Social Security ProCon.org is a nonpartisan, nonprofit website that presents research, studies, and pro and con statements on questions related to whether or not social security should be privatized.
Did You Know?
  1. Social Security is the largest single government program in the world, accounting for 26% ($906 billion) of total US federal spending in 2014 ($3.5 trillion). [20] [21] [59]

  2. In 2014, 22% of married retirees and 47% of unmarried retirees relied on Social Security for 90% or more of their income. [66] 36% of non-retired people expect Social Security to be a "major source" of their retirement income. [86] [87]

  3. Social Security yields roughly 3% returns compared to the average 11.5% returns S&P 500 investments have yielded year to year. [6] [10] [12]

  4. If 1% of payroll taxes had been diverted to private accounts in 1998, Social Security would have been insolvent by 2015, according to a Brookings Institution analysis. [36]

  5. Chile's pension privatization resulted in savings accounts generating the equivalent of about 40% of GNP. When the United Kingdom introduced private accounts, the government had to pay out about $20 billion in compensation to citizens who were defrauded by investment advisors. [50] [51] [52]
Pro & Con Arguments: "Should Social Security Be Privatized?"
PRO Privatized Social Security
  1. The current Social Security program will become insolvent by 2034, so a better system is urgently required. Due to an aging population and lower birthrate, the ratio of workers to retirees is shrinking, thereby reducing the funds available for future retirees. In 1940, the payroll tax contributions of 159 workers paid for the benefits of one recipient. In 2013 the estimated ratio was 2.8 workers to each recipient. [1] Since 2010, Social Security has been paying out more in benefits than it receives in worker contributions. According to the 2015 Social Security Trustees' report, the trust funds will run out of money by 2034. [3] Using the existing system to avert the pending collapse of Social Security would require deep cuts in benefits, heavy borrowing, or substantial tax hikes. A better solution is to switch to private retirement accounts that would be funded with existing payroll taxes. The CATO Institute's Project on Social Security stated that moving to personal retirement accounts can "reduce Social Security's debt and bring the system back into solvency." [4]


  2. With personal accounts, retirees will see higher returns on their investment. The year-over-year growth rate for private investments (11.53% average returns on investments in the S&P 500 between 1928-2014) is much higher than the return gained by retired workers in the current Social Security program (between 2.67% and 3.91% return on the contributions made by a medium income, two-earner couple as of Dec. 2014). [6] [10] [12] Martin Feldstein, Chairman of the Council of Economic Advisers during the Reagan presidency, wrote that with a private account earning a modest 5.5% real rate of return, "someone with $50,000 of real annual earnings during his working years could accumulate enough to fund an annual payout of about $22,000 after age 67, essentially doubling the current Social Security benefit." [14] Privatizing Social Security will put more money in the pockets of retirees.


  3. Private accounts give individuals control over their retirement decisions. Americans are capable of making their own decisions regarding how their retirement contributions are invested. [15] Peter Ferrara, former Director of the International Center for Law and Economics, stated that private accounts "would allow workers personal ownership and control over their retirement funds and broader freedom of choice," and if the accounts were optional (as they were in President George W. Bush's plan) they "would also be free to choose whether to exercise the personal account option or stay entirely in the old Social Security framework." [16]


                            
  4. Individual investment accounts would boost economic growth by injecting money back into America's financial system. Peter Ferrara, former Director of the International Center for Law and Economics, stated that "The reduced tax burden and higher savings and investment resulting from personal accounts would substantially boost economic growth. This would result in more jobs, better jobs, and higher wages and overall income." [16] In the decades following Chile's privatization of its pension system in 1981, the savings accounts that were established generated the equivalent of about 40% of GNP, and Chile's annual growth rate rose to above 7%, double the country's historic growth rate, according to José Piñera, Chile's former Secretary of Labor and Social Security. [17]


  5. Privatization reduces government workforce, red tape, and wasteful spending. Minimizing the requirement of the federal government to provide retirement benefits reduces the bloated bureaucracy of the US government. The Social Security Administration currently employs almost 60,000 people at more than 1,400 offices around the country, with an operating budget of $12.5 billion (for financial year 2016). [18] [19] [21] [90] In 2014, about 26% of US federal spending, or $906 billion, went toward Social Security. [20] [21] If retirement benefits were managed by private companies, government bureaucracy would be greatly reduced.

               
  6. Being able to invest in one's own private retirement account removes the uncertainty that accompanies the current, government-controlled program. According to a 2010 Gallup poll, 60% of currently working adults assume they will not receive Social Security benefits when they retire. [22] With private accounts, individuals will be paying into a fund that they control, instead of a government-controlled trust fund that may run out of money before they ever receive the benefits they’ve earned. Edward P. Lazear, PhD, Chairman of the President's Council of Economic Advisers during the George W. Bush presidency, stated that "private accounts enhance, rather than reduce, the likelihood that contributors will receive what they expect. Benefits are more, not less, secure with private accounts" because while the government could succumb to pressure to reduce benefits or change the age of eligibility at any time, returns on, for example, US Treasury bonds "will be paid with virtual certainty." [23]


  7. Private retirement accounts give workers the contractual right to retirement benefits, a right missing from the current Social Security system. In the 1960 US Supreme Court case Flemming v. Nestor, a retiring legal immigrant eligible for Social Security benefits who paid into the system for 19 years was denied his Social Security retirement money after being deported for being a member of the Communist Party. [24] Michael Tanner, Senior Fellow at the Cato Institute, stated that "under a privatized Social Security system, workers would have full property rights in their retirement accounts. They would own the money in them, the same way people own their IRAs or 401(k) plans. Congress would have no right to touch that money." [25]


  8. A system using private accounts would be restricted to allow only low-risk investments so returns would be assured. Converting Social Security into private accounts does not mean workers would be free to put their contributions into high-risk ventures. People would not be allowed to invest their Social Security savings in individual stocks or other highly volatile investments. President George W. Bush's 2005 plan would only have allowed relatively low risk investments such as "a conservative mix of bonds and stock funds." [26] [27] [28]


  9. Social Security taxes have become excessive. The maximum Social Security tax instituted by the Social Security Act of 1935 was $60; as of 2015 it is $7,347 for employees and employers – which is over 700% higher than inflation. [29] The Social Security tax rate has risen from 2% to 6%, and is as high as 12% for the self-employed. The amount of income that is subject to payroll tax has climbed from $3,000 in 1935 to $118,500 in 2015. [30] [31] Rather than having so much of their earnings be taken by the government in the form of high Social Security taxes, money put into private accounts would remain under each worker's control.


