• Background: President Bush proposal
• Debate: Good for economic growth and national savings v. Bad for workers, high costs
• Country Comparison: UK, Chile, Argentina, Australia, Mexico
• Recent Legislation

Background

• Most experts agree that there are three ways to avoid a Security problem: raising payroll taxes, cutting retiree benefits, or increasing returns on Social Security revenue. The first two options are not politically popular, so solutions center on the third.
• Another possible solution to the Social Security conflict would be to increase the cap on payroll-taxable income, or to remove the cap entirely. In 1985, 90% of total American payroll was taxed by Social Security. In 1990, this number had fallen, due to increases in individual incomes, to 85%. This option is popular with the American public.
• President Bush called for partial privatization of social security that would entail a combination of publicly-funded accounts and private accounts. The private accounts could be invested in stocks, bonds, or mutual funds.
• In May 2001, President Bush established the President's Commission to Strengthen Social Security, a 16-member panel that delivered 3 proposals for social security reform. Each proposal involved diverting a certain percentage of wages from the social security fund into private accounts for personal investment.

Debate

• Besides addressing the gap in Social Security benefits, privatization would increase investment in private enterprise which would boost domestic growth and economic opportunities that would result in greater productivity and lower inflation and interest rates.
• Privatization shifts the risks onto workers. Investments that turn out poorly will leave many in poverty or create huge expenses for the government. The administrative and regulatory costs would be restrictively high.

Country Comparison

• The United Kingdom, Australia, Chile, Mexico, and Argentina have full or partial privatize pension systems and country garuantees a minimum pension. Countries with large liabilities, countries that operate public-private pension systems, and countries that heavily rely on deficit financing of the transition are more likely to face heavier burdens, smaller increases in national saving, and larger risks to their fiscal spending (Source: Congressional Budget Office).
• According to a study conducted by the Congressional Budget Office, the experiences of these countries demonstrate that personal retirement accounts tend to cost more than a universal pension program such as Social Security. (Source: Congressional Budget Office)

Recent Legislation