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Chapter 15. Can America Lead? > Dare We Privatize Social Security?

Dare We Privatize Social Security?

The Bush Administration is proposing a partial privatization of Social Security by diverting a portion of payroll taxes into individual accounts. A bipartisan presidential commission has backed private accounts as a way of improving Social Security and boosting the private savings rate of Americans. The basic notion is that invested accounts would, over time, give a larger pension than Social Security as presently provided (via the general revenues of the government) can do. Proposals offered by House members would permit small accounts to be invested in stock and bond index funds selected by the government; larger accounts could be placed in private brokerage and mutual fund accounts of the individual's choosing. Benefits would generally be paid via annuities.

The experience of the dot-com/telecom bubble doesn't provide much confidence that putting the Social Security pension money of individuals into corporate equities via the stock market is sensible when financial manias are happening. Nor can the public have much confidence in the proposal. The reforms proposed previously in this book would help to make privatization of Social Security advisable.


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