Over time, however, the ratio of benefits received to taxes paid declines since those receiving benefits have contributed for more years. The problem facing Social Security is that benefit payments from the Trust Fund are expected to exceed tax collections into the Trust Fund beginning in approximately 2015, and the balance in the fund will hit zero in approximately 2039. Thus, if tax rates and benefit structures remain constant, and if the age distribution of the population evolves as projected, the Trust Fund will be unable to pay promised benefits before mid-century. Assuming society wishes to maintain the current structure of Social Security, under which dedicated taxes flow into the Trust Fund and benefits are paid from the Trust Fund, addressing the current imbalance would seem to require increased Social Security taxes or decreased benefits. Both politicians and the public, however, wish to improve Trust Fund solvency without raising taxes or cutting benefits.
Privatization is alleged to be the solution.
Privatization Privatization means that persons currently working would pay reduced Social Security taxes, and these funds would instead be used to purchase private assets such as government-approved stock or bond mutual funds. These contributions and accrued returns would be paid out as benefits to the owners of the accounts. Since funds placed in private accounts could earn the higher stock market return, it seems that Trust Fund solvency improves because of a reduced need to collect taxes. In fact, privatization worsens Trust Fund solvency, since the Trust Fund receives less revenue but still pays promised benefits to existing and future retirees. The critical point is that privatization does not affect the stream of benefits the government has promised to pay.