Co-sponsored by The Concord Coalition and the American Association of Retired Persons
in collaboration with Americans Discuss Social Security
THE PRESIDENT: Thank you very much, ladies and gentlemen. Good morning. Thank you, Governor Carnahan, for your leadership on so many areas and your friendship. I'd like to thank the leaders of this fine institution for welcoming us here and for the mission they perform every day. I thank Senators Kerrey and Santorum for their concern, longstanding, for Social Security reform and their presence here, and Representatives Hulshof and Pomeroy, who are participating in the program, and Representative McCarthy, and also Representative David Dreier from California, who is a native of Kansas City, who are here.
I thank the members of our administration who have come who will be participating: the Director of the Office of Management and Budget, Frank Raines; the Deputy Secretary of the Treasury, Larry Summers; the Director of the National Economic Council, Gene Sperling; and the Administrator of Social Security, Ken Apfel.
Attorney General Nixon, Treasurer Graeber, Insurance Commissioner Sebelius, thank you all for being here. Mayor Cleaver, thank you for hosting us. I don't know if Mayor Marinovich is here or not, but if she is, hello.
I'd also like to thank the leaders of the AARP, including Horace Deets, and the leaders of the Concord Coalition, including Martha Phillips, for their hosting of this forum. The AARP has long been a leading voice for the elderly, the Concord Coalition long a leading voice for fiscal responsibility over the long run, and their willingness to work together is very important. I'd also like to thank the Speaker of the House, the Senate Majority Leader, and the House and Senate Democratic leaders for nominating and being represented here today by the members of Congress who are on the program.
As the Governor said, this is a good time for America and a time of great hope. Our economy is the strongest in a generation. Many of our social problems are on the mend. Our leadership in the world is unrivalled. Within the next year, we will have a balanced budget. And where once there were deficits projected as far as the eye can see, we now have projected surpluses as far as the eye can see -- a trillion dollars' worth over the next decade.
But this sunlit moment is not a time to rest. Instead, it is a rare opportunity to prepare our nation for the challenges and the opportunities of the 21st century -- or in the words of the old saying, to fix the roof while the sun is shining. In the coming century, the aging of our society will present both great challenges and great opportunities. I hope to live to be one of those people and so, to me, it's a high-class problem.
But because a higher percentage of our people will be both older and retired, perhaps our greatest opportunity and our greatest obligation at this moment is to save Social Security. In the State of the Union address, I called on Congress to set aside every penny of any surplus until we had dealt with Social Security first. Both parties in both chambers of Congress have joined in this call. That is the good news.
Today we turn to the business at hand -- building public awareness of the nature and scope of the problem, and building public consensus for the best changes. Clearly, we will strengthen Social Security and reform it only if we reach across lines of party, philosophy, and generation. And that is one reason for the broad representation of age groups in this audience today. We have to have open minds and generous spirits. And we all have to be willing to listen and to learn.
For too long, politicians have called Social Security the "third rail" of American politics. That's Washington language for, it's above serious debate. This year we must prove them wrong. This conference, with its wide participation, is a good start. On the political calendar, 1998 is an election year. But on the Social Security calendar, we must resolve to make it an education year, when we come to grips with the problems of the system and come together to find the answers.
This issues is complicated, so we need the best ideas -- whatever their source. The issue is controversial, so we have to have a national consensus on both the nature of the problem and the direction we must take.
That's why I've asked all the members of Congress to also host town hall meetings in their own districts. I'll be talking with several of them by satellite later today. And we'll hold more additional forums like this one around the country. In December, there will be a White House Conference on Social Security. In January, I intend to convene the leaders of Congress to draft a plan to save it. With this effort we can forge a national consensus, and we must.
For 60 years, Social Security has meant more than an ID number on a tax form, more than even a monthly check in the mail. It reflects our deepest values, the duties we owe to our parents, to each other, to our children and grandchildren, to those who misfortune strikes, to our ideals as one America.
Missouri's native son, Mark Twain, once said, "I've come loaded with statistics, for I've noticed a man can't prove anything without statistics."So I thought we would begin today with a few statistics. Today, as the first chart shows, 44 million Americans depend upon Social Security, and for two-thirds of our senior citizens it is the main source of income. For 18 percent of our seniors it is the only source of income.
But Social Security is more than just a retirement program. Today you can see that more than one in three of the beneficiaries are not retirees. They are children and spouses of working people who die in their prime. They are men and women who become disabled, or their children.
So Social Security is also a life insurance policy, and a disability policy, as well as a rock-solid guarantee of support and old age. That is why we have to act with care as we make needed repairs to the program occasioned by the huge growth in retirees.
Since its enactment over 60 years ago, Social Security has changed the face of America. When President Roosevelt signed the bill creating the Social Security system, most seniors in America were poor. A typical elderly person sent a letter to FDR begging him to eliminate "the stark terror of penniless old age."Since then, the elderly poverty rate has dropped sharply. You can look here and see that in 1959 the poverty rate was over 35 percent for retirees. In 1979, it had dropped to 15. 2 percent. In 1996, the poverty rate is down below 11 percent.
Now, there's something else I want to say about this. Even though most seniors need other sources of income in addition to Social Security to maintain a comfortable lifestyle: if Social Security did not exist, today half of all American retirees would be living in poverty -- 60 percent of all women. Fifteen million American seniors have been lifted out of poverty through the Social Security system. Today the system is sound, but the demographic crisis looming is clear. The baby boomers -- 76 million of us -- are now looking ahead to their retirement. And people, clearly, are living longer, so that by 2030, there will be twice as many elderly as there are today.
All these trends will impose heavy strains on the system. Let's look at the next chart here. You can see that in 1960, which wasn't so long ago, there were over five people working for every person drawing Social Security. In 1997, last year, there were over three people- 3. 3 people -- working for every person drawing. But by 2030, because of the increasing average age, if present birthrates and immigration rates and retirement rates continue, there will be only two people working for every person drawing Social Security.
Now, here's the bottom line. The Social Security Trust Fund is sufficient to pay all the obligations of Social Security -- both retirement and disability -- until 2029, after which it will no longer cover those obligations. Payroll contributions will only be enough to cover 75 cents on the dollar of current benefits.
If we act now, we can ensure strong retirement benefits for the baby boom generation without placing an undue burden on our children and grandchildren. And we can do it, if we act now, with changes that will be far simpler and easier than if we wait until the problem is closer at hand. For example, a $100 billion of the budget surplus, if used for Social Security, would add a year or more to the solvency of the Trust Fund with no other changes being made. Other changes, which could be made, can be phased in over time, and keep in mind, small changes decided on now can have huge impacts 30 years from now.
So how should we judge the proposals to change the Social Security system? Here are principles that I believe we should follow, and they're on the next chart here. I believe, first of all, we have to reform Social Security in a way that strengthens and protects a guarantee for the 21st century. We should not abandon a basic program that has been one of the greatest successes in our country's history.
Second, we should maintain universality and fairness. For half a century, this has been a progressive guarantee for citizens; we have to keep it that way. It was not until 1985 that the poverty rate among seniors was lower than the poverty rate for the population of America as a whole. It is an astonishing achievement of our society that it is now so much lower, and we should not give it up. Third, Social Security must provide a benefit that people can count on. Regardless of the ups and downs of the economy or the financial markets, we have to provide a solid and dependable foundation of retirement security.
Fourth, Social Security must continue to provide financial security for disabled and low income beneficiaries. We can never forget the one in three Social Security beneficiaries who are not retirees. And fifth, anything we do to strengthen Social Security now must maintain our hard-won fiscal discipline. It is the source of much of the prosperity we enjoy today.
Now, these are the principles that will guide me as we work to forge a consensus. I hope they're ones that all of you can also embrace. This national effort will call on the best of our people. It will require us to rise above partisanship. It will require us to plan for the future, to consider new ideas, to engage in what President Roosevelt once called "bold, persistent experimentation."It will remind us that there are some challenges that we can only meet as one nation acting through our national government, just as there are others we can better meet as individuals, families, communities.
