Should Social Security be privatized?

BE economist members look at both sides of the issue

invest the surplus in stocks, earmarking a portion of the current Social Security tax for deposit in a personal savings account and establishing government-approved private savings accounts that are managed entirely by individuals. Advocates of privatization argue private savings accounts would increase returns while promoting greater economic growth.

For blacks, the outcome of privatization could be a costly gamble. Most critics have focused on the excessive market risk of privatization, which might create a situation whereby individuals who make bad investment decisions are left with no coverage. Others argue that savings couldn’t be adequately protected from inflation and younger workers would have to save for their own retirement and support current retirees.

Privatization would erode the social insurance nature of the current system by diminishing benefits for low-income workers, survivors and the disabled. Despite the fact that the economy is experiencing the greatest peacetime economic expansion in history, 30% of blacks still live in poverty. In 1996, more than two-fifths of the black seniors were kept out of poverty because of Social Security benefits. For all races that year, 9% of aged beneficiaries were poor. But without Social Security, this poverty rate would have been at 50%, and it would have been even higher for blacks.

In the end, privatization would increase retirement income for those who win in the stock market. But for others it would only increase poverty and economic hardship.

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