  10. Private accounts would allow benefits to be inherited. The present system is inequitable because people who live shorter lives collect less of their earned benefits and yet those benefits cannot be transferred to family members. Personal accounts will provide the option to bequeath assets to heirs upon death, an option currently missing from Social Security. As President George W. Bush stated in his 2005 State of the Union speech, "you'll be able to pass along the money that accumulates in your personal account, if you wish, to your children or grandchildren." [26] Michael Tanner, Senior Fellow at the Cato Institute, stated that privatizing Social Security would be a "big boost for the poor" because of inheritable benefits. [V1]


  11. Private accounts cannot be raided by Congress or the President. In the past, budget surpluses in Social Security were used by the federal government to fund other government spending, including the purchase of Treasury bonds to offset budget deficits. [27] Money kept in private accounts is under each individual beneficiary's control so it cannot be diverted for non-Social Security purposes.


  12. Private accounts benefit the poor and minorities. In the current system, groups of people with shorter life expectancies (such as the poor and African Americans, for example) effectively have their income transferred to people with longer life expectancies because the latter can collect their benefits for longer. [23] [30] [33] As stated by President George W. Bush, "Personal accounts, which could be passed along to the next generation, would go a long way toward reducing that disparity." [34]
CON Privatized Social Security
  1. Privatizing Social Security would do nothing to solve its impending insolvency, and would actually make it worse. The trust funds are destined for insolvency because the program's cost is increasing at a faster rate than revenue from payroll taxes. The situation will get even worse if a portion of each individual's payroll taxes is diverted away from the Social Security trust funds and into individually controlled retirement accounts, shrinking the funding source for future retirees' benefits. [3] [35] According to a 1997 Brookings Institution analysis, if just 1% of payroll taxes had been diverted to private accounts in 1998, the trust funds would have been insolvent by 2015. [36] William A. Galston, Senior Fellow at the Brookings Institution, said about President George W. Bush's 2005 privatization proposal that "it was not clear how private accounts were even part of the solution. At best, they would function alongside of, and in addition to, needed fiscal reforms; at worst... they would exacerbate the system's fiscal woes." [37]


  2. Private Social Security accounts will undermine the guaranteed retirement income provided by Social Security by putting peoples' retirement money at the whim of the stock market. During the 2008 financial crisis, the three main stock market indexes all dropped precipitously: the Dow Jones Industrial Average fell by 33.8%, the S&P 500 dropped by 38.5%, and the NASDAQ fell 40.5%. [38] Due to the "boom and bust" cycles of the market, those who retire during an economic downturn would be significantly worse off than those who retire during a boom. [39] Even diversified mutual and bond funds carry significant risk and are not guaranteed or insured by the government. [40]


  3. Many people lack the basic financial literacy to make wise investment decisions on their own. A 2015 survey published in USA Today revealed that only 39% of Americans know the annual percentage rate (APR) on their primary credit card, and almost 45% don't know what a credit score evaluates. [41] According to researchers Annamaria Lusardi and Olivia S. Mitchell of Dartmouth College, financial illiteracy is widespread among older Americans. In their Oct. 2009 study on financial literacy among adults over 50, Lusardi and Mitchell found that only half of the participants could answer two simple questions on compound interest and inflation. [42]


  4. Privatizing Social Security would dramatically increase the national debt. Transitioning to private accounts while continuing to provide benefits to current Social Security beneficiaries would leave a multi-trillion dollar hole that would need to be filled by more government spending. According to Bloomberg Business, President Bush's plan would have required "Washington to borrow at least $160 billion a year in the early years," increasing the nation's debt by 40%. [43] MIT economist Peter A. Diamond estimates that the costs incurred during the transfer to private accounts would add $1 trillion to $2 trillion to the country's national debt, which "could trigger an economic crisis." [43]


  5. Privatizing Social Security would expand, not reduce, government bureaucracy. In 2014, Social Security paid benefits to 42 million retired workers and their dependents. [3] Creating and tracking this many individual private retirement accounts would generate more government bureaucracy and would require the hiring and training of tens of thousands of new government workers to oversee accounts and explain the system to millions of people. The administrative costs of the current system were less than 1% of total revenues in 2014. [8] [9] [44] [3]


  6. Guaranteed benefits would be reduced significantly under a privatized system. In order to fund private retirement accounts, special insurance protections that are provided by Social Security, such as disability and survivor's insurance, would need to be reduced. A 2005 Century Foundation analysis of the Bush Administration's privatization proposal demonstrated that the diversion of payroll taxes to private accounts would reduce benefit levels by 44% below their 2005 levels by 2052. [45] Economist Dean Baker estimated that an average 15-year-old in 2005 who retires in 2055 stands to lose more than $160,000 of his scheduled benefits under Bush's plan, and gain less than a third of that loss back from his investment in a private account. [46]


  7. If workers had to adopt private accounts, unscrupulous financial advisors could take advantage of novice investors. According to the FBI, there were 1,846 cases of securities and commodities fraud pending as of 2011, and some of the schemes defrauded several thousand investors each. Many of the victims were elderly investors. [47] The Obama Administration's Council of Economic Advisors estimated that Americans lose about $17 billion per year on retirement investments that are arranged to benefit financial advisors at the expense of investors. [48] [49] After the United Kingdom introduced private accounts in the 1980s, unscrupulous salespeople advised millions of people to invest in risky personal pensions dependent on stock market returns. As a result of the losses incurred, the UK government had to pay out more than £13 billion (equivalent to about US$20 billion as of Aug. 2015) in compensation to the victims. [50] [51] [52]


  8. Privatizing Social Security will put billions of dollars into the pockets of Wall Street financial services corporations in the form of brokerage and management fees. Private Social Security accounts will be a boon to Wall Street, where banks and investment advisors could receive over $100 in fees for each account. [53] Since the number of Social Security beneficiaries is expected to grow to more than 125.7 million by 2090, [54] Wall Street will have guaranteed access to a rapidly growing pool of customers courtesy of the federal government.


  9. Social Security is highly efficient in comparison with private accounts. Social Security provides benefits through a centralized, highly efficient process administered directly by the US government, with an administrative overhead of less than 1%. [55] Moving benefits into individual private accounts creates a decentralized system that will have to take into account the full diversity of opinions, preferences, and expectations of individual investors, which may increase the program's annual administrative costs by more than 83% (from less than 1% to 1.83% of assets), amounting to $54-$117 per worker per year. [55] [53]


  10. Other policy changes can fix Social Security more effectively and less disruptively than privatization. Future budget shortfalls can be eliminated by reducing benefits, increasing taxes, and/or raising the retirement age.  [82] [83] [84] [85] In 2010, the nonpartisan Congressional Budget Office (CBO) estimated that either a 15% cut in benefits or a 2% payroll tax increase could keep the trust funds solvent for an additional 44 years. In addition, the CBO found that eliminating the payroll tax cap ($118,500 as of 2015) would also keep the trust funds solvent for another 44 years. [56] Higher returns could be offered to retirees if Congress allowed the Social Security Trust Funds to invest in equities in addition to bonds. [89]