This is also a challenge for every generation. To the older Americans here today, let me say, you have nothing to worry about. For you Social Security is as strong as every. To the younger people here today who may believe that you will never see a Social Security check- indeed, I saw a poll which purported to be serious that said that Americans in their twenties thought it was more likely they would see a U. F. O. than that they would every draw Social Security.
That skepticism may have been well founded in the past, but just as we put our fiscal house in order, we can and must put Social Security in order.
And above all, to my fellow baby boomers, let me say that none of us wants our own retirement to be a burden to our children and to their efforts to raise our grandchildren. It would be unconscionable if we failed to act, and act now, as one nation renewing the ties that bind us across the generations.
Thank you very much.
(Introduction of Senator Santorum. )
SENATOR SANTORUM: Thank you very much, Governor, it's an honor to be in your state. And thank you, Mr. President, for your excellent remarks and for your commitment to improving the Social Security system.
I also want to thank Trent Lott for asking me to be here in representing him here today. I think he did so in part because I am the youngest United States Senator. I also have the youngest family member -- I have a daughter, Sarah Maria, who is three months old -- and Karen and I have parents who are in the Social Security system. So I think I understand the problems confronted by every generation.
The problem is how do we reinvent Social Security so it can do for the next generation of Americans what it's done so well for generations past. And what has it done well? Well, it's done what the President suggested, it has virtually eliminated poverty among seniors, it has provided income security and stability for our senior population, and it's done so, it's done so by a fair system where people would put into the system and get out at least as a generation what they put into the system, and in most cases got more out of the system than what they put in the system.
Now, the President outlined I think very accurately the problem that we're confronted with. We're confronted with people living longer. That's a good problem. On average people are living about 13 years longer than they did when Social Security was around. That means larger populations of elderly in this country being supported, because of the low birth rates that we have in this country today, by fewer and fewer people paying those taxes.
Throw on top of that the baby boom generation where, just to understand the numbers here, this year between 2-300,000 people will turn 65. In the year 2011, the first year the baby boomers turn 65, 1. 6 million people will turn 65 in that year. That's the enormity of the baby boom generation; the people no longer paying taxes and moving into a Social Security and Medicare system and drawing those benefits down.
But there's another problem in Social Security. This problem I think points to the solution or the general direction of the solution we have to shoot for. That problem is the problem of equity or fairness.
As I said before, in past generations people would put money into Social Security and get out at least what they put in, if not more than what they put in. That is no longer the case for people entering the work force today. I'll use an AARP example. They took someone who is my age and younger, who is an average income American, $28,000 a year. That person will have to live to age 95 to get all the money they put into the system.
That is not a fair system any more. It does accomplish the things we want -- it provides retirement income -- but it doesn't do it from a generational perspective that's fair. We need to have a system that is fair generationally but also fair for specific groups that under the current system are disadvantaged.
Take the working poor and minorities who don't live as long as the general population. They are right now -- African American men as of today do not get out of the system what they put in because of the shorter life expectancy. And what do they have to show for it if they die at age 61. They've paid into the system all their lives and what do their children get, most of whom are probably over the age of 18? Nothing out of that Social Security system.
We need to do better than that. We can do better than that. In fact, we must do better than that if, in fact, we're going to have the kind of retirement security that this country fought for and deserves. We need to do so by reinventing Social Security. If we tinker with the old system -- when I say tinker we can do two things. We've done them in the past. That's how we fixed Social Security in the past. We've raised taxes and we've reduced benefits. If you raise taxes and reduce benefits on current workers you make the fairness issue even worse because they get even less money back for the more they put in.
So if you just stay in the box and you don't think outside the box the system only gets more unfair. We may keep a system but it will not be the system that seniors today have enjoyed and past generations have enjoyed.
So what can we do? I suggest the three P's. Number one: preserve. Preserve Social Security for those at or near retirement. I think the President is right, we have to say to people who are at retirement or in retirement right now, or near retirement that the system will be there for you and we are not going to make changes to that system.
Second: we have to say it's there to protect. It's there to protect people who are, as the President suggested, disabled or who are survivors, or who are the working poor who may not earn enough money to be able to have a good retirement income. There needs to continue to be a Social Security system to be there to make sure that there is a guaranteed minimum benefit and that there is money there for people who are disabled or who are survivors.
And finally, we need to provide opportunity to the next generation to be able to get out, at least in part -- and I don't -- again, I support keeping a Social Security system in place but a portion of that money must be made available to invest in personal savings accounts to take advantage of the growth and economic development that's going on in this country. Everyone in America should get one of these, should get an account that's their money that can never be taken away from them, that they can invest, that they can see the growth in their future, and if they were to die prematurely something they can leave to the next generation to help them in their future.
SENATOR SANTORUM: The President is right, we must act. We must act responsibly and we must act bipartisanly. I believe, in talking to my colleagues -- and you'll hear next as I introduce Senator Robert Kerrey, who has also proposed a component for personal savings -- that we can work in a bipartisan fashion. In fact, this issue is too important; we must work in a bipartisan fashion. If we do then I think America will be well served and future generations will be able to stand up with equal vigor and be proud of the Social Security system of this country.
And now to introduce someone who has in fact been one of the great leaders on this issue in reaching out across the aisle and working, along with Senator Moynihan, who has also proposed a portion to be put into personal savings. That's the senator from Nebraska, Senator Robert Kerrey.
SENATOR KERREY: I also want to thank the audience, especially the diversity of this audience, andappreciate your making the commitment of time and effort to understand what is, I think, unarguably the most important program in the United States of America.
To you, Mr. President, and to Governor Carnahan and Senator Santorum and Congressman Pomeroy and Congressman Hulshof and Congresswoman McCarthy, it is a pleasure to be here with all of you.
To Martha Phillips, with the Concord Coalition, to Horace Deets, with AARP, and Carolyn Lukensmeyer, with Americans Discuss Social Security, thank you very much for organizing this event. And to Dr. Wayne Giles, we thank you for the use of this very impressive campus.
And to the only person in this room who singlehandedly had the power to focus America's attention on this problem and decided to use that power, the President of the United States, Mr. President, thank you for putting Social Security reform on America's front burner.
SENATOR KERREY: This is the part of the program where the politicians talk. Although I am much more looking forward to the part of the program that comes this afternoon, when the politicians listen, if it's the burden I must carry in this life to give you a speech well, you'll all be relieved to know that, thanks to AARP and the Concord Coalition, it will be short.
SENATOR KERREY: That may deserve a standing ovation, for all I know.
SENATOR KERREY: The President speaks with a special elegance when he says this is our generation's problem to solve. I think we can make this program work better and I believe we can make it provide us with more. But I might add to my generation this is not just about how we want to live while we are here but it's also about how we want our children to remember us when we are gone.
The President has told you about a demographic problem we face. I do not need to repeat that demographic program except to offer one additional fact. That is between the years 2010 and 2030, when the 76 million Americans who were born between 1945 and '65 retire, an additional five million workers will join the American work force, but there will be 22 million additional retirees. That states shortly the problem.
We must, as a nation, begin confronting this demographic problem now, especially now when times are good and the change is much easier.
The best reason to reform Social Security can be stated in three words: Social Security works. We have many challenges to confront but we are not staring into the dark depths of disaster. We are staring into the rich field of opportunity. We can not only save this program, we can make it work better and shape it to reflect the needs both working and retired Americans face in the 21st century.
Having seconded what others have said about demographics, I want to call your attention to a different problem faced by Americans. Before I talk about that problem let me talk about a single person. She can tell the story a whole lot better than I can.
Emma is a Social Security recipient in Kansas City. Here is her picture. We asked her last week how she feels about her retirement, whether Social Security covers her needs and whether she thought she had been able to save enough for retirement. This is what she had to say, "I have to depend totally on my Social Security coming in once a month. If I had extra money that I could have done other things with I would be in a better position because at this time my children and my grandchildren, they are the ones who are helping me to finance my income. If I had a higher income I wouldn't have to depend upon them."
The average monthly check in the state of Missouri is $745 a month. And 16 percent of Social Security beneficiaries are like Emma, they have Social Security as their only source of income.
