Social Security provides the majority of income for most seniors and is a vital insurance system for disabled workers and dependent spouses. Income provided by Social Security keeps 13 million seniors from living in poverty.
McCain’s proposal, which would allow workers to divert their social security payments into private accounts, is risky, expensive, a financial boon to Wall Street, and would undermine, not shore up, the long-term solvency of Social Security.
This is a debate that’s been had before. When Bush proposed a similar plan in 2005, analysts were able to assess its impact and debunk its myths. Here’s what they concluded:
Private accounts are risky: Bush and McCain tout the potential for higher returns as a reason to shift Social Security payments into the stock market. But an analysis by Robert Shiller of Yale University of a standard “lifetime” personal account, as envisioned by Bush and McCain, show they actually lose money one-third of the time. Furthermore, projections of rosy growth used to justify personal accounts stand in stark contrast to the projections of slower growth that indicate there may be an eventual shortfall in Social Security.
Private accounts are expensive: Bush’s 2005 plan, supported by John McCain, to divert Social Security payments to private accounts, would have unnecessarily added an additional $17.7 trillion to the national debt by 2050, according to an analysis by James Horney and Richard Kogan. This borrowing was needed entirely to fund the creation of private accounts, not to shore up Social Security solvency.
Private accounts provide a boon for Wall Street: Wall Street firms advocate Social Security privatization for a reason: they’ve got a lot to gain. A 1997 estimate by actuary David Langer for the Washington Post projected that Wall Street firms would make $240 billion in fees during the first 12 years of a privatization scheme– this number is undoubtedly much higher now.
Private accounts won’t fix Social Security: The CBO recently projected that Social Security will continue to pay full benefits for the next 30 years. After 2041, the system will pay out 78% of benefits. Private accounts wouldn’t address this shortfall, they would cause more damage by requiring benefit cuts and shortening Social Security’s long-term outlook.
What McCain won’t tell you: The cost of closing the long-term shortfall in Social Security is less than the cost of extending Bush’s tax breaks for the richest 1% of Americans, as John McCain has proposed.
But McCain seems less interested in saving Social Security than gambling it away.