  11. The accusation that Social Security has been "raided" by the federal government is misleading and does not provide a justification for privatizing the program. When there have been surpluses in the Social Security trust funds, that money has been invested in US government bonds that partially fund the running of the federal government. As Steve Vernon, research scholar with the Stanford Center on Longevity, explained, "They spent this money on all the various operations of the federal government... When you buy any investment, like a stock or a bond, the entity that issues it usually spends the money you paid for that stock or bond." [57]


  12. Social Security is an equalizer, leveling the playing field for rich and poor, whereas private accounts would favor the wealthy. Social Security taxes are weighted to balance the system for all levels of wage earners, while private accounts favor the rich because low-income earners without their own savings would have their retirement funding dependent on the success of the markets. [44] Both the General Accounting Office and the Social Security Administration examined a private accounts system established in three Texas counties, and both organizations "concluded that lower-wage workers, particularly those with many dependents, would fare better under Social Security, while middle- and higher-wage workers were likely to fare better [under a privatized system], at least initially," according to the Texas Tribune. [58]
Comment Comment
Background: "Should Social Security Be Privatized?"
Franklin D. Roosevelt signing the Social Security Act
(Click to enlarge image)
Franklin D. Roosevelt signing the Social Security Act on Aug. 14, 1935.
Source: "Social Security U.S.A.-- The Program & Its Administration," www.ssa.gov (accessed Aug. 14, 2015)
Over the past 80 years, Social Security has become the largest single government program in the world, accounting for 26% ($906 billion) of total US federal spending in 2014 ($3.5 trillion). [20] [21] [59] Since 2010, the Social Security trust fund has been paying out more in benefits than it collects in employee taxes, and is projected to run out of money by 2034. [3] One proposal to replace the current government-administered system is the partial privatization of Social Security, which would allow workers to manage their own retirement funds through personal investment accounts. [60]

Proponents of privatization say that workers should have the freedom to control their own retirement investments, that private accounts will give retirees higher returns than the current system can offer, and that privatization may help to restore the system's solvency.

Opponents of privatization say that retirees could lose their incomes in a stock market downturn, that many individuals lack the knowledge to make wise investment decisions, and that privatization does nothing to address the program's approaching insolvency.

History and Structure of Social Security

Social Security was created when Franklin D. Roosevelt signed the Social Security Act on Aug. 14, 1935. [61] [62] The program provided a social insurance system based on the idea that if workers pooled a portion of their wages, they would be able to protect each other and their families against wage loss due to retirement. Through this national benefits program, Social Security made available a basic level of monthly income to workers who paid into the system. [62]

Although benefits were initially restricted to workers aged 65 years and older, the program expanded over time and is now also known as the Old-Age, Survivors, and Disability Insurance program (OASDI). In 1939, benefits were introduced for spouses and minor children of retired workers, and "survivors benefits" could be paid to the family of a worker who died prematurely. Benefits for disabled workers
Chart detailing how Social Security works.
(Click to enlarge image)
Chart detailing how Social Security works.
Source: "Social Security - A Simple Concept," www.pbs.org (accessed Nov. 9, 2009)
were added in 1956, and the minimum age at which workers became eligible for old-age insurance payments was lowered to 62 for women in 1956 and for men in 1961. [63] [64]

About 59 million people were receiving Social Security benefits at the end of 2014: 42 million retired workers and their dependents, 11 million disabled workers and their dependents, and six million surviving relatives of workers who had died. [3] A 1983 Social Security Amendment included a tax on benefits for the first time – 50% of Social Security benefits became subject to taxation for individuals with an income of $20,000 or more – and raised the full-benefit retirement age from 65 to 67. [11]

Social Security benefits were initially intended to supplement pensions and personal savings for retirees, however, Social Security payments have become the primary retirement plan for many Americans. The percentage of American workers with employer-funded defined benefit pension plans declined from 39% in 1980 to 20% in 2007. [65] By 2014, 22% of married retirees and about 47% of unmarried retirees relied on Social Security for 90% or more of their income. [66]

Social Security does not maintain individual savings accounts for each worker, but operates as a pay-as-you-go system in which each generation of workers supports the preceding generation's retirees. As of 2015, US citizens have 6.2% of their earnings (up to $118,500) taken out as Social Security Federal Insurance Contribution Act (FICA) taxes, which are commonly referred to as payroll taxes. Employers are also required to pay 6.2% of each employee's earnings (up to $118,500) in payroll taxes. [67] Individuals can begin collecting reduced retirement benefits at age 62, and full retirement benefits can be claimed at the age of 67. [54]

Although the Social Security Act entitles workers to receive benefits, these benefits are not guaranteed by law. The federal government does not have a legal liability to pay retirees the money they paid into the system over their working careers and Congress can change the rules regarding benefit eligibility at any time. [24] [68]

Social Security's Projected Insolvency

According to the 2015 annual report of the Social Security Board of Trustees, the cost of Social Security benefits will exceed tax revenues beginning in 2020, and the program will become insolvent (i.e. unable to pay beneficiaries in full) when reserves
Chart of the estimated decline of workers per beneficiary from 5.1 in 1960 to 2.1 in 2035.
(Click to enlarge image)
Chart of the estimated decline of workers per beneficiary from 5.1 in 1960 to 2.1 in 2035.
Source: "The Future of Social Security," www.ssa.gov, Aug. 2009
become exhausted in 2034. In 2034, Social Security is projected to have enough tax revenue to pay 79% of benefits owed. The Trustees predict a budget shortfall of $10.7 trillion through 2089. [3]

Several factors contribute to Social Security's predicted insolvency, including America's aging population. Millions of post-World-War II baby boomers began reaching retirement age in 2011, in what has been called America's "silver tsunami." By 2030, almost one in every five Americans will be 65 or older. By 2050, there will be between 80 and 90 million people aged 65 or older, and almost 21 million people aged 85 or older. [69] In 2010, the estimated life expectancy was 78.7 years, compared to 61.7 years in 1935 when the program began. [54] [70]

Birth rates have fallen from over three children per woman during the baby boom (1946-1965) to two children per woman since 1970. Because of this decline, the ratio of workers to beneficiaries has dropped significantly. [71] In 1940, there were 159.4 workers for each beneficiary, but the ratio fell to 5.1 workers to each beneficiary by 1960, and by 2013 there were only 2.8 workers to each beneficiary. [1]

Brief History of the Privatization Debate in the United States


During the 1990s, US politicians and think tanks began suggesting private investment accounts as one option to prevent the Social Security program's impending financial difficulties. In Jan. 1997, a report issued by the Advisory Council on Social Security offered three proposals to alter the program in an effort to ensure future solvency. The proposals all involved investing retirement contributions in the stock market. One of the plans envisaged the government investing money from a common pool, but the other two ideas specified the establishment of individual accounts for each worker: one plan proposed publically-held individual accounts and the other plan suggested private accounts. [68] [72]