So Emma was telling us about a problem with this system and I hope it will get as much attention as the other problems we have discussed. Social Security provides income, not wealth. Well, why is that a problem for Emma and others? The answer is, as I said, Social Security provides $730 a month in the state of Missouri and many retirees don't have much more to live on. Nationwide, according to my chart, it's 16 percent -- the President has 18 percent -- it's a big number of retirees who have no other source of income other than that monthly check. Another 14 percent rely on Social Security for 90 percent and another 36 percent, nearly two-thirds in total, have more than 50 percent of their income coming from Social Security.
Here we need to understand a critical distinction. Social Security, again, provides income. It does not provide wealth. It is not a savings program. But retirees like Emma are telling us they need both income and wealth.
Look at this next chart and you'll see why. Wealth can transform what it means to be retired. The median income of the elderly who don't have wealth, like Emma, is $8,590 a year. But the median income of the elderly who do have wealth is more than double, nearly $20,000 a year. And that leads me to a conclusion: Social Security should provide both income and wealth. I think the result will be more secure retirement if it does.
Again, I want to endorse, if not repeat, what others have said about the demographic problem. But I wanted to use my time this morning to tell you I think there's a companion problem that equally deserves our attention.
You have heard it said by many other politicians, by me that in America the rich are getting richer and the poor are getting poorer. It is a mathematical certainty if we choose to that we can use the Social Security program to solve that problem. That is the problem that people like Emma are facing, because they couldn't build wealth over their lives, they have nothing but Social Security to retire on and it's not enough.
So let's have a vigorous discussion about what the President and others have outlined as problems facing Social Security. I hope we'll give equal attention to the problem people like Emma are telling us about, they need income and wealth, and Social Security can be transformed into a vehicle to provide both.
Emma said it best when we asked her whether she thinks it might be a good idea to think of Social Security that way and she, unlike people in our line of work, was succinct. She said very simply, "I wish I had had that when I was working."I say to her I wish you had as well and I hope with those words we can provide that to your grandchildren.
(Introduction of Representative Hulshof. )
REPRESENTATIVE HULSHOF: Mr. President, Senator Kerrey, Senator Santorum, Congressman Pomeroy, Governor Carnahan, welcome to the Show Me state.
I made a deal with Senator Kerrey, the gentleman from Nebraska, that I would not mention the Missouri-Nebraska college football game of last year, so I'm keeping my commitment to you, Senator Kerrey.
REPRESENTATIVE HULSHOF: I welcome those of you who are visiting, Missouri. Welcome to the Show Me state. We are here to show you, America, our resolve to discuss the future of Social Security. I hope to bring a fresh perspective to this debate. As a newly elected member of Congress, I believe that our freshman class, both Republicans and Democrats, have demonstrated a willingness to confront and address tough political issues. I think all of us face a daunting challenge and to solve it we must all work anew.
One of the terms that you all who are participating may hear today is intergenerational fairness. Let me give a human face to what that term means. It means we're all in this together, from 116 Estellar Jones, in Waynesboro, Georgia -- reportedly the oldest living American in our country -- all the way to Austin Brook Renner, 7 lb 13 oz baby girl, born at 7: 55 this morning at the Boone Hospital Clinic in Columbia, Missouri, my youngest constituent.
As we proceed we have to do two things. First and foremost, we must honor our commitment to today's seniors and those who are getting ready to retire. As you saw up on the screen, with those real life testimonials from citizens right here in Kansas City, the green checks the Social Security Administration mail out each month to one in six Americans are the back bone of retirement income for our nation.
But secondly, we must also protect younger Americans so that Social Security works for them too. I think as we begin this discussion that today is a good time to reaffirm the underlying principles of the Social Security retirement. It is, in fact, only one leg of what is referred to as a three legged stool, with those other two legs being pension plans and personal savings. Now, on the latter point I'm happy to tell you that in Congress we are continuing to look for ways to encourage personal savings so that thriftiness is rewarded, not punished. But this discussion today is about the extent to which future retirement should be the public responsibility and to what extent, if any, it should be a private responsibility.
As the President alluded to earlier, if we delay reform we shorten the time that's needed by the American people to accumulate savings and adjust their plans for retirement. Long term changes, if any, must be made while the baby boomer generation continues to be productive and in the work force so they have time to make adjustments.
And while the solvency of Social Security is, as some say, a slow motion crisis to younger workers in their twenties and thirties there is an immediate crisis, a crisis of confidence. A dollar currently put into the Social Security system will generate about one percent of interest. Instead of taking advantage of the tried and true power of compound interest our taxpayers are forced to put retirement savings into a program that earns much less than a traditional savings account.
I believe, as you do, Mr. President, that we are standing on the threshold of a great new opportunity -- the first federal surplus in a generation. It is time for Washington to put your money where their mouth is.
REPRESENTATIVE HULSHOF: Last week before the Ways and Means Committee Speaker Newt Gingrich came before us and cautioned us that if we don't lock in the surplus and if we don't guarantee that it will not be used for other government programs it's going to be spent. That's why, Mr. President, I support your call to save Social Security first and every penny of the surplus going toward that end.
Ladies and gentlemen, the American people have never retreated from a crisis and we must not do so on this issue. Our task is to solve this problem so that when Austin Brook Renner grows up she will never even know that there was a Social Security crisis.
I was intrigued by some comments that were made in a speech about a year ago by former President Gerald Ford when he pointed out that the founders of our country designed a government in which it's easier to do nothing rather than to do a great deal all at once. But the founders also counted on the will and the wisdom of the American people to conceive and implement reforms when necessary. The supreme test for us today is to convert that supposed third rail of politics into the very track that carries us into the next century on an engine of reform and renewal. Our conscience demands what our children deserve. God willing, we will disappoint neither.
(Introduction of Representative Pomeroy. )
REPRESENTATIVE POMEROY: Mr. President, Governor Carnahan, Mr. Mayor, colleagues, ladies and gentlemen. On behalf of all of us participating in and listening today, Mr. President, I thank you for kicking off this critically important discussion on Social Security, its role in our country now and in the years ahead. Today's panel reflects the deep commitment in both parties in Congress to do what needs to be done to keep this vital program as effective in the 21st century as it has been for the better part of the 20th century.
At this very first forum I believe it's helpful to approach the issue of Social Security by imagining what our country would need without a Social Security system in place. Let's just imagine for a minute that at this forum we're truly starting with a blank slate. We are charged with responding to create for our country a program that responds to the inevitable risks of life that each and every one of us have to contend with.
On an individual basis each of us carries the risk of living in retirement years without enough assets to live on, dying prematurely and leaving behind surviving spouse and dependent young ones, or becoming incapacitated, becoming unable to work and make a living.
If we were starting from scratch to help Americans deal with these basic risks of life I think we'd quickly find ourselves discussing and designing a plan that might offer some sort of guarantees, basic guarantees to Americans that would find themselves in these circumstances.
We'd design a type of insurance plan, an insurance plan where the contributions of all of us would fund a program to protect each of us. Our bottom line objective would be to establish something so that Americans would know -- just know fact certain that they were protected from the potentially devastating results of these risks of life.
You know, this core protection is precisely the great achievement of the Social Security system. All Americans covered know that they will have a basic benefit retirement, they'll have coverage for surviving family members if something should happen, and they'll have income if they become incapacitated.
Over the last 60 years untold millions of Americans have benefitted from these guarantees, including my family and including me. My father died while my brother and I were still minor children. The Social Security payment my family received helped us all regroup during the period when my mother got herself some skills that could get her employment and my brother and I continued to go through school. Now years later we are still receiving the benefit from the Social Security program. My mother is 77 years old, in good health and living independently. She wouldn't simply be able to live independently without the Social Security payment she receives every month. Now, whether she lives to be 87, 97, God willing, 107, that Social Security check will allow her to continue to live in self sufficient independence.
These guarantees for Americans come about because we have this program, Social Security, working as a big national insurance plan. I'm skeptical as to whether this level of assurance can be achieved through a national plan based principally upon individual savings accounts household by household. Many would simply not have enough years of living or perhaps the earning levels necessary to have their needs met by a social investment program as opposed to a social security program. Whatever we end up doing we must never take the security out of the Social Security system.
