RETIREMENT SAVINGS
June 20, 2000

Bush and Gore advisers talk about the candidates' Social Security and retirement savings plans.

Online NewsHour Special Report: Social Security Reform May 15, 2000: A report on Gov. Bush's Social Security reform plan. Nov. 10, 1999: Continuing the debate. 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 possibilities 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     George W. Bush's Social Security plan The White House Conference on Social Security Social Security Administration	SUSAN DENTZER: Today Vice President Al Gore formally laid out a plan to buttress Americans' skimpy savings -- through a new system of private retirement accounts on top of Social Security. AL GORE: I propose today here in Lexington that we create new Retirement Savings Plus Accounts, tax-free voluntary accounts, that let you to save, invest and build on top of the guaranteed foundation of Social Security. Together we will make saving one of the easiest things a family can ever do. SUSAN DENTZER: In effect, Gore dusted off and retooled a proposal put forward two years ago by his boss, President Clinton. Gore's plan would give families earning up to $100,000 a year the ability to squirrel away up to $4,000 annually that could accumulate free from taxes. What's more, much of that money would come directly from the government. AL GORE: We will give people tax credits to match their own savings; the hardest pressed families will get even bigger tax credits. For a married couple making up to $30,000 a year, say, a bus driver and a homemaker, we'll match every dollar you save with $3 deposited right into your account. And you can do it on your tax return and have it done automatically, if you choose. SUSAN DENTZER: Specifically, each spouse of that couple earning $30,000 could contribute $500 to their Retirement Savings Plus accounts, for a total of $1,000 a year. In turn, those contributions would be matched with tax credits totaling $3,000. Individuals could invest those funds in specially designated broad-based mutual funds for stocks, bonds, and government securities. Although higher-income couples could contribute more, they'd get lesser amounts in tax credits. For example, a couple making $90,000 could contribute $1,500 each, or $3,000 in total. The government would kick in $500 per spouse -- or $1 for every $3 contributed. AL GORE: If a young couple saves just $20 a week, together with our tax credits and the returns on their savings, they could reasonably expect to save as much as $400,000 extra by the time they retire 35 years later. SUSAN DENTZER: Gore added that the accounts could be tapped for other purposes as well, such as buying a first home, paying for a child's college education or meeting catastrophic medical expenses. He also went out of his way to draw a sharp distinction between his plan to shore up Americans' retirement security and that of his presidential rival, George W. Bush. AL GORE: My plan is Social Security plus, it's not Social Security minus. It's the best of both worlds, not the worst of both worlds -- not the worst of both worlds. SUSAN DENTZER: Unlike Gore's, in fact, Bush's plan would create private investment accounts within Social Security. GEORGE W. BUSH: A younger worker can take some portion of his or her payroll tax and put it into a fund that invests in stocks and bonds. SUSAN DENTZER: Although Bush hasn't said how much, it's likely that workers could have two percentage points of the taxes they pay into Social Security set aside in these accounts. Bush says his plan could be made to work by tapping the same looming federal budget surpluses that Gore proposes to tap for his plan. But Gore argues that Bush's proposal to divert some payroll taxes out of Social Security and into private accounts would force sharp cuts in promised benefits to future retirees. Bush criticized Gore's proposal as a flip flop. GEORGE W. BUSH: Now all of a sudden he's decided it's okay to be managing money in the stock market. First the stock market was roulette and risky, and now the heat's on, and he changes position. SUSAN DENTZER: Now that the two rivals have carved out such different stances on Social Security the campaign to win over voters on the issue gets underway in earnest. MARGARET WARNER: To debate the merits of Vice President Gore's new plan and compare it to Governor Bush's proposal, we turn to representatives of the two campaigns. Lawrence Lindsey is a former governor of the Federal Reserve, now resident scholar at the American Enterprise Institute and chief economic advisor to Governor Bush. Ron Klain is a former chief of staff to Attorney General Reno and to Vice President Gore, now a lawyer in private practice and a senior advisor in the Gore campaign. Welcome, gentlemen. Well, now both candidates have embraced the idea of augmenting government-sponsored retirement savings by putting at least some tax revenues in the market. The big difference, as we just saw, is Governor Bush would do that within Social Security; Vice President Gore would do that on top of Social Security. Why from Gore's perspective? What's the advantage of doing it his way?
