Supplemental Security Income

Supplemental Security Income

Supplemental Security Income (or SSI) is a monthly stipend provided to aged, (legally deemed to be 65 or older), blind, or disabled persons based on need, paid by the United States Government.[1] The program is administered by the Social Security Administration.[2] Payments are made from the US Treasury general funds,[3] not the Social Security trust funds. The payments are generally paid on the 1st of the month, for the current month (as opposed to social security benefits which are paid for the prior month).[4] The program was created in 1974 to replace various state-administered programs which served the same purpose, as a way to standardize in the level of benefits[5] through the addition of Title XVI (Title 16) of the Social Security Act.[6]


  • 1 History
  • 2 Eligibility
    • 2.1 Aged, Disabled, or Blind
    • 2.2 Income
    • 2.3 Resources
    • 2.4 Residency
  • 3 Benefit Details
    • 3.1 Calculation
    • 3.2 Federal Living Arrangements
    • 3.3 Deeming Income
  • 4 Potential Residual Benefits to Other Programs
  • 5 Notes
  • 6 Sources
  • 7 External links
  • 8 See also


The legislation creating the program was a result of President Nixon's effort to reform the nation's welfare programs. At that time, each state had similar programs under the Aid to the Blind, Aid to the Permanently and Totally Disabled, and Aid to the Elderly. The Nixon Administration thought these programs should be federalized and run by the Social Security Administration. Thus, SSI was created to eliminate the differences between the states including different disability standards and income and resources requirements which many perceived as irrational and/or unfair. The SSI program officially began in January 1974 by federalizing states' programs, designating the Social Security Administration (SSA) to administer the SSI program. SSA was selected because it had been administering a nationwide disability program under the Social Security Disability Insurance Benefits (DIB) program since 1956 under the Old Age, Survivors, and Disability Insurance (OASDI) programs associated with FICA payroll taxes.


In order to be eligible to receive SSI benefits, an individual must prove the following:[7]

  • That he/she is age 65 or older, blind, or disabled
  • That he/she legally resides in one of the 50 states, the District of Columbia, Northern Mariana Islands or is the child of military parent(s) assigned to permanent duty outside of the US, or is a student (certain restrictions apply) temporarily abroad.
  • That he/she has income and resources within certain limits (see subsections)
  • The individual must also apply for the benefits.

Furthermore, an individual may find himself or herself ineligible if he/she is a resident of a public institution from the first day of a month through the last day of the same month,[8] fails to apply for all other benefits for which he/she may be eligible (including Social Security benefits), has an unsatisfied warrant or violates parole conditions, fails to give SSA permission to contact any financial institution for financial records, or is outside the US for 30 consecutive days (with some exclusions).[9] Numerous restrictions have been placed on who is eligible for the benefit, which is considered a welfare benefit. However, unlike social security benefits (Title II), earned work credits are not a requirement for SSI.[10]

If insured for disability and not currently receiving benefits, an applicant for SSI also applies for Social Security Disability Insurance Benefits (DIB), and the standard by which applicants are judged to be disabled is virtually the same for both SSI and DIB

The decision as to whether an individual is disabled is made by the various state Disability Determination Services (DDS), which contract with the federal government to make such determinations. Although the DDS's are state agencies, they follow federal rules. This arrangement arose from the inception of OASDI, when some key members of Congress considered the Social Security Disability program should be administered employing federalism, fearing expansion of the federal government.

Aged, Disabled, or Blind

In order to be eligible for SSI, a person must meet the definition of being aged, disabled, or blind.

Aged - Being deemed aged consists of attaining the age of 65 or older.[11] The Social Security Administration, like the United States Government in general, follows English common law and considers a person to attain an age the day before his or her birthday.[12]

Disabled - Being deemed disabled consists of meeting the general disability definition used by the Social Security Administration:

"Disability means inability to engage in any SGA by reason of any medically determinable physical or mental impairment which can be expected to result in death, or has lasted or can be expected to last for a continuous period of not less than 12 months.

"The 1967 amendments specified that workers shall be determined to be under a disability only if the physical or mental impairment or impairments are of such severity that the individual is not only unable to do his previous work but cannot, considering his age, education, and work experience, engage in any other kind of substantial gainful work which exists in the national economy. This is regardless of whether:

  • such work exists in the immediate area in which the claimant lives, or
  • a specific job vacancy exists, or
  • the claimant would be hired if he/she applied for work.

"The statute also specifies that 'work which exists in the national economy means work which exists in significant numbers either in the region where such individuals lives or in several regions of the country.'"[13]

Substantial gainful activity (SGA), for the year 2008, is the ability to earn $940 gross income in a month's period for most disabled individuals, and $1570 for those whose disability includes blindness.[14]

In addition, children under the age of 18 can be determined to be disabled for SSI purposes "if the individual has a medically determinable impairment or combination of impairments that causes marked or severe functional limitation(s), and can be expected to result in death, or has lasted or can be expected to last for a continuous period of not less than 12 months."[15]

Blind - Being deemed blind consists of meeting the following definition:

"central visual acuity of 20/200 or less in the better eye with the use of a correcting lens. An eye which has a limitation in the field of vision such that the widest diameter of the visual field subtends an angle no greater than 20 degrees should also be considered as having a central visual acuity of 20/200 or less."[16]

In addition, for SSI purposes, an individual is considered blind regardless of the period of time they are expected to be blind or if they are performing substantial gainful activity.[17]


One of the requirements to receive SSI is that the individual's income must be below certain limits.[18] These limits may vary based on the state the individual lives in, his/her federal living arrangement, the number of people living in the residence, and the type of income. The limit varies on all of these factors and is described in the below section on benefit computation.


Another requirement for SSI is that the individual's resources are below a certain limit. Generally, this amount is $2000 for a single individual and $3000 for a married individual (between them and their spouse).[19] However, conditional benefits may be paid if a substantial portion of the resources are considered non-liquid, resources that cannot be sold within 20 working days,[20] if they agree to sell the resources at their current market value within a specified period and repay the money after the non-liquid property is sold.[21]

However, not all actual resources are counted in calculating an individual's or couple's resources for SSI purposes.[22]


SSI benefits are not paid solely to US citizens, but may also be paid to aliens legally residing in the United States.[23] Conversely, citizens may find themselves ineligible because they do not currently reside within the United States;[24] exceptions apply for children of military parent(s) who were born overseas, were disabled or became blind overseas, or first applied for benefits overseas[25] and for students studying abroad who were eligible for SSI in the month prior to leaving the US, whose absence will be for less than 1 year, and who are studying to enhance their ability to perform substantial gainful activity, sponsored by an educational institution in the US, and would not be available to the individual in the US.[26] Several restrictions apply to the eligibility of aliens however. These include being in a "qualified alien" category and meeting an exception condition.[27]

There are seven categories of qualified aliens based on Department of Homeland Security (DHS) immigration statuses. This includes:[28]

  • those admitted as Lawfully admitted for permanent residence (LAPR)
  • those granted conditional entry pursuant to section (a)(7) of the Immigration and Nationality Act (INA)
  • those paroled into the US under section 212(d)(5) of the INA for a period of at least 1 year
  • those who are refugees admitted to the US under section 207 of the INA
  • those granted asylum under section 208 of the INA
  • those whose deportation is being withheld under sections 243(h) or 241(b)(3) of the INA
  • Cuban/Haitian entrants under section 501(e) of the Refugee Education Assistance Act of 1980.

There are 5 exception conditions. These include:[29]

  • having already been receiving SSI on 8/22/1996
  • having 40 qualifying credits (using SSI as a supplement to Retirement or Disability Insurance Benefits) when in LAPR status
  • being a veteran, active duty member of the U. S. military service, or being the spouse or dependant child of an individual who is
  • having been lawfully presiding in the US on 8/22/1996 and being blind and disabled (excluding aged individuals)
  • being deemed an alien of one of five immigration statuses within 7 years of being eligible for SSI

Benefit Details

Payments for SSI are made for the first day of the month, unless the first of the month is on a Weekend or a legal holiday, in which case the payment is made on the first day prior that is not a weekend or a legal holiday. The minimum benefit is $1 (USD).[30]

The SSI program, or Title XVI of the Social Security Act, provides monthly federal cash assistance of up to $637 (as of 2008) for an individual to help meet the costs of basic needs of food, shelter and clothing. In most states, SSI eligibility usually assures concurrent access to important medical coverage under the various state Medicaid programs and sometimes access to Section 8 housing benefits. In some states, supplemental payments are made by the state, increasing the cash assistance available through SSI. For example, the state of California increases the cash assistance by up to $233 per month as of 2007.