REPRESENTATIVE POMEROY: As my colleague, Congressman Hulshof, mentioned, Social Security is part of a three legged stool -- pensions and individual savings -- and today in our world of 401(k)s and IRAs those with pensions and savings typically have individual accounts and the chance to choose their investments. While this means more choice and control it also means more risk, which is why it's perhaps more important than ever before we have Social Security as a guaranteed backstop no matter how your own individual investments with your 401(k) or your IRA work out. You have a bottom line guarantee in Social Security.
As has been mentioned, we can put Social Security on sound financial footing through the 21st century, for my generation and the generation of my two year old son and the generations after that with relatively modest changes in light of the solvency of the system and our timely dealing with this topic.
Now, as we embark on the action plan outlined by the President I think one critical piece has got to remain at the forefront. That is this year any surpluses realized in Washington have to be held to save Social Security first. Let's face it: surpluses is something we're not used to in Washington; it's the first one since 1969. Some would spend it, some would give it away in tax breaks. And a new plan has emerged, one that would take all the surplus and commit it in individual accounts, pulling it out of the Social Security format that we're used to and committing it to individual accounts this year.
Now I think it would be a great mistake to begin piecemeal this important, in fact, critical national reform of the Social Security system. Only when we get all ideas on the table and through a comprehensive way reform the system will it be appropriate to decide whether individual accounts will be or will not be part of the reform plan we will live with.
There are a number of measures that I'm excited to contemplate and pursue, including investment of part of the trust funds in the stock market. This would have the benefit of bringing the system greater investment return but shielding individuals from the risks of loss should they not make those investment decisions wisely.
In closing, as we engage in this national dialogue and begin the process of crafting comprehensive Social Security reform, I hope all of us will do so with an open mind and outstretched hands. Obviously my comments have been somewhat different from Senator Santorum's comments but on the airplane this morning we found plenty of areas where we could agree. I think there's plenty of room for bipartisan accord as we move forward on this topic.
Now at the beginning of this process is the time not to emphasize our differences but to listen, to learn, to build a spirit of cooperation and with that approach I am confident all of us can work together to address Social Security's future and preserve America's foremost family protection program.
Thank you, Mr. President, and thank you Kansas City for kicking off this vitally important debate.
MS. DENTZER: Matt, when Americans start debating something and get into a great debate about something that's really important they fall back on fundamental values.
MR. MILLER: That's right, Susan, and one of the strengths or what we have to do in this coming debate is meet the challenges ahead in a way that's consistent and true to the values we've held for many generations.
MS. DENTZER: Let's go talk with some of these good folks who are sharing their time with us today and ask them about those values.
MR. MILLER: Now, who can start? We want to have a lively discussion. Who can tell us first, for example, what Social Security might mean to them or their families? Is there someone who can kick us off here? Someone over here? Sir? Your name, please?
PARTICIPANT: Dave Gingerick.
MR. MILLER: What has Social Security meant to you or your family?
PARTICIPANT: I'm still working. What it means to me right now is I have a chance to retire. What it means to me in the long term is that it's gonna put my descendants in debt forever and I do not want my retirement to endebt my children and my grandchildren.
MR. MILLER: So you're worried about that burden?
PARTICIPANT: Absolutely. All of my children do not believe they will ever get Social Security.
MR. MILLER: Susan?
MS. DENTZER: Thanks, Matt. What's your name?
PARTICIPANT: I'm Delores McCullough. Social Security has meant quite a bit to me. I was a single parent and raised my children. I was so happy -- now it's a couple years before I retired -- I was retiring but it has really helped me through because I couldn't save that much.
MS. DENTZER: So it really has meant security and you would agree with Congressman Pomeroy, don't take the security out of Social Security.
MS. DENTZER: Okay. Matt?
MR. MILLER: What's your name, Ma'am?
PARTICIPANT: My name is Dr. Billie Hanson. I have 48 students here today from the University of Central Oklahoma, students in free enterprise teams. We've been working with Economic Security 2000 for over a year. We've studied Sam Beard's book, Restoring Hope In America: The Social Security Solution. We know that there are plans out there that will work. We simply challenge Congress to have the nerve to put into place some of those plans.
MR. MILLER: So it's time for our leaders to help step up to some of these issues in a way that makes sense.
MR. MILLER: Thank you for your comments. Susan?
MS. DENTZER: Good afternoon, sir, what's your name?
PARTICIPANT: John Anderson.
MS. DENTZER: John, what's important to you about Social Security?
PARTICIPANT: Well, my youngest brother was too young when my father died and he was on Social Security to finish high school and I know that meant a great deal to our family. And I know that my daughter, who is 28 now, she's very concerned about how much she has invested and what she's gonna get back. And I'm very concerned that she -- we get a system that is gonna be fair to every generation.
MS. DENTZER: Great. So fairness is really a key point as well.
MS. DENTZER: Thank you.
MR. MILLER: Please stand. Your name?
PARTICIPANT: Brenda Folsom. I'm concerned with Social Security from the standpoint that I have parents, 64 and 82. They're fine right now but when my father passes away my mother's not going to have enough to live on so I, in turn, will have to help support her. Well, if I'm spending my money supporting her what will I have when it comes to my time. That's a concern for me.
MR. MILLER: So how can you save for your own retirement while you're trying to help your own father. Are there other folks with a generational perspective?
MS. DENTZER: I'm in front of a Generation X-er. She comes after the 76 million baby boomers. That makes you demographically challenged. How do you feel about Social Security? Do you think it's going to be there for you?
PARTICIPANT: No. At this point in time I don't think it's going to be there.
MS. DENTZER: Why not?
PARTICIPANT: Because with all the baby boomers coming in there's just gonna be like five retirees for one person working. It's just gonna keep growing and growing.
MS. DENTZER: Do you think Matt and I and all of our friends, we're gonna hog it all?
MS. DENTZER: What about fiscal discipline? Do you think law makers will get their act together and put some fiscal discipline on the system?
PARTICIPANT: I hope so.
MS. DENTZER: Okay. Matt?
MR. MILLER: Do we have another person up in the group up here? Yes, Ma'am? What's your name?
PARTICIPANT: Maria Spears. I'm a little concerned about it for myself, from looking and talking with my mother. She was thinking about getting second employment and she was fearful of making too much in second employment that would all the sudden make her where she had to stop getting or taking her Social Security. So I'm just a little confused, if that's her problem now I'm wondering how can I supplement my income -- or I should say my Social Security when I do receive it when she's having that problem now.
MR. MILLER: So there's some strange rules out there that seem to affect what you can get. I think we've got one more.
MS. DENTZER: Good afternoon, sir. What's your name?
PARTICIPANT: Clarence Edmonson.
MS. DENTZER: You know, Social Security is only one of several legs on the retirement stool. I know you want to talk about another one that's important.
PARTICIPANT: Yes, about the medical aspect. I'm one of those individuals caught between after 32 years I have been fired from three consecutive jobs so I'm without medical care.
MS. DENTZER: So this tells us when we go about changing Social Security we've got to keep in touch with the impact on other programs as well.
PARTICIPANT: That's right. I like the President's initiative whereby those people over 55 and not yet 65 would get medical care.
MS. DENTZER: All right. All these programs really matter.
MR. MILLER: Susan, I think we've got to move on to a more interesting -- or an interesting presentation now for folks of the different kinds of options that might be available for reform. There's gonna be more time for the audience to share concerns with their elected officials and the experts coming soon but. . .
MS. DENTZER: We've talked about the values that we all hold and we've also heard about the need to make changes to Social Security and the importance of acting sooner rather than later. So let's now focus on those options for Social Security that get us to a system that is so financially stable and fair to people of all ages.
A Brief Overview of Reform Options
MR. MILLER: You know, despite what it seems like sometimes this isn't really rocket science. So think of what follows as your 10 minute speed course in Social Security reform, the one you've really been waiting for.
Basically, there are three approaches we can take to make progress on the problems we've talked about. First: we can reduce benefits; second: we can raise taxes, or; we can, thirdly, introduce some new investment policy options, which we'll talk about.
