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Privatizing Social Security

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Privatizing Social Security

The political atmosphere in the US is in fever mode and one of the controversial issues currently taking stage is the debate on whether or not to privatize the US Social Security system. The United States Social Security program is founded on the provisions contained in the Social Security Act (1935). The central idea behind the creation of this statute was to allow American employees pool together a portion of individual earnings so as to “guarantee protection to members and their families from sudden and devastating effects of wage loss as a result of death, disability or retirement (Altman 6)”. The call for the privatization of the current Social Security system is based on perceived future financial deficits. Privatization is aimed at cushioning members from such financial unpredictability. This paper seeks to strongly support the case against privatizing the US Social Security system by rebutting what proponents of the debate provide.

Since 1936, the US Social Security system has successfully served a number of generations enabling workers to contribute earnings towards a stable future (Altman 4). The current program is therefore not some form of investment program but rather a contingency plan. Social Security is based on far reaching policies as opposed to private retirement plans as it offers senior citizens, survivors, the disabled and more so their families with a guaranteed source of regular income (Altman 6). Privatizing this system would create a more uncertain future as it would lead to eminent disintegration of social security was we know it. Privatization will serve to progressively heighten retirement risks, undermine social security benefits and balloon the nation’s federal debt.

Proponents of the privatization of the Social Security system provide that the program foresee certain bankruptcy in coming years. The current program has the capacity to meets its “statutory obligations to American workers fully up until 2037 (Altman 12)”. This is without any further changes being made on the program. However, if Congress fails to enact necessary changes, the program will only be in a position to meet about 76% of its obligations (Altman 12). This is based on the fact that the baby boomers generation will undoubtedly put a significant strain on the Social Security program in the near future. Congress only needs to effect moderate changes towards ensuring the current Social Security system is able to meet its statutory obligation for decades (Orenstein 44).

Proponents provide that American workers will realize better returns if they invested money normally contributed to the Social Security program in the stock markets. Privatizing the program entails siphoning the “payroll tax money and investing it into private investment oriented accounts (Gokhale 25)”. The Social Security program is not an investment program and as such has broad based policies which have the interests of the American workers at heart as opposed to privatized retirement plans. The current system ensures the disabled, retiree and families of deceased employees are able to access to a consistent incomes as well as other financial benefits. It is important to note that upon accounting for risks associated with private social security investments, “the current program is far much more stable and gratifying to the American worker (Orenstein 44)”. Looking back at the last financial meltdown in the US financial markets, investing sensitive amounts such as social security funds to such unpredictable markets would be perilous to the entire American system of governance, financially, economically, politically as well as socially (Gokhale 19). It is therefore prudent to appraise the strength of the current system as opposed to privatizing it. It would therefore be unwise to subject such savings to the volatility of the financial markets.

Some proponents of the privatization of the current program also provide that the federal government is inefficient in managing the funds generated by the entire American population registered with current Social System. This is ideally false as federal government expenditure estimates suggest that the “Social Security program currently in place only employs 1% of its budgets towards administrative costs (Orenstein 65)”. On the same note, involving the stock market into the Social Security investment alternatives would not only present higher costs which will have a negative impact on the overall American worker population.  These are most likely to be accrued through management fees for mutual funds investments in stock markets, broker commissions as well as other expenses associated with stock market investments. Small private investment accounts are in essence quite costly to the investor and may rise to almost 15% of amounts invested. This implies that proponents of privatization of the Social Security system are doing so in an effort to make money off the backs of the average American worker.

The current American Social Security program is undoubtedly the largest government administered program the world over. It is important to note that given its massive membership, it also experiences the greatest financial expenditure on the entire planet.  As such, it is the de facto retirement plan for the majority of American workers. It is estimated that “the elderly benefit greatly from this program with more than 20% of the American elderly and over 40% of single retirees depending on the program for more than 90% of their annual income (Orenstein 88)”. Subjecting the decades old program to the adverse effects of modern day financial systems will undoubtedly place many American families to the negative aspects of the volatile financial markets.

Another fact compounding the inappropriateness of privatizing the current Social Security system is that it is impossible to privatize it the speed so proposed by political proponents. According Kamerman and Alfred (63), “in 2009, more than 53 million US citizens were benefiting from the current system.” It is also estimated that about 2 million workers begin collecting pensions each year with about 800,000 collecting disability benefits and pensions. This implies that even if a new system was put in place based on the privatization model, millions of individuals will have to continue receiving social security payments even though a new system is put in place. If the current generation of youthful workers is subjected to a privatized Social Security system, their funds must be employed towards meeting the retirement benefits obligation of the previous program. This implies that either way you look at the privatization issue, the best option remains with upgrading the current system while keeping the broad based benefits policies intact.

In conclusion, it is unfortunate that the current political crop of leaders is looking to exploit the fears of retirees towards meeting their personal political objectives. The purported vision that the current system is about to become bankrupt is false. The current system has been instrumental towards improving the living standards of millions of American lives for many successive generations. This ultimately implies that the current system should be strengthened through stronger support from Congress. Rather than subject the program to the volatility of the American financial system, the federal government’s political establishment should seek to strengthen the viability of the current program for the long-term

Works Cited

Altman, Nancy, J. The battle for Social Security: From FDR’s vision to Bush’s gamble. Hoboken, New Jersey: John Wiley & Sons, 2012. Print.

Gokhale, Jagadeesh. “Social Security Reform: Does Privatization Still Make Sense?” Harvard Journal on Legislation50 (2013): 169-207.

Kamerman, Sheila, B. and Alfred, J. Kahn. Privatization and the welfare state. Princeton, New Jersey: Princeton University Press, 2014. Print.

Orenstein, Mitchell, A. “Pension privatization in crisis: Death or rebirth of a global policy trend?” International Social Security Review 64.3 (2011): 65-80.

 (Orenstein 44)     (Gokhale 25)    (Kamerman and Alfred 63)

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