SSI takes into consideration what the income and resources the applicant or recipient has. Persons who have qualified for Social Security disability benefits, may receive SSI during the 5-month waiting period, if they meet the income and resource requirements. The resource limit, for single individuals, is $2000 and for married individuals, is $3000. Resources include anything that is cash or can be turned into cash, such as art, mineral rights, stocks or other investments, or real property. In some situations, however, these resources can be excluded. SSI benefits are generally reduced dollar-for-dollar by any unearned income, such as TANF, alimony, unemployment insurance, Social Security Disability or Retirement benefits. Earned income, from wages or self-employment, is treated differently, and more favorably. In other words, a person may be ineligible if he or she receives $750 per month in alimony, but may not be if $750 per month is received from working. It is permissible, subject to regulations, to work and continue to receive SSI. Even if a person no longer receive SSI payments because his or her income from wages or self-employment is too high, he or she may still be eligible for receive Medicaid under so-called 1619 provisions. SSI also takes into consideration the income of so-called "deemors," i.e., a spouse lives with the recipient, a parent or parents if they live with a child recipient under the age of 18, or, in some cases, the sponsor of an alien.

SSI is not retroactive, unlike Social Security disability. Social Security determines the month you have protected for an SSI application by the date of your intent to file, so long as it is expressed to Social Security and an application is filed within 60 days. You may call Social Security toll-free to set up a disability interview. You cannot currently file online for SSI. However, you may apply for DIB online and add SSI application via a phone appointment. If you call the last day of the month, and the interview is set for the second week of the proceeding month, your SSI eligibility will still go back to the month you actually called and set up the appointment. Medicaid benefits usually start the first month in which you qualify both medically and financially, although actual SSI payments do not start until the next month. For example, a person calls in to set up an appointment for February. January remains the month application, however, no benefits are paid during the application month.

If you are an immigrant you must have been a legal resident of the United States before the Welfare Reform Act of 1996 took effect (August 22, 1996) in order to qualify for SSI. If you arrive after that date you may not qualify and be denied by SSI benefis. However, the regulations governing alien eligibility for SSI are complex and contain many exceptions, for instance asylee, refugees, spouses of a member of the military or some lawfully admitted for permanent residence (LAPR)may be "qualified aliens" so if you are an LAPR for at least 5 years and have a valid I-551 issued by Bureau of Citizenship and Immigration and have worked in the United States as well you may qualify. If you want to know if you might qualify for SSI, you should contact the Social Security Administration for an appointment.

Any month that you are a fugitive felon, that is have an outstanding or unsatisfied warrant, you are ineligible for benefits, in most states. A recent court decision somewhat mitigated this rule, in some northeastern states. If you are incarcerated for an entire calendar month, you are ineligible for benefits. If you are in a medical facility, paid for by Medicaid (at least 50%), your payment may be reduced to $30.


Calculation of an SSI benefit begins with the Federal Benefit Rate (FBR). The FBR for 2008 is $637.00.[31]

Federal Living Arrangements

Deeming Income

Potential Residual Benefits to Other Programs

Qualified Medicare Beneficiaries (QMB)
Food Stamps
Section 8 (HUD)

Social Security debate (United States)

Social Security debate (United States)

This article concerns proposals to change the Social Security system in the United States. Social Security is a social insurance program officially called "Old-Age, Survivors, and Disability Insurance" (OASDI), in reference to its three components. It is primarily funded through a dedicated payroll tax.

President George W. Bush has called for a transition to a combination of a government funded program and personal accounts ("individual accounts" or "private accounts") through partial privatization of the system. The personal accounts could be invested in various managed investment funds similar to the government employees' Thrift Savings Plan, in which the investor can choose between Treasury Bills, Corporate bonds and a stock market fund. Since the Report of the 1994-1996 Advisory Council on Social Security, the Social Security program has been the subject of widespread debate. After President Bush highlighted the issue in his 2005 State of the Union Address, the debate became especially intense.

Federal Reserve Chairman Ben Bernanke said on October 4, 2006 "Reform of our unsustainable entitlement programs should be a priority." He added, "the imperative to undertake reform earlier rather than later is great." Bernanke delivered the prepared remarks to the Economics Club of Washington.[4]

No candidate for major office from either of the two major political parties has suggested that Social Security simply be eliminated, or overhauled without regard to the impact on the financial expectations of current or near-future recipients of Social Security benefits. Nevertheless, many of the proposals being debated could fundamentally change the system.


  • 1 The current Social Security system
    • 1.1 Current projections
  • 2 Framing the debate
  • 3 Proposals
    • 3.1 Privatization
      • 3.1.1 Partial privatization
        • Other proposals
      • 3.1.2 Pros and cons of privatization
        • Management costs of privatization
        • A Windfall for Wall Street?
        • Libertarian criticism
      • 3.1.3 Analysis
    • 3.2 Stabilization
    • 3.3 Bush's proposal
      • 3.3.1 Substance of the dispute over Bush's proposal
      • 3.3.2 Politics of the dispute over Bush's proposal
  • 4 Notes
  • 5 References
  • 6 See also
  • 7 External links
    • 7.1 Articles
    • 7.2 Speeches

The current Social Security system

Main article: Social Security (United States)

Social Security is funded through the Federal Insurance Contributions Act [5] (FICA), which is a payroll tax paid equally by the employee and the employer. Covered workers are eligible for retirement benefits and for disability benefits; if a covered worker dies, his or her spouse and children may receive survivors' benefits. The program does not have individual accounts and tax receipts are not invested on behalf of the worker. Instead, current receipts are used to pay current benefits (the system known as "pay-as-you-go"), as is typical of some insurance and defined-benefit plans.

In each year since 1983, tax receipts and other income have exceeded benefit payments and other expenditures, most recently (in 2005) by more than $170 billion. [6] The accumulated surpluses are invested in Treasury securities (treasuries) issued by the U.S. government, which are deposited in the Social Security Trust Fund. At the end of 2005, the Trust Fund stood at $1.85 trillion. Since the surpluses are not invested in the private sector, but are used for other purposes within the federal budget, some politicians say that the Trust Fund is "empty" or has been spent. [7]

Current projections

OASDI Income and Cost Rates Under Intermediate Assumptions. Source: 2004 OASDI Trustees Report.[1]
OASDI Income and Cost Rates Under Intermediate Assumptions. Source: 2004 OASDI Trustees Report.[1]

According to some current projections based on the system's current revenue and benefit structure, expenses will exceed tax receipts beginning in 2020 or 2022. The Trust Fund is projected to continue to grow for several years thereafter because the analyses assume interest income from loans made to the US Treasury is available to cover the difference. The funds from loans made have been spent along with other revenues in the general funds in satisfying annual budgets. At some point, however, absent any change in the law, the Social Security Administration will finance payment of benefits through the net redemption of the assets in the Trust Fund. Because those assets consist solely of U.S. government securities, their redemption will represent a call on the federal government's general fund, which for decades has been borrowing the Trust Fund's surplus and applying it to its expenses to partially satisfy budget deficits. To finance such a projected call on the general fund, some combination of increasing taxes, cutting other government programs, selling government assets, or borrowing would be required.

The balances in the Trust Fund are projected to be depleted either by 2042 (OASDI Trustees' projection), or by 2052 (Congressional Budget Office's projection) assuming proper and continuous repayment of the outstanding Treasury Notes. At that point, under current law, the system's benefits would have to be paid from the FICA tax alone. Revenues from FICA are projected at that point to be sufficient to cover only about 73% of projected expenses if no change is made to the current tax and benefit schedules.

Cumulative OASDI Income Less Cost, Based on Present Law Tax Rates and Scheduled Benefits. Source: 2004 OASDI Trustees Report.[2]
Cumulative OASDI Income Less Cost, Based on Present Law Tax Rates and Scheduled Benefits. Source: 2004 OASDI Trustees Report.[2]

Framing the debate

Retirees and others who receive Social Security benefits have become an important bloc of voters in the United States. Indeed, Social Security has been called "the third rail of American politics" — meaning that any politician sparking fears about cuts in benefits by touching the program endangers his political career. Accordingly, advocates of major change in the system generally argue that drastic action is necessary because Social Security is facing a "crisis" — Bush described it as a "structural problem" [8] and then, in his weekly radio address of January 15, 2005, said that Social Security "is on the road to bankruptcy" [9]. In succeeding months, he pressed this theme even more forcefully, arguing in April that "without changes this young generation of workers will see a UFO before they see a Social Security check." [10]

Not everyone agrees. The Center for Economic and Policy Research says that "Social Security is more financially sound today than it has been throughout most of its 69-year history" [11] and that Bush's statement should have no credibility [12]. Liberal economist Paul Krugman, deriding what he called "the hype about a Social Security crisis", writes:

[T]here is a long-run financing problem.
But it's a problem of modest size. The [CBO] report finds that extending the life of the trust fund into the 22nd century, with no change in benefits, would require additional revenues equal to only 0.54 percent of G.D.P. That's less than 3 percent of federal spending — less than we're currently spending in Iraq. And it's only about one-quarter of the revenue lost each year because of President Bush's tax cuts — roughly equal to the fraction of those cuts that goes to people with incomes over $500,000 a year.
Given these numbers, it's not at all hard to come up with fiscal packages that would secure the retirement program, with no major changes, for generations to come.[1]

Other critics allege that Bush is opposed to Social Security on ideological grounds, regarding it as a form of governmental redistribution of income to the wealthy, which libertarians strongly oppose. [13] Critics, such as Nobel Laureate economist Milton Friedman, say that Social Security redistributes wealth from the poor to the wealthy.[14][2] Workers must pay 12.4%, including a 6.2% employer contribution, on their wages below the Social Security Wage Base ($102,000 in 2008), but no tax on income in excess of this amount.[15] Therefore, high earners pay a lower percentage of their total income so some would argue this results in a regressive tax. Others would argue the tax is a flat tax. The benefit paid to each worker is also calculated using the wage base on which the tax was paid. Changing the system to tax all earnings without increasing the benefit wage base would result in the system being a progressive tax.