MS. DENTZER: Within each of these categories there are many, many possibilities so we're going to spend the next few minutes describing some of the most commonly discussed options to you and then we're going to ask our panelists to talk in broad terms about the approaches. You know, Social Security has a lot of jargon in it, things like bend point, actuarial solvency. We're not going to talk about all that. After all, you all just had lunch, we don't want you to take a nap.
MR. MILLER: That's right. To help you think through some of these options we'll try to present some of the pro's and con's that go with each.
These options would probably be combined in any reform package and some would improve the situation for Social Security more than others. But remember, doing nothing at all is not an option.
Some people think we need to do just a little and some people think we need to do a lot more. But whatever approach is finally adopted it's probably gonna mean that everyone is gonna have to give a little in order to keep the program strong. I'd note that the elected officials who are with us today will appreciate your bearing that in mind when you have your chance at 'em later.
We'll like you to think now as we go through this about some of the different trade offs that we all face. For example, how long would we be willing to work to earn an appropriate benefit? Would we work longer than the current period we're planning to? Or are we willing to have our kids pay higher taxes so that we get the benefits that we're currently slated to have?
MS. DENTZER: As we discuss all these options you should refer to your handouts where each is described more fully. The hand outs will tell you what the law is now and describe the pro and con arguments for each choice. We've left you some space on the side to write in your reactions. Please, keep them printable.
MR. MILLER: And away we go.
The first major category of options is reduce benefits. Some options in this category would reduce benefits for future retirees below what they're supposed to get but wouldn't change anything for people who are retired now. Others would reduce benefits for people who are already retired as well.
The first option up here is to raise the age at which you collect full benefits. This would be done in advance, not for people who are already earning benefits.
MS. DENTZER: Supporters say that since Social Security was enacted in 1935 the life expectancy of Americans at birth has gone up from 61 years to 76 years. So supporters say it makes sense to keep pace with that increase by asking people to work longer before claiming full retirement benefits.
MR. MILLER: But, Susan, you know opponents say 'Sure, it's easy for some folks like people who moderate Social Security panels to work a little longer. But for folks who do heavy labor, who have serious health problems, or who face age discrimination in employment that may not be fair. '
MS. DENTZER: Let's move on to the next option, reducing cost of living adjustments, known as COLAs. This reduction would probably affect current beneficiaries as well as those scheduled to receive benefits in the future.
MR. MILLER: Now, supporters of this option say that many economists believe that the formula used as a basis for these adjustments today actually overstate the increase in the cost of living. That means that we're ending up with a kind of unwarranted windfall for a lot of current retirees.
MS. DENTZER: But, Matt, opponents say that the technicians who calculate the inflation level -- and I mean, they're from the government, they're here to help us -- they know what they're doing. COLAs are too important to beneficiaries to let politicians interfere with that calculation. They say 'Just say no to diet COLA. '
MR. MILLER: That's right.
MR. MILLER: The next option up on the benefit cutting category would be to simply reduce benefits across the board. That's sure to be a political favorite.
MS. DENTZER: As it stands now, of course, in current law benefits are scheduled to rise substantially in inflation adjusted terms in the future. Supporters say, in fact, that we've over promised the amount of future benefits that we can afford and that all future beneficiaries, no matter what their economic circumstances, should contribute something to strengthening Social Security.
MR. MILLER: But opponents say 'Come on, millions of future beneficiaries will have low incomes. They need their Social Security benefit and we should look at other options first. '
MS. DENTZER: The next option on the list is the so-called affluence test: reducing benefits for those whose incomes exceed a threshold.
MR. MILLER: As supporters would say, why on earth should Ross Perot, for example, get Social Security,or a couple with $100,000 in retirement income that doesn't have to worry about college savings or mortgage expenses any longer?
MS. DENTZER: Opponents say that this option would punish those who were smart and who saved to add to their Social Security and maybe actually became affluent in the process. They also say this would move the program from a nearly universal one where everyone pays in and everybody gets some benefits to one where people get benefits based only on need.
MR. MILLER: As we move to the next major category of options I want to make sure, because this can be heavy slogging, everyone still with us? We're following along? It's not too painful. I see sighs of relief. I see the occasional smile. I think we're ready to plow ahead. So if so, let's take a deep breath and raise some taxes.
The next category of options that could fix the system, that are part of what has to be considered, is to add revenue. The first up here would be to tax Social Security like a private pension.
MS. DENTZER: You know, Matt, as things stand now employer pensions are taxed on every dollar in excess of what a worker pays into the program. We should not treat Social Security income differently, say supporters of this option, and only now the income tax is progressive. So when these benefits are taxed later low income retirees will actually be protected.
MR. MILLER: At the same time, Susan, opponents say that Social Security is different from a private pension because it's a government based program. Plus, a lot of people have very little money and taxing away more of their Social Security would hurt them.
MS. DENTZER: The next option on revenue raising is to raise the amount of wages subject to the payroll tax. As noted earlier, in 1998 that's $68,400.
MR. MILLER: What supporters would say here is that since there's a cap on the amount of wages that are subject to that payroll tax low income workers unfairly pay a greater percentage of their income into the system.
MS. DENTZER: But opponents say 'Come on, payroll taxes are too high already. If we raise them further more highly paid workers are less likely to get back what they paid into the system in the first place. '
MR. MILLER: That's a concern.
But next up on the revenue side is the idea of raising the payroll tax rate. That's the amount that, as we saw in the videos, is now on Social Security, 12.4 percent between the employer and the employee, plus there's nearly an extra three percent that goes for Medicare.
MS. DENTZER: Supporters say that just a teeny-tiny little increase in the payroll tax is a small price to pay to keep Social Security strong.
MR. MILLER: But opponents say 'What? Are you kidding? The payroll taxes are already too high and this will worsen the rate of return that all future beneficiaries receive. '
MS. DENTZER: A third category of broad changes in Social Security would be changing Social Security's investment policy. This could be done by having the government invest Social Security monies in stocks and bonds or also by allowing individuals to invest some of their current payroll taxes in stocks and bonds or some additional monies that they might pay into the system.
Social Security, under one option, could hire managers to invest a portion of its money in the market.
MR. MILLER: Now, supporters of this way of reforming it say that Social Security would receive a higher rate of return on its investment then and the system itself, Social Security, rather than individuals would bear the risk if there was any down turn in the market.
MS. DENTZER: But opponents say that if Social Security became a major shareholder in corporate America it could become involved in the operations of companies and investment decisions that the system would make would be highly political.
MR. MILLER: Another way of going in terms of these investment policy options is what some are saying would be to establish individual accounts. Now, that could be done on top of Social Security, as part of Social Security, or even instead of Social Security.
MS. DENTZER: Supporters say three great things could happen if we went with this choice: we increase the rate of return that people earn on what they pay into the system; we could potentially increase the savings of the entire economy in the country; and we'd also allow people to have more control over their retirement funds and build wealth in the process.
MR. MILLER: But, Susan, opponents worry that there would be a very high changeover and administrative costs associated with what could be millions and millions of these new and often small accounts, there'd be some increased risk of investment loss, and there may not be adequate disability and survivor benefits under this system.
But speaking of survival, congratulations, because not only are you all still awake, as I can see, but you are ready to debate Social Security reform with the big boys. For that, here's NBC's Gwen Ifill.
(Introduction of Gwen Ifill. )
MS. IFILL: Thank you. Thank you for waiting to hear us, we're really eager to be here with you. It's my job to bring the wonks here to tell you what it really all means.
I've been asked to moderate the next few discussions during this great Social Security debate. Joining me for these discussions are four panelists who know the Social Security territory, experts, if you will, on this complex issue.
Starting from my right, Marilyn Moon, the Senior Fellow of the Urban Institute, also a public trustee of the Medicare and Social Security trust funds.
To my immediate right, David Walker, a former public trustee of the Medicare and Social Security trust funds.
To my immediate left, Gary Burtless, Senior Fellow at the Brookings Institution.
And on my far left, Fred Goldberg, Jr., the former executive director of the bipartisan Commission on Entitlements.
We're going to begin this part of the discussion by posing a question. You've all heard this morning from the politicians who've told you exactly what the dire circumstances are, and you've just had an excellent primer on exactly what the stakes are.
