Social Security Privatization
In the study, the aim is to determine the possible etiologies for privatizing social security among Americans and the impacts it can cause to the current retiring population. The study also incorporates etiology-based justification to the prove the logic of privatization???s possible effects. In the United States, the government is currently the one handling the task of collecting and funding the social security of its citizens.
However, due to the cyclical pattern of social security and the presence of fund disruptions and social changes (e. . decrease of employment, decrease money retrieves) that caused deficits and insufficient returns, social security for retirees are at risk of beneficial reductions and further adjustments. In order to resolve this event, the issue on social security privatization has been proposed in order to individualize the social security program of an individual based on his or her private accumulated funds throughout his work or terms of employment. Reforms in the social security are occurring cyclically decade after decade.
The main reason is the lack of funds, which is a similar ground for introducing privatization. The main aim of Social Security Privatization is to foster individualism and private management over one???s social security. Discussion Governmental Concerns in Privatizing
According to Auerbach (1996), government intervention may not be enough in curbing the problem as the effectiveness of past initiatives is short-lived while recent plans are ambiguous. Likely a sign of loosing options, one of the more recent revisions to the government program is to implement a combination of rising payroll tax, lowering benefits and requiring a higher retirement age (216).
As justified by the demographical analysis of Ferrara and Tanner (1998), one of the causes of declining confidence in the sustainability of social security is the increasing old-age population and minimal growth of the working population (129). Through time, however, proposed reforms are solving the problem by changing the original contract between the government and the public (Cato Institute 2005). This is shown in recent revisions where the payroll tax rate, benefits and retirement age are the central tools of government competence as a fund manager (Ferrara and Tanner 129).
Truly, reform proposals of 1996 such as those presented by Ball, Schieber and Gramlich permeated the use of private investment vehicle to broaden the investment options of the government (Cato Institute 2005). According to Estes (2001), the governmental crisis that triggers the need to privatize social security are: (a) the de-legitimation of the aging and old age policy, (b) attacks on entitlements of social security as well welfare reforms, and (c) the devolution of federal responsibility to the states and individuals (95).
Hence, the government is faced with the reality and condition of shortening funds for catering the entire American need for social security benefits due to increasing aged demographics and decrease of actively working individuals. Effects of Privatization among Individual Citizens The government can maintain its responsibility as the fund manager for retiree benefits with an improved investing capability. By placing a portion of the social fund to stocks, volume problems can be solved by quality investment vehicle through higher returns.
As supported by Moody (2006), as the problem increases, the portion of stock investment can also be increased which can equalize the fund (206). As the current scheme is showing insignificant efforts to curb this, social security can be best managed on an individual-level (Ludwig von Mises Institute 2005). The information required to administer the social fund optimally is diverse and complex that the state monitoring system failed.
However, according to Schipke (2001), the public has argued that modifying the current trends of social security funding towards privatization will only increase national savings, thereby considering the possibilities of allocating funds to other public or governmental and needs and not exactly within their individual context (22). As a result, the program is debated mostly on political and moral principles rather than economic and objective grounds. With full privatization, the social fund will be placed in a pot that is suitable in managing money (Economic Policy Institute 2008).
The proponents of private pension systems argue that the present societal dilemmas of the public system requires the initiation of social security privatization that should be based on defined contributions rather than stated benefits (New York Times 2005). Added by Adlung (2001), social security privatization has the possibility of providing innovative ways of organizing provision of benefits with state benefit providers being converted into private individuals or the state withdrawing entirely or in part from the direct provision of benefits (11).
Social security results to benefits that current earners would receive in decades away. Furthermore, social security can be organized more privately wherein the state obliges private individuals or employers to directly pay costs that have been previously financed by taxes or from social contributions (Adlung 12). If permissible, full privatization is the one worthy of radical connotation, which will dismantle the government???s imposition of forced savings and application of narrow management.
Although, with privatization of funds, the sense of direct payments may require private individuals to pay higher amounts as compared to non-privatized social systems. However, despite of this negative implication, the advantages of implementing such policy is still well supported by policy analysts (Mitchell, et. al. 351). Conclusion Social security privatization is the most efficient intervention that the government can use to resolve the threat of fund crisis. With the increasing aged demographics and reduction of funds from high-earners, the social security is tightly embraced by the risk of fund insufficiency or even bankruptcy.
Therefore, the need for full privatization is the perceived solution to counter the negative effects of this fund crisis to the security of retirement plans. With autonomy to the money that they work, individuals can use the proceeds of the mandatory payroll tax according to what they deem is right and important. As per the thesis statement, the effects of social security privatization are in line to most advantages especially with the increasing demographical demands in the United States.