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Home > The Pros And Cons Of Social Security Privatization

Social Security is a program that has lasted for about sixty years. It is an insurance program that protects workers and their families against income loss when they retire or becomes disabled. The supporters of Social Security privatization claim that the system will become bankrupt either within the next fifteen years or in 2042 or 2052. Hence, the plan to privatize Social Security would divert four percent of the existing payroll tax to private investment and reduce the government benefit.

President Bush believes that there are good reasons to believe that advance funding to at least a portion of the Social Security program will be beneficial. Advocates of the privatization plan laid out several advantages of the proposed plan. First, a privatized Social Security system would lessen the hindrances for work and saving and is likely to contribute to an increase in the economic growth. Second, with advance funding, it is much likely that the program will need the repeated fixes that have become a regular feature of the current social security program. Third, investing in private accounts would lessen the opportunity for the government to use Social Security surpluses to cover current deficits. Fourth, privatization would eliminate social security surpluses as a source of government revenue and would emphasize the need to address funding problems such as Medicare. Finally, privatizing Social Security would likely foster confidence and support for the program. Reforming Social Security would give young workers the same confidence enjoyed by current beneficiaries.

Nevertheless, several drawbacks have been laid down by those opposing the proposed privatization. First, the insurance that protects today’s workers and their families against disability and death would be threatened. The rates of return to the existing Social Security system can be misleading and would neglect the value of the Social Security’s insurance protections. Second, making the transition would make Social Security’s financing problem worse. It could lead to insolvency and would divert funds from the existing Social Security system that could mean the loss of revenues that pay the benefits of today’s retirees. Third, the private accounts could dampen economic growth. It will increase fiscal deficits and debt significantly which would further weaken Social Security’s future finances. Lastly, creating private accounts would seriously risk the long term fiscal health of the program. Instead of assured benefits based on your work history, benefits would depend on your investment skills.

The bottom line is, whatever outcome the debates regarding Social Security privatization would produce, decision makers should keep in mind that it is not the interest of few individuals that would matter in their judgment but the interest and welfare of the entire nation.

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