	Increasing savings
	RON KLAIN, Senior Adviser, Gore Campaign: Well, Margaret, the advantage to doing it his way is to keep Social Security as a safe, secure, guaranteed benefit and to have all Americans know that Social Security benefit isn't going to rise or fall on the stock market or depend on what year you happen to retire in. The benefit will be guaranteed. But he also believes, I think as a wide array of people believe that people need to save for their retirement on top of Social Security. Social Security is the foundation for retirement. People need more savings than that. And so the proposal he laid out today is targeted those people who need the most help, working families, middle class families, who find it hard to save for their retirement beyond Social Security. Fewer than 20% of them have IRA Accounts or 401(k) accounts. They need extra help to save for their retirement. And the plan the Vice President announced today by providing generous tax credits, 3-1 matches for those in the lowest income brackets, gives those families the help they need to get ready for retirement. MARGARET WARNER: All right. Now, what's wrong with that proposal? Why not have that secure little nest egg of guaranteed benefits in Social Security and then just add on top of it? LAWRENCE LINDSEY, Economic Adviser, Bush Campaign: The problem is, is that Vice President Gore doesn't fix Social Security. The main problem we have is, according to the Social Security actuary, Social Security's $8.8 trillion short. There's three ways we can fix it: We can raise taxes. We've done that 22 times in the past for Social Security. We can cut benefits. Or we can get a higher return on the money that's now in the trust fund. And that is what Governor Bush is proposing. MARGARET WARNER: So, in other words, you're saying there is no little real secure nest egg of guaranteed benefits because the Social Security trust fund will be depleted within, what, 30 years? LAWRENCE LINDSEY: Well, I just got my personal Social Security account from the Social Security administration. And they told me that I'd have to watch it because starting some time in the 2030's, benefits would have to be cut by 30%. The one sure thing in Mr. Gore's plan is that Social Security benefits will have to be cut by 30% some time in the 2030's. MARGARET WARNER: Is that a sure thing? RON KLAIN: No... MARGARET WARNER: If not, how do you prevent it? RON KLAIN: You prevent it by having a fiscally disciplined approach of paying down the debt and putting Social Security in a position to pay off those benefits. The Vice President's approach has been certified by Social Security actuaries as extending the life of the trust fund to 2054. While I wish Larry the best of health, I think that will be well around for almost all of his retirement, if not most of it. Governor Bush, by the way... Larry talks about the Bush plan, but as we know, there really is no Bush plan. He talks about six hypothetical plans, but they haven't really said which benefit cuts they would implement, how much they would move out of Social Security and what aspects of these six hypothetical plans they would adopt. The fact of the matter is, Margaret, that the Bush plan does rely on private sector returns to make those benefits. If they aren't there, where is it going to come from? As Larry said, tax hikes or benefit cuts or a massive s and l type bailout. That's the risk of the Bush plan. MARGARET WARNER: Let me make sure I understand the Gore plan. You're saying that even though by 2015 the outflows will exceed the inflows in Social Security -- and by 2030 or whatever, that's going to be depleted, the trust fund -- that by paying off the national debt, we're going to somehow extend the... RON KLAIN: By paying off the national debt, we extend the life of Social Security in two ways. First, we create the fund's available to pay back those IOU's in Social Security. MARGARET WARNER: From general tax revenues. RON KLAIN: The Vice President's plan wipes out all national debt by 2012. Secondly, by paying off the national debt, we increase capital flows, capital formation, raise productivity and help long-term economic growth. The Vice President's plan is good for Social Security, and good for the economy, too.
	Payroll tax rates
	MARGARET WARNER: Now, he does point out, there have been critics who've said there are some shortfalls in the Bush plan, as well. And one is that... right now if I were to take part of my payroll taxes that are say supporting my parents and put them in my own private account, something has to make up that difference. LAWRENCE LINDSEY: Sure. MARGARET WARNER: What makes it up? LAWRENCE LINDSEY: First of all, the plans are not hypothetical. All six plans have been proposed by the Congress. All six plans have been certified by Social Security and the General Accounting Office as solving the Social Security problem, not until 2054, at which time the nation's trillions of dollars in debt under Mr. Gore's plan, but solving it forever, fixing Social Security forever. These plans have all been certified as doing it. They're not hypothetical plans. MARGARET WARNER: But let me follow up one other thing Mr. Klain mentioned. It is true, is it not, take me as a hypothetical, I choose to be one who puts my money, one-sixth of it or whatever, in this private payroll account, I am going to have to accept the fact that my little guaranteed Social Security benefit will be a little smaller than my colleague who chose not to. LAWRENCE LINDSEY: Each of the six plans, by responsible members of Congress, deals with that issue somewhat differently. So the answer is we don't know. It will depend on what the political process moves on. The key issue is whether or not people should be allowed to invest a portion of their Social Security in personal accounts. That's the threshold issue in this election. It's, we think, the best way of making sure that the money is there for younger people to retire. MARGARET WARNER: All right. Let me ask you both the same question here. Neither of you are proposing any pain for anyone. Neither candidate is saying, "Benefits might have to be cut. Payroll tax might have to be raised. The retirement age might have to be raised." Is it really realistic over the long term not to talk about those things? RON KLAIN: Margaret, I guess I disagree with that on both accounts. First of all, with regard to Governor Bush's plan, as Larry points out, the six plans do exist. The Governor Bush hasn't told us which one of them he is for, but many of them do contain raises in the retirement age, benefit cuts and various other cutbacks in Social Security, so maybe Governor Bush is for them, maybe he isn't, we just don't know. On the Vice President's side, we're proposing is paying. We're proposing to pay down the debt instead of giving that money away in tax breaks like Governor Bush wants to. That's giving up consumption today to save for retirement tomorrow. That is giving something up, Margaret, something --
