While serving as an advisor to President George W. Bush, Republican Senate hopeful Ed Gillespie voiced his support for privatizing Social Security, a stance that Democratic incumbent senator Mark Warner has heavily criticized in debates and attack ads during this election season.
The idea to partially privatize Social Security has long been discussed as a policy proposal. Proponents say individuals whose payroll taxes go toward the Social Security trust fund should be able to invest their pensions in whatever way they see fit.
Fears that an influx of baby boomers entering retirement will create a shortfall in the trust fund have prompted Republicans to propose privatization of Social Security as an alternative to raising taxes or cutting benefits.
Advocates of privatization argue growth from investing savings in the stock market would far outstrip the current system, in which the government invests surplus funds in Treasury bills — which are stable, but grow 2 to 3 percent compared to 7 to 8 percent in the market. Higher returns would mean that Social Security would remain solvent further down the line.
Batten Prof. Ray Scheppach said Warner is most likely using this as an attack because of the hangover surrounding the “Great Recession,” or the 2008 financial collapse during which many retirement plans linked to the stock market lost value.
“People are aware that their 401ks were in trouble during the recession, so putting it on the table would give this issue traction,” Scheppach said. “Before the meltdown it would be more of a non-issue.”
Not all Republicans agree with the proposal. Congressman Robert Hurt, R-VA, said he opposes privatization, but understands the need for reform.
"In addition to being opposed to privatizing Social Security, I am also opposed to allowing Social Security to go bankrupt — which it is currently on the course to do thanks to the utter refusal of President [Barack] Obama and [Senate] Majority Leader Harry Reid to acknowledge and deal with this impending crisis in a good faith way,” Hurt said in an email. “We need real leadership on this critical issue — not more cheap political scare-mongering."
Scheppach said Social Security privatization could be painted as easy money for Wall Street, which would see a windfall from management fees for investing the individual savings accounts.
“It could be construed as a handout to Wall Street because they would hold it and manage and people would pay them a fee,” Scheppach said. “The government could negotiate a lower rate, but then you still have to worry about the instability.”
Democrats generally disapprove of any attempts to cut back or privatize entitlement programs. Fourth-year College student Kat Bailey, the president of the University Democrats, defended the value of the existing program.
“I think that Social Security should not be privatized — it’s important to keep its essential nature as an entitlement,” Bailey said.
Bailey also voiced concerns about risking the savings of millions of Americans in the volatile realm of the market.
“Privatizing [Social Security] and tying it to the stock market, as some have proposed, would make it risky,” Bailey said.
Fourth-year College student Mac McClure, the chair of College Republicans, said he supports a qualified shift toward privatizing Social Security.
“[Reform would involve] changing Social Security and in the future allowing people who are not necessarily in the system to opt in to privatization,” McClure said.
Opting to privatize one’s pension benefits would allow for higher returns — but some experts say that phasing out the old system poses a logistical problem for delivering benefits to seniors whose payments could be interrupted.
McClure said the plan should be a gradual progression, so that those already receiving Social Security would be unaffected.
Describing the push from many to privatize the program, Bailey said such a system would leave Social Security vulnerable to the whims of the market — though she said she sees the surface policy appeal.
“It is supposed to make it more sustainable in the long turn,” Bailey said. “By making it come from private investment rather than a government program, you allow it to prosper rather than dwindle, as it has.”
While Bailey does not advocate for the privatization of Social Security, she did say the system has room for improvement, as many politicians on both sides of the aisle have recognized. She highlighted making adjustments to the way benefits are calculated as popular to many.
McClure emphasized that this will be a hot-button issue moving forward.
“I do think that confronting difficulties with Social Security is something our generation will have to confront,” McClure said. “[Although this is] a major change … I do think that people could definitely adjust.”
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