REFORMING SOCIAL SECURITY
JANUARY 13, 1997
Last week a bipartisan commission offered three alternatives for redesigning the Social Security system so it will be able to cover the retirement needs of Baby Boomers. The plans were quite different, but they had one dramatic new element in common. All three anticipated investing some Social Security reserves in the stock market. Margaret Warner leads a debate on the merits of that idea following this background report by Paul Solman of WGBH Boston.
A RealAudio version of this NewsHour segment is available.
January 13, 1997
Margaret Warner leads a discussion of the potential ways to fix Social Security.
July 16, 1996
Ross Perot describes the Social Security issue as he sees it in a NewsMaker interview.
PAUL SOLMAN: Social Security, the Depression era social insurance program, needs to be brought up to date. For six decades current workers have supported current retirees in what's been called a pay-as-you-go system where each year Social Security taxes are used to pay for that same year's benefits. Since the number of workers has always significantly exceeded the number of people collecting checks, there had never been much of a hitch. But with increasing life expectancy and the post war baby boom came an inevitable problem. Susan Dentzer of U.S. News & World Report has been following the ins and outs of Social Security for the 20 years she's been doing reporting on economics.
SUSAN DENTZER, U.S. News & World Report: The demographics don't work in favor of the program anymore. We've got too many retirees being supported by too skilled workers. And those retirees are living a very, very long time.
PAUL SOLMAN: And much longer than the program ever anticipated.
SUSAN DENTZER: Yes. In fact, people are living well beyond what the program initially anticipated when it was set up in the 30's. The average couple retiring today will collect Social Security benefits for 25 years. That's well beyond what anybody ever expected. And that's just the average.
PAUL SOLMAN: As a result of these trends, in the 1980s Social Security taxes were raised to provide for retiring boomers. The government began taking in and earmarking more money for Social Security than it was paying out. The difference was invested in very safe U.S. government bonds paying a very modest rate of interest. But the tax increase of the 80's wasn't enough to solve the problem. So in 1994, Health & Human Services Sec. Donna Shalala appointed a 13-member council to study Social Security yet again.
GERALD SHEA, Social Security Council Member: (last week) What we are raising in this report are both some traditional measures and some untraditional measures, and in regards to the untraditional measures, frankly, we say we really think this is the basis for further exploration and study.
PAUL SOLMAN: In fact, the AFL-CIO's Gerald Shea was speaking for only one of the report's three separate approaches, each being pushed by a different group within the council. All agreed that Social Security needs fixing. All seemed to agree that we should be putting some portion of the Social Security taxes into investments other than U.S. bonds to make the pot grow faster. But when it came to specifics on investing, the groups differed strongly. Group one put forth the maintenance benefit plan--its new wrinkle, studying whether to invest 40 percent of Social Security taxes in a broad pool of stocks, a sort of mega index fund, an investment board appointed by the President would run it.
SUSAN DENTZER: Well, actually, this is an idea that has been kicking around since the origins of the program. And the arguments have always been the same. We don't want the government controlling such a large portion of the stock markets that, in fact, the government could somehow have undue influence over private companies. The up side of the maintenance of benefits plan is really that it represents the least shift from the current program of the three proposals. In fact, it would pretty much preserve Social Security as we've known it, as a social insurance program, intact.
PAUL SOLMAN: Group two of the council proposed to create Individual Retirement Accounts, with a new 1.6 percent hike in the payroll tax. The federal government would hold those accounts, giving individuals limited choices on how to invest them.
SUSAN DENTZER: The up side of the plan is that, in fact, it might increase overall national retirement savings. And we do have a sense, a perception that we're not doing enough to save for our own retirement. This, in fact, would represent the government telling you you had to save more, and therefore, you'd have to do it. The down side of that proposal is, in fact, that it would amount to a payroll tax hike.
PAUL SOLMAN: Finally, a third group of council members put forth the private sector approach. It would create personal savings accounts called PSA's, which individual workers would invest and hold themselves. About half the payroll tax would go into the PSA's, while the other half would go into the Social Security Trust Fund and generate a monthly check. That check would be about $415 a month, compared to today's $720, leaving it up to retirees to win big in the stock market to match or hopefully exceed current benefits.
SUSAN DENTZER: The up side of the personal savings account plan is again that it would potentially increase overall national retirement savings and probably also boost the economy in a long-term sense. The down side is that we would be undergoing a very dramatic restructuring of the Social Security system. It's not clear what the results would be.
PAUL SOLMAN: If any of these plans make it into law, the stock market will play a new role in Social Security's future.