Furthermore, wealthier individuals generally have higher life expectancies and thus may expect to receive larger benefits for a longer period than poorer taxpayers, often minorities.[16] A single individual who dies before age 62, who is more likely to be poor, receives no retirement benefits despite his years of paying Social Security tax. On the other hand, an individual who lives to age 100, who is more likely to be wealthy, is guaranteed payments that are more than he paid into the system.[17]

A factor working against wealthier individuals and in favor of the poor with little other retirement income is that Social Security benefits become subject to federal income tax based on income. The portion varies with income level, 50% at $32,000 rising to 85% at $44,000 for married couples in 2008. This does not just affect those that continue to work after retirement. Unearned income withdrawn from tax deferred retirement accounts, like IRA's and 401(k)'s, counts towards taxation of beneits.

Still other critics focus on the quality of life issues associated with Social Security, claiming that while the system has provided for retiree pensions, their quality of life is much lower than it would be if the system were required to pay a fair rate of return. The party leadership on both sides of the aisle have chosen not to frame the debate in this manner, presumably because of the unpleasantness involved in arguing that current retirees would have a much higher quality of life if Social Security legislation mandated returns that were merely similar to the interest rate the U.S. government pays on its borrowings. [18]



There are countries other than the U.S. that have set up individual accounts for individual workers, which allow workers leeway in decisions about the securities in which their accounts are invested, which pay workers after retirement through annuities funded by the individual accounts, and which allow the funds to be inherited by the workers' heirs. Such systems are referred to as 'privatized.' Currently, the United Kingdom, Sweden, and Chile are the most frequently cited examples of privatized systems. The experiences of these countries are being debated as part of the current Social Security controversy.

In the United States in the late 1990s, privatization found advocates who complained that U.S. workers, paying compulsory payroll taxes into Social Security, were missing out on the high rates of return of the U.S. stock market. They likened their proposed "Private Retirement Accounts" (PRAs) to the popular Individual Retirement Accounts (IRAs) and 401(k) savings plans. The sharp downturn of the stock market in 2000–2002 temporarily moved the issue of privatization to the back burner. But in the mean time, several conservative and libertarian organizations that considered it a crucial issue, such as the Heritage Foundation and Cato Institute, continued to lobby for some form of Social Security privatization.

[edit] Partial privatization

Bush has discussed the "partial privatization" of Social Security since the beginning of his presidency. But only since winning reelection in 2004, has he begun to invest his "political capital" in pursuing changes in earnest.

In May of 2001, he announced establishment of a 16-member bipartisan commission "to study and report specific recommendations to preserve Social Security for seniors while building wealth for younger Americans", but this general instruction was narrowed by the specific directive that it consider only how to incorporate "individually controlled, voluntary personal retirement accounts". [19]. The "Commission to Strengthen Social Security" (CSSS) issued a report in December 2001 (revised in March 2002), which described three alternative plans for partial privatization:

  • Plan I: Up to two percent of taxable wages could be diverted from FICA and voluntarily placed by workers into private accounts for investment in stocks, bonds, and/or mutual funds.
  • Plan II: Up to four percent of taxable wages, up to a maximum of $1000, could be diverted from FICA and voluntarily placed by workers into private accounts for investment.
  • Plan III: One percent of wages on top of FICA, and 2.5 percent diverted from FICA up to a maximum of $1000, could be voluntarily placed by workers into private accounts for investment [20].

In Bush's 2005 State of the Union speech, which sparked the current debate, it was Plan II of CSSS's report that he outlined as the starting point for changes in Social Security (see "Bush's proposal" section below).

Other proposals

A range of other proposals have been suggested for partial privatization, such as the 7.65% Solution. One, suggested by a number of Republican candidates during the 2000 elections, would set aside an initially small but increasing percentage of each worker's payroll tax into a 'lockbox', which the worker would be allowed to invest in securities. Another eliminated the Social Security payroll tax completely for workers born after a certain date, and allowed workers of different ages different periods of time during which they could opt to not pay the payroll tax, in exchange for a proportional delay in their receipt of payouts.

Both wholesale and partial privatization pose questions such as: 1) How much added risk will workers bear compared to the risks they face under current system? 2) What are the potential rewards? and 3) What happens at retirement to workers whose privatized risks turn out badly?

According to the AARP:[3]

Revenue raisers

  1. Raise the cap to 90% of taxable earnings
    Approximately 43% reduction in shortfall
    • PRO:Affects only 6% of taxpayers.
      Can be phased in gradually.
      Not a new tax, restores prior policy.
    • CON:It’s a tax increase for higher earners.
  2. Increase payroll tax rate
    100% reduction in shortfall
    • PRO:A gradual increase would maintain 75-year solvency.
    • CON:Tax increase would adversely affect workers.
  3. Raise taxes on benefits
    10% reduction in shortfall
    This amounts to a reduction in the benefit to high wage earners so the pros and cons are purely subjective.
  4. Preserve tax on estates over $3.5 million
    27% reduction in shortfall
    • PRO:Improves tax progressivity, affects only 1/2 of 1% of all estates.
    • CON:Would alter the president’s tax-cutting plans.
  5. Extend coverage to newly hired state and local government employees
    10% reduction in shortfall
    • PRO:Makes Social Security universal, with all sharing obligations and benefits.
    • CON:State and local governments employees might get less retirement benefits.
  6. Invest a portion of the trust funds in indexed funds
    15-45% reduction in shortfall
    • PRO:In the most optimistic scenario, the trust would earn higher returns on its investment.
    • CON:Since the US government has a debt, this amounts to borrowing money in bonds to invest in the stock market, or margin trading.
      Cost of transition between $600 billion - $3 trillion.
      Less likeley scenarios involve lower or negative returns.
Cost trimmers
  1. Adjust the COLA
    18% reduction in shortfall
    • PRO:Saves money.
    • CON:This would set the standard of living afforded by Social Security to the level the individual could achieve at their date of initial benefit.
      The current plan allows for an increased standard of living based on productivity increases made in the US economy.
  2. Increase normal retirement age to 70
    36% reduction in shortfall
    • PRO:Links retirement more closely to life expectancy and increased worker health since program inception.
    • CON:Reduces benefits.
      Unfair to those forced to retire early but not otherwise eligible for other Social Security benefits.
  3. Index benefits to prices, not wages
    100% reduction in shortfall
    • PRO:Could eliminate shortfall.
    • CON:Reduces the growth in scheduled benefits over time.

This solution would reduce the shortfall because wages historically grow faster than prices via a process known as economic growth. Because Social Security benefits are currently indexed to wages, benefits are scheduled to grow faster than inflation, resulting in an increase in the monthly benefit check as the economy becomes more productive.

It is important to note that there is disagreement about what actually constitutes a "benefit cut". The Center for Budget and Policy Priorities considers any reduction in future promised benefits to be a "cut". However, others dispute this assertion because under any indexing strategy the purchasing power of Social Security checks would never decrease, they would just increase at varying rates.

A variant of this approach, proposed by President Bush, is called "progressive indexing". Progressive indexing would maintain benefits for the lowest wage workers while phasing out the currently larger benefits for higher-wage workers. The net result is essentially one level of benefits for all workers who earn at least $20,000 per year.

From the Congressional Research Service:[21]

“progressive indexing,” would index initial benefits for low earners to wage growth (as under current law), index initial benefits for high earners to price growth (resulting in lower projected benefits compared to current-law promised benefits), and index benefits for middle earners to a combination of wage growth and price growth.

Pros and cons of privatization

Generally, privatization advocates believe that individuals are the best decision makers about how much risk they should undertake with their own retirement funds but do not show in any detail how individuals would have this power under as-yet-not-described privatization plans. The reality almost surely would be that individuals would be able to make choices at defined times among a limited set of investment options chosen by a government panel. This may fall very short of individuals truly being given the power of making their own decisions about how to invest their retirement money. Stabilization proponents (see 'Stabilization' section below) counter that if those risks turn out badly, a political push by the same individuals to raise state benefits will be all but inevitable, which means that the risks such individuals may be willing to take under a privatized system are not without moral hazard.

Supporters of the current system maintain that its combination of low risks and low management costs, along with its social insurance provisions, work well for what the system was designed to provide: a baseline income for citizens derived from savings. From their perspective, the major deficiency of any privatization scheme is risk. Like any private investments, PRAs could fail to produce any return, and could even suffer a reduction in principal.

