Argument: Private accounts would require costly new govt bureaucracy

Issue Report: Privatizing social security


Greg Anrig and Bernard Wasow. “Twelve reasons why privatizing social security is a bad idea.” The Century Foundation.: “REASON #8: PRIVATE ACCOUNTS WOULD REQUIRE A NEW GOVERNMENT BUREAUCRACY. From the standpoint of the system as a whole, privatization would add enormous administrative burdens. The government would need to establish and track many small accounts, perhaps as many accounts as there are taxpaying workers—147 million in 1997. Many workers’ accounts would be so small that they would be of no interest to profit-making firms. The average taxable earnings of a worker are roughly $25,000 (in 1997, the last year with complete data, the average taxable earnings of the workers who paid into the system were $22,400). Two percent of $25,000 comes to $500 per year. Francis X. Cavanaugh, who has supervised the thrift savings program for federal employees, a program that privatization advocates often point to as a model, has argued thatthe costs of administering so many small accounts would overwhelm any benefits to be gained from the stock market.14 For example, he estimates that the government would need to hire ten thousand highly trained workers just to oversee the accounts and answer questions from workers. In contrast, today’s Social Security has minimal administrative costs amounting to less than 1 percent of annual revenues.”