To each of the panelists, starting with Mr. Walker, I'm really curious about what we should be taking from this as average citizens. Is this a question of merely insolvency in the Medicare system in the year 2029? Are we talking bankruptcy? Are we talking imbalance? Which of the four are we talking about, Mr. Walker?
MR. WALKER: Social Security faces a mid-to-long range fiscal challenge but it can be solved and it can be solved in a manner that we can exceed the expectations of all generations of Americans because realistically today's retirees and near retirees will not be affected very much by the changes that will be made because it wouldn't be fair, they don't have time to adjust.
On the other hand, baby boomers like myself, Generation X-er's like my kids, and hopefully my future grandchildren will get more than they expect to get, in fact significantly more, if we act sooner rather than later.
MS. IFILL: Thank you.
I'll throw the same question to Mr. Burtless.
MR. BURTLESS: They say that an economist is someone who knows the price of everything and the value of nothing. I think there's real value in preserving Social Security or a system that looks very similar to it, a system in which people all contribute while they work and expect to draw benefits when they get old. The problem right now is that the benefit promises that we've made into the long term future exceed the commitments that we're making in order to pay for those promises.
So we've got to do one of the three things the two moderators in the previous session mentioned. We've got to contribute more for our retirement, we've got to delay getting benefits or get a little less benefits, or we've got to invest the money in a different way.
MS. IFILL: Ms. Moon, the same question to you: what is the status we are at now and what are the stakes?
MS. MOON: I agree with my fellow panelists that we are not in a situation that is so dire that we should just do nothing and hope that things turn out better than they are because it's so hopeless a case. Indeed, there are a lot of things that can be done and a lot of things that should be discussed and thought about carefully.
My charge to all of you in thinking about the future is to hold to the principles that I think have made the Social Security system not only very successful but very popular with Americans. That is to serve as the base of income security and to make sure that it is very stable in that regard. It should pay special attention to the needs of low income individuals and other people with special needs. In diversity there is strength in this program and we should preserve that. It offers a sense of fair play and that is essential for any reforms as well.
I think we should ask tough questions of any proposals to change the system to make sure that we are not being promised something that sounds good on paper and won't work in practice, and when we have some time for interchange I'd like to talk more about that.
MS. IFILL: Thanks.
Mr. Goldberg, you have heard this talk about tough questions. What should the tough questions be?
MR. GOLDBERG: I think that the way to think through the tough questions is to keep three principles in mind, and I think they're the principles we heard this morning. So whenever you look at these suggestions there are really three foundations to test these ideas.
The first: are we keeping faith with current retirees and those who are about to retire. The second question is are we maintaining the fundamental promise of Social Security: men and women who spend their lives working in America will not retire into poverty. The third question is are we keeping faith with our children and our grandchildren? Are we keeping faith with those in their twenties and thirties?
To answer this question we must make change now and we must trust our children and our grandchildren and those in their twenties and thirties to make changes that will leave some of us uncomfortable but will allow our children to meet their needs and to chase their own dreams.
MS. IFILL: It seems that changes are fraught with all kinds of peril, not only the peril of what happens to our children and what happens to our own Social Security checks but also what happens politically, which is why you saw a little bit of dancing, if you were paying close attention earlier, among all the politicians who would go only so far and not any farther.
Marilyn Moon, does the Social Security system have to be in periled in order to save it?
MS. MOON: I hope that it doesn't because if it does that means that the choices will be much worse in terms of the decisions that we'll have to make. It's up to us to make sure by talking about it and coming behind some reasonable changes that that doesn't happen.
MS. IFILL: Mr. Walker?
MR. WALKER: No. I believe there is an emerging bipartisan consensus which is what is necessary in order to reform Social Security sooner rather than later. It's prudent to do so. We have a stewardship responsibility toour nation and to this program to do that. I think the President is showing leadership. We had bipartisan support today. 1998 is the year of education; 1999, the year 2000 is the year for action.
MS. IFILL: Mr. Burtless, there have been some references to this made today which is that people have always talked about Social Security being the third rail of American politics. In case you don't know what they means what it means is if you touch it you're dead. So people haven't been willing to do anything about Social Security over the years and now it's true, they're talking about it. But what beyond that is necessary?
MR. BURTLESS: In the past when the system has faced big financial problems, as it did in the '70s and the early 1980s, I think the fact that it was in imminent peril protected a lot of political decision-makers from the fall out that would normally incur if they inflict pain on some groups of people.
What is required for us to make a decision now to fix the system is that people do inflict pain on some of us sitting in this room, I hope in an evenhanded way, but long before there's any imminent peril that Social Security benefit checks are going to stop. There's no imminent threat to Social Security checks and acting way in advance of a problem is tough for our political system to handle.
MS. IFILL: Mr. Goldberg.
MR. GOLDBERG: First I'd like to comment on the comment that Gary made. Yes, there will be choices that will cause pain, will reduce benefits. But I think the most important message from this morning -- you heard it from Senator Kerrey, you heard it from Senator Santorum, you heard it from the other speakers -- this is an opportunity to make the system better.
It's certainly easy to be cynical about our politicians but I think we're missing the point here. I think President Clinton has done a remarkable job in standing up to deal with this issue. Senator Bob Kerrey, a Democrat from Nebraska; Senator Santorum, a Republican from Pennsylvania; Senator Gregg, a Republican from New Hampshire -- you go on and on and there are folks out there who are our elect -- it's easy for us to talk about it. We get off the stage and go back to our job. The politicians have to get your support.
The fact that Republicans and Democrats, congressmen and women, senators and the President of the United States are willing to come out here and at least talk about the issue I think is a tribute to their courage and I think it is a tribute to their leadership.
MS. IFILL: Ms. Moon.
MS. MOON: I want to say something slightly controversial on the table in the spirit of the other panelists saying we should talk honestly.
I have some concerns about individual savings accounts, not that they're not necessarily a good idea but they often get sold for the wrong reasons. If these are treated as magic bullets and you're told that this is a painless way to change the system or if these are viewed as the only way to increase national savings, which is an important and crucial part of any solution to the future, I urge you to run for the exits.
If people are willing to have a reasonable discussion about what this means, what the risks are, what the benefits are then I think we should listen carefully and make decisions.
I have a real concern that this is sometimes sold as the magic bullet, that it's a painless solution. If we move to a system in which we have individual retirement accounts and we keep a big chunk of the current system there we have this problem of trying to support two systems at once for a very long period of time. The good news is that's a transition. The bad news is the transition may last 70 or 75 years. So that's just one element.
I think we should ask are these approaches that people are talking about practical, for example. Will they work and hold people accountable for proving it before we make major changes.
So although I can be called the dinosaur, and I think I have been sometimes, my nephew says the dinosaurs are good. As a consequence I think we should sometimes stop and make sure what we're going to do before we make those kinds of changes.
MS. IFILL: Mr. Walker.
MR. WALKER: We heard right before the panel got up here about three general approaches to reform: revenue enhancements -- otherwise known in English as tax increases; benefit adjustments -- otherwise known as benefit reductions; and investment policy changes. Realistically any reform is gonna involve a combination of a number of these elements. In that regard I think it's fair to mention some of the more common elements that many organizations and individuals of both parties and non-partisan organizations have mentioned as more likely reforms as part of a combined package.
Raising the retirement age; modifying the COLA; modifying the benefit formula for higher income workers; covering new state and local government employees; taxing Social Security benefits like private pensions; eliminating the Social Security earnings test so as not to discourage continued work; and potentially -- something that Marilyn just talked about -- potentially as a supplement to a base certain and secured, defined benefit program, adding an individual account element that might be attractive to younger workers -- younger workers such as baby boomers and Generation X-er's.
MS. IFILL: Thank you.
MR. GOLDBERG: Can I follow up?
MS. IFILL: Quickly.
MR. GOLDBERG: This is a very important question. In my judgement this is the essence of what the debate is about. You're either gonna leave the system where it is, you're gonna raise some taxes and cut some benefits and come back in another five or 10 years and raise some taxes and cut some benefits, or you are going to move to some kind of system of universal private accounts. And we can talk about all this other stuff folks but at the end of the day that is the decision.