Advocates of privatization have long criticized Social Security for lower returns than the returns available from other investments, and cite numbers based on historical performance. The Heritage Foundation, a conservative think tank, calculates that a 40 year old male with an income just under $60,000, will contribute $284,360 in payroll taxes to the Trust Fund over his working life, and can expect to receive $2208 per month under the current program. They claim that the same 40 year old male, investing the same $284,360 equally weighted into treasuries and high-grade corporate bonds over his working life, would own a PRA at retirement worth $904,982 and paying an annuity of up to $7372 per month, (assuming that the dollar volume of such investments would not dilute yields so that they are lower than averages from a period in which no such dilution occurred.) Furthermore, they argue that the "efficiency" of the system should be measured not by costs as a percent of assets, but by returns after expenses (e.g. a 6% return reduced by 2% expenses would be preferable to a 3% return reduced by 1% expenses).[22] Other advocates state that because privatization would increase the wealth of social security users, it would contribute to consumer spending, which in turn would cause economic growth.

Supporters of the current system argue that the long-term trend of U.S. securities markets cannot safely be extrapolated forward, because stock prices relative to earnings are already at very high levels by historical standards. They add that an exclusive focus on long-term trends would ignore the increased risks that privatization would cause. The general upward trend has been punctuated by severe downturns. Critics of privatization point out that workers attempting to retire during any future such downturns, even if they prove to be temporary, will be placed at a severe disadvantage.

They also point out that, even conceding for sake of argument that such highly optimistic numbers are true, they fail to count what the transition will cost the country as a whole. Gay Thayer, chief economist for A.G. Edwards, has been cited in the mainstream media saying that the cost of privatizing — estimated by some at $1 trillion to $2 trillion — would worsen the federal budget deficit in the short term, and "That's not something I think the credit markets would appreciate."[23] If, as in some plans, the interest expenditure on this debt is recaptured from the private accounts before any gains are available to the workers, then the net benefit could be small or nonexistent. And this is really a key to understanding the debate, because if, on the other hand, a system which mandated investment of all assets in U.S. Treasuries resulted in a positive net recapturing, this would illustrate that the captive nature of the system results in benefits that are lower than if it merely allowed investment in U.S. Treasuries (purported to be the safest investment on Earth, probably safer than Social Security given the general taxing powers of the federal government).

Meanwhile some investment-minded observers among those who do not support privatization, point out potential pitfalls to the Trust Fund's undiversified portfolio, containing only treasuries. Many of these support the government itself investing the Trust Fund into other securities, to help boost the system's overall soundness through diversification, in a plan similar to CalPERS in the state of California.

There are also substantive issues that do not involve economics, but rather the role of government. Conservative Nobel Prize-winning economist Gary S. Becker, currently a graduate professor at the University of Chicago, wrote in a February 15, 2005 (PDF)[24]article that "[privatization] reduce[s] the role of government in determining retirement ages and incomes, and improve[s] government accounting of revenues and spending obligations." He compares the privatization of Social Security to the privatization of the steel industry, citing similar "excellent reasons."

Management costs of privatization

Opponents of privatization also decry the increased management costs that any privatized system will incur. In Chile and the United Kingdom, as much as 30% of savings are reportedly being absorbed by fees. Since the U.S. system is passively managed — with no specific funds being tied to specific investments within individual accounts, and with the system's surpluses being automatically invested only in treasuries — its management costs are very low.

Advocates of privatization at the Cato Institute, a libertarian think tank, counter that, "Based on existing private pension plans, it appears reasonable to assume that the costs of administering a well-run system of PRAs might be anywhere from a low of roughly 15 basis points (0.15%) to a high of roughly 50 basis points (0.5%)."[25] They also point to the low costs of index funds (funds whose value rises or falls according to a particular financial index), including an S&P 500 index fund whose management fees run between 8 basis point (0.08%) and 10 basis points (0.10%).[26]

A Windfall for Wall Street?

Opponents also claim that privatization will bring a windfall for Wall Street brokerages and mutual fund companies, who will rake in billions of dollars in management fees.

Austan Goolsbee at the University of Chicago has written a study, "The Fees of Private Accounts and the Impact of Social Security Privatization on Financial Managers," which calculates that, "Under Plan II of the President's Commission to Strengthen Social Security (CSSS), the net present value (NPV) of such payments would be $940 billion," and, "amounts to about one-quarter (25%) of the NPV of the revenue of the entire financial sector for the next 75 years," and concludes that, "The fees would be the largest windfall gain in American financial history." [27] Other analysts argue that dangers of a Wall Street windfall of such magnitude are being vastly overstated. Rob Mills, vice president of the brokerage industry trade group Securities Industry Association, in a report published in December 2004, calculates that the proposed private accounts might generate $39 billion in fees, in NPV terms, over the next 75 years. This amount would represent only 1.2% of the sector's projected NPV revenues of $3.3 trillion over that timeframe. He concludes that privatization is "hardly likely to be a bonanza for Wall Street."[28] At the same time the watchdogs at FactCheck estimate that the financial management sector will receive only 0.05% and 0.27% of its total revenues from fees on PRAs.[29]

Nevertheless, Goolsbee's study has been deemed damaging enough at the Heritage Foundation that they have produced their own study, written by David C. John, specifically to counter Goolsbee.[30]

Libertarian criticism

Libertarians commonly criticize Social Security's pay-as-you-go funding as being closer to an illegal Ponzi scheme — where investors are paid off out of the funds collected from more investors, instead of out of profits from business activity — than it is to a Trust Fund.[31] William G. Shipman of the Cato Institute argues:

In common usage a trust fund is an estate of money and securities held in trust for its beneficiaries. The Social Security Trust Fund is quite different. It is an accounting of the difference between tax and benefit flows. When taxes exceed benefits, the federal government lends itself the excess in return for an interest-paying bond, an IOU that it issues to itself. The government then spends its new funds on unrelated projects such as bridge repairs, defense, or food stamps. The funds are not invested for the benefit of present or future retirees.[32]

This criticism is not new. In his 1936 presidential campaign, Republican Alf Landon called the Trust Fund "a cruel hoax". The Republican platform that year stated, "The so-called reserve fund . . . is no reserve at all, because the fund will contain nothing but the government's promise to pay." [33] Defenders of pay-as-you-go respond that the system is a Ponzi scheme only if the United States intends to repudiate its debts. On the occasions when the Social Security Administration has needed to redeem some of those securities, they have always been honored. Although Social Security benefits to future retirees do not represent debt in the legal sense (Fleming v. Nestor, 1960), the treasuries held by the Trust Fund do. The Social Security Administration, while noting the "superficial analogy between pyramid or Ponzi schemes and pay-as-you-go insurance programs," has described the latter as "a simple pipeline" that "could be sustained forever . . . [i]f the demographics of the population were stable". [34]

Proponents argue that a privatized system would open up new funds for investment in the economy, and would produce real growth. They claim that the treasuries held in the current Trust Fund are covering consumption rather than investments, and that their value rests solely upon the continued ability of the U.S. government to impose taxes. Opponents respond that there would be no net new funds for investment, because any money diverted into private accounts would produce a dollar-for-dollar increase in the federal government's borrowing from other sources to cover its general deficit.[35]


The claims of the probability of future difficulty with the current Social Security system are largely based on the annual analysis made of the system and its prospects and reported by the governors of the Social Security system. While such analysis can never be 100% accurate it can at least be made using different probable future scenarios and be based on rational assumptions and reach rational conclusions, with the conclusions being no better (in terms of predicting the future) than the assumptions on which the predictions are based. Some but not all of the projections reported by the governors of the Social Security system show a possible future problem - but at least the predictions are made using a real analysis. With these predictions in hand it is possible to make at least some prediction of what the future retirement security of Americans who will rely on Social Security might be. Until analysis similar in rigor and in its assumptions about the economy are made and published for the personal account scheme there is no factual basis of any sort for an effective rational evaluation of "personal accounts." It would be extremely useful (it would seem) to see such an analysis but the proponents of "personal accounts" have not shown anything of that nature.


The other major sector of opinion is that privatization accomplishes nothing, that rational investors would neutralize any benefit of, effectively, selling Treasury Notes and buying equities (see Modigliani-Miller theorem) — that it places more risk on individual workers than it gives back in rewards, since they cannot effectively vote their shares, but have no more protection than any other owner of common stock — and that it does nothing to change the budget situation in the future, that if and when the trust fund runs out, there will still be the choice of raising taxes or cutting benefits, or both.

The Trust Fund, under current law (blue) and under privatization (red) as per "Model 2" considered in the 2001 commission report.  (Graph from  "Social Security Trust Fund"[3]by
The Trust Fund, under current law (blue) and under privatization (red) as per "Model 2" considered in the 2001 commission report. (Graph from "Social Security Trust Fund"[3]by

Believers in this position argue that "privatization" is a fraud, that there is no specific Social Security crisis, but instead a general budget crisis: namely that the federal government outside of Social Security is already in persistent deficit, that revenues are far too low to cover expenditures, and that absent this problem being solved, it does not matter how social security is set up.

