Securing Social Security
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JIM LEHRER: The Social Security story, another report from our health care unit, a partnership with the Henry J. Kaiser Family Foundation, and to Susan Dentzer.
SPOKESPERSON: The President of the United States.
SUSAN DENTZER: Yesterday in Albuquerque, New Mexico, President Clinton led this year’s third national forum on Social Security. Politicians from both parties gathered with Social Security experts and an audience of New Mexicans to discuss the system’s long-term problem.
PRESIDENT CLINTON: Today the system is sound, but we all know a demographic crisis is looming. There are 76 million of us baby boomers now looking ahead to retirement age and longer life expectancies. By 2030 there will be twice as many elderly as there are today, with only two people working for every one person drawing Social Security.
SUSAN DENTZER: And that will throw the program’s finances wildly out of kilter. Under current projections in about 15 years Social Security will start running a deficit, taking in less in taxes than it pays out in benefits. And unless the program is reformed by about 2032, Social Security may be able to pay only about 75 percent of the benefits that have been promised tomorrow’s retirees. As Clinton noted, that’s the down side of a 20th century triumph.
PRESIDENT CLINTON: We are an aging society. We are living longer and better and healthier. And that imposes costs. The older I get, the more I like that problem. That’s a high class problem.
SUSAN DENTZER: The focus of yesterday’s forum was whether to deal with that high class problem by finding ways to earn a higher rate of return on Social Security money. The program currently has about $725 billion in its trust fund since it is taking in more in taxes than it pays out. These funds are invested in special government bonds that currently earn annual interest of roughly 7 ½ percent. But that compares quarterly with the returns available in the stock market, where investments have earned an average of 12 percent annually for the past 60 years. Over time, that adds up to a huge difference, and politicians of all stripes now recognize that raising the rate of return could go a long way toward resolving the system’s problems.
SEN. PETE DOMENICI, (R) New Mexico: One of my friends in the Senate says that the power of compounding is the most powerful force around. And he even says this friend of mine-that Einstein agreed with that, Mr. President, that the most powerful force around is the power of compounding.
SUSAN DENTZER: Clinton agreed that harnessing that power of compounding was preferable to making painful changes in the program.
PRESIDENT CLINTON: We’re either going to have to raise the payroll tax by quite a lot-we’re going to have to cut benefits by quite a lot-or we’re going to have to have the government stop doing a huge percentage of everything else it’s doing.
SUSAN DENTZER: Two broad approaches were on the table yesterday. One would have the government directly invest up to half of the Social Security reserves in the stock market. The other would allow workers to place a portion of their payroll taxes into private accounts similar to IRA’s and 401-K plans. Clinton noted that there would be problems with both.
PRESIDENT CLINTON: For example, if the government did it, would it give the government too much influence over any company or any sector of our economy? But I think most people just think if the risk is going to-if there’s going to be a risk taken, I’d rather take it than have the government take it for me. Those who favor-by the way-having individual accounts have to ask what happens to people who happen to retire after the market’s gone down for five years.
SUSAN DENTZER: Polls show that many Americans favor private accounts, but some at the forum voiced concern. Audience member John Boyd.
JOHN BOYD: If individual accounts are set up, for many they will become exhausted either by old age, bad investments, or a turndown in the market, or all three of those things, but they won’t last forever. Will there be a guarantee of current benefits by the government? If so, what problem have we solved, or have we simply created another problem? If not, are we simply creating a system that is inevitably going to plunge a lot of very old people into poverty?
PRESIDENT CLINTON: Why don’t we let-
SUSAN DENTZER: Economist and Social Security expert Robert Reischauer said Boyd’s concerns were real.
ROBERT REISCHAUER, Economist: There will be some who do very well with their private account and that certainly do get much better returns. The average person might also, but there will be many who invest unwisely or are unlucky for one reason or another, and the question is what happens to them? Their Social Security benefit has been reduced, and this additional account doesn’t pay back what even Social Security would have paid back. And so we want to keep this balance. There is no Lake Wobegon effect here. Everybody can’t be above average; everybody can’t even be average.
SUSAN DENTZER: Audience member Nina Santiago protested that only the investment community would come out ahead.
NINA SANTIAGO: I believe that the people who are advocating privatization are just like the tobacco people who are the ones that garner the big money with their program. I think the Wall (applause)-I think the Wall Street brokers are the ones that are going to make the money.
SUSAN DENTZER: Santiago went on to ask how a transition to private accounts would be paid for. If payroll taxes were transferred into private accounts, the government would have to find up to $9 trillion somewhere else to pay benefits due current and future retirees.
NINA SANTIAGO: My question is this-and it’s to the economist at the table-who’s going to pay for this privatization–billions of dollars, it’s going to cost to do that transition from where we’re at now into privatization?
