The Candidates Address Social Security
[Sorry, the video for this story has expired, but you can still read the transcript below. ]
RAY SUAREZ: This week, both presidential candidates have taken to the stump presenting different visions, and ideas about what to do for the future of Social Security. This afternoon in Latrol, Pennsylvania, President Bush returned to a broad theme he first campaigned on in 2000: Workers should be given the option of investing a portion of their Social Security taxes into private accounts. He also tried to reassure voters
PRESIDENT GEORGE W. BUSH: If you’re a senior, you will get your Social Security check. You should not listen to the political nonsense that happens in the course of a campaign. The Social Security trust has got enough money to fulfill its promise to those who are receiving Social Security today.
If you’re a baby boomer like me, leading edge of the baby boomers I might add, we are going to be in pretty good shape when it comes to Social Security. We need to worry about our children and our grandchildren when it comes to Social Security. I believe younger workers ought to be able to take some of their own money and set up a personal savings account that earns better interest than the Social Security trust, a personal savings account they can call their own and a personal savings account government cannot take away.
RAY SUAREZ: Today, Senator Kerry attacked that idea. Fighting, a cold, he told a crowd in Orlando that the president’s proposal would hand over billions of dollars to financial service companies at taxpayer’s expense.
SEN. JOHN KERRY: In the president’s plan for Social Security, what he does is privatize a portion of it, breaking the generational contact that has existed since Franklin Roosevelt. And he blows a $904 billion hole that turns out to be the special fees that will go directly to the financial services industry at your risk and your expense. Let me make it clear. I will never privatize Social Security. (Applause) Never. Never. I will not cut benefits. I will not raise the retirement age, and I will not privatize Social Security.
RAY SUAREZ: Government reports show the Social Security system could face a major financial shortfall in about 40 years. Currently, the government receives more in Social Security taxes than it pays out, but all of that surplus is spent on other programs.
According to the most recent projections by Social Security trustees, huge surpluses building up in trust funds will nearly be gone by 2042. At that point, the government could only pay about 73 percent of the benefits promised to seniors for that time. Both candidates have been criticized by some analysts for plans that are too vague and offer few specifics.
RAY SUAREZ: For more on the candidates’ positions on Social Security, I’m joined by Gene Sperling, former head of President Clinton’s National Economic Council, he currently advises the Kerry campaign on economic policy. And Republican Senator Lindsey Graham of South Carolina, sponsor of a Senate plan to introduce private accounts in Social Security. He is a surrogate this evening for the Bush-Cheney campaign.
And, Senator, let’s start with you. Could you lay out in broad terms what Bush’s plan, President Bush’s plan is for maintaining Social Security?
SEN. LINDSEY GRAHAM: To make it solvent. In 2042 as your piece just indicated, we’ll have a dilemma on our hands because all the money is gone. We’ll either have to cut benefits by 28 percent or increase Social Security payroll taxes by a third if we do nothing. The basic problem with Social Security, it’s under funded. When I was born in 1955, there was about 16 workers for every retiree; in 2035, there’s going to be two workers for every retiree.
We don’t have enough money coming into the system. So to make up the shortfall, you have to do one of three things. You either cut the amount you pay out, you increase the amount you take in through raising taxes, or you try to get additional growth and what President Bush is proposing and I’ve introduced a specific plan that’s been evaluated by the Social Security Administration, he is proposing that we try to allow younger workers to get additional growth to make up the shortfall in money and there will be a transition cost. In today’s dollars, it will take 3.5 trillion dollars in today’s dollars to make Social Security solvent to 2075. The cost of my plan with personal investment accounts between now and 2075 is $1.7 trillion. There is no easy way out of this but there is a way out.
RAY SUAREZ: Gene Sperling, let’s look at Senator Kerry’s plan. What would he want to do to maintain Social Security?