I believe that you can maintain a system that keeps faith with retirees, that keeps the fundamental promise that Americans do not work and retire into poverty and still have private accounts that meet the needs of younger workers.
MR. GOLDBERG: Think about it: right now you are paying 10 percent of what you make every single year into Social Security for as long as you work. If you take only two percent of that and you are a minimum wage worker and you put that money away for 45 years you will have a nest egg over and above Social Security base benefit of well over $100,000. If you are an average worker making about $28-30,000 a year and you take that two percent a year over 45 years over and above those benefits you have a nest egg of around $350,000.
It is the only way that we can hope to create the wealth that Senator Kerrey was talking about this morning. What about the working mother --
MS. IFILL: Fred
MS. IFILL: -- I'm going to stop you there because I want to get one more comment from Mr. Burtless and then I want to go to you. I want to hear what you have to say.
MR. BURTLESS: Whenever you hear strong advocates to replace the entire Social Security system for younger workers with individual accounts you should bear two things in mind. One of them is not everyone has the investment acumen of my friend here.
MR. BURTLESS: Everyone in this room has an Uncle Milt or a Cousin Florence who is not terribly interested in investing and would not trust himself or herself to put all their savings in various kinds of accounts. So I don't think for most Americans this seems like the strongest base for retirement.
But the second point, and I think a more important one, is that you always have to ask where is the money coming from. $9 out of every 10 of your Social Security contributions goes out to pay for Grandma and Grandpa's benefits this month. The one dollar you have left if you put in an investment account is not going to give you a big enough retirement nest egg to retire on in the absence of any Social Security. You can't spend the money two times at once. You can't spend it to pay for Grandma and Grandpa's benefits and build up your own nest egg.
MR. BURTLESS: And that is the fundamental problem.
MS. IFILL: So --
MR. GOLDBERG: Gwen, I know we have to turn to the audience but let's be fair here.
MS. IFILL: I'm being hijacked.
MR. GOLDBERG: I did not suggest and do not believe that you should get rid of the fundamental structure of Social Security. It is essential -- the single most important thing is to keep the basic Social Security system in place as is. It's not a matter of telling workers 'Go invest everything. 'It's a matter of building a little on top that creates a little bit of wealth.
MS. IFILL: Okay. We've heard enough from us, now I want to hear some more from you. Matt Miller and Susan Dentzer rejoin us in the audience and we welcome your questions.
I want to explain briefly to most of the people in the room about the make up of our audience. The people who we are selecting questions from are hand picked by a market research firm that was hired for the purpose today, so they are demographically correct and represent Kansas City at its finest. So anybody who has a question we certainly welcome them.
MS. DENTZER: Thanks, Gwen.
Let's take a moment now to address this fine panel of experts with some questions we have. Sir, you have one?
PARTICIPANT: Yes, -- (Inaudible. ) --I agree with Mr. Goldberg to a certain extent about -- (Inaudible. ) -- I think is the way to go. I do have a problem with what was alluded to earlier about not all people being interested in investing. That's where I think maybe the stock market, some limited work with investing in the stock market by Social Security might be the answer.
MS. DENTZER: Mr. Goldberg?
MR. GOLDBERG: I agree with you and I agree with Gary. I think that the way to make this thing work is to provide workers with a limited number of choices, running it on top of the Social Security system so that they can get into a stock fund or a bond fund or a mixed fund. But keep the choices relatively limited, the ability to change relatively infrequent so it is inexpensive. This is very hard to do. Marilyn is right, Gary is right; you want to be very careful if you're gonna try this.
But I believe you can design a system that gives individuals some sense of ownership without throwing them to the wolves. I just don't think you should go that far and I don't think you have to go that far.
MS. DENTZER: Mr. Walker.
MR. WALKER: There are two ways theoretically you could get involved in stock investment through Social Security. Right now by law the trust funds must be invested in U. S. Government securities. Some individuals suggest if you take a portion of the trust funds, the surplus and invest that passively -- in other words, in an index fund or whatever for the stock market -- that that could be one way to enhance returns.
The other way is that if a portion of Social Security -- this is very important. The sensible center on this issue is talking about the possibility of a portion of Social Security taxes being in individual accounts and yet maintaining a base strong, certain, secure and defined benefit system. In that portion you may have the option, like federal employees do through the federal thrift savings plan, to invest a portion of it in stocks, bonds or other types of investments passively.
MS. DENTZER: Matt?
MR. MILLER: We have a question here?
PARTICIPANT: Yes, my main concern is with Medicare. How are the two interrelated?
MS. IFILL: Marilyn?
MS. MOON: I wanted to mention earlier, and we didn't have time, that I think Medicare is a crucial piece of this puzzle. In fact, Medicare is going to be in more trouble than the Social Security system because it not only faces the demographic challenges we've heard about but health care costs continue to rise for all Americans and that affects the Medicare program as well.
One of my concerns when we think about the options, for example, is that if we need more revenues -- and I think, quite frankly, we're gonna have to have some additional resources when we double the population; it just makes sense -- that a chunk of those additional resources have to be reserved for the Medicare program. It's going to need to be looked at very closely as well.
MS. IFILL: Mr. Walker?
MR. WALKER: I think that's an important point because why are we here? We're here to deal with retirement security. There are two things realistically it takes in order for Americans to have retirement security. One is an adequate stream of income throughout their entire retirement years, and Social Security is clearly the foundation of that but it needs to be supplemented by private pensions, personal savings. The second is access to affordable health care, and Medicare is an important part of that. If you don't have both of those covered you don't have retirement security.
The fact of the matter is one of the reasons we have to act now to deal with Social Security is because Social Security reform is easy lifting. We can have a win/win situation. We need to get on with it because Medicare is gonna be a lot tougher and we're gonna have to probably dedicate more resources and have more fundamental changes in that program.
MS. IFILL: Susan.
MS. DENTZER: Gwen, we have a question here from a woman named Sunny Street. She told me that's the side of the street she lives on.
PARTICIPANT: This is for Mr. Goldberg.
MR. GOLDBERG: Yes, Ma'am?
PARTICIPANT: I was wondering, what you're saying -- I want to understand this right -- is that Social Security is basically just the ground floor, then we need to have investments above and beyond. What about those people who are now in a situation where they don't have any savings and they're all dependent upon Social Security with no way of getting any other money now.
MR. GOLDBERG: Sunny, I think the -- and I'd like to think we're all in the moderate, reasonable center here -- for those currently depending on Social Security -- my mom -- you can't change those rules. No question about it, you can't change those rules. For those who suffer disabilities, for those who can't accumulate some kind of savings during a life of working Social Security has got to be there forever. I think those are the two most important things. The private accounts are beyond that. All of this stuff is beyond that.
What we need is a platform, a universal foundation that working people can use to build their own wealth, to create their own dreams. That's what Senator Kerrey was talking about. If all we're gonna do in Medicare is try to figure out how to do cost controls and tax increases Medicare's not gonna get fixed. It's the same issue. It's finding ways that working men and women can create some measure of wealth so that they can care for themselves, they can care for their parents, they can care for their kids, they can pass on their dreams through charity.
I think that that's really the broader issue that's going on here and I think that you keep the basics but I believe a system -- a modest system of universal private accounts creates a platform to build wealth as workers go up.
MS. IFILL: Marilyn.
MS. MOON: I think that's a great idea -- but -- and I want to be very careful about my but --
MS. IFILL: Oh, come on. Clean it up.
MS. MOON: I didn't mean that. Although maybe I did mean that, what can I say?
MS. MOON: I think we should be very careful to make sure that when we say we want to have a good foundation, a good base of security there's not a lot of dollars to find then within the current Social Security program to absorb lots more people and to create wealth. So we're gonna have to figure out how you do that. It's not smoke and mirrors. You can't wave your hand and say let's take off two percentage points here out of a 10 percentage point base, essentially, and say suddenly we're gonna be able to put that all into private accounts painlessly.
If we talk about building on top of the current system that implies additional resources and we ought to be very clear about that.
