KEY TAKEAWAYS
- Left-leaning politicians warn that the budget cuts to the Social Security Administration that Elon Musk’s Department of Government Efficiency is making are a precursor to privatizing Social Security.
- Some presidents in the past have proposed privatizing Social Security, which could solve the program’s funding problems.
- However, the transition would be difficult, with either retirees getting a cut in benefits or current workers’ required contributions increasing.
Democrats and Independents have warned that cuts to the Social Security Administration’s budget budget are a step toward privatizing Social Security, a move that experts say could help solve the program’s decreasing funding but would be a difficult transition.
As part of the Department of Government Efficiency’s goal to reduce federal spending, the SSA plans to cut or avoid spending $800 million this fiscal year and cut more than 12% of its workforce. While neither the White House nor DOGE have definitively said that their goal is to privatize Social Security, DOGE advisor Elon Musk’s comments have concerned some left-leaning politicians.
“[Musk has] been on television the last couple of days talking exactly about Social Security, Medicare and Medicaid and what he intends to do—privatize it,” said Rep. John Larson (D-CT) during a committee meeting last week.
Additionally, politicians say Musk’s criticisms of the program’s older database and calling Social Security “the biggest Ponzi scheme of all time” are intended to turn the public’s attitude about SSA negative.
“Why do you make it look like it’s a broken, dysfunctional system? The reason is to get people to lose faith in the system, and then you can give it over to Wall Street,” said Sen. Bernie Sanders (I-VT) in an interview with CNN.
What Does This Mean For Beneficiaries?
As the main trust fund for Social Security is expected to expire in 2033 and benefits would reduce by 17%, some have seen privatization as the program’s savior. Former Presidents Bill Clinton and George W. Bush both proposed privatization actions, but the attempts were abandoned.
If Bush had been successful, Americans would have had four times the amount of retirement money, based on the return of the S&P 500 Index over time, said BlackRock CEO Larry Fink at a BlackRock retirement summit on Wednesday, as reported by CNBC.
“The problem we have now, we have a plan called Social Security that doesn’t grow with the economy,” Fink said.
Today, Social Security is funded by payroll taxes, which are pooled into a trust fund to pay benefits to current retirees and invest in U.S. Treasury securities. Social Security benefit amounts are determined by a formula that takes a person’s average earnings and the age at which they retire.
Comparatively, privatized Social Security would transfer the management of the funds to the private sector, with potentially some form of partial government funding or guarantees. It would likely eliminate payroll taxes in lieu of individual contributions for private accounts, which could be invested in higher-earning but higher-risk investments.
However, it may be difficult to transfer to a private plan. Payroll taxes would need to be diverted into private accounts, yet that leaves current retirees without any funding. This means retirees’ benefits might have to be cut, or current workers would have to pay into both their private accounts and payroll taxes until the transition is complete.
According to a recent survey of those 60 and older by SeniorLiving.org, only 11% were in favor of privatizing Social Security.