April 7, 1998
In the first of four town hall meetings, President Clinton called on the public and policy makers to save Social Security from its financially-unstable future. Mr. Clinton said he hoped the eight-month dialogue would lead to a reform proposal Congress could enact. Following a background report on the troubled system, Elizabeth Farnsworth discusses the future of the program with four experts.
ELIZABETH FARNSWORTH: We get four perspectives now: Martin Feldstein was chairman of the Council of Economic Advisers under President Reagan. He's a professor of economics at Harvard University. Michael Tanner heads a project on Social Security privatization at the Cato Institute, a think tank in Washington. He attended today's town meeting in Kansas City. John Rother is the legislative policy director of the American Association of Retired Persons, which co-sponsored today's town meeting. AARP represents more than 30 million members who are age 50 and older. And Theda Skocpol is a professor of government and sociology at Harvard University. Thanks to you all for being with us.
A RealAudio version of this segment is available.
April 7, 1998
A background report on the troubled social security.
The debate surrounding the budget surplus.
February 2, 1998
The president's budget projects the first surplus in 30 years.
January 13, 1997
A bipartisan committee seeks ways to fix social security.
Browse the NewsHour's coverage of federal agencies and welfare issues and Congress
The Social Security Administration.
The Cato project on social security privatization.
The American Association of Retired Persons.
Social Security reform: "This was unimaginable even two or three years ago."
Martin Feldstein, I was struck watching those--the clips from the town meeting today at how broad the debate has become on Social Security Is it already no longer a third rail of American politics?
MARTIN FELDSTEIN, Former Chair, Council of Economic Advisers: I think it is not. I think the president has made it clear that this is an important subject that has to be discussed, that there is a financial crisis out there in the future, but that there are solutions that are feasible because of the improved fiscal situation, because we're looking ahead to large general surpluses in our budget.
ELIZABETH FARNSWORTH: And, Michael Tanner, in Kansas City and elsewhere, are you sensing strong approval for some change? I know the polls show some strong approval, but then when people are asked whether they would make a change in their own personal accounts, they might not.
MICHAEL TANNER, Cato Institute: Well, I think the very fact that we are having this discussion today shows how far things have come in the last couple of years. This was unimaginable even two or three years ago. Yet, today, here we are discussing major reform to Social Security, and we're discussing the movement to private, individual accounts, something that was clearly not on the table not very long ago.
ELIZABETH FARNSWORTH: And John Rother, are you finding this breadth of debate too, and are some people finding it scary in your organization?
JOHN ROTHER, American Association of Retired Persons: Oh, I think people feel that it's time to take on the Social Security challenge, but I also feel like the debatants in Kansas City reflected broad concerns, not only about Social Security but about private savings, about pensions, and even health care. So really people are thinking about their own retirement in a very broad way, and they want some answers. They wanted to know what would the impact of these changes be in my life, and I think people are still thinking about these options, and they're going to make up their mind over the course of the coming year.
ELIZABETH FARNSWORTH: Theda Skocpol, even though there's quite a bit of momentum toward reform, there's still also a lot of support for Social Security, isn't there?
THEDA SKOCPOL, Harvard University: That was clear in what the people in Kansas City were saying.
ELIZABETH FARNSWORTH: And--go ahead.
THEDA SKOCPOL: It's not a crisis that we face. It's a set of concerns about the future, and of course, Americans are going to engage in that discussion because we all have a stake in this system.
Can Social Security be saved with minor changes?
ELIZABETH FARNSWORTH: And, Ms. Skocpol, how much do you think needs to be done to make Social Security work? Would some simple--fairly simple--adjustments reform the system enough to make it work into the next century?
THEDA SKOCPOL: Yes, I think that's clear. We should all remember that Social Security has been adjusted a number of times over its lifetime to take into account changing circumstances in our economy and in the lives of Americans. We could make some very modest adjustments in payroll taxes, in the timing of benefits that--and perhaps shared investment in--
ELIZABETH FARNSWORTH: Just let me interrupt one minute. By an adjustment in payroll taxes you mean raising them slightly?
THEDA SKOCPOL: I would be in favor of having all Americans, including those who make high incomes, pay their full share of the payroll tax. The way things are now privileged Americans stop paying the payroll tax part-way through the year. I think we should pay all the way through the year. And that would create some new income into the system. The other thing we could do is create a kind of mutual fund for America. We could take some of the Social Security surplus that we have now and invest it in stocks so as to improve the rate of return in the future and make us able to fulfill all of our promises well into the 21st century.
