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Daniel Heck
Professor Laura Gonyea
ECON 100
13 June 2015
Social Security Privatization
With our rising government debt, many people are proposing that some aspects of our
government should be privatized. One of the government sectors in question is Social Security, a
program that appears to be a large contributor to our debt. The United States Social Security
Administration runs two benefit programs: the Old-Age and Survivors Insurance (OASI)
program, and the Disability Insurance (DI) program. To fund these two programs there are two
trust funds in place, with one for each program. The trust funds are funded by payroll taxes. If a
trust fund runs a surplus for the year, the trust fund is allowed to invest its excess money into
special issue non-marketable securities issued by the United States Treasury (Office of the Chief
Actuary). These special issue securities are only available to the Social Security trust funds
(Kunkel). This makes the Social Security program the largest single holder of U.S. national debt
at 16% of total debt (Jackson). Something that confuses many is what this amount of debt means.
The debt is not from the Social Security program running a deficit, and requiring a loan from the
United States Treasury but is in fact the opposite: the United States running a deficit and getting
a loan from the Social Security Trust fund (Patton). What worries many is that these securities
are only backed by the faith and credit of the U.S. Government (Office of the Chief Actuary).
This is not a problem with the Social Security system, but instead with the U.S. Treasury. If the
United States were to be unable to pay back its debt, it would damage the United States credit

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and hurt our countries economy (Gittleson). Congress would most likely be in favor of changing
Social Security so it would not need to redeem its bonds before it would default on them. The
main factor that threatens the solvency of the Social Security trust funds is the projected rise in
the amount of people applying for old-age benefits. If the way Social Security benefits are
calculated stays the same, the trust funds will eventually have to start redeeming bonds before
their maturity, and find other ways to finance the program to meet the increasing amount of
benefits (Office of the Chief Actuary). Many people are proposing an opt-out system where
people can set up their own retirement plan instead of using the Social Security system. This
system would involve dropping the Social Security payroll tax, and instead deducting a similar
amount and placing it into their own retirement trust fund. While some are in favor of the
privatization of the Social Security system, the privatization of the Social Security system would
harm more people that it would benefit.
Privatization of the Social Security program would harm people with disabilities. The
Social Security Administration runs the Disability Insurance program. This program provides
income supplements to people who are physically restricted in their ability to be employed
because of a notable disability. If people were able to opt out of the Social Security program,
then there would be less funding available to the disability insurance program, which would
greatly limit the income of people who have few ways to earn income.
Privatization of the Social Security program would harm those who depend on Social
Security Survivors benefits. The Social Security Administration runs the Old-Age and Survivors
Insurance program. Most who are in favor of privatization of Social Security programs are
mainly worried about the Old-Age part of the Social Security system, and are in favor of setting
up their own retirement fund. However, in addition to setting up their own retirement fund under

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private Social Security, one would also be responsible for a life insurance policy in order to get
the same coverage that they would get under the Social Security program. In addition, those who
choose not to go with the private plan would not be able to receive as many benefits because of
the lower amount of funding to the program.
If Social Security is privatized, people may end up burning their retirement fund with
risky investments, as is the case with many plans held by individuals. The Social Security Trust
Fund currently invests in United States Treasury securities, which are a very safe investment as
show by the United States current AA+ credit rating (Standard & Poor's Ratings Services).
People who are in favor of privatization of the Social Security system, are so because they feel
that they can make more money by investing in riskier, but higher paying, investments. This
would remove the safety of the Social Security system and make it easier for some to be left with
no retirement plan.
Privatization of Social Security will increase income inequality in the United States.
Those who would be able to benefit from a private pension system are able to do so even with
Social Security in place. These people have enough income that they are able to set an amount in
addition to the payroll tax aside for their retirement, and invest their savings in safe investments
that net them enough money for their retirement. People of lower income are not able to set aside
money in addition to the payroll tax. However, if they were able to set aside more money, they
would not be able to make much more than they already do with Social Security. The amount of
money that lower income people would be able to set aside wouldnt be enough to make a
significant profit off of safe investments, so they would either be more likely to invest in riskier
opportunities or have less available for retirement. Currently the pension income for the top
quarter of the United States has increased by 70%, while the pension income for the lower

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classes has only increased by 38% over the last twenty years (Williamson). This inequality gap
will only be increased by the privatization of the Social Security system.
While many say that privatization will help cut costs and provide more income for
pensions, privatization usually ends up increasing long-term costs. In the eighties, the United
Kingdom privatized their pension plan, and now administration and marketing costs eat up 43%
of the investments (ProCon.org). Current plans for the privatization of the Social Security system
in the United States call for a 44% reduction in guaranteed benefits, while plans without
privatization only call for 28% reduction in benefits (Perl). In general, privatization of
government services usually has higher long-term costs or a significant degradation in service
quality (Oppel).
Privatization of Social Security in the United States would do more harm than good.
Privatization of Social Security will harm people with disabilities, harm widows and their
children, increase the gap of income inequality in the United States, harm those who lose their
retirement fund in a risky investment, and reduce the benefits of all those who wish to stay in the
social security program.

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Works Cited
Bernstein, Aaron. "Social Security: Are Private Accounts a Good Idea?" BloombergBusiness 23
January 2005. Web. <http://www.bloomberg.com/bw/stories/2005-01-23/socialsecurity>.
Gittleson, Kim. "What happens in a US debt default?" BBC Business 17 October 2013. Web.
<http://www.bbc.com/news/business-24453400>.
Jackson, Brooks. "Who Holds Our Debt?" 19 November 2013. FactCheck.org. Web. 11 June
2015. <http://www.factcheck.org/2013/11/who-holds-our-debt/>.
Jr., Richard A. Oppel. "Private Prisons Found to Offer Little in Savings." The New York Times
18 May 2011. Web. <http://www.nytimes.com/2011/05/19/us/19prisons.html?_r=0>.
Kunkel, Sue. "Special Issue Securities." 14 January 2013. Offical Social Security Website. Web.
11 June 2015. <http://www.ssa.gov/oact/progdata/specialissues.html>.
Office of the Chief Actuary. "Frequently Asked Questions about the Social Security Trust
Funds." 14 Janurary 2013. Official Social Security Website. Web. 11 June 2015.
<http://www.ssa.gov/oact/progdata/fundFAQ.html>.
Patton, Mike. "Is The Social Security Trust Fund Solvent?" Forbes 12 June 2013. web.
<http://www.forbes.com/sites/mikepatton/2013/06/12/is-the-social-security-trust-fundsolvent/>.
Perl, Libby. "False Promise: How Social Security Privatization Would Sting Young Adults." The
Centry Foundation 8 March 2005. Web.
<http://www.tcf.org/work/social_insurance/detail/false-promise-how-social-securityprivatization-would-sting-young-adults/>.
ProCon.org. "Privatizing Social Security." 12 September 2013. ProCon.org. Web. 11 June 2015.
<http://socialsecurity.procon.org/>.
Standard & Poor's Ratings Services. "United States of America." 10 June 2013. Standard &
Poor's Financial Services LLC. Web. 11 June 2015.
<http://www.standardandpoors.com/en_US/web/guest/ratings/entity/-/orgdetails/sectorCode/SOV/entityId/108458>.
Williamson, John B. Social Security Privatization: Lessons From The United Kingdom. Working
Paper. Boston: Center for Retirement Research at Boston College, 2000. Web.
<http://crr.bc.edu/working-papers/social-security-privatization-lessons-from-the-unitedkingdom/>.