Social Security poster, circa 1935.
(Click to enlarge image)
Social Security poster, circa 1935.
Source: "Photos of the Great Depression and the New Deal," docs.fdrlibrary.marist.edu (accessed Oct. 22, 2009)
A partial privatization of the program using private accounts gained support in the ensuing years, largely from Republican politicians and conservative think tanks but also from some moderate Democrats. [73] [74] While proposals differed, the unifying element was the notion of individual private retirement accounts, with a portion of each individual's payroll taxes diverted from the trust fund to accounts similar to IRA or 401(k) plans. In late 1997, President Bill Clinton was reportedly in discussions with then-House Speaker Newt Gingrich (R-GA) to put forward a bipartisan proposal to reform Social Security using private accounts, but the plan never went ahead. [75]

During the 2000 US presidential campaign, Republican nominee George W. Bush ran on the promise of letting "younger workers take a portion of their payroll taxes and put it in the marketplace." [76] Bush's Social Security reform proposal won considerable public support, and some commentators gave it partial credit for Bush's eventual victory over Democratic nominee Al Gore. [77] On May 2, 2001, Bush appointed a commission to examine his proposed changes to Social Security, [78] but his first term was dominated by responses to the 9/11 attacks. Bush again touted personal accounts in his successful 2004 reelection campaign. However, after he was reelected, Bush revised his plan and called for future retirees' benefits to be reduced by about 40% to prevent the trust fund from becoming insolvent. He also refused to rule out a raise in taxes to support the program's restructuring. Public support for the proposal dropped, the influential retirees' organization AARP lobbied against the idea, and Democratic opposition in Congress intensified. By late 2005, the plan had stalled and public discussion about privatization remained relatively dormant for several years. [77] [79] [80] [81]

Current Debate

Several 2016 Republican presidential candidates have expressed their support for privatizing Social Security with personal accounts, including Jeb Bush, Rand Paul, Mike Huckabee, Rick Perry, and Ted Cruz. [89] However, the debate in Washington has focused on how to change Social Security's revenue and benefit structure to avoid insolvency. Some former supporters of private accounts have shifted their positions to favor solutions including raising the retirement age, changing the Cost-of-Living Adjustment (COLA) formula, or cutting benefits. [82] [83] Other suggestions included removing the payroll tax cap on high earners, using the revenues to replenish the trust fund and increase the maximum benefit; introducing means-testing so that wealthy retirees would receive reduced or no benefits; and raising Social Security taxes. [84] [85]

In a Jan. 2015 Gallup poll, 46% of those polled said they "personally worry about the Social Security system," which is fairly consistent with polls taken regularly since 2005. [22] An Apr. 2015 Gallup poll found that 36% of US non-retirees expected Social Security to be a "major source" of their retirement income, the highest percentage in 15 years of polling. Gallup also found that the percentage of 18-34 year-olds who expected to rely on Social Security as a "major source" of their retirement income doubled between the 2005-2006 and 2014-2015 periods, from 13% to 26%. [86] [87] According to Feb. 2014 polling by Pew Research, 51% of Millennial and 50% of Gen Xers believe Social Security will not be able to provide them with any benefits at all by the time they retire. [88] In a Sep. 2011 CNN/ORC poll, 52% of adult Americans polled favored the partial privatization of Social Security, with 46% opposed. [5]
Video Gallery

President Franklin D. Roosevelt signs and comments on the Social Security Act on Aug. 14, 1935.
Source: "Franklin Roosevelt Social Security," youtube.com (accessed Aug. 27, 2015)
PBS News Hour report on the US Social Security program, including a discussion with David John of the Heritage Foundation and Henry Aaron of the Brookings Institution, hosted by Ray Suarez.
Source: PBS NewsHour, "How Severe Are Problems with Social Security?," youtube.com, Sep. 28, 2011
Newt Gingrich, former Speaker of the US House of Representatives (R-GA), explains his support of personal social security savings accounts in a campaign video for the 2012 Republican presidential nomination.
Source: Newt Gingrich, "Right to Choose Personal Social Security Accounts," youtube.com (accessed Aug. 27, 2015)
President Barack Obama opposes the privatization of social security in his Aug. 14, 2010 weekly address.
Source: The White House, "Weekly Address: Honoring Social Security, Not Privatizing It," youtube.com, Aug. 14, 2010
Video Gallery

President Franklin D. Roosevelt signs and comments on the Social Security Act on Aug. 14, 1935.
Source: "Franklin Roosevelt Social Security," youtube.com (accessed Aug. 27, 2015)

PBS News Hour report on the US Social Security program, including a discussion with David John of the Heritage Foundation and Henry Aaron of the Brookings Institution, hosted by Ray Suarez.
Source: PBS NewsHour, "How Severe Are Problems with Social Security?," youtube.com, Sep. 28, 2011

Newt Gingrich, former Speaker of the US House of Representatives (R-GA), explains his support of personal social security savings accounts in a campaign video for the 2012 Republican presidential nomination.
Source: Newt Gingrich, "Right to Choose Personal Social Security Accounts," youtube.com (accessed Aug. 27, 2015)

President Barack Obama opposes the privatization of social security in his Aug. 14, 2010 weekly address.
Source: The White House, "Weekly Address: Honoring Social Security, Not Privatizing It," youtube.com, Aug. 14, 2010

 

Notices for Social Security and Other ProCon.org Information (archived after 30 days)

8/28/2015 - UPDATED: Social Security is the largest single government program in the world, accounting for 26% ($906 billion) of total US federal spending in 2014 ($3.5 trillion). One proposal to replace the current system, which is projected to run out of money by 2034, is the partial privatization of Social Security, allowing workers to control their own retirement funds through personal investment accounts. Proponents say that private accounts will give retirees higher returns than the current system, while opponents say that retirees could lose their benefits in a stock market downturn. Explore our updated pro and con arguments, plus new "Did You Know?" facts and updated background information on the history of the Social Security debate.

Archived Notices (archived after 30 days)


Last updated on 8/28/2015 2:11:35 PM PST


Should Social Security Be Privatized?



Social Security privatization
Over the past 80 years, Social Security has become the largest single government program in the world, accounting for 26% ($906 billion) of total US federal spending in 2014 ($3.5 trillion). Since 2010, the Social Security trust fund has been paying out more in benefits than it collects in employee taxes, and is projected to run out of money by 2034. One proposal to replace the current government-administered system is the partial privatization of Social Security, which would allow workers to manage their own retirement funds through personal investment accounts.

Proponents of privatization say that workers should have the freedom to control their own retirement investments, that private accounts will give retirees higher returns than the current system can offer, and that privatization may help to restore the system's solvency.