ELIZABETH FARNSWORTH: Mr. Tanner, do you agree that this sort of adjustment--these sorts of adjustments would make us able to fulfill our promises?
MICHAEL TANNER: No, not at all. We have adjusted Social Security many times--usually by raising taxes. We've raised Social Security taxes about 38 times since the program began. Yet, we're still in trouble. But we also have to look beyond just sort of the financial problems of Social Security. Yes, we could raise taxes enough, or we could cut benefits enough to keep us solvent. But there's another problem with Social Security. And that's that for the average young worker out there their rate of return on their Social Security taxes is going to be at best maybe 1 percent. For many of them it will actually be negative. They'll get back less in benefits than they pay in taxes over their life. If we raise taxes, or we cut benefits, we're only going to make that problem worse. We need to restructure the system to take advantage of what we know now about compound interest and how markets work and invest in real assets--stocks, bonds, and annuities, and so forth.
ELIZABETH FARNSWORTH: Okay. I'm going to come back to that. Mr. Rother, where do you come down on this question? Can it be fixed with fairly simple--I know they're not terribly simple--but fairly simple adjustments?
JOHN ROTHER: I think the Social Security system itself, is capable of being set on a fiscally stable course with fairly modest adjustments today. But if you're thinking about what people need for their own retirement, Social Security is really just the floor of protection. And on top of that, you need individual savings, and you need pensions, so that we shouldn't stop just by thinking about what's needed for Social Security. We ought to also be thinking about what we can do to help people save money and what we can do to help more businesses offer pensions, since only half do today. Only half of American employees have a pension at work. For them, whatever we do for Social Security won't be enough because they won't have the other pieces they need for secure retirement.
The argument for privatization.
ELIZABETH FARNSWORTH: So, Mr. Feldstein, the debate is not really only about saving the system. It's about making it a lot better too?
MARTIN FELDSTEIN: Absolutely. And the thing that makes it feasible now is the large budget surpluses in general, not in Social Security but in the general budget that are now projected for the next fifteen or twenty years. That gives the country the chance to put those dollars to work in individual accounts where they can supplement the income that will be available from Social Security, in effect, giving everybody in the country something like an IRA or a 401-K, without their having to put any money in, or pay any higher taxes, because we have these large projected budget surpluses.
ELIZABETH FARNSWORTH: So, Mr. Feldstein, is that what you would recommend to make the system better, something like an IRA account for people, and would they decide on their own how to invest it?
MARTIN FELDSTEIN: That's basically correct, yes. That's what I think should be done. And that seems to be where the political discussion among both Democrats and Republicans in Washington is moving.
ELIZABETH FARNSWORTH: And, Mr. Tanner, is that the way you see it, or should more still be done?
MICHAEL TANNER: No, that's exactly what we need to do. The problem with Social Security, as it stands now, is in its fundamental structure, in that no money is ever saved or invested by the system. It's a "pay as you go" system. Money comes into the system from payroll taxes and workers and goes out to beneficiaries. Nothing is ever saved for those workers. They have to rely on the next generation of taxpayers. We really need to change this to a system where individuals pay their taxes into an account that is saved and then invested in real assets, something that contributes to the economy, builds new plants, hires new workers, grows the economy so that there will be more money in the future.
ELIZABETH FARNSWORTH: Ms. Skocpol, what is your response to that as a way to help people and help Social Security?
THEDA SKOCPOL: If we took the taxes that people are now paying for Social Security out of the Social Security system, we wouldn't be able to cover the promises we've already made to our parents and our grandparents. The only way we can keep those promises and at the same time set up individual accounts would be for people to pay, in a sense, higher taxes than they're paying now.
ELIZABETH FARNSWORTH: Could you just explain that. Explain why it works that way.
THEDA SKOCPOL: It works that way because what we pay now covers the Social Security benefits for our grandparents. How we'll do in the future depends on how well the economy is doing in the future. If we try to set up a system of individual accounts at the same time that we maintain Social Security's promises to the people who are now retired, we'll be voting all of ourselves a huge tax increase. We'll also be giving up some of the social insurance protections that all of us have through Social Security because Social Security pays for disability; it pays for survivor's benefits, as well as for pensions for the retired elderly.