	Putting Social Security $ in the stock market
	LAWRENCE LINDSEY: Vice President Gore's proposed $1.7 trillion in spending increases over the next decade. I don't know where the money is coming from. The real pain in what Governor... Actually Vice President Gore is proposing is he would transfer $125 billion a year in income taxes into Social Security. That was something Franklin Roosevelt refused to do. He said if we did that, we would turn Social Security into a welfare program. I think it's a serious mistake. As far as how we would fund our program, right now the money in Social Security is earning a 2% real return. Historically, the stock market yields 7%. Real estate earns about 5.5%. Bonds earn about 4.5%. Einstein called compound interest the only miracle in the universe. You combine 4.5%, 5.5 %, 7% returns instead of 2% returns over a long period of time on the trillions of dollars, and you have real money. MARGARET WARNER: Okay. That does raise another question to both of you. Both of you now would let people count partly on the markets. What if the stock market tanks, just at the time I'm getting ready to retire? I mean, under either plan, wouldn't I stand to lose a substantial amount of money, including money I put in? LAWRENCE LINDSEY: All six of the plans out there have a guaranteed minimum benefit proposal. I don't know what the Congress will end up doing, but I do, as someone who studies politics, suggests that of all six plans to do the same thing, there will be a government backstopping of the program. And I think that that's probably an important consideration. RON KLAIN: Well, they all six have a minimum benefit, but they're not the same as the current benefit. And as Governor Bush, I'll give him credit for honesty, he was asked about this a few weeks ago and said maybe yes, maybe no. The difference between the Gore plan and Bush plan is this: The Gore plan says that Social Security benefit will be guaranteed. And the risk in the market -- MARGARET WARNER: At the currently promised level with no reduction. RON KLAIN: At the currently promised level with no reduction, and your market risk, Margaret, which you're right to point out, is a risk, in the Gore plan would just be for the additional amount on the top that you put in this private savings account. The Bush people can't say the same thing because their account doesn't work the same way. LAWRENCE LINDSEY: Right. He is funding his accounts with higher taxes. So what we're going to do is, yes, we'll give you the same benefits that's promised, but we've got to take $125 billion a year from you in taxes in order to pay for it, plus we have to pay for the USA plan. What we've got to do is get Social Security on a sound footing the way it was set up, one that is self-financing, one that is guaranteed forever, not just until some fixed day in the future in which time the whole house of cards collapses. MARGARET WARNER: And you think the markets are the way to do that. LAWRENCE LINDSEY: We think that getting a higher return, be it in real estate, bonds, stocks, in private returns are the way of doing that. MARGARET WARNER: And the fact that Vice President Gore wouldn't put any payroll taxes into the markets, does that indicate that he still has some ambivalence about how reliable the markets are? RON KLAIN: Well, I think everyone has some ambivalence about how reliable the markets are. They are risky. And they do involve an element of risk. That's what the higher return is for. What he's saying is that everyone should have a guaranteed benefit and some choices on top of that. And we can do that, secure Social Security until 2054, not by raising taxes as Larry suggests we would do, but by taking some money today they want to give away in a huge tax cut and siphon towards the rich and putting it aside for retirement tomorrow. That's the fiscally prudent thing to do, and that will allow people to both save for retirement and have Social Security. That's the smart way to go. LAWRENCE LINDSEY: Our supposed huge tax cut for the rich, by the way, gives $1,500 to a single mom with two kids, more than his. MARGARET WARNER: Instead of -- the tax cut -- let me ask you one other question about the plans we're talking about tonight. If we'd been talking about this ten years ago or twelve years ago, I can't imagine either candidate for president would have talked about anything like this, putting tax revenues into the markets for retirement. I mean, what's changed in the political climate? Why is it even acceptable to talk about this? LAWRENCE LINDSEY: Well, I think we've had experience now where about half of the American public owns some stock. People are much more financially sophisticated than they have been. We think that people can be trusted managing more of their own money. Until the... Until this week, Vice President Gore did not. But we welcome him on board on that issue. MARGARET WARNER: And, it is true that after Governor Bush came out with his plan, that the public way preferred that to standing pat on current Social Security -- why do you think that is? RON KLAIN: I don't think the public has yet had a chance to understand that the six plans that Governor Bush has yet to pick one of involve things like significant benefit cuts. I think Margaret once they understand that, they're not going to be enamored with the Bush plan. As to what's changed in the political dynamic over the past ten years, I think it's a good question. The answer is this. We've had a lot of experience with IRA'S. What we've learned with IRA's, is they're great for higher middle-income people. But middle class and working class people can't afford to save. That's why Al Gore laid out a plan to help those families save for their retirement. MARGARET WARNER: All right. Ron Klain and Larry Lindsey, thank you very much.