President George W. Bush’s recent push for the establishment of an ownership society features partial privatization of Social Security by diverting a portion of the payroll tax into individual accounts.
“Privatizing Social Security is a dangerous idea,” says Merton Bernstein, a nationally recognized expert on Social Security. “Despite widespread criticism and misunderstanding, Social Security is in good shape for the future and its funding can be made solid by modest measures. In contrast, privatization would cost $3.75 trillion, with the largest share paid by young employees. The outcomes of private accounts hinge on the undependable performance of investment industry — a hazardous situation.”
Bernstein, the Walter D. Coles Professor Emeritus at the Washington University School of Law, will speak about the issue of privatizing U.S. Social Security at the Western Hemisphere Conference of the International Society for Labor Law and Social Security Sept. 17 in Queretaro, Mexico.
He warns that the current alarming state of private pension plans highlights the danger of privatizing Social Security.
“Private pensions are giving the U.S. economy a double whammy — plans cover less than half the workforce despite having the single largest federal tax subsidy of any economic activity,” says Bernstein, author of The Future of Private Pension, which won the Elizur Wright Award of the American Risk and Assurance Association.
“In addition, widespread plan underfunding and bankruptcies threaten retiree expectations, leading to talk of a taxpayer-paid bailout like that for failed savings and loan associations,” Bernstein says.
“Privatizing Social Security does two major things: it takes the social out of Social Security and it undermines its security,” he says. “The first results from the elimination of assured benefits to spouses and children and the forced demise of disability insurance. The second comes from reducing assured income. Indeed, shifting to private accounts would be as sensible as taking the mortgage money to Las Vegas.”