What's Next for Social Security? Partial Privatization?

Abstract

GENERATIONS Distinguishing substance from spin. Current projections suggest that in the absence of some policy changes, the Social Security trust fund will be depleted in about 2038 (Board of Trustees, 2001). Based on these projections as well as related projections about the graying of the nation's age structure (Congressional Budget Office, 2001), many analysts have argued that we are facing a crisis that will require major structural changes in Social Security. The most controversial of the proposed changes is the call for the introduction of funded individual accounts, also referred to as the of Social Security. Some advocates of partial privatization see the addition of individual accounts as the end goal. Others see this addition as a first step toward eventual full privatization (Ferrara and Tanner, 1998; Peterson, 1999). The idea of partially (or fully) privatizing Social Security is not new. Analysts associated with the libertarian Cato Institute have been nuking proposals along this line since the early 1980s (Ferrara, 1985). However, until the mid 1990s such proposals were identified with the radical right and not taken seriously by mainstream policy analysts. This situation changed during the mid 1990s, largely as a result of the attention given to proposals calling for the partial privatization of Social Security by both the Bipartisan Commission on Entitlement and Tax Reform (1995) and the Advisory Council on Social Security (1997). The reports of both these advisory bodies became the focus of the press and many mainstream members of Congress. The more recent report of the President's Commission to Strengthen Social Security (2001) (Strenthening Social Secuity and Creating Personal Wealth for All Americans: Report of the President's Commission, hereafter the Commission Report), which will be the focus of this article, represents an effort to build fu-ther support for the idea of partially privatizing Social Security. THE PRESIDENT'S COMMISSION During the 2000 presidential election, George W. Bush repeatedly promised that if lected he would solve the projected Social Security funding shortfall and that his solution would include the introduction of individual, or personal, accounts. Workers would be able to divert a portion of their Social Security payroll tax into individual accounts that they would own, control, and be able to pass along to their heirs in the event of death. In May of 2001, President Bush appointed the President's Commission to Strengthen Social Security. Half of the sixteen members were Republicans, and half were Democrats, but all were handpicked by President Bush, and all were on record as favoring individual accounts. From the outset, the structure of the commission was controversial. While it did include as many Democrats as Republicans, it did not include any of either party who were critical of individual accounts, and it failed to include representatives acceptable to several important Social Security stakeholder groups, most notably, organizations representing the elderly, organized labor, women, African Americans, and the disabled. Such groups criticized the composition of the commission at the outset and, not surprisingly, were highly critical of the final Commission Report. For a summary of the criticisms from such groups see the various editorials and reports distributed by the Institute for America's Future at http://www.ourfuture.org. Why did the president put together a commission that so transparently lacked bipartisan support? This is a question that policy analysts will be debating for next several years. One possibility is that he had no intention of using this commission to formulate legislation that he would submit to Congress for action in either 2001 or 2002. Rather, his goals may have been to keep the idea of privatization on the national agenda, to help build political support for the idea, and to discharge a promise to his backers in the 2000 election by at least taking a step toward the introduction of individual accounts. …