Privatizing Social Security: A Big Boost for the Poor
by Michael Tanner
Michael Tanner is director of health and welfare studies at the Cato Institute.
Executive Summary
Critics of Social Security privatization often warn that such
proposals hold serious dangers for the elderly poor. However, a closer examination
of the evidence indicates that the poor would be among those who would gain
most from the privatization of Social Security.
By providing a much higher rate of return, privatization would
raise the incomes of those elderly retirees who are most in need. Although the
current Social Security system is ostensibly designed to be progressive, transferring
wealth to the elderly poor, the system actually contains many inequities that
leave the poor at a disadvantage. For instance, the low-income elderly are much
more likely than their wealthy counterparts to be dependent on Social Security
benefits for most or all of their retirement income. But despite a progressive
benefit structure, Social Security benefits are inadequate for the elderly poor's
retirement needs.
In addition, the progressivity of Social Security is undermined
by differences in life expectancy. Because the wealthy generally live longer
than the poor, they receive more total Social Security payments over the course
of their lifetimes. In a privatized system, an individual's benefits would not
be dependent on life expectancy. Individuals would have a property right in
their benefits. Any benefits remaining at their deaths would become part of
their estates, inherited by their heirs.
Finally, Social Security drains capital from the poorest areas
of the country, leaving less money available for new investment and job creation.
Privatization would increase national savings and provide a new pool of capital
for investment that would be particularly beneficial to the poor.
For those reasons, Social Security privatization should be viewed
as a big boost to America's poor.
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