Opponents of privatization say that retirees could lose their benefits in a stock market downturn, that many individuals lack the knowledge to make wise investment decisions, and that privatization does nothing to address the program's approaching insolvency. Read more...
Did You Know?
Pro & Con Arguments
Top Pro & Con Quotes
Background
Video Gallery
Comments

Over the past 80 years, Social Security has become the largest single government program in the world, accounting for 26% ($906 billion) of total US federal spending in 2014 ($3.5 trillion). Since 2010, the Social Security trust fund has been paying out more in benefits than it collects in employee taxes, and is projected to run out of money by 2034. One proposal to replace the current government-administered system is the partial privatization of Social Security, which would allow workers to control their own retirement funds through personal investment accounts.

Proponents of privatization say that workers should have the freedom to control their own retirement investments, that private accounts will give retirees higher returns than the current system can offer, and that privatization may help to restore the system's solvency.

Opponents of privatization say that retirees could lose their benefits in a stock market downturn, that many individuals lack the knowledge to make wise investment decisions, and that privatization does nothing to address the program's approaching insolvency. Read more...


Social Security ProCon.org is a nonpartisan, nonprofit website that presents research, studies, and pro and con statements on questions related to whether or not social security should be privatized.
Did You Know?
  1. Social Security is the largest single government program in the world, accounting for 26% ($906 billion) of total US federal spending in 2014 ($3.5 trillion). [20] [21] [59]

  2. In 2014, 22% of married retirees and 47% of unmarried retirees relied on Social Security for 90% or more of their income. [66] 36% of non-retired people expect Social Security to be a "major source" of their retirement income. [86] [87]

  3. Social Security yields roughly 3% returns compared to the average 11.5% returns S&P 500 investments have yielded year to year. [6] [10] [12]

  4. If 1% of payroll taxes had been diverted to private accounts in 1998, Social Security would have been insolvent by 2015, according to a Brookings Institution analysis. [36]

  5. Chile's pension privatization resulted in savings accounts generating the equivalent of about 40% of GNP. When the United Kingdom introduced private accounts, the government had to pay out about $20 billion in compensation to citizens who were defrauded by investment advisors. [50] [51] [52]
Pro & Con Arguments: "Should Social Security Be Privatized?"
PRO Privatized Social Security
  1. The current Social Security program will become insolvent by 2034, so a better system is urgently required. Due to an aging population and lower birthrate, the ratio of workers to retirees is shrinking, thereby reducing the funds available for future retirees. In 1940, the payroll tax contributions of 159 workers paid for the benefits of one recipient. In 2013 the estimated ratio was 2.8 workers to each recipient. [1] Since 2010, Social Security has been paying out more in benefits than it receives in worker contributions. According to the 2015 Social Security Trustees' report, the trust funds will run out of money by 2034. [3] Using the existing system to avert the pending collapse of Social Security would require deep cuts in benefits, heavy borrowing, or substantial tax hikes. A better solution is to switch to private retirement accounts that would be funded with existing payroll taxes. The CATO Institute's Project on Social Security stated that moving to personal retirement accounts can "reduce Social Security's debt and bring the system back into solvency." [4]


  2. With personal accounts, retirees will see higher returns on their investment. The year-over-year growth rate for private investments (11.53% average returns on investments in the S&P 500 between 1928-2014) is much higher than the return gained by retired workers in the current Social Security program (between 2.67% and 3.91% return on the contributions made by a medium income, two-earner couple as of Dec. 2014). [6] [10] [12] Martin Feldstein, Chairman of the Council of Economic Advisers during the Reagan presidency, wrote that with a private account earning a modest 5.5% real rate of return, "someone with $50,000 of real annual earnings during his working years could accumulate enough to fund an annual payout of about $22,000 after age 67, essentially doubling the current Social Security benefit." [14] Privatizing Social Security will put more money in the pockets of retirees.


  3. Private accounts give individuals control over their retirement decisions. Americans are capable of making their own decisions regarding how their retirement contributions are invested. [15] Peter Ferrara, former Director of the International Center for Law and Economics, stated that private accounts "would allow workers personal ownership and control over their retirement funds and broader freedom of choice," and if the accounts were optional (as they were in President George W. Bush's plan) they "would also be free to choose whether to exercise the personal account option or stay entirely in the old Social Security framework." [16]


                            
  4. Individual investment accounts would boost economic growth by injecting money back into America's financial system. Peter Ferrara, former Director of the International Center for Law and Economics, stated that "The reduced tax burden and higher savings and investment resulting from personal accounts would substantially boost economic growth. This would result in more jobs, better jobs, and higher wages and overall income." [16] In the decades following Chile's privatization of its pension system in 1981, the savings accounts that were established generated the equivalent of about 40% of GNP, and Chile's annual growth rate rose to above 7%, double the country's historic growth rate, according to José Piñera, Chile's former Secretary of Labor and Social Security. [17]


  5. Privatization reduces government workforce, red tape, and wasteful spending. Minimizing the requirement of the federal government to provide retirement benefits reduces the bloated bureaucracy of the US government. The Social Security Administration currently employs almost 60,000 people at more than 1,400 offices around the country, with an operating budget of $12.5 billion (for financial year 2016). [18] [19] [21] [90] In 2014, about 26% of US federal spending, or $906 billion, went toward Social Security. [20] [21] If retirement benefits were managed by private companies, government bureaucracy would be greatly reduced.

               
  6. Being able to invest in one's own private retirement account removes the uncertainty that accompanies the current, government-controlled program. According to a 2010 Gallup poll, 60% of currently working adults assume they will not receive Social Security benefits when they retire. [22] With private accounts, individuals will be paying into a fund that they control, instead of a government-controlled trust fund that may run out of money before they ever receive the benefits they’ve earned. Edward P. Lazear, PhD, Chairman of the President's Council of Economic Advisers during the George W. Bush presidency, stated that "private accounts enhance, rather than reduce, the likelihood that contributors will receive what they expect. Benefits are more, not less, secure with private accounts" because while the government could succumb to pressure to reduce benefits or change the age of eligibility at any time, returns on, for example, US Treasury bonds "will be paid with virtual certainty." [23]


  7. Private retirement accounts give workers the contractual right to retirement benefits, a right missing from the current Social Security system. In the 1960 US Supreme Court case Flemming v. Nestor, a retiring legal immigrant eligible for Social Security benefits who paid into the system for 19 years was denied his Social Security retirement money after being deported for being a member of the Communist Party. [24] Michael Tanner, Senior Fellow at the Cato Institute, stated that "under a privatized Social Security system, workers would have full property rights in their retirement accounts. They would own the money in them, the same way people own their IRAs or 401(k) plans. Congress would have no right to touch that money." [25]


  8. A system using private accounts would be restricted to allow only low-risk investments so returns would be assured. Converting Social Security into private accounts does not mean workers would be free to put their contributions into high-risk ventures. People would not be allowed to invest their Social Security savings in individual stocks or other highly volatile investments. President George W. Bush's 2005 plan would only have allowed relatively low risk investments such as "a conservative mix of bonds and stock funds." [26] [27] [28]


  9. Social Security taxes have become excessive. The maximum Social Security tax instituted by the Social Security Act of 1935 was $60; as of 2015 it is $7,347 for employees and employers – which is over 700% higher than inflation. [29] The Social Security tax rate has risen from 2% to 6%, and is as high as 12% for the self-employed. The amount of income that is subject to payroll tax has climbed from $3,000 in 1935 to $118,500 in 2015. [30] [31] Rather than having so much of their earnings be taken by the government in the form of high Social Security taxes, money put into private accounts would remain under each worker's control.


