FINANCIAL PLANNING

November 10, 1999
		Social Security reform continues to be a constant debate on Capitol Hill -- and will likely continue into the presidential race. Gwen Ifill talks with two policy analysts on whether the program can be saved at all.

Full Social Security coverage March 3, 1999: Investing Social Security. The future of the current Social Security system. Feb. 2, 1999: Details of the president's fiscal year 2000 budget proposal. Feb. 1, 1999: Details of the president's fiscal year 2000 budget proposal. Dec. 28, 1998: The Social Security Administration is Y2K compliant. Dec. 10, 1998: Social Security is up for reform Aug. 5, 1998: How should Social Security be reformed? Jan. 9, 1998: Exploring the possiblities and plausibility of a budget surplus. Aug. 5, 1997: President Clinton signs a budget deal that will balance the books by 2002. Aug. 5, 1998: How should Social Security be reformed? April 7, 1998: The state of Social Security. Dec. 5, 1996: A Dialogue with Pete Peterson Browse the NewsHour's Health Spotlight   TheBrookings Institution The Cato Institute The budget for fiscal year 2000 Social Security Administration Senate Committee on the Budget	GWEN IFILL: The future of Social Security has been a constant undercurrent in the budget fight now winding down between Congress and the White House. Experts predict the Social Security Trust Fund will run out of money by 2034, unless something is done. And both sides say they will not touch a single dime of Social Security money to pay for other programs. Where do things stand? Two experts join us to sort it out. Henry Aaron, senior fellow at the Brookings Institution and Michael Tanner, director of the CATO Institute's Project on Social Security Privatization. Mr. Aaron, both the Republicans and the President have said - almost like a mantra this year - they would save Social Security first. Is that what's happened, and, if not, why not?
	A rare opportunity missed
	HENRY AARON, Brookings Institution: The only thing that's happened this year is that nothing has happened this year. An absolutely opportunity with a strong economy, full employment, divided responsibility between the White House and Congress - the ideal situation for a long-term action and nothing whatsoever has been done. GWEN IFILL: There was money; there was motive; but there wasn't what? HENRY AARON: This issue is of greater importance to more Americans than anything else the federal government does. More than half of American families pay more in Social Security taxes than they do income taxes. Forty-five million people receive benefits. To change that kind of system requires a nearly solid consensus about what to do. Both parties, I think, believe that they are better off using this issue in the year 2000 campaign than in trying to address it in a substantive fashion in the year 1999. GWEN IFILL: Mr. Tanner, what's your take on exactly what went off the rails here? MICHAEL TANNER, Cato Institute: Well, I think Henry is very close to correct. This was a very rare opportunity to really take the bull by the horns and make the type of reforms that are necessary to fix this system. But neither party seemed to have the will to step up to the plate on it. You had a president who essentially after the impeachment hearings was playing to the left wing of the Democratic Party and a Republican Congress that has been totally risk adverse on almost every issue, and it seems to be unwilling to think in big terms about big issues. GWEN IFILL: Is it possible, Mr. Tanner, that we're all just too fat and happy, that doomsday seems to have been postponed here? MICHAEL TANNER: Well, certainly that seems to be what everybody is playing on. Now that we have big budget surpluses, everyone seems to be putting forward plans that at least on paper postpone the date that Social Security runs into trouble. The reality, however, is that neither the president's plan, nor the proposals put forth by the Republican Congress so much as advance by one day the date that Social Security begins to run into trouble. GWEN IFILL: Well, Mr. Aaron, I want to pick up on that point, which is that there are kind of two plans on the table, and both of them, by both the Congressional Budget Office estimates and the Office of Management and Budget, the White House estimates, would bust the budget, wouldn't it work that way?
	Busting the budget?
	HENRY AARON: The truth of the matter is we have a big surplus, cash-flow surplus this year in Social Security projected to be about $146 billion next year. The rest of the budget is very close to balanced one way or the other. There's a debate going on whether we should spend a bit more on agriculture, on education, on national defense. And that might put the rest of the budget slightly in the red. Whether it's in the red a little bit or in the black a little bit, I think is not a major issue. And the main point is that all of the talk about trying to avoid raiding the Social Security budget -- the Social Security Trust Fund is just so much hogwash. There is nothing that is under current discussion that would have the slightest effect on Social Security. Those surpluses are going to be there whatever the Congress decides on the rest of the budget, and the claims on the parts of the Republicans and the counterclaims by the Democrats that they assuredly are not going to raid the Social Security Trust Fund is just so much posturing. GWEN IFILL: What is the actual connection between the budget surplus and Social Security? How are those two things connected? HENRY AARON: Well, there are two parts