Social Security’s non-existent makeover moment
You may have heard about proposals to privatize Social Security.
We all know the system is heading toward a dangerously low level of funds, and we know something needs to be done.
Privatization is one possible solution – an often-debated one with a long history.
There’s no one consistent picture of what privatization would mean, and, according to several economists, it’s not a proposal currently under consideration. But it previously was a hot topic of discussion, and that’s where some of today’s concern might come from.
“Pretty much any Republican who worked on Social Security from around 1995 through 2006 supported diverting some of the payroll tax to private accounts,” says Marc Goldwein, senior policy director at the Committee for a Responsible Federal Budget in Washington.
In 2005, Goldwein points out, Social Security was running big surpluses.
“Conventional wisdom on the right and even amongst some Democrats was that those surpluses should instead be diverted into personally owned retirement savings accounts,” he says.
If the Donald Trump administration wants to try privatizing, they’d have to make it an almost immediate priority, says Robert Hiltonsmith, a senior policy analyst at Demos, a policy organization in New York.
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‘Siphoning off money’
Former President George W. Bush proposed privatizing Social Security 11 years ago and the initiative went nowhere, says Joshua Gotbaum, guest scholar at the Brookings Institute, “because at the time it was seen as siphoning off money.”
Then came the financial crisis of 2008-09, which seemed to end the talk about privatizing Social Security.
But the rumors don’t seem to disappear altogether.
“My guess is, people who are worried about privatization have combined two facts,” Gotbaum says. “That it was proposed, and (that) within the past 10 years, privately managed accounts have gone through the floor in terms of value.”
In 2008, people who were counting on individual retirement accounts, whether through a workplace or via an IRA, saw the values of those accounts drop by about a third.
Also fueling fears is the now generally known realization that the Social Security funds are dipping precipitously.
That was then, this is now
But you shouldn’t worry about privatization or a total system makeover.
“Most, but not all, conservatives and moderates have changed (or) evolved their views since then,” Goldwein says.
Both 2005 and the 1990s were very different times from now. Until 2005, privatization had a lot of support, but the crash in 2008 and the end of Social Security surpluses killed the idea.
“Perhaps most importantly,” Goldwein says, “Social Security is now running deficits, not surpluses.”
That translates into no excess payroll tax revenue available to put in individual accounts. Social Security is a pay-as-you-go system, Goldwein explains, in which current taxes pay for current beneficiaries: “If you take the money and put it in private accounts, you’d have no money to pay for the current benefits.”
Just as there was bipartisan support for reforming the system, there is now bipartisan support for rescuing it.
“Even in a sharply divided [political] world, Social Security is so important,” Gotbaum says, noting that both parties believe this. “(The question is), can Washington stop fighting with water pistols long enough to reach an agreement on something that people really care about?”
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