  10. Private accounts would allow benefits to be inherited. The present system is inequitable because people who live shorter lives collect less of their earned benefits and yet those benefits cannot be transferred to family members. Personal accounts will provide the option to bequeath assets to heirs upon death, an option currently missing from Social Security. As President George W. Bush stated in his 2005 State of the Union speech, "you'll be able to pass along the money that accumulates in your personal account, if you wish, to your children or grandchildren." [26] Michael Tanner, Senior Fellow at the Cato Institute, stated that privatizing Social Security would be a "big boost for the poor" because of inheritable benefits. [V1]


  11. Private accounts cannot be raided by Congress or the President. In the past, budget surpluses in Social Security were used by the federal government to fund other government spending, including the purchase of Treasury bonds to offset budget deficits. [27] Money kept in private accounts is under each individual beneficiary's control so it cannot be diverted for non-Social Security purposes.


  12. Private accounts benefit the poor and minorities. In the current system, groups of people with shorter life expectancies (such as the poor and African Americans, for example) effectively have their income transferred to people with longer life expectancies because the latter can collect their benefits for longer. [23] [30] [33] As stated by President George W. Bush, "Personal accounts, which could be passed along to the next generation, would go a long way toward reducing that disparity." [34]
CON Privatized Social Security
  1. Privatizing Social Security would do nothing to solve its impending insolvency, and would actually make it worse. The trust funds are destined for insolvency because the program's cost is increasing at a faster rate than revenue from payroll taxes. The situation will get even worse if a portion of each individual's payroll taxes is diverted away from the Social Security trust funds and into individually controlled retirement accounts, shrinking the funding source for future retirees' benefits. [3] [35] According to a 1997 Brookings Institution analysis, if just 1% of payroll taxes had been diverted to private accounts in 1998, the trust funds would have been insolvent by 2015. [36] William A. Galston, Senior Fellow at the Brookings Institution, said about President George W. Bush's 2005 privatization proposal that "it was not clear how private accounts were even part of the solution. At best, they would function alongside of, and in addition to, needed fiscal reforms; at worst... they would exacerbate the system's fiscal woes." [37]


  2. Private Social Security accounts will undermine the guaranteed retirement income provided by Social Security by putting peoples' retirement money at the whim of the stock market. During the 2008 financial crisis, the three main stock market indexes all dropped precipitously: the Dow Jones Industrial Average fell by 33.8%, the S&P 500 dropped by 38.5%, and the NASDAQ fell 40.5%. [38] Due to the "boom and bust" cycles of the market, those who retire during an economic downturn would be significantly worse off than those who retire during a boom. [39] Even diversified mutual and bond funds carry significant risk and are not guaranteed or insured by the government. [40]


  3. Many people lack the basic financial literacy to make wise investment decisions on their own. A 2015 survey published in USA Today revealed that only 39% of Americans know the annual percentage rate (APR) on their primary credit card, and almost 45% don't know what a credit score evaluates. [41] According to researchers Annamaria Lusardi and Olivia S. Mitchell of Dartmouth College, financial illiteracy is widespread among older Americans. In their Oct. 2009 study on financial literacy among adults over 50, Lusardi and Mitchell found that only half of the participants could answer two simple questions on compound interest and inflation. [42]


  4. Privatizing Social Security would dramatically increase the national debt. Transitioning to private accounts while continuing to provide benefits to current Social Security beneficiaries would leave a multi-trillion dollar hole that would need to be filled by more government spending. According to Bloomberg Business, President Bush's plan would have required "Washington to borrow at least $160 billion a year in the early years," increasing the nation's debt by 40%. [43] MIT economist Peter A. Diamond estimates that the costs incurred during the transfer to private accounts would add $1 trillion to $2 trillion to the country's national debt, which "could trigger an economic crisis." [43]


  5. Privatizing Social Security would expand, not reduce, government bureaucracy. In 2014, Social Security paid benefits to 42 million retired workers and their dependents. [3] Creating and tracking this many individual private retirement accounts would generate more government bureaucracy and would require the hiring and training of tens of thousands of new government workers to oversee accounts and explain the system to millions of people. The administrative costs of the current system were less than 1% of total revenues in 2014. [8] [9] [44] [3]


  6. Guaranteed benefits would be reduced significantly under a privatized system. In order to fund private retirement accounts, special insurance protections that are provided by Social Security, such as disability and survivor's insurance, would need to be reduced. A 2005 Century Foundation analysis of the Bush Administration's privatization proposal demonstrated that the diversion of payroll taxes to private accounts would reduce benefit levels by 44% below their 2005 levels by 2052. [45] Economist Dean Baker estimated that an average 15-year-old in 2005 who retires in 2055 stands to lose more than $160,000 of his scheduled benefits under Bush's plan, and gain less than a third of that loss back from his investment in a private account. [46]


  7. If workers had to adopt private accounts, unscrupulous financial advisors could take advantage of novice investors. According to the FBI, there were 1,846 cases of securities and commodities fraud pending as of 2011, and some of the schemes defrauded several thousand investors each. Many of the victims were elderly investors. [47] The Obama Administration's Council of Economic Advisors estimated that Americans lose about $17 billion per year on retirement investments that are arranged to benefit financial advisors at the expense of investors. [48] [49] After the United Kingdom introduced private accounts in the 1980s, unscrupulous salespeople advised millions of people to invest in risky personal pensions dependent on stock market returns. As a result of the losses incurred, the UK government had to pay out more than £13 billion (equivalent to about US$20 billion as of Aug. 2015) in compensation to the victims. [50] [51] [52]


  8. Privatizing Social Security will put billions of dollars into the pockets of Wall Street financial services corporations in the form of brokerage and management fees. Private Social Security accounts will be a boon to Wall Street, where banks and investment advisors could receive over $100 in fees for each account. [53] Since the number of Social Security beneficiaries is expected to grow to more than 125.7 million by 2090, [54] Wall Street will have guaranteed access to a rapidly growing pool of customers courtesy of the federal government.