GENE SPERLING: Well, there is a clear philosophical divide here because Senator Kerry believes that while we should offer more people the choice to save and accumulate wealth and savings on top or in addition to Social Security, that Social Security should be that one leg of our retirement system that remains a guaranteed benefit. In other words, it’s not subject to the risk and whims of the market.
So rather than privatizing part of Social Security, he would try to strengthen the solvency so that we can offer that guaranteed benefit that’s been a bedrock of people’s retirement with dignity for so many generations to come. So he would keep it as we know it, but strengthen it. Now he would argue, and I believe that the fundamental thing you have to do for Social Security is increase our fiscal discipline. And here’s why: Fundamentally, economically, you want to increase national savings. What Senator Lindsey is saying about the shortfall to come is right. As for our economy, what that means is are we going to be leaving that shortfall to our children, a huge debt that will be borne either by less retirement benefits or higher taxes on the next generation? Or will we do, as I think Alan Greenspan, former Republican Secretary of Commerce Pete Peterson suggests, increase national savings now?
So the first thing we need to do is turn around our situation. You know, we had large surpluses in the late ’90s. And it’s quite a shame that we did not use that extra savings there to save Social Security, to get a real plan that works with the guaranteed benefits safe. We need to turn that fiscal situation around and that really has to be the first step. Certainly one of the things Sen. Kerry would be opened to is diverting some of the money that is going to tax cuts for the most fortunate in the out years, using that for Social Security solvency. That is one of the type of things that we could do. But this is there is a significant philosophical divide here, there is no question.
RAY SUAREZ: Well, Senator Graham, in the years since Alan Greenspan during the Reagan administration put together the formula that pushed that crisis date out to the 2040s, there have been regular reassessments of when the trust funds will run out of money. Would Senator Kerry’s less radical overhaul buy us some time, push off that date in a less… in a way that involves borrowing less money than yours, for instance?
SEN. LINDSEY GRAHAM: Well, it’s not a philosophical difference. I think there is a different view of the nature of the problem and I think a really leadership difference here. Buying time does what? Does it fix the problem? No. The structural problem of Social Security is not going to be fixed if the problem relates to less people paying in and more people being retired. The demographic shifts in our society are not going to go away by hoping them away. Sixteen workers in 1950 versus two workers in 2035 is a demographic problem.
If you took $3.5 trillion of general revenue right now and you put it into Social Security and you did nothing but put the money in, you would have solvency to pay scheduled benefits to 2075. In 2076, according to the Social Security Administration, you have a $700 billion deficit the next year. The only way we will structurally change and make it solvent over time is to improve the growth rates and face the demographic shifts that have gone on in our country. It’s not a Republican problem. It’s not a Democratic problem. It is a national problem. The ratios of workers paying into retirees is not going to change substantially; it is only going to get worse. And we have to deal with it long term.
RAY SUAREZ: Well, Gene Sperling, what does Senator Kerry finds so problematic about a proposal to partially privatize the program?
GENE SPERLING: Well, let me say, I agree with Senator Graham that this is not a problem we should push off, that it is a real economic problem. And that’s why we believe we have to turn our fiscal situation around and start saving more as a country and reducing the amount of borrowing we do. But the first thing in solving any problem is not to make the problem worse. And the thing about President Bush’s plan that I do think is a bit of false advertising is the suggestion that private accounts, the privatization would in some way make the situation better.
I would argue, and I think many people would argue, it would make the situation worse. And let me explain. Even the president’s own Council of Economic Advisers will acknowledge that this would cost $2 trillion over the next ten years because you’re diverting money that’s now being saved and used for Social Security. Borrowing more is kind of turning Social Security upside down. We are supposed to be saving more to pass on less debt. This would increase $2 trillion of borrowing.
Secondly, a study by Austin Goolsbee at the University of Chicago said today, was that when you look at the transaction costs, the hidden fees that accumulate over thirty or forty years, it would actually transfer $940 billion over time to financial institutions for managing this problem. So in other words, we would be actually taking, making the problem perhaps 20 percent worse by doing private accounts.
