Privatizing Social Security: The re-emerging debate   A Geriatric Health Care and Public Policy Presentation

President Obama spoke these words on the 75th Anniversary of the historic Social Security Act. He restates a promise to older Americans and those nearing retirement. But can we keep that promise?

Many economy experts and political pundits believe that Social Security is in jeopardy of going bankrupt.   Some of the dire predictions include draining the surplus of existing funds within the next 25 years and losing the ability to pay full benefits.

One major reason for what many classify as a Social Security crisis is the growing number of retirees receiving benefits and the shrinking number of workers paying into the system.   In 1940, there were 42 workers per retiree. In 1950, the ratio dropped to 16-to-1. Today, there are 3.3 workers per retiree, but by 2030, the predicted ratio is only 2 to 1.   As the number of older Americans increases, and with is life expectancy, there is little dispute that major reform is necessary to keep the Social Security system solvent.

SOCIAL SECURITY Privatizing The Re-Emerging Debate A presentation by Doug Seubert HAUU 672 9201 Geriatric Health Care and Public Policy Brandman University December 13, 2010

Weekly Presidential Address (August 14, 2010) “We have an obligation to keep that promise; to safeguard Social Security for our seniors, people with disabilities, and for all Americans – today, tomorrow, and forever.”

Social Security in Jeopardy By 2017, Social Security is expected to start paying out more than it collects in payroll taxes There is currently a large surplus, but it will be drained by the year 2037. At that point, Social Security will only be able to pay out 75 percent of its benefits.

Social Security in Jeopardy In 1940, there were 42 workers per retiree In 1950, the ratio was 16-to-1 Today, there are 3.3 workers per retiree By 2030, the ratio will be 2 to 1 As the population ages and life expectancies continue to rise, the system will not be able to sustain itself into the future without major reform.

Proposed Solutions Increase Retirement Age Match retirement age to increased longevity Proposal to increase the retirement age by one month every two years Increase Payroll Taxes The current Social Security payroll tax rate is 12.4 percent of covered earnings, split evenly between employers and employees Proposal to phase in increases

Proposed Solutions Privatize Social Security Empower individuals to have control over their own retirement investment decisions. Give workers contractual rights to retirement benefits. Prevent surplus funds from being diverted for non-Social Security purposes. Boost economic growth by injecting money back into America's failing financial system.

Not a New Idea . . . 1979: Economist Carolyn Weaver writes a groundbreaking article for the Cato Institute arguing that a private system might work better than the current Social Security system. 1980: Harvard Law School student Peter Ferrara writes a paper in which he suggests converting the government-run Social Security program into a web of private investments.

Not a New Idea . . . 1980: Ferrara’s paper catches the attention of Edward H. Crane, a former head of the Libertarian Party and founder of the Cato Institute. Ferrara joins the Cato Institute and publishes "Social Security: The Inherent Contradiction." 1981: Chile adds private investment accounts to its retirement system and becomes a model for the movement.

Not a New Idea . . . 1988: Former Gov. Pierre S. "Pete" duPont IV (R-Del. ) becomes the first presidential candidate to call for private accounts. 1990s: With explosive growth of the stock market and continuing push from conservative leaders and pundits, the idea becomes more popular.

Not a New Idea . . . 1998: President Clinton and his economic advisers spend months secretly discussing a plan to add individual investment accounts on top of Social Security, but abandon it when it becomes clear that the president was about to be impeached. 2000: George W. Bush becomes the first top-tier presidential candidate to advocate for private accounts.

Not a New Idea . . . January 2005: President Bush warns that Social Security is “headed toward bankruptcy" and unveils plan for partial privatization. January-June 2005: Opposition to the President’s plan gains strength and is reflected in public opinion polls. August 2005: Hurricane Katrina. October 2005: Congressional Republicans and Bush Administration “pull the plug.”

Against Privatization Private accounts that rely on the ups and downs of the stock market are too risky. Investing in private accounts means less revenue entering the Social Security trust fund. To compensate, the federal government would have to borrow significant sums to pay promised benefits to current and retiring beneficiaries.

Russ Feingold (D, WI), running for re-election to the Senate in 2010, explains that his opponent, Ron Johnson, would consider partial privatization of Social Security. Russ Feingold lost the election.

Weekly Presidential Address (August 14, 2010) “We had a debate about privatizing Social Security. And I’d have thought that debate would’ve been put to rest once and for all by the financial crisis we’ve just experienced.”

Six in 10 Workers Hold No Hope of Receiving Social Security Gallup Poll, July 20, 2010

A New Debate Roadmap for America’s Future Voluntary Younger workers can invest part of payroll taxes in to personal accounts The government will mange the investments and insure against market loss Removes the risk Provides an alternative

Preserves the existing Social Security program for those 55 or older. Offers workers under 55 the option of investing over one third of their current Social Security taxes into personal retirement accounts, similar to an existing plan available to Federal employees. Makes the Social Security program permanently solvent.

Impact on Older Americans Individuals 55 and older will remain in the current system and receive the benefits they have been promised, and have planned for, during their working years. All workers younger than 55 will have a choice to stay in the current system or begin contributing to personal accounts beginning in 2012.

The Future of Social Security The Roadmap for America’s Future Provides a viable alternative Gives individuals more control over their retirement investments Makes good on the promises made to older Americans who are already receiving benefits or nearing retirement age Leads to permanent solvency of the Social Security system

References Birnbaum, Jeffrey H. (2005). Private-Account Concept Grew From Obscure Roots. Washington Post, February 22, 2005; Page A01. Available at http://www.washingtonpost.com/wp-dyn/articles/A42525-2005Feb21.html Gallup Poll (2010). Six in 10 Workers Hold No Hope of Receiving Social Security, July 20, 2010. Available at http://www.gallup.com/poll/141449/Six-Workers-Hold-No-Hope-Receiving-Social-Security.aspx Obama, B. (2010). Weekly Address: President Obama Promises to Protect Social Security from Republican Plans to Privatize It. Available at http://www.whitehouse.gov/the-press-office/2010/08/14/weekly-address-president-obama-promises-protect-social-security-republic Prudential Financial (2010). Understanding Social Security. Available at http://www3.prudential.com/signature/Social-Security.html Social Security and Medicare Boards of Trustees (2010). Status of the Social Security and Medicare Programs. Available at http://www.ssa.gov/OACT/TRSUM/index.html

References Shoffner, D., 2010. Distributional Effects of Raising the Social Security Payroll Tax. U.S. Social Security Administration, Office of Retirement and Disability Policy. Retrieved on December 1, 2010 from: http://www.ssa.gov/policy/docs/policybriefs/pb2010-01.html Stone, A., 2010. Pros and Cons of Raising Retirement Age. AOL News. Retrieved on November 30, 2010 from: http://www.aolnews.com/money/article/pros-and-cons-of-raising-the-social-security-retirement-age/19730382 Urban Institute, 2010. Raising the Payroll Tax Rate. Retrieved on November 30, 2010 from: http://www.urban.org/retirement_policy/ssraisepayrolltax.cfm U.S. National Center for Health Statistics, National Vital Statistics Reports (NVSR), Deaths: Final Data for 2006, Vol. 57, No. 14, April 17, 2009. Wolf, Z. B. (2010). The Third Rail: What To Do With Social Security? ABC News, August 16, 2010. Available at http://abcnews.go.com/Politics/democrats-republicans-struggle-social-security-progressive-groups-seek/story?id=11397675