  9. Social Security is highly efficient in comparison with private accounts. Social Security provides benefits through a centralized, highly efficient process administered directly by the US government, with an administrative overhead of less than 1%. [55] Moving benefits into individual private accounts creates a decentralized system that will have to take into account the full diversity of opinions, preferences, and expectations of individual investors, which may increase the program's annual administrative costs by more than 83% (from less than 1% to 1.83% of assets), amounting to $54-$117 per worker per year. [55] [53]


  10. Other policy changes can fix Social Security more effectively and less disruptively than privatization. Future budget shortfalls can be eliminated by reducing benefits, increasing taxes, and/or raising the retirement age.  [82] [83] [84] [85] In 2010, the nonpartisan Congressional Budget Office (CBO) estimated that either a 15% cut in benefits or a 2% payroll tax increase could keep the trust funds solvent for an additional 44 years. In addition, the CBO found that eliminating the payroll tax cap ($118,500 as of 2015) would also keep the trust funds solvent for another 44 years. [56] Higher returns could be offered to retirees if Congress allowed the Social Security Trust Funds to invest in equities in addition to bonds. [89]


  11. The accusation that Social Security has been "raided" by the federal government is misleading and does not provide a justification for privatizing the program. When there have been surpluses in the Social Security trust funds, that money has been invested in US government bonds that partially fund the running of the federal government. As Steve Vernon, research scholar with the Stanford Center on Longevity, explained, "They spent this money on all the various operations of the federal government... When you buy any investment, like a stock or a bond, the entity that issues it usually spends the money you paid for that stock or bond." [57]


  12. Social Security is an equalizer, leveling the playing field for rich and poor, whereas private accounts would favor the wealthy. Social Security taxes are weighted to balance the system for all levels of wage earners, while private accounts favor the rich because low-income earners without their own savings would have their retirement funding dependent on the success of the markets. [44] Both the General Accounting Office and the Social Security Administration examined a private accounts system established in three Texas counties, and both organizations "concluded that lower-wage workers, particularly those with many dependents, would fare better under Social Security, while middle- and higher-wage workers were likely to fare better [under a privatized system], at least initially," according to the Texas Tribune. [58]
Comment Comment
Background: "Should Social Security Be Privatized?"
Franklin D. Roosevelt signing the Social Security Act
(Click to enlarge image)
Franklin D. Roosevelt signing the Social Security Act on Aug. 14, 1935.
Source: "Social Security U.S.A.-- The Program & Its Administration," www.ssa.gov (accessed Aug. 14, 2015)
Over the past 80 years, Social Security has become the largest single government program in the world, accounting for 26% ($906 billion) of total US federal spending in 2014 ($3.5 trillion). [20] [21] [59] Since 2010, the Social Security trust fund has been paying out more in benefits than it collects in employee taxes, and is projected to run out of money by 2034. [3] One proposal to replace the current government-administered system is the partial privatization of Social Security, which would allow workers to manage their own retirement funds through personal investment accounts. [60]

Proponents of privatization say that workers should have the freedom to control their own retirement investments, that private accounts will give retirees higher returns than the current system can offer, and that privatization may help to restore the system's solvency.

Opponents of privatization say that retirees could lose their incomes in a stock market downturn, that many individuals lack the knowledge to make wise investment decisions, and that privatization does nothing to address the program's approaching insolvency.

History and Structure of Social Security

Social Security was created when Franklin D. Roosevelt signed the Social Security Act on Aug. 14, 1935. [61] [62] The program provided a social insurance system based on the idea that if workers pooled a portion of their wages, they would be able to protect each other and their families against wage loss due to retirement. Through this national benefits program, Social Security made available a basic level of monthly income to workers who paid into the system. [62]

Although benefits were initially restricted to workers aged 65 years and older, the program expanded over time and is now also known as the Old-Age, Survivors, and Disability Insurance program (OASDI). In 1939, benefits were introduced for spouses and minor children of retired workers, and "survivors benefits" could be paid to the family of a worker who died prematurely. Benefits for disabled workers
Chart detailing how Social Security works.
(Click to enlarge image)
Chart detailing how Social Security works.
Source: "Social Security - A Simple Concept," www.pbs.org (accessed Nov. 9, 2009)
were added in 1956, and the minimum age at which workers became eligible for old-age insurance payments was lowered to 62 for women in 1956 and for men in 1961. [63] [64]

About 59 million people were receiving Social Security benefits at the end of 2014: 42 million retired workers and their dependents, 11 million disabled workers and their dependents, and six million surviving relatives of workers who had died. [3] A 1983 Social Security Amendment included a tax on benefits for the first time – 50% of Social Security benefits became subject to taxation for individuals with an income of $20,000 or more – and raised the full-benefit retirement age from 65 to 67. [11]

Social Security benefits were initially intended to supplement pensions and personal savings for retirees, however, Social Security payments have become the primary retirement plan for many Americans. The percentage of American workers with employer-funded defined benefit pension plans declined from 39% in 1980 to 20% in 2007. [65] By 2014, 22% of married retirees and about 47% of unmarried retirees relied on Social Security for 90% or more of their income. [66]

Social Security does not maintain individual savings accounts for each worker, but operates as a pay-as-you-go system in which each generation of workers supports the preceding generation's retirees. As of 2015, US citizens have 6.2% of their earnings (up to $118,500) taken out as Social Security Federal Insurance Contribution Act (FICA) taxes, which are commonly referred to as payroll taxes. Employers are also required to pay 6.2% of each employee's earnings (up to $118,500) in payroll taxes. [67] Individuals can begin collecting reduced retirement benefits at age 62, and full retirement benefits can be claimed at the age of 67. [54]

Although the Social Security Act entitles workers to receive benefits, these benefits are not guaranteed by law. The federal government does not have a legal liability to pay retirees the money they paid into the system over their working careers and Congress can change the rules regarding benefit eligibility at any time. [24] [68]

Social Security's Projected Insolvency

According to the 2015 annual report of the Social Security Board of Trustees, the cost of Social Security benefits will exceed tax revenues beginning in 2020, and the program will become insolvent (i.e. unable to pay beneficiaries in full) when reserves
Chart of the estimated decline of workers per beneficiary from 5.1 in 1960 to 2.1 in 2035.
(Click to enlarge image)
Chart of the estimated decline of workers per beneficiary from 5.1 in 1960 to 2.1 in 2035.
Source: "The Future of Social Security," www.ssa.gov, Aug. 2009
become exhausted in 2034. In 2034, Social Security is projected to have enough tax revenue to pay 79% of benefits owed. The Trustees predict a budget shortfall of $10.7 trillion through 2089. [3]

Several factors contribute to Social Security's predicted insolvency, including America's aging population. Millions of post-World-War II baby boomers began reaching retirement age in 2011, in what has been called America's "silver tsunami." By 2030, almost one in every five Americans will be 65 or older. By 2050, there will be between 80 and 90 million people aged 65 or older, and almost 21 million people aged 85 or older. [69] In 2010, the estimated life expectancy was 78.7 years, compared to 61.7 years in 1935 when the program began. [54] [70]

