The Perils of Privatization

OurFuture.org Staff — Mon, 04 Aug 2008 15:08:08 -0400

An idea to radically change Social Security that has already been soundly rejected by the American people—privatization—is being resurrected. If its proponents succeed, 8.6 million older Americans would lose a safety net that keeps them from falling into poverty, according to research released by the Institute for America's Future.

Three years ago, President Bush declared that Social Security faced a financial crisis, and his solution was privatization — taking payroll taxes we all pay into the system and investing a portion of those funds in private stock market accounts.

Now Senator John McCain is bringing the idea back. In March 2008, McCain told the Wall Street Journal, "As part of Social Security reform, I believe that private savings accounts are a part of it — along the lines that President Bush proposed." The idea became more concrete in July 2008, when McCain named economist Martin Feldstein, the "chief intellectual force behind privatization," as a surrogate on his campaign.

In a town-hall event on July 7, 2008, when McCain was asked about the future of Social Security, McCain criticized the fundamental design and structure of the program. He said: "Americans have got to understand that we are paying present-day retirees with the taxes paid by young workers in America today, and that's a disgrace, it's an absolute disgrace and it's got to be fixed," he said.

This report updates research previously published by the Institute for America's Future. It estimates the reduction in Social Security benefits that a typical United States resident can expect and the number of seniors exposed to poverty if Social Security were privatized. The main findings are that for future generations, Social Security privatization would: