Privatization Of Social Security example essay topic

Privatization of social security Today, United State is on the edge for a huge change, President George W. Bush second term agenda to reform the Social Security has left us to think about a question that will have a huge impact on the future of United State, Should Social Security be privatized? Enacted in 1935, under the administration of President Franklin D. Roosevelt and modified many times since-including major change in 1983-Social Security provides benefits to workers and their family members upon retirement, disability, or death. Since the program's origin, the size of those benefits always has depended on the earnings of workers. If the social security is privatized the amount that's collected from each worker's pay check as a Social Security tax upon retirement instead would depend on the size of investments in his or her own personal account. Under the current recession period, privatizing Social Security will increase the federal deficits and debt significantly hence the national savings will decline and of all it could reduce long-term economic growth and the size of the economic pie available to pay for the retirement of the baby boom generation. After privatization for every dollar of national savings that it injects into the economy, the government will have to take another dollar out of the national savings market in the form of Treasury Bonds, thus negating the effect of privatization on the supply of private capital.

Therefore interest rates are likely to be substantially higher, raising the cost to the average household of mortgages, car loans, student loans, credit cards and so on. As a result, the economy would be likely to grow more slowly than it would otherwise. Creating private accounts will increase federal borrowing as at first and would seem unlikely to affect national savings, but privatization is actually more likely to reduce than increase national savings as households that will consider the new accounts will try to increases in their retirement wealth and might well reduce their other saving. Privatization of social security would lead to another important issue of 'individual choices' as they forecast that the individual accounts will match with the performance of the stock market.

Number of surveys done shows that most people lack the knowledge to make even basic decisions about investment. Hence the investment in stock market would be like gambling, leading to more unsecured future of people. Social Security is a tremendously popular program that have helped to lift millions of elderly Americans out of poverty and allowed them to retire in dignity and in decent health. Bush's plan to privatize Social Security would flow money out the National Saving to the economy which would create a deficit in funds to pay the current retiree, as a result increase in the payroll taxes or increase in the personal income tax and might as well reduce the benefits. The transition to a privatized system is costly, since no one advocates ignoring the pensions earned by those already retired or by those who have paid substantial amounts of payroll taxes and are still working. So younger people will fork out the cost of the present mostly pay-as-you-go system and will need to set aside enough money in a privatized plan to provide themselves a good pension.

To deal with this problem, most privatization plans call for cuts in Social Security benefits. They assume the private portfolio will offset that loss. If benefits are reduced, the current beneficiaries and person approaching their retirement will feel that the commitment made them has been broken. Growth of the economy could slow down in coming decades as fewer young people enter the work force and the numerous baby boomers retire. That is why; the actuaries at the Social Security Administration say, the Social Security system will be unable to pay full benefits in near future.

Over the long run, stock prices rise in relation to corporate profits. And profits grow in proportion to growth in the economy. So a slow-growing economy means that stock prices will rise more slowly than in the past. Economist those supporting privatization say, that in near future, the revenue from the payroll tax will begin to fall short. They say that these future shortfalls can be overcome by cutting benefits, increase taxes, cutting spending in other areas or borrowing.

But I think it's important to understand there is no free lunch. The only way to consume more in the future is to save more in the present, which requires a sacrifice of consumption today. By this we mean to bring down the expenditure i.e. cutting down the defense budget and increasing corporate taxes would help to overcome shortfall in the future. Many people believe that privatization would help in uprising from this problem but I think it a gamble. Another way we may be able to protect Social security is by partial privatization which would secure the Social Security for the current working generation and as well as government will be fulfilling their commitments those benefiting from social security.