Tuesday, August 31, 2004

The United States should not privatize social security.

Why you're right:

1. Some seniors would be much worse off. It’s true, the “average” stock market return is higher than money received by the Social Security trust fund. But seniors don’t receive the “average” return. They would only receive their own, individual return which in many cases would be below the average. The stock market is risky and its returns are not guaranteed; what is guaranteed is some seniors inevitably will do much worse. (Center for Budget and Policy Priorities)

2. It would vastly increase administrative costs. Currently, social security is administered out of a central fund – this keeps administrative costs quite low. Privatizing social security, even in part, would involve managing funds in more than 150 million individual accounts. (Center for Budget and Policy Priorities)

3. There would be huge transition costs. Social security privatization schemes allow workers to invest their own money. That means they will no longer be paying into the Social Security trust fund. In order to transition to a private the Social Security system, the government would have to finance their obligations to the current generation of retirees. Economists estimate that full privatization would cost as much as $3 trillion. Costs for partial privatization schemes would obviously be lower, but still very expensive. (Paul Krugman)

Why they're wrong:

Advocates for Social Security privatization argue that the current structure is unsustainable. But even at current funding levels, Social Security, as it is presently structured, will be able to pay full benefits until 2052. Over the next 75 years, the Social Security shortfall is projected to be just 1 percent of all taxable income. (Congressional Budget Office)