Stabilization advocates say that the projected "deficits" in Social Security are identical to the "prescription drug benefit" enacted in 2002. They say that demographic and revenue projections might turn out to be too pessimistic — and that the current health of the economy exceeds the assumptions used by the Social Security Administration.

Stabilization advocates argue that the correct plan is to fix Medicare, which is the largest underfunded entitlement, repeal the 2001–2004 revenue reductions, balance the budget, and then, when a growth trendline emerges from these steps, alter the Social Security mix of taxes, benefits, benefit adjustments and retirement age to avoid future deficits. The age at which one begins to receive Social Security benefits has been raised several times since the program's inception.

Bush's 2001 advisory board discussed ways that the system could be adjusted to deal with the projected future deficit without privatization. For example, the income subject to Social Security taxation is capped, with the result that people with higher incomes pay a lower percentage tax than do people with lower incomes. Eliminating the cap would remove this regressive tax feature and would reduce or eliminate the projected deficit. The commission stated:

Making all earnings covered by Social Security subject to the payroll tax beginning in 2002, but retaining the current law limit for benefit computations (in effect removing the link between earnings and benefits at higher earnings levels), would eliminate the deficit. If benefits were to be paid on the additional earnings, 88 percent of the deficit would be eliminated. (Social Security Advisory Board report[36] July 2001 (rev. ed.), p. 23)

Stabilization advocates argue that when the risks, overhead costs and borrowing costs of any "privatization" plan are taken together, the result is that such a plan has a lower expected rate of return than "pay as you go" systems. They point out the high overheads of "privatized" plans in England and Chile, and that while "risk for reward" applies to the individual, the macro picture means that for every winner, there will be losers, and the government will be responsible for preventing those losers from slipping into poverty. This will mean an increase in expenditures for anti-poverty programs for the elderly, as it has for both Chile and Argentina.

Plans such as the Diamond-Orszag plan propose stabilization of Social Security, by gradually ending the process by which the general fund has been borrowing from payroll taxes. This requires increased revenues devoted to Social Security. Their plan, as with several other Social Security stabilization plans, relies on gradually increasing the retirement age, raising the ceiling on which people must pay FICA taxes, and slowly increasing the FICA tax rate to a peak of 15% total from the current 12.4%.

Bush's proposal

On February 2, 2005, President Bush made Social Security a prominent theme of his State of the Union Address. He outlined, in general terms, a proposal based on partial privatization. After a phase-in period, workers currently less than 55 years old would have the option to set aside four percentage points of their payroll taxes in individual accounts that could be invested in the private sector, in "a conservative mix of bonds and stock funds". Workers making such a choice might receive larger or smaller benefits than if they had not done so, depending on the performance of the investments they selected.

Although Bush described the Social Security system as "headed for bankruptcy", his proposal would not affect the projected shortfall in Social Security tax receipts. Partial privatization would mean that some workers would pay less into the system's general fund and receive less back from it. Administration officials said that the proposal would have a "net neutral effect" on the system's financial situation, and that Bush would discuss with Congress how to fill the projected shortfall.[37] The Congressional Budget Office had previously analyzed the commission's "Plan II" (the plan most similar to Bush's proposal) and had concluded that the individual accounts would have little or no overall effect on the system's solvency, and that virtually all the savings would come instead from changing the benefits formula. [38]

As illustrated by the CBO analysis, one possible approach to the shortfall would be benefit cuts that would affect all retirees, not just those choosing the private accounts. Bush alluded to this option, mentioning some suggestions that he linked to various former Democratic officeholders. He did not endorse any specific benefit cuts himself, however. He said only, "All these ideas are on the table." He expressed his opposition to any increase in Social Security taxes. Later that month, his press secretary, Scott McClellan, ambiguously characterized raising or eliminating the cap on income subject to the tax as a tax increase that Bush would oppose. [39]

In his speech, Bush did not address the issue of how the system would continue to provide benefits for current and near-future retirees if some of the incoming Social Security tax receipts were to be diverted into private accounts. A few days later, however, Vice President Dick Cheney stated that the plan would require borrowing $758 billion over the period 2005–2014; that estimate has been criticized as being unrealistically low. [40].

On April 28, 2005, Bush held a televised press conference at which he provided additional detail about the proposal he favored. For the first time, he endorsed reducing the benefits that some retirees would receive.

The current system sets the initial benefit level based on the retiree's past wages. Each past year's wage amount is brought forward to the year of retirement by being increased according to average wage growth in the interim, so that the retiree is credited with what a comparable wage would be at the time of retirement. The benefit level is based on the 35 highest years.

One mechanism that had been suggested for reducing expenses is to replace this wage indexing with price indexing. Initial benefits would be lower if the past wages were brought forward based on the changes in the consumer price index, which tends to grow more slowly than average wages. Bush endorsed a version of this approach suggested by financier Robert Pozen, called "progressive indexing", which would mix price and wage indexing in setting the initial benefit level. The "progressive" feature is that the less generous price indexing would be used in greater proportion for retirees with higher incomes. The San Francisco Chronicle gave this explanation:

Under Pozen's plan, which is likely to be significantly altered even if the concept remains in legislation, all workers who earn more than about $25,000 a year would receive some benefit cuts. For example, those who retire in 50 years while earning about $36,500 a year would see their benefits reduced by 20 percent from the benefits promised under the current plan. Those who earn $90,000 — the maximum income in 2005 for payroll taxes — and retire in 2055 would see their benefits cut 37 percent. [41]

As under the current system, all retirees would have their initial benefit amount adjusted periodically for price inflation occurring after their retirement. Thus, the purchasing power of the monthly benefit level would be frozen, as it is now.

Substance of the dispute over Bush's proposal

Although Bush's State of the Union speech left many important aspects of his proposal unspecified, debate began on the basis of the broad outline he had given. Opponents argued that the plan would result in high transition costs, with the midline estimates to be in the vicinity of over $2 trillion over 10 years. For workers, privatization would mean smaller social security checks, with the likelihood based on historical returns of increased compensation from returns on investments. There is debate over the advisability of subjecting workers' retirement money to market risks.

Bush's proposal, according to its supporters, would compensate young future retirees for needed cuts in money spent on benefits in the future, and thus spare a "crisis" in Social Security, which would occur when it exhausts its "trust fund" surplus in 2042, according to the SSA, or 2052, according to the CBO. Each worker's benefit would be the combination of a minimum guaranteed benefit and the return on the private account. The proponents' argument is that optimistically projected high returns and ownership of the private accounts would allow lower spending on the guaranteed benefit, but possibly without any net loss of income to beneficiaries. The savings to the government would come through a mechanism called a "clawback", where profits from private account investment would be taxed, or a benefit reduction meaning that individuals whose accounts underperformed the market would receive less than current benefit schedules, although, even in this instance, the heirs of those who die early could receive increased benefits even if the accounts underperformed historical returns. Proponents of privatization argue that Social Security is headed for "bankruptcy" and therefore benefits are on a path to be reduced anyway when the "trust fund" is expended. Finally, they argue that private accounts have the added benefit of being politically and morally more difficult to take away than mere transfer payments, if the overburdened labor force of the future exerts political pressure for relief.

Opponents, citing the CBO analysis, argue that the upfront borrowing costs mean that this plan would not produce a lower total deficit in the Social Security fund against current law until around 2030. The expected savings projected do not include interest on this debt nor the benefit of paying back the debt in cheaper (inflated) dollars, nor is the expected borrowing figured into their GDP and productivity assumptions in the model. Opponents also dispute the economic projections used, pointing out that they require low economic growth, and still have high stock market returns, which would require that stock price/earnings ratios reach historically unsustainable levels of 70, or corporate earnings/revenue ratios to triple over the course of the next 70 years. Neither of these events has happened in the course of modern economic history, and therefore, they argue, the projections that are used to support the plausibility of the privatization plans are contradictory. The proponents have so far not produced or published any analysis of the proposed plan nor a description of it adequate for anyone to make an analysis.

Politics of the dispute over Bush's proposal

The political heat has been turned up on the issue ever since Bush mentioned changing Social Security during the 2004 elections, and since he made it clear in his nationally televised January speech that he intends to work to partially privatize the system during his second term.

  • To assist the effort Republican donors were asked after the election to help raise $50 million or more for a campaign in support of the proposal, with contributions expected from such sources as the conservative Club for Growth and the securities industry. [42] (In 1983, a Cato Institute paper had noted that privatization would require "mobilizing the various coalitions that stand to benefit from the change, ... the business community, and financial institutions in particular ..." [43]
Soon after Bush's State of the Union speech, the Club for Growth began running television advertisements in the districts of Republican members of Congress whom it identified as undecided on the issue. [44]
  • On January 16, 2005, the New York Times reported internal Social Security Administration documents directing employees to disseminate the message that "Social Security's long-term financing problems are serious and need to be addressed soon," and to "insert solvency messages in all Social Security publications". [45]

Coming soon after the disclosure of government payments to commentator Armstrong Williams to promote the No Child Left Behind Act, the revelation prompted the objection from Dana C. Duggins, a vice president of the Social Security Council of the American Federation of Government Employees, that "Trust fund dollars should not be used to promote a political agenda."