to the budget, Social Security, the surplus of which is projected to be about $145, $146 billion. The rest of the budget is going do be very close to in balance. Whatever happens in the rest of the budget, the Social Security trustees are going to take that surplus and they're going to go to the Treasury, and they're going to buy special treasury bonds which will be kept in the Social Security Trust Fund until they're needed. And I think both Mr. Tanner and I would agree that at some point in the future, unless the law is changed in one way or another, they will be needed. The fact of the matter is that those bonds will be in the trust fund in exactly the same form whether the rest of the budget is in surplus or in deficit. Social Security is unaffected by this debate. GWEN IFILL: Mr. Tanner, I know that you're an advocate of privatization as a way of preserving Social Security. Was that even touched upon in either of these two plans? MICHAEL TANNER: No. Neither of the plans that are currently out there would do anything about that. And that deals with the structural problem that there is no way that the federal government can really save money today in order to spend it tomorrow when Social Security begins to run a deficit around 2014 or so. There is no real way under the current system to prefund that. The alternative would be to invest the Social Security surplus in real assets, and there are two ways to do that. The government could do the investing, which is what Dr. Aaron has proposed, or we could allow individuals to invest that money through individual accounts which is what I have proposed. Either way then you get real savings, real investment. The President's current plan the Republican current plan, neither one does anything about that.
	Reality or rhetoric?
	GWEN IFILL: In 1997, Mr. Tanner, they actually created a set of budget caps, which the Congress hoped to live within. And that was the hard wall they were up against this year that they failed to meet. They were trying to say they were keeping to those budget caps as a way of preserving Social Security. Was that just rhetoric? MICHAEL TANNER: Well, technically I think they're going to find that they're going to keep to them -- GWEN IFILL: Technically, though. MICHAEL TANNER: -- but they have employed every accounting gimmick they could find from declaring that the Census is an unexpected emergency to ordering that certain grants be spent only in the last two days of the fiscal year, which fall on a holiday so that they will actually be pushed into next year's budget. It has been full of dishonest accounting by both the president and the Congress throughout this entire debate. GWEN IFILL: Let's assume, Mr. Aaron, this was a political rhetoric fight and that perhaps one side or the other had to win, the Democrats always have the edge on issues like Social Security. Republicans hoped to gain the edge. Polls show they didn't necessarily. HENRY AARON: I have little doubt that the reason that the Republicans kept referring to their determination not to raid the Social Security Trust Fund was that polls and focus groups had indicated that this played well with the American public. It sounds good. It's nonsense. The fact of the matter is the Democrats bought into the same nonsense in the course of the debate. We are in a tough spot in the rest of the budget. In 1997, both parties agreed to limits on discretionary spending that no rational person in this town really thinks we can live within. It's on the basis of those overoptimistic or overly restrictive assumptions regarding so-called discretionary spending that all the projections of budget surpluses rest. If one uses more realistic projections, say that spending on defense and domestic spending outside Social Security rose no faster than inflation and just keeps up with inflation, there is no surplus to be projected over the next 10 years. The gap between the reality of the budget situation and the rhetoric of the budget situation has never been greater, and it is producing, regrettably, really a debasement of political dialogue on the part of both parties. GWEN IFILL: Mr. Tanner, let's talk about the reality, at least for the next go-around. Is this something which just goes away because the urgency to fix Social Security goes away, or is this something that Congress and the White House can take another try at next time?
	Prospects for reform
	MICHAEL TANNER: Well, I think we've still got a couple years in which we can make some real reforms, and I think we're going to see this come back as part of the presidential debate. It is really starting to heat up where you have almost all the major Republican presidential candidates in favor of some form of individual account whereas the Democratic candidates are generally in opposition. So I think you could see this play out on the national stage during the election. GWEN IFILL: Mr. Aaron? HENRY AARON: I think it's a good thing, too. If one wants to think about an issue that a mature democracy should confront in a presidential election, one couldn't do better than to have a debate focusing on budget policy generally and what to do about the most important domestic program the United States government runs, Social Security. It's been around for 63 years. The question is, what form it should take next century. The two parties are giving dramatically different visions. Let's have an election to address those issues and decide it. GWEN IFILL: Mr. Aaron, Mr. Tanner, thank you both very much. HENRY AARON: Thank you.

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