The only thing that actually leads to solvency in President Bush’s plan or in Senator Graham’s plan is the fact that they do benefit cuts. One of the president’s proposals would essentially lower the rate that people accumulate benefits, instead of tying it to the amount the economy grows, they would simply tie it to inflation. So it’s the benefit cuts, the rather significant benefit cuts that lead to solvency, not the private accounts. The privatization of accounts actually makes the Social Security problem worse than it is. And so the first thing we should do is do no harm.
RAY SUAREZ: Senator, is that right? Would the Social Security Administration, in effect, be sending out smaller checks eventually because workers have held back a portion of what would have been their FICA contributions and invested it on their own?
SEN. LINDSEY GRAHAM: Here’s my challenge to our Democratic friends. I have submitted a plan to the Social Security Administration that has been evaluated over how it would affect long-term solvency of Social Security, how it would affect each demographic group within Social Security to the year 2075. My plan allows about 25 percent of FICA taxes of younger workers to be put in personal investment accounts. The Social Security Administration has evaluated my plan in great detail. In 2075, our plan would yield $200 billion in today’s dollars surpluses.
Our plan over time pays 11.9 percent more than the Social Security Administration would be able to pay the average beneficiary. I would like to do a show, maybe on your show, where you look at the results of my plan. My challenge to Senator Kerry is to submit a plan or an idea to the Social Security Administration, let them look at it as a third party to see if it achieves solvency, if it avoids bankruptcy in 2042 if it deals with the structural deficiencies that are plaguing Social Security. Don’t expect me to say the right thing about Senator Kerry or him to say right thing about President Bush. Let’s let some independent group look at a personal investment account proposal; let’s use mine and let Americans look at the facts according to the Social Security Administration.
GENE SPERLING: Well, I do admire Senator Graham for putting forward a specific proposal. And I think his proposal does represent what President Bush does want to do. But there was an independent analysis of this proposal. Here’s what it found: It found that even — even after you include the individual account with the guaranteed benefit, so you put them both together, the Congressional Budget Office, independent Congressional Budget Office found it would lead to benefit cuts of well over 20 percent.
Now, you do not hear President Bush or Senator Graham here acknowledging that the independent analysis has led to a 20, 25, 27 percent benefit cut, even when you include the individual account. They also don’t acknowledge another thing. This individual account they give, they make it seem like get to control and have all of it. But what their plans assume is that they are going to tax back 80 percent of that. So, in other words, you get the individual account, then they take back about 80 percent. If you essentially did better than a risk-free investment, you might get a little extra. If you did worse, you may actually lose your whole individual account and even some of the benefits.
So yes, this plan has been evaluated but I don’t see President Bush acknowledging the 20 to 30 percent benefit cuts, the transition costs of $940 billion, or the fact that the individual account you are supposed to have such control of, Social Security would actually take back 80 percent of it, and I don’t think anything that I’ve said is not specifically listed by the Social Security actuaries or Congressional Budget Office in their analysis of Senator Graham’s plan.
RAY SUAREZ: Let me get a very quick response from Sen. Graham.
SEN. LINDSEY GRAHAM: Specifically he is totally wrong. My plan, as evaluated by the Social Security Administration, will pay on average 11.9 percent, I believe is the number, above what Social Security will actually be able to pay. On paper, Social Security is supposed to pay X. It’s only on paper. In 2042, there is no money. So you can’t look at what Social Security promised unless you look at the reality of whether or not it can meet that promise.
The truth is, it runs out of money in 2042 and you have to start cutting benefits by 28 percent unless you do something. So I’m just challenging Senator Kerry to submit a proposal to see if it leads to long-term solvency. And I would like to use this show or some other show to go over the analysis of my plan, how it affects average workers, whether or not it leads to surpluses in 2075 versus a debt.
RAY SUAREZ: Senator, I’m going to have to cut it off there. Thank you both for being with us.
SEN. LINDSEY GRAHAM: Thank you.
GENE SPERLING: Thank you.