In the weeks following his State of the Union speech, Bush devoted considerable time and energy to campaigning for privatization. He held "town meetings" at many locations around the country. Attendance at these meetings was controlled to ensure that the crowds would be supportive of Bush's plan. In Denver, for example, three people who had obtained tickets through Representative Bob Beauprez, a Republican, were nevertheless ejected from the meeting before Bush appeared, because they had arrived at the event in a car with a bumper sticker reading "No More Blood for Oil". [46]

  • Opponents of Bush's plan have analogized his dire predictions about Social Security to similar statements that he made to muster support for the 2003 Invasion of Iraq; see, for example, this advertisement[47](80k external PDF file).
  • A dispute between the AARP and a conservative group for older Americans, USA Next, cropped up around the time of the State of the Union speech. The AARP had supported Bush's plan for major changes in Medicare in 2003, but it opposed his Social Security privatization initiative. In January 2005, before the State of the Union Address, the AARP ran advertisements attacking the idea. In response, USA Next launched a campaign against AARP. Charlie Jarvis of USA Next stated: "They [AARP] are the boulder in the middle of the highway to personal savings accounts. We will be the dynamite that removes them." [48]

The tone of the debate between these two interest groups is merely one example among many of the tone of many of the debates, discussions, columns, advertisements, articles, letters, and white papers that Bush's proposal, to touch the "third rail," has sparked among politicians, pundits, thinktankers, and taxpayers.

Some of the critics of Bush's plan argued that its real purpose was not to save the current Social Security system, but to lay the groundwork for dismantling it. They note that, in 2000, when Bush was asked about a possible transition to a fully privatized system, he replied: "It's going to take a while to transition to a system where personal savings accounts are the predominant part of the investment vehicle. ... This is a step toward a completely different world, and an important step." [49] His comment is consonant with the Cato Institute's reference in 1983 to a "Leninist strategy" for "guerrilla warfare against both the current Social Security system and the coalition that supports it." [50]

Immediately after Bush's State of the Union speech, a national poll brought some good news for each side of the controversy. [51] Only 17% of the respondents thought the Social Security system was "in a state of crisis", but 55% thought it had "major problems". The general idea of allowing private investments was favored by 40% and opposed by 55%. Specific proposals that received more support than opposition (in each case by about a two-to-one ratio) were "Limiting benefits for wealthy retirees" and "Requiring higher income workers to pay Social Security taxes on ALL of their wages". The poll was conducted by USA Today, CNN, and the Gallup Organization.

Bush's April press conference, in which for the first time he expressly endorsed benefit reductions, sparked disagreement about where the burden would fall. Bush referred to "people who are better off". [52] Many media summaries accepted the characterization that "wealthy" retirees would be affected, and that benefits for lower-income people would grow. [53] Opponents countered that middle-class retirees would also experience cuts, and that those below the poverty line would receive only what they are entitled to under current law. [54] Democrats also expressed concern that a Social Security system that primarily benefited the poor would have less widespread political support. [55] Finally, the issue of private accounts continued to be a divisive one. Many legislators remained opposed or dubious, while Bush, in his press conference, said he felt strongly about the point.

It has been suggested that "even without broad Congressional or public support, President Bush just may... enact his private accounts idea... [b]y executive order" as he did with his faith based initiative, parts of the war on terror, and relaxation of business regulations. [56]

Despite Bush's emphasis on the issue, many Republicans in Congress were not enthusiastic about his proposal. In late May 2005, House Majority Whip Roy Blunt listed the "priority legislation" to be acted on after Memorial Day; Social Security was not included. [57] In September, some Congressional Republicans pointed to the budgetary problems caused by Hurricane Katrina as a further obstacle to acting on the Bush proposal. [58] Congress did not enact any major changes to Social Security in 2005, or before its pre-election adjournment in 2006.

During the campaigning for the 2006 midterm election, Bush stated that reviving his proposal for privatizing Social Security would be one of his top two priorities for his last two years in office. [59] In 2007, he continued to pursue that goal by nominating Andrew Biggs, a privatization advocate and former researcher for the Cato Institute, to be deputy commissioner of the Social Security Administration. When the Senate did not confirm Biggs, Bush made a recess appointment, enabling Biggs to hold the post without Senate confirmation until December 2008. [60]

Biggs, in a 1999 white paper, wrote: " ... Social Security reform featuring Personal Retirement Accounts doesn't send just one liberal sacred cow to the slaughterhouse. It sends the whole herd

Australian Security Intelligence Organisation

Australian Security Intelligence Organisation

Coordinates: 35°18′01.72″S, 149°09′05.53″E

Australian Security Intelligence Organisation
Australian Security Intelligence Organisation
Agency overview
Formed 16 March 1949
Jurisdiction Commonwealth of Australia
Headquarters Canberra, Australian Capital Territory, Australia
Employees 1,356 (at 30 June 2007)[1]
Annual Budget $234.8 m AUD (2006–07)[1]
Minister Responsible The Hon. Robert McClelland MP, Attorney-General
Agency Executive Paul O'Sullivan, Director-General of Security
Parent agency Attorney-General's Department

The Australian Security Intelligence Organisation (ASIO) is the domestic counter-intelligence and security agency of Australia which is responsible for the protection of the country and its citizens from espionage, sabotage (especially sabotage of critical infrastructure), politically-motivated violence, attacks on the Australian defence system, terrorism and acts of foreign interference.[2]

ASIO is comparable to the United Kingdom Security Service (MI5). As with MI5 officers, ASIO officers have no police powers of arrest and are not armed.[1][3] ASIO operations requiring police powers are co-ordinated with the Australian Federal Police or with State and Territory police forces.[3]

ASIO Central Office is in Canberra, with a local office being located in each mainland state and territory capital.[4]


  • 1 Command, control and organisation
  • 2 Powers and accountability
    • 2.1 Special investigative powers
    • 2.2 Special terrorism investigative powers
    • 2.3 Collection of foreign intelligence
    • 2.4 Accountability
  • 3 Relationships with foreign agencies and services
  • 4 History
    • 4.1 Establishment and 'The Case'
    • 4.2 The Petrov Affair
    • 4.3 The Cold War
    • 4.4 Penetration by the KGB
    • 4.5 Sydney 2000 Olympic Games
  • 5 Royal commissions, inquiries and reviews
    • 5.1 Royal Commission on Intelligence and Security, 1974-77
    • 5.2 Protective Security Review, 1978-79
    • 5.3 Royal Commission on Australian Security and Intelligence Agencies, 1983-84
    • 5.4 Post-Cold War review, 1992
    • 5.5 Inquiry into National Security, 1993
    • 5.6 Parliamentary Joint Committee inquiries
  • 6 Criticisms, controversies and conspiracies
    • 6.1 Opposition to the political left
    • 6.2 Raids on ASIO Central Office, 1973
    • 6.3 The Sydney Hilton Hotel 'conspiracy', 1978
    • 6.4 The Church of Scientology, 1982
    • 6.5 Anti-terror bungle, 2001
    • 6.6 Detention and removal of Scott Parkin, 2005
    • 6.7 Kidnap and false imprisonment of Izhar ul-Haque, 2007
  • 7 See also
  • 8 References
  • 9 External links

Command, control and organisation

ASIO is a statutory body under the Australian Security Intelligence Organisation Act 1979 and is responsible to the Parliament of Australia through the Attorney-General. The Organisation also reports to the Parliamentary Joint Committee on Intelligence and Security, and is subject to independent review by the Inspector-General of Intelligence and Security. The head of ASIO is the Director-General of Security, who oversees the strategic management of ASIO within guidelines issued by the Attorney-General. The current Director-General is Paul O'Sullivan, appointed in 2005.

At present, ASIO has a staff of over 1300 personnel.[5] This number is expected to grow to some 1860 by 2011.[6] The identity of ASIO officers, apart from the Director-General, remain an official secret.[2] While ASIO is an equal opportunity employer, there has been some media comment of the Organisation's apparent difficulty in attracting people from a Muslim or Middle Eastern background.[7][8] Furthermore, ASIO has undergone a period of rapid growth with some 70% of the Organisation's officers having joined since 2002, leading to what the Director-General calls 'an experience gap'.[9]

Powers and accountability

Special investigative powers

The special investigative powers available to ASIO officers under warrant signed by the Attorney-General include:[2]

  • interception of telecommunications;
  • examination of postal and delivery articles;
  • use of clandestine surveillance and tracking devices;
  • remote access to computers, including alteration of data to conceal that access;
  • covert entry to and search of premises, including the removal or copying of any record or thing found therein; and
  • conduct of an ordinary or frisk search of a person if they are at or near a premises specified in the warrant.

The Director-General also has the power to independently issue a warrant should a serious security situation arise and a warrant requested of the Attorney-General has not yet been granted.[2]

An ASIO officer may also, without warrant, ask an operator of an aircraft or vessel questions about the aircraft or vessel, its cargo, crew, passengers, stores or voyage; and to produce supporting documents relating to these questions.[2]

Special terrorism investigative powers

When investigating terrorism, the Director-General may also seek a warrant from an independent judicial authority to allow:[2]

  • the compulsory questioning of suspects;
  • the detention of suspects by the Australian Federal Police, and their subsequent interrogation by ASIO officers;
  • ordinary, frisk or strip search of suspects by AFP officers upon their detainment;
  • the seizure of passports; and
  • the prevention of suspects leaving Australia.

