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Social Security:
The closer we look at privatization the riskier it seems

by Steve Gorin
Canterbury, New Hampshire

The recently released report of the Social Security Trustees sheds new, and interesting, light on the status of that system. The report notes that the Social Security Trust fund has assets of $1.21 trillion. Based on conservative assumptions, the trustees, who include three members of President Bush's cabinet, estimate that these funds will not run out until 2041. After that, Social Security will still take in enough in taxes to meet 70 percent of its obligations. The problem is not saving Social Security but meeting this shortfall.

To address the shortfall, many Republicans, and some Democrats, advocate partial privatization. Under partial privatization, employees would be able to invest a third of their payroll deduction in stocks and bonds, which, presumably, would yield a higher return than Social Security. Last year, President Bush appointed a commission that developed proposals for privatizing the system.

Unfortunately, there are drawbacks to privatization. Perhaps the most important problem is the cost of building a new system, which could total more than $9 trillion. This alone would accelerate the depletion of the Trust Fund and require a serious reduction in benefits. In addition, privatization can only be successful if the stock market does as well in the future as it has done in the past. This is highly unlikely, however, particularly in light of the slow economic growth the trustees predict over the next 75 years. If the economy does grow more quickly, privatization will be unnecessary.

Finally, privatization would require individuals to closely follow the market and accurately time their dates of retirement. While stocks may pay in the long run, we live in the short run. Who could have predicted when the technology bubble would burst or that Enron would collapse? Can we really expect a 65-year-old worker to defer retirement until the market recovers? What if it fails to recover?

The closer we look at privatization the riskier it seems. Our current system, on the other hand, has served the country well for almost seventy years; without it, half of older adults would live in poverty. Why experiment with a highly successful, and, as the trustees' report shows, basically healthy, program? Particularly since, as economist Paul Krugman, points out, "with a bit of extra resources" Social Security "can survive indefinitely" (The New York Times, 4/2/02).

Where can we find these resources? According to the White House, the Social Security shortfall is equivalent to the cost of last year's tax cut. The Center on Budget and Policy Priorities estimates that, if Congress votes to make the tax cut permanent, as the president proposes, it would amount to more than double the size of the shortfall. One simple way to shore up Social Security would be to reduce the size of the tax cut.

The report of the trustees shows that Social Security is not in a state of crisis. Partial privatization is not only unnecessary but also a form of Russian roulette, which threatens the future of us all.

About the writer: Stephen Gorin is executive director of the New Hampshire chapter of the National Association of Social Workers and a professor in the Social Science Department at Plymouth State College, Plymouth, New Hampshire.

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Published in In Motion Magazine May 3, 2002.

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