Birth rates have fallen from over three children per woman during the baby boom (1946-1965) to two children per woman since 1970. Because of this decline, the ratio of workers to beneficiaries has dropped significantly. [71] In 1940, there were 159.4 workers for each beneficiary, but the ratio fell to 5.1 workers to each beneficiary by 1960, and by 2013 there were only 2.8 workers to each beneficiary. [1]

Brief History of the Privatization Debate in the United States


During the 1990s, US politicians and think tanks began suggesting private investment accounts as one option to prevent the Social Security program's impending financial difficulties. In Jan. 1997, a report issued by the Advisory Council on Social Security offered three proposals to alter the program in an effort to ensure future solvency. The proposals all involved investing retirement contributions in the stock market. One of the plans envisaged the government investing money from a common pool, but the other two ideas specified the establishment of individual accounts for each worker: one plan proposed publically-held individual accounts and the other plan suggested private accounts. [68] [72]

Social Security poster, circa 1935.
(Click to enlarge image)
Social Security poster, circa 1935.
Source: "Photos of the Great Depression and the New Deal," docs.fdrlibrary.marist.edu (accessed Oct. 22, 2009)
A partial privatization of the program using private accounts gained support in the ensuing years, largely from Republican politicians and conservative think tanks but also from some moderate Democrats. [73] [74] While proposals differed, the unifying element was the notion of individual private retirement accounts, with a portion of each individual's payroll taxes diverted from the trust fund to accounts similar to IRA or 401(k) plans. In late 1997, President Bill Clinton was reportedly in discussions with then-House Speaker Newt Gingrich (R-GA) to put forward a bipartisan proposal to reform Social Security using private accounts, but the plan never went ahead. [75]

During the 2000 US presidential campaign, Republican nominee George W. Bush ran on the promise of letting "younger workers take a portion of their payroll taxes and put it in the marketplace." [76] Bush's Social Security reform proposal won considerable public support, and some commentators gave it partial credit for Bush's eventual victory over Democratic nominee Al Gore. [77] On May 2, 2001, Bush appointed a commission to examine his proposed changes to Social Security, [78] but his first term was dominated by responses to the 9/11 attacks. Bush again touted personal accounts in his successful 2004 reelection campaign. However, after he was reelected, Bush revised his plan and called for future retirees' benefits to be reduced by about 40% to prevent the trust fund from becoming insolvent. He also refused to rule out a raise in taxes to support the program's restructuring. Public support for the proposal dropped, the influential retirees' organization AARP lobbied against the idea, and Democratic opposition in Congress intensified. By late 2005, the plan had stalled and public discussion about privatization remained relatively dormant for several years. [77] [79] [80] [81]

Current Debate

Several 2016 Republican presidential candidates have expressed their support for privatizing Social Security with personal accounts, including Jeb Bush, Rand Paul, Mike Huckabee, Rick Perry, and Ted Cruz. [89] However, the debate in Washington has focused on how to change Social Security's revenue and benefit structure to avoid insolvency. Some former supporters of private accounts have shifted their positions to favor solutions including raising the retirement age, changing the Cost-of-Living Adjustment (COLA) formula, or cutting benefits. [82] [83] Other suggestions included removing the payroll tax cap on high earners, using the revenues to replenish the trust fund and increase the maximum benefit; introducing means-testing so that wealthy retirees would receive reduced or no benefits; and raising Social Security taxes. [84] [85]

In a Jan. 2015 Gallup poll, 46% of those polled said they "personally worry about the Social Security system," which is fairly consistent with polls taken regularly since 2005. [22] An Apr. 2015 Gallup poll found that 36% of US non-retirees expected Social Security to be a "major source" of their retirement income, the highest percentage in 15 years of polling. Gallup also found that the percentage of 18-34 year-olds who expected to rely on Social Security as a "major source" of their retirement income doubled between the 2005-2006 and 2014-2015 periods, from 13% to 26%. [86] [87] According to Feb. 2014 polling by Pew Research, 51% of Millennial and 50% of Gen Xers believe Social Security will not be able to provide them with any benefits at all by the time they retire. [88] In a Sep. 2011 CNN/ORC poll, 52% of adult Americans polled favored the partial privatization of Social Security, with 46% opposed. [5]
Video Gallery

President Franklin D. Roosevelt signs and comments on the Social Security Act on Aug. 14, 1935.
Source: "Franklin Roosevelt Social Security," youtube.com (accessed Aug. 27, 2015)
PBS News Hour report on the US Social Security program, including a discussion with David John of the Heritage Foundation and Henry Aaron of the Brookings Institution, hosted by Ray Suarez.
Source: PBS NewsHour, "How Severe Are Problems with Social Security?," youtube.com, Sep. 28, 2011
Newt Gingrich, former Speaker of the US House of Representatives (R-GA), explains his support of personal social security savings accounts in a campaign video for the 2012 Republican presidential nomination.
Source: Newt Gingrich, "Right to Choose Personal Social Security Accounts," youtube.com (accessed Aug. 27, 2015)
President Barack Obama opposes the privatization of social security in his Aug. 14, 2010 weekly address.
Source: The White House, "Weekly Address: Honoring Social Security, Not Privatizing It," youtube.com, Aug. 14, 2010
Video Gallery

President Franklin D. Roosevelt signs and comments on the Social Security Act on Aug. 14, 1935.
Source: "Franklin Roosevelt Social Security," youtube.com (accessed Aug. 27, 2015)

PBS News Hour report on the US Social Security program, including a discussion with David John of the Heritage Foundation and Henry Aaron of the Brookings Institution, hosted by Ray Suarez.
Source: PBS NewsHour, "How Severe Are Problems with Social Security?," youtube.com, Sep. 28, 2011

Newt Gingrich, former Speaker of the US House of Representatives (R-GA), explains his support of personal social security savings accounts in a campaign video for the 2012 Republican presidential nomination.
Source: Newt Gingrich, "Right to Choose Personal Social Security Accounts," youtube.com (accessed Aug. 27, 2015)

President Barack Obama opposes the privatization of social security in his Aug. 14, 2010 weekly address.
Source: The White House, "Weekly Address: Honoring Social Security, Not Privatizing It," youtube.com, Aug. 14, 2010

 

Notices for Social Security and Other ProCon.org Information
(archived after 30 days)

8/28/2015 - UPDATED: Social Security is the largest single government program in the world, accounting for 26% ($906 billion) of total US federal spending in 2014 ($3.5 trillion). One proposal to replace the current system, which is projected to run out of money by 2034, is the partial privatization of Social Security, allowing workers to control their own retirement funds through personal investment accounts. Proponents say that private accounts will give retirees higher returns than the current system, while opponents say that retirees could lose their benefits in a stock market downturn. Explore our updated pro and con arguments, plus new "Did You Know?" facts and updated background information on the history of the Social Security debate.

Archived Notices (archived after 30 days)


Last updated on 8/28/2015 2:11:35 PM PST

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