The Director-General is not empowered to independently issue a warrant in relation to the investigation of terrorism.

Collection of foreign intelligence

ASIO also has the power to collect foreign intelligence within Australia at the request of the Minister for Foreign Affairs or the Minister for Defence.[1] Known as Joint Intelligence Operations, and usually conducted in concert with the Australian Secret Intelligence Service the purpose of these operations is the gathering of security intelligence on and from foreign officials, organisations or companies.[citation needed]


Because of the nature of its work, ASIO does not make details of its activities public and law prevents the identities of ASIO officers from being disclosed. ASIO and the Commonwealth Government say that operational measures ensuring the legality of ASIO operations have been established.

ASIO briefs the Attorney-General on all major issues affecting security and he/she is also informed of operations when considering granting warrants enabling the special investigative powers of ASIO. Furthermore, the Attorney-General issues guidelines with respect to the conduct of ASIO investigations relating to politically motivated violence and its functions of obtaining intelligence relevant to security.[2]

ASIO reports to several governmental and parliamentary committees dealing with security, legislative and financial matters. This includes the Parliamentary Joint Committee on Intelligence and Security.[10] A classified annual report is also provided to the government, an unclassified edited version of which is tabled in Federal Parliament.[1]

The Office of the Inspector-General of Intelligence and Security was established in 1986 to provide additional oversight of Australia’s security and intelligence agencies. The Inspector-General has complete access to all ASIO records and has a range of inquisitorial powers.

Relationships with foreign agencies and services

Australia’s intelligence and security agencies maintain close working relationships with the foreign and domestic intelligence and security agencies of other nations. As of 31 October 2007, ASIO has established liaison relationships with 300 authorities in 120 countries.[1]


Establishment and 'The Case'

Following the conclusion of World War II, the joint US-UK VENONA project uncovered sensitive British and Australian government data being transmitted through Soviet diplomatic channels. Officers from MI5 were dispatched to Australia to assist local investigations. The leak was eventually tracked to a spy ring operating from the Soviet Embassy in Canberra. Consequently, allied Western governments expressed disaffection with the state of security in Australia.[11]

Subsequently, on 16 March 1949, Prime Minister Ben Chifley issued a Directive for the Establishment and Maintenance of a Security Service, appointing South Australian Supreme Court Justice Geoffrey Reed as the first Director-General of Security. In August 1949, Justice Reed advised the Prime Minister that he had decided to name the service the 'Australian Security Intelligence Organization' [sic] (the spelling was amended in 1999 to bring it into line with the Australian standard form 'organisation'). The new service was to be modelled on the Security Service of the United Kingdom and an MI5 liaison team was attached to the fledgling ASIO during the early 1950s. Historian Robert Manne describes this early relationship as “special, almost filial” and continues “ASIO’s trust in the British counter-intelligence service appears to have been near-perfect”.[11]

The operation to crack the Soviet spy ring in Canberra consumed much of the resources of ASIO during the 1950s. The operation became internally known as "The Case".[12] Among the prime suspects of the investigations were Wally Clayton, a prominent member of the Australian Communist Party, and two diplomats with the Department of External Affairs, Jim Hill and Ian Milner. However, no charges resulted from the investigations, because Australia did not have any laws against peacetime espionage at the time.

On 6 July 1950 the Charter of the Australian Security Intelligence Organization was defined by the directive of Prime Minister Robert Menzies following the appointment of Colonel Charles Spry as the new Director-General. ASIO was converted to a statutory body on 13 December 1956 through the Australian Security Intelligence Organisation Act 1956 (repealed by the Australian Security Intelligence Organisation Act 1979, the current legislation as amended to 2007).

The Petrov Affair

Vladimir Petrov
Vladimir Petrov
Main article: Petrov Affair

5 February 1951 saw the arrival in Sydney of Vladimir Mikhaylovich Petrov, Third Secretary of the Soviet Embassy. An ASIO field officer identified Petrov as a possible 'legal', an agent of the Soviet Ministry of State Security (MVD, a forerunner to the KGB) operating under diplomatic immunity. The Organisation began gently cultivating Petrov through another agent, Dr. Michael Bialoguski, with the eventual goal of orchestrating his defection. Ultimately, Petrov would be accused by the Soviet Ambassador of several lapses in judgement that would have led to his imprisonment and probable execution upon his return to the Soviet Union. Petrov feared for his life and grabbed the defection life-line thrown him by ASIO.

The actual defection occurred on 3 April 1954. Petrov was spirited to a safe house by ASIO officers, but his disappearance and the seeming reluctance of Australian authorities to search for him made the Soviets increasingly suspicious. Fearing a defection by Petrov, MVD officers dramatically escorted his wife Evdokia to an awaiting aeroplane in Sydney. There was doubt as to whether she was leaving by choice or through coercion and so Australian authorities initially did not act to prevent her being bundled into the plane. However, ASIO was in communication with the pilot and learned through relayed conversations with a flight attendant that if Evdokia spoke to her husband she might consider seeking asylum in Australia.

An opportunity to allow her to speak with her husband came when the Director-General of Security, Charles Spry, was informed that the MVD agents had broken Australian law by carrying firearms on an airliner in Australian airspace and so could be detained. When the aeroplane landed in Darwin for refuelling, the Soviet party and other passengers were asked to leave the plane. Police, acting on ASIO orders, quickly disarmed and restrained the two MVD officers and Evdokia was taken into the terminal to speak to her husband via telephone. After speaking to him, she became convinced he was alive and speaking freely and asked the Administrator of the Northern Territory for political asylum.

The affair sparked controversy in Australia when circumstantial links were noted between the leader of the Australian Labor Party and the Communist Party of Australia (and hence to the Soviet spy ring). H.V. Evatt, the leader of the Labor Party at the time, accused Prime Minister Robert Menzies of arranging the Petrov defection to discredit him. The accusations lead to a disastrous split in the Labor party.[11]

Petrov was able to provide information on the structure of the Soviet intelligence apparatus in the mid-1950s, information that was highly valuable to the United States. It was by obtaining this information that the Organisation's reputation in the eyes of the United States was greatly enhanced.[11]

In fact, when Brigadier Spry retired, the Deputy Director of the CIA sent the following tribute:

“The relationship between the CIA and ASIO started as a very personal one. The real substantive relationship started with Sir Charles’ visit in 1955… Since Sir Charles’ first visit, the relationships with ASIO have continued to become closer and closer until today we have no secrets, regardless of classification or sensitivity, that are not made available to ASIO if it is pertinent to Australia’s internal security… I feel, as does the Director, a type of mutual trust in dealing with ASIO that is exceeded by no other service in the world today.”[11]

The Cold War

ASIO's counter-intelligence successes continued throughout the Cold War. Following an elaborate investigation between 1961 and 1963, ASIO recommended the ejection of the First Secretary of the Soviet Embassy, Ivan Skripov, and his declaration as persona non grata. Skripov had been refining an Australian woman as an agent for Soviet intelligence, however, she was in fact an agent of ASIO. In April 1983, ASIO uncovered more Soviet attempts at espionage and Valeriy Ivanov, who also held the post of First Secretary at the Soviet Embassy, was declared persona non grata and ejected from Australia on the grounds that he had performed duties in violation of his diplomatic status.

Penetration by the KGB

These successes were marred, however, by the penetration of ASIO by a KGB mole in the 1970s.[13] Due to the close defence and intelligence ties between Australia and the United States, ASIO became a backdoor to American intelligence. Upon realising ASIO was compromised, the United States pulled back on the information it shared with Australia.[14]

Following a strenuous internal audit and a joint Federal Police investigation, George Sadil was accused of being the mole. Sadil had been a Russian interpreter with ASIO for some 25 years and highly classified documents were discovered in his place of residence. Federal Police arrested Sadil in June 1993 and charged him under the Crimes Act 1914 with several espionage and official secrets related offences. However, parts of the case against him collapsed the following year.

Sadil was committed to trial in March 1994, but the Director of Public Prosecutions decided not to proceed with the more serious espionage-related charges after reviewing the evidence against him. Sadil's profile did not match that of the mole and investigators were unable to establish any kind of money trail between him and the KGB.

Sadil pleaded guilty in December 1994 to thirteen charges of removing ASIO documents contrary to his duty, and was sentenced to three months imprisonment. He was subsequently released on a 12 month good behaviour bond. It is believed that another ASIO officer, now retired, is suspected of being the mole but no prosecution attempts have been made.

There were suggestions that the KGB had not actually compromised ASIO, however, in November 2004, former KGB Major-General Oleg Kalugin confirmed to the Australian Broadcasting Corporation's Four Corners programme that the KGB had in fact infiltrated ASIO in the late 1970s and early 1980s.