MICHAEL BOSKIN, Economist: I think you raise a good question about the cost of transition. And they’re important to get those right and to try to minimize those; however, it’s very important to understand we face huge unfunded liabilities in the current system-trillions and trillions and trillions of dollars.
If we go on the way we are today, we have to have trillions and trillions of dollars of tax increases that will wreck the economy or substantial reductions in the growth of benefits out there in the future. The idea is even though there might be some costs of transition as the President and others have said to set up something to take some of that pressure off builds up compounds at a higher rate than we’re getting now, and have benefits that exceed these costs that are substantial.
SPOKESPERSON: Ned Montonio. Ned, go ahead.
NED MONTONIO: Yes. Mr. President, if it were entirely up to you and a decision had to be made today, what would you do?
PRESIDENT CLINTON: If I answered that question today, it would make it less likely the decision would be made. That’s the truth. You have to understand-let me say-(applause)-and I’m not dodging this. I honestly don’t know what I would do today.
But I am open to the idea that if we can get a higher rate of return in some fashion than we have been getting in the past, while being fair to everybody and guaranteeing that we’ll still be lifting the same percentage of people out of poverty, we ought to be open to those options, because I think that’s better than raising the payroll tax a lot more because it’s a regressive tax. And whether it’s in either one of these approaches we ought to go for it because other alternatives are much less pleasant already. And if we wait around for five or ten years, they’re going to get a whole lot worse than they are today.
SUSAN DENTZER: All of these town meetings are leading up to a planned White House summit in December. The president says he will then convene a bipartisan group to draft legislation in hopes of passing it next year.
JIM LEHRER: And Susan Dentzer is back here in Washington.
JIM LEHRER: Susan, you were there as a reporter, but you were also a participant in some degree, were you not? We saw you there with a microphone.
SUSAN DENTZER: That’s right, Jim. I was one of several journalists asked by the sponsors of the forum, the Concord Coalition and the American Association of Retired Persons, to help facilitate the asking of questions by the audience to the panel.
JIM LEHRER: I see. What are the politics of this issue, this privatization issue?
SUSAN DENTZER: Quite intense. In fact, yesterday I would say there were two forces of gravity, in effect, political forces of gravity pulling on the overall event. There was, in fact, a kind of a bipartisan force. The president many times said we have to have a bipartisan approach to this issue, we cannot afford to pollute the well by making it a partisan issue.
JIM LEHRER: Because nothing will happen, right?
SUSAN DENTZER: Otherwise nothing will happen. We’ve got to be in this together. The other force, of course, was the partisan force pulling on the event, and no side could pass up the opportunity to score points against the other. For example, the president took a swipe at a proposal that is growing by the House Republicans to take the looming budget surpluses that we now face-we now have a projection that those will add up to $1.6 trillion over the next ten years-and of course most of those surpluses are the Social Security surpluses building up in a system.
The House Republicans propose to take those surpluses, cut them in half, give about half, give about half back to workers to put into these private accounts, and spend about half on tax cuts, and the president could not resist taking a swipe at that proposal and suggesting it was fiscally irresponsible.
JIM LEHRER: Is it over-simplifying things to say that the proposal to give-to allow individuals to invest in their Social Security money is basically a Republican proposal?
SUSAN DENTZER: Well, yes and no. It tends to be-there are part-there are Democrats who support it, in fact. What it tends to be is a group of people who believe, for example, in private property-private ownership. They think that that’s important, No. 1. They tend to believe that Americans need to save more and that teaching them how to save and invest is a very important proposition.
Many of them, of course, do also believe that government entitlement programs are not the greatest thing that ever happened to human kind and they would like to see those whittled away over time and replaced by private responsibility, private investment. But, again, maybe it’s 2/3 of the supporters may be Republican, but there are a third of Democrats in there as well probably.
JIM LEHRER: And the opponents who go with what the President said at this point are mostly Democrats, are they not?
SUSAN DENTZER: Well, again, the President is careful not to say what he thinks, other than we have to get a higher return out of the system. But, in fact, many of the Democrats on the left, of course, would vastly prefer to keep the system entirely intact, are very much opposed to private accounts.
JIM LEHRER: Government bonds, keep it exactly the way it is.
SUSAN DENTZER: Keep the Social Security system overall intact but take the reserves and invest them in the stock market but have the government do that. Centralize the investment by the government. The government would, in effect, set up index, so-called stock market index funds. It would invest Social Security moneys in those funds.
It would capture those higher rates of return, but the government would be doing the investing. The important part of that would be that the government would absorb the risks over time, not individuals investing moneys in their own accounts. And, in fact, the government could smooth out ups and downs in the market and guarantee, as the President said, that as many people as are now being pulled out of poverty by Social Security would, indeed, be pulled out of poverty in the future.
JIM LEHRER: We’re going to hear a lot more about this one, right?
SUSAN DENTZER: You bet.
JIM LEHRER: Okay. Thank you, Susan.