In the dark times of recession the talk of “reform” is up in the air. Currently, privatizing social security is one of the major reforms being considered. According to The Century Foundation, the Bush administration wants to create private accounts in order for each individual to pay for their own retirement. Under the current social security plan full benefits for the retired will last until 2042.
Conservatives argue that with the privatization of social security that GDP (Gross Domestic Product) will increase 5 percent creating $10 - $20 trillion dollars in profit as long as the system lasts. According to Deborah White of U.S. liberal politics, “President Bush said in 2005 the initial cost to American taxpayers for privatizing Social Security will be $2 trillion. If we take the amount needed to initialize private accounts and the current deficit of GDP the $10 - $20 trillion dollars barely scratches the surface of the continually growing deficit which in 2008 was cited to be 65.5 trillion dollars.
Once the private accounts are initialized, your retirement is subject to change due to fees and the stock market and depending on when you retire can affect how much your retirement is worth. Deborah White states that, “accounts will be reduced as much as 20% to 30% by fees charged by investment bankers, trustees and account administrators.” By charging these fees, private accounts for the middle and lower classes become substantially smaller creating a national savings issue.
Privatizing social security will only create more issues down the road. Although implementing a reform w
ill fix the current social security issue, it will only shorten the time significantly of when the government will be forced to raise taxes. If the social security plan is left as is, the system that is currently being used will last until 2042 at worst, where if payroll taxes were put at a set amount of 2 to 4 percent resources would run out faster.
According to Deborah White, “The Social Security trust fund has accumulated a surplus of more than $1.5 trillion. That occurred because the fund collected more in payroll taxes from our paychecks than it paid out in benefit checks.” If we maintain the same social security plan that we have been using, funds will run short in 2042, but with the current payroll tax we will be able to fund 70% of social security after 2042. Although the $1.5 trillion would not last forever, the money could be used to fill the gap to increase the percentage of coverage given. The coverage may no longer be 100%, but the amount of time saved before increasing taxes will save more money overall, preventing younger workers from receiving little to no benefits at all.
Preserving social security for future generations is the key to the reform. Currently, young workers pay a social security tax in order to receive benefits when they retire. These benefits are suppose garuntee retirement benefits for whoever pays this fee. With the current social security plan funds will not be able to cover 100% coverage after 2042 for the people who are already paying for social security.
According to The Century Foundation, “younger generations will be the ones who bear the costs of transforming the program. The added costs arise from the huge increases in federal borrowing needed to finance the new accounts while continuing to direct payroll taxes toward existing benefits for current retirees.” If the U.S. government offers the 70% coverage plus the addition of the $1.5 trillion after 2042, the amount of money that an worker would have to save out of pocket compared to the taxes and federal borrowing that would have to be spent in order to implement private accounts would be significantly less preventing reduced national savings.
The implementation of private accounts would greatly reduced national savings. AFL-CIO(American Federation of Labor – Congress of Industrial Organizations) states, “privatization not only exposes workers to additional risks, it also substantially raises the costs of saving for retirement.” With the reform plan that the bush administration created, funding for social security would run out faster than if we had kept the current social security plan forcing the government to raise taxes in order to maintain benefits for retirees.
These private accounts are run like 401k plans and the money in these accounts are invested in the stock market. In the current recession, the stock market is down which if reform proposal was implemented your private account would be worthless if not negative. Relying on the stock market in our fluctuating economy is a large gamble to account retirement funds on. Due to fluctuations in the economy’s market, on average you would receive more benefits from the current social security plan then the average private account owner.
Most Americans believe that Social Security should not be privatized. There are many excellent, modest proposals to shore up Social Security long-term, that involve raising payroll taxes and/or making very minor benefits cuts decades from now. (And those proposals don't cost $2 trillion.)
If the payroll tax cap was raised to $200,000 per year, there would be no Social Security funding gap for more than 100 years. Raising the payroll tax cap would also eliminate the need for more funding and federal borrowing, increase national savings due to less federal borrowing, and increase retirement savings.
By increasing retirement savings, potential spending goes up along with actual spending. As spending increases, a demand must be met, so production increases. As, production increases, jobs are created in order to meet the demand of the people. When the unemployment rate goes down from the jobs being created, more payroll tax is being received due to the amount of workers creating more funds for retirees.