Sydney 2000 Olympic Games

ASIO began planning for the 2000 Olympic and Paralympic Games, held in Sydney, as early as 1995.[12] A specific Olympics Coordination Branch was created in 1997, and began recruiting staff with “specialised skills" the following year. In 1998, ASIO “strengthened information collection and analytical systems, monitored changes in the security environment more broadly, improved its communications technology and provided other agencies with strategic security intelligence assessments to assist their Olympics security planning.”

The Olympics Coordination Branch also began planning for the Federal Olympic Security Intelligence Centre (FOSIC) in 1998. FOSIC was to “provide security intelligence advice and threat assessments to State and Commonwealth authorities during the Sydney 2000 Games.”

Royal commissions, inquiries and reviews

Royal Commission on Intelligence and Security, 1974-77

On 21 August 1974, Prime Minister Gough Whitlam announced the establishment of the Royal Commission on Intelligence and Security to inquire into Australia’s intelligence agencies.[12] Justice Robert Hope of the Supreme Court of New South Wales was appointed as Royal Commissioner.

In 1977 the Commission confirmed the need for Australia’s own security and intelligence agency and made many recommendations on improving the analytical capability and financial accountability of ASIO. It also advocated increased ministerial control, designated the conducting of security assessments for access to classified information to ASIO, and urged greater cooperation with police and foreign intelligence services. Also as a result of the Commission the jurisdiction of ASIO investigation was expanded to include sabotage and terrorism, and ASIO was given lawful authority to open mail, enter premises, use listening devices and intercept telegrams and telex under warrant.

Protective Security Review, 1978-79

Following the Sydney Hilton bombing of 1978, the government commissioned Justice Hope with conducting a review into national protective security arrangements and into co-operation between Federal and State authorities in regards to security. In the report concluded in 1979, Justice Hope designated ASIO as the agency responsible for national threat assessments in terrorism and politically motivated violence.[12] He also recommended that relations between ASIO and State and Territory police forces be regulated by arrangements between governments.

Royal Commission on Australian Security and Intelligence Agencies, 1983-84

Following the publicity surrounding the expulsion of Valeriy Ivanov, First Secretary at the Soviet Embassy in Canberra, the Government established a Royal Commission to review the activities of Australian Security and Intelligence Agencies.[12] Justice Hope was again Royal Commissioner.

Justice Hope completed his report in December 1984. His recommendations included that:

  • the security related activities which ASIO should investigate be redefined. References to subversion and terrorism be removed and replaced with politically motivated violence, attacks on Australia’s defence system and promoting communal violence;
  • ASIO be given additional functions of collecting foreign intelligence and providing protective security advice; and that
  • a separate office of Inspector-General of Intelligence and Security be established.

Justice Hope also recommended that amendments to the ASIO Act provide that “it is not the purpose of the Act that the right of lawful advocacy, protest or dissent should be affected or that exercising those rights should, by themselves, constitute activity prejudicial to security”.

Post-Cold War review, 1992

In early 1992, Prime Minister Paul Keating commissioned a review “of the overall impact of changes in international circumstances on the roles and priorities of the Australian intelligence agencies”. In the Prime Minister’s statement of 21 July 1992, Mr. Keating said:

Consistent with the philosophy of a separation of the assessment, policy and foreign intelligence collection functions, the Government considers that the existing roles of the individual agencies remain valid in the 1990s. The rationale outlined by Mr Justice Hope for ASIO as a freestanding, non-executive, advisory intelligence security agency remains relevant in the 1990s and the Government has therefore decided that ASIO should continue to have the roles and responsibilities laid down in existing legislation.
The Soviet threat certainly formed an important component of ASIO’s activities, but threats from other sources of foreign interference and politically motivated violence have been important to ASIO for some time, and will remain so. However, the implications for ASIO of the changes in the former Soviet Union and Eastern Europe are more far-reaching than for the other agencies. The Government has therefore decided that while ASIO’s capacity to meet its responsibilities must be maintained, there is scope for resource reductions.[12]

The resource reductions mentioned were a cut of 60 staff and a $3.81 million budget decrease.

Inquiry into National Security, 1993

Following the trial of George Sadil over the ASIO mole scandal and from concern about the implications of material having been removed from ASIO without authority, the Prime Minister announced the appointment of Mr. Michael Cook AO (former head of the Office of National Assessments) to inquire into various aspects of national security. The review was completed in 1994.[12]

Parliamentary Joint Committee inquiries

The Parliamentary Joint Committee completed several reviews and inquiries into ASIO during the 1990s.[12] The first concerned the security assessment process. Another was held in September into “The nature, scope and appropriateness of the way in which ASIO reports to the Australian public on its activities.” The Committee concluded that “the total package of information available to the Australian community about ASIO's operations exceeds that available to citizens in other countries about their domestic intelligence agencies.” Pursuant to this, recommendations were made regarding the ASIO website and other publicly accessible information.

Criticisms, controversies and conspiracies

Opposition to the political left

ASIO has been accused of executing an agenda against the Left of politics since its inception. In the 1960s, ASIO was also accused of neglecting its proper duties because of this supposed preoccupation with targeting the Left. Like other Western domestic security agencies, ASIO actively monitored protesters against the Vietnam War, Labor politicians and various writers, artists and actors who tended towards the Left. Other claims go further, alleging that the Organisation compiled a list of some 10,000 suspected Communist sympathisers who would be interned should the Cold War escalate.[15]

Raids on ASIO Central Office, 1973

Further accusations against ASIO were raised by the Attorney-General following a series of bombings from 1963-1970 on the Yugoslav consulate in Australia by Croatian far-right militia. Attorney-General Lionel Murphy alleged that ASIO had withheld information on the group which could have led to preventative measures taken against further bomb attacks (it must be noted, however, that Murphy was a member of the recently sworn-in Labor government, which still held a deep-seated suspicion of ASIO).

On 15 March 1973, Murphy and the Commonwealth Police raided the ASIO offices in Melbourne. While some claim the raid was disastrous, serving little purpose other than to shake-up both ASIO and the Whitlam government, the findings of such investigations were not published.

The Sydney Hilton Hotel 'conspiracy', 1978

On 13 February 1978, the Sydney Hilton Hotel was bombed, one of the few domestic terrorist incidents on Australian soil. The Hotel was the location for the Commonwealth Heads of Government Meeting (CHOGM). Three people in the street were killed – two council workers and a policeman – and several others injured. Former police officer Terry Griffiths, who was injured in the explosion, accused ASIO of either orchestrating the bombing or being aware of the possibility and allowing it to proceed. In 1985, the Director-General of Security issued a specific denial of the allegation. Despite this official reassurance, Griffiths has repeatedly called for an inquiry into the bombing, particularly after the three men accused and charged of the bombing were cleared and freed.

The Church of Scientology, 1982

The Church of Scientology brought court action against the Director-General, the Attorney-General and the Commonwealth in 1982. It sought declarations that it was no threat to the security of Australia, and claimed the Director-General was acting beyond his powers under the ASIO Act in collecting information regarding the Church, communicating that information to other persons and characterising the Church as a security risk. The case was dismissed.

Anti-terror bungle, 2001

A few weeks after the September 11, 2001 attacks on the United States, mistakes led ASIO to incorrectly raid the home of Bilal Daye and his wife. It has been revealed that the search warrant was for a different address. The couple subsequently sought damages and the embarrassing incident was settled out of court in late 2005, with all material relating to the case being declared strictly confidential.[16]

Detention and removal of Scott Parkin, 2005

In September 2005, the visa of American citizen, Scott Parkin, was cancelled after Director-General of Security, Paul O'Sullivan, issued an adverse security assessment of the visiting peace activist. Parkin was detained in Melbourne and held in custody for five days before being escorted under guard to Los Angeles, where he was informed that he was required to pay the Australian Government $AU11,700 for the cost of his detention and removal.[17] Parkin is challenging the adverse security assessment in the Federal Court.

Prior to his removal, Parkin had given talks on the role of US military contractor Halliburton in the Iraq war and led a small protest outside the Sydney headquarters of Halliburton subsidiary KBR. The Attorney-General at that time, Philip Ruddock, refused to explain the reasons for Parkin's removal,[18] leading to speculation that ASIO had acted under pressure from the United States.[19]This was denied by O'Sullivan before a Senate committee, where he gave evidence that ASIO based its assessment on Parkin's activities in Australia.[20] O'Sullivan refused to answer questions before a later hearing[21] after legal counsel for O'Sullivan appeared to contradict his earlier evidence.[22][23]

Kidnap and false imprisonment of Izhar ul-Haque, 2007

On 12 November 2007, the Supreme Court of New South Wales dismissed charges brought against a young medical student, Izhar ul-Haque.[24] ASIO and the Australian Federal Police had investigated al-Haque for training with a listed terrorist group, however the case against the medical student collapsed when it was revealed that ASIO officers had engaged in improper conduct during the investigation. Justice Michael Adams determined that the conduct of at least one of the investigating ASIO officers constituted false imprisonment and kidnap at common law, and therefore key evidence against ul-Haque was inadmissible.