Truths About Privatizing Social Security

(This article first appeared in the November/December 2015 issue of The American Postal Worker magazine.)

Social Security is a successful program that has served this country well. Yet some groups want to privatize the program by taking the payroll tax money that now goes into its trust funds and investing it in private accounts.

People earn the right to participate in Social Security by working and contributing. It was never intended to be an investment program. Unlike private retirement plans, its purpose is to provide guaranteed income to seniors, disabled citizens, survivors, and their families.

Privatization would severely undermine the system.

Refuting False Arguments

Following are five simple rebuttals to many misleading claims being spread by the privatization movement:

False Claim #1: Privatization Will Fix Social Security for Future Generations. Privatization is not a plan to save Social Security; it is a plan to dismantle it. Privatization means increased risk, severe cuts in Social Security benefits, and a multi-trillion dollar increase in the federal debt. Privatization would divert money out of Social Security into individual accounts, leaving an even larger solvency problem.

False Claim #2: Social Security will soon go bankrupt. If Congress does nothing and makes no changes or “reforms,” Social Security is projected to deliver full guaranteed benefits until at least 2037. Even after 2037, the trust funds will be able to pay 76 percent of benefits for years after that. It’s true: The aging baby-boom generation will strain Social Security in the future. However, if Congress enacts modest changes, Social Security should be able to meet 100 percent of its benefit obligations for many decades.

False Claim #3: Workers could get a better return by investing in the Stock Market. Social Security provides a guaranteed income, paying benefits every month, with increases for inflation. After adjusting for risk, Social Security has a rate of return equal to that of any mix of financial assets in private accounts. As we’ve seen in recent years, returns can fluctuate wildly. Nest eggs can disappear in an instant. With privatization, some might do well, but many could lose, and our society would lose the benefit of the income security provided by Social Security retirement, disability, and survivor benefits.

False Claim #4: Social Security is unfair because tomorrow’s workers will have to support baby boomers’ retirement. In fact, the boomers have helped pre-fund part of their benefits by building a huge surplus that should keep Social Security alive and well for many years. With privatization, however, workers would end up in a double bind – paying taxes to support the boomers’ retirement, plus investing in their own individual accounts, in the hope of building retirement funds for themselves. To make matters worse, today’s workers would have to bear the transition costs of switching to privatization, estimated at nearly $5 trillion over just the first 20 years – a cost that would fall on today’s young people.

False Claim #5: Privatization gets rid of the inefficiency of big government. Administrative costs for Social Security are very low – less than 1 percent of the program’s budget. Diverting money to the stock market would incur the very high costs of brokers’ commissions, mutual fund management fees, and other expenses inherent in buying and selling stocks and bonds. Commissions and fees could easily burn up as much as 15 cents out of every dollar of a worker’s annual investment, as they do in some countries with privatized systems.

Wall Street brokers and fund managers would stand to make billions of dollars a year if Social Security is privatized, so it’s no surprise that they strongly support the privatization movement! Unfortunately, exaggerated media coverage regarding Social Security’s finances has contributed to the illusion that Social Security is in imminent trouble.

Let’s stand united and block any effort to privatize Social Security. Privatization is not the answer!