The budget surplus to the rescue?
ELIZABETH FARNSWORTH: Mr. Feldstein. Did you want to respond to that, Mr. Feldstein?
MARTIN FELDSTEIN: Yes, I did. I think what you've just heard is not true because of these future budget surpluses. I think we can continue to collect the same Social Security payroll taxes, meet all of the obligations called for in current law, but use the projected surpluses to start funding new individual accounts. I think that's what Washington is talking about doing.
ELIZABETH FARNSWORTH: How would that work? Explain how that would work, Mr. Feldstein.
MARTIN FELDSTEIN: Well, there are a variety of ways it could work, but the simplest would be for individuals to have accounts of their own, like IRA's or 401-K accounts, and for every dollar that they put in--up to say $1,000 a year--for every dollar that they put in, they would get a tax credit. So it basically wouldn't cost the individual anything to establish these accounts, which would give them income in the long run, in addition to their Social Security. Where does the money come from? It comes from the projected budget surpluses, which if it's not used for this, I'm just afraid Congress will fritter away in a variety of other spending programs. So this is a great way to put that money to use.
ELIZABETH FARNSWORTH: Okay. Before we go back to you, Mr. Tanner, I think that was you, John Rother, what's your opinion of this, the idea of what Mr. Feldstein just laid out.
JOHN ROTHER: I think that's a creative idea. I think the idea has to be weighed against other possible uses for the surplus. One thing, though, that this idea does not do is it does not explain what would happen to the underlying Social Security program since we still have to--even with this--match up projected outlays with projected revenues. So we're only halfway there if we're talking about doing something to help people save more, which we certainly would like to see. You still have to then say what are we going to do with the underlying floor protection that everyone needs so they can count on it no matter what happens.
ELIZABETH FARNSWORTH: Mr. Tanner. First, Mr. Tanner, and then I want to get back to you, Ms. Skocpol.
MICHAEL TANNER: Well, I want to do a little bit to clear up this idea of if--that if you move to a system of private accounts, you create some sort of new cost in the system. You may create a short-term financing problem or a cash flow problem, but you don't create any new costs because Social Security already owes more than $10 trillion that it can't pay, that it's promised in benefits that there is no revenue to pay. If we can buy out of this system for 5 or 6 trillion dollars as part of a move to a new system, we haven't increased our debt or our cost, we've actually lowered it. That doesn't mean we aren't going to have to make some tough decisions in the short-term about how to get there, but at least we've stopped the hemorrhaging.
Will privatization eliminate the safety net?
ELIZABETH FARNSWORTH: Ms. Skocpol, is your concern that this sort of change would remove Social Security as the ultimate safety net for people, that it would change it radically?
THEDA SKOCPOL: I think what the privatizers--that is, those who want to establish individual investment accounts--are talking about is creating a series of tax subsidies that will be especially beneficial to very privileged wage earners. But they do it at the price of our not using the money that we might have from our modest projected federal budget surpluses, and frankly, they're modest and they may not turn out to be as big as we think. We need to use that money right now to reinvest in Social Security so that the promises of the system for all of us will be there in the long run. Those promises are especially important to Americans of modest means and to those who might be poor, except for Social Security.
MARTIN FELDSTEIN: Nobody is talking about--
THEDA SKOCPOL: Social Security is a basis, but it's a very generous basis for most Americans to count on. And if we don't use the budget surpluses to invest perhaps in stock--in the stock market on behalf of all of us, to shore up that shared system, we'll be letting it fritter away into the future.
ELIZABETH FARNSWORTH: Mr. Tanner, was that you?
MICHAEL TANNER: No.
ELIZABETH FARNSWORTH: Mr. Feldstein.
MARTIN FELDSTEIN: Nobody is talking about cutting those benefits. Nobody is talking about undermining the current system, and nobody is talking about a system for the privileged rich. I think what the political discussion, starting with the president and the State of the Union message recently, Sen. Pat Moynihan, a great long-term friend of Social Security talked about, is using these large projected surpluses. The Congressional Budget Office, the official government organization that looks at this, is telling us we're going to have $100 billion surpluses in just a few years--using that money to allow people to accumulate individual accounts, which in the long run will be available to help take the pressure off the Social Security Trust Fund.
ELIZABETH FARNSWORTH: Okay. Thank you all very much for being with us.
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