The Push to Privatize Social Security

cross-posted from Main Street Insider

This week, we take a look at a proposal to end Social Security “as we know it.” H.R. 2109, the Savings Account for Every American Act of 2011 would establish a path for individuals to opt out of Social Security in exchange for a “defined contribution” system.

90 Second Summaries: Season 2, Episode 15

H.R. 2109: The Savings Account for Every American Act of 2011

Introduced 6/3/2011

Sponsor: Rep. Pete Sessions (R-TX32)

Click here to download this summary (pdf)

Cosponsors: 6 (0 Democrats, 6 Republicans). Full list at http://thomas.loc.gov/cgi-bin/bdquery/z?d112:HR02109:@@@P

Senate Companion: None as of July 11.

Status: Assigned to Oversight Subcommitee on Federal Workforce. Also assigned to Ways and Means. No action scheduled. Probably will not move unless House Republicans summon the political will to directly pursue Social Security reform. To date, they have been reluctant to do so.

Purpose: Social Security is perhaps the most successful and popular government program in American history, but it currently faces some modest but legitimate long-term challenges. The special trust fund, built up since 1983 to plan for a future glut of Baby Boomer retirements and longer life expectancy, is projected to run out in 2036, at which point dedicated tax receipts would only fund about 75% of current benefit levels.

Republicans have long sought to privatize Social Security, shifting it from a “defined benefit” to a “defined contribution” program. Rep. Sessions has repeatedly introduced the so-called S.A.F.E. Act as one such option, and in an atmosphere where tackling long-term debt is a hot political issue, it has garnered some support and attention this year.

Summary: H.R. 2109 creates a voluntary privatized version of Social Security. Specifically, it:

• Creates an option for wage earners to divert their 6.2% payroll tax contributions to private retirement accounts called S.A.F.E. Accounts instead of the OASDI trust fund, or “traditional” Social Security;

• After 15 years of an individual’s S.A.F.E. Account participation, allows employers to divert their share of payroll tax contributions to that account as well;

• Account funds can be invested in any bank or other entity approved by the Treasury Secretary;

• Exempts S.A.F.E. Account contributions from income taxation;

• Directs the Office of Personnel Management to examine possibilities for the extension of these accounts to federal civilian and military employees in place of the federal pension program,

• Prohibits participants from receiving any Social Security benefits, even on any contributions made prior to opting in or any employer share of contributions to the program.

CBO Score: None provided. Based on past analysis of privatization plans, it is likely to drastically exacerbate the Social Security shortfall by redirecting dedicated tax dollars away from funding current retiree benefits.

Supporters: some Republicans, free-market oriented think tanks, Wall Street

• Supporters, who often refer to Social Security as a Ponzi Scheme, see this plan as a way to transition away from a government-run pension system to one that more directly encourages personal responsibility.

Opponents: Democrats, senior citizens, labor-affiliated organizations, etc.

• Opponents view the S.A.F.E. Act as a bill that, despite its reassuring name, completely destabilizes Social Security, perhaps by design. In addition to subjecting Americans’ retirement income to the volatility of the stock market, it would draw down the Trust Fund much faster than the status quo scenario portends and jeapordize the benefits of traditional program recipients.

Further links

Full bill text: http://www.govtrack.us/congress/billtext.xpd?bill=h112-2109

Official CRS Summary: http://www.govtrack.us/congress/bill.xpd?bill=h112-2109&tab=summary

2011 Social Security Trustees’ Report: http://www.ssa.gov/oact/TRSUM/index.html

Talking Points Memo on the bill: http://tpmdc.talkingpointsmemo.com/2011/06/house-republicans-look-to-privatize-social-security.php

Reason Foundation article defending the S.A.F.E. Act: http://reason.com/blog/2011/06/08/people-under-55-social-securit

Daily Kos post criticizing the S.A.F.E. Act: http://bit.ly/mfYMNN