MS. IFILL: Matt Miller, do you have a question for us?
MR. MILLER: We have a question here from Jean Dellot.
PARTICIPANT: One thing I wonder about is often they talk about investing Social Security funds in the stock market. I see two problems. One: I mean everything from 1929 to Michael Milken shows that it's not always trustable. And the second one is that then don't we have sort of a conflict where the government is investing and we're worried about workers being able to keep enough of their money now but if all of the sudden if the government puts a bunch of money in there 'cause it's worried about short term capital gains, it kind of seems like workers are going to lose out from both ends.
MR. BURTLESS: If I understand the question you're worried about 1929. It's worth reminding everyone in here that in part we have Social Security because 1929 occurred. We used to have a system where people did rely on their individual saving and contributions from family members in order to finance their old age, and that system failed spectacularly in 1929 to 1935 and we have the Social Security system to give people a base of old age income security.
If the government invests the money in the stock market there is a possibility, of course, that the stock market will decline and that would mean when that occurs people will wonder is there enough money in the trust fund to pay for benefits. That will cause people to ask searching questions: is the system well funded as it is?
But remember, at the moment all of us foresee the Social Security system having very large surpluses, a very big reserve for the next 30 years. So if the stock market goes up and down over that period that should not be a matter of immediate concern. It only becomes a matter of immediate concern when there's not enough money in the trust fund to pay for, let's say, one year's worth of benefit payments.
I personally think it's worth taking the risk of investing some of the trust fund in the stock market because it does yield better returns and as a result current workers can get a better pay off on their contributions.
MR. WALKER: There's no panacea and clearly investing a portion of the trust funds in the stock market is no panacea. At the same point in time one has to recognize that pension funds, for example, which are subject to certain fiduciary responsibility rules are allowed to invest in stocks.
Some have advocated that a portion, a percentage with some type of cap, of the Social Security trust funds or surpluses might should be invested in stocks because this is a long term investment program and over the long term stocks have generated an incremental return over bonds and government securities. Therefore it's something that needs to be considered but this by itself won't get the job done and we're gonna need to address a number of other elements at the same time.
MS. IFILL: Ok, Susan.
MS. DENTZER: Gwen, we have a related question here from Gary Hearn.
PARTICIPANT: I was concerned that if you siphon the trust fund into private security accounts that would just hasten the demise of the general Social Security and we would meet the crisis that much sooner.
MS. IFILL: Could you repeat the question for us, Susan?
MS. MOON: I think if I understand the question you're asking essentially what I was trying to get at a few minutes ago, which is the question of if you divert some funds from the current Social Security trust funds in the system into private accounts will that make the basic program in worse financial shape than it is now?
And I think the answer is yes, unless you either cut benefits, which I think many proposals have in mind when they talk about an individual retirement account -- they would not leave the Social Security basic program the same, it would be scaled down substantially -- or you do the private investment accounts over and above what we currently pay for Social Security, or you borrow and then you're back in the same problem of borrowing against the future.
So these are tough choices in themselves and I simply want to say, not that we shouldn't do personal savings accounts, but we should realize that we have to make some choices and trade offs if we go in that direction.
MR. WALKER: The numbers have to work, and as a CPA, among other things, you want to make sure the books aren't cooked. The fact of the matter is, as was mentioned earlier today, cash flow is what's important when you're dealing with the federal budget deficit.
If you're talking about the possibility of moving to a two tier system -- a base, defined benefit and a supplemental individual account -- if you wanted to pursue that choice then in order not to have a budget problem or a cash flow problem then you would end up needing to, A: make some changes in the base defined benefit program, and, secondly, you would only have a percentage of the payroll tax -- many people talk about two percent as being a typical number -- dedicated to that. And, thirdly, you may only want it for people below a certain age. You may only want to offer that to people below a certain age, for example, 55 or 50.
So there are a lot of ways you have to look at it, there's a lot of interrelationship, but in the end the numbers have to work.
MS. IFILL: Matt?
MR. MILLER: Yes, we have a question from Suzanne Knolls about profiteering.
PARTICIPANT: My question is money that would be put into the private accounts that you were talking about, who would manage these? Would it be a non-profit organization or a for profit organization? Because I think in terms of Medicare organizations that are for profit squeeze that dollar that we pay in Medicare so that they can make a profit, and sometimes the care, even though it's well managed, it does not compare to care you get from a well managed non-profit organization.
MS. IFILL: I hear some skepticism about this whole idea of privatization coming from our questioner.
MS. MOON: I think that's an interesting analogy. I think she's referring to the private plans in the Medicare program and the for-profit private plans, some of which are troubled and have done troubling things.
This is one of the practical questions about private savings accounts that I think you have to worry about. Who's gonna manage them? Who's going to want to manage them? I think for high income workers almost any of the Wall Street firms will love to manage your account. If you are the $20,000 a year worker, however, or lower they may not want your account because there's a lot of processing costs that are likely to be involved for the $100 or $150 that you're going to put into those accounts.
So there are a lot of really practical questions that we need to work through very carefully.
MR. WALKER: Gwen, there are some models here. I mentioned before the Federal Thrift Savings Plan. New federal workers are covered by a two tiered plan and part of that plan is a defined contribution plan where they can choose how to invest their funds among right now three different investment options, and it's supposed to go to five. These are invested in the private sector in what are called index funds. Basically, they try to track the overall performance of the stock market.
In that regard you get two things. One: hopefully you get the positive investment performance but, secondly, you get very low cost because the cost of operating index funds is very, very low.
But these are issues that have to be explored as well as the feasibility of maintaining the records for the millions of individual accounts that would have to be considered. It can be done but you have to go about it in a very cautious and deliberate manner.
MS. IFILL: Fred.
MR. GOLDBERG: I think Marilyn is really right. This is hard and there are risks, but life is choices. Everything is. When you get up in the morning and cross the street it's risky. You try and balance the choices you're making and think about the alternatives.
Do you want to raise taxes now to pay for future benefits? You know the government's going to spend that money as sure as we're sitting here. Do you just want to get into a cycle of whacking benefits, raising taxes every couple of years? No.
Yes, private accounts have risk. They are not the silver bullet. They are not the panacea. At the end of the day people may conclude they don't work. But if we don't try real hard to make them succeed and deal with the risks, deal with the fact you might have to take more resources out of people's pockets to put into private accounts or adjust benefits we're taking a pass on an opportunity of a generation.
MR. BURTLESS: Very briefly, though, I think we've got to bear in mind every one percent or half percent of the current payroll tax that we divert into individual saving accounts is one percent less that's available to finance the basic Social Security system we currently have. So if we do it we have to trim the benefits that we're promising under the basic Social Security system.
MR. GOLDBERG: Do you want a two percent payroll tax cut today to save in exchange for some change in benefits that are promised you -- and I'm looking at the folks 30 years old -- you want a two percent payroll tax cut today that you have to save in exchange for some change in future benefits that you're not gonna get anyway for 30 or 40 years? Yeah, I think that's a fair deal.
MS. IFILL: I want to get as many questions in now because we only have a few minutes left. So if we can keep our answers short and keep our questions short that would be great.
MS. DENTZER: Gwen, I have Jim Yonke here with a question about some earlier comments that were made about the real rate of return that people are getting on the funds they now pay into Social Security.
PARTICIPANT: Yes, I was wondering, panel, what's the deal on that? Who invests that money? There's not a bank around that doesn't pay more money than that.
MS. DENTZER: Talking about that one percent rate of return that -
MR. BURTLESS: I think -- are you referring to that one percent rate of return that you heard?
MR. BURTLESS: I think that that one percent does not refer to the return that is earned on the trust fund, which must make over six percent a year because that's what I make on my bonds, and I don't think the Social Security system does any worse than anybody else investing in government bonds.
I think the one percent must have been referring instead to the rate of return that someone who's currently 25 years old and who earns high wages can anticipate earning on their Social Security contributions.
MS. IFILL: Marilyn, did you want to respond to that?
MS. MOON: I think that's exactly right. What that's referring to I think is something that is also important to think about.
My grandmother drew much more out of Social Security than I will ever draw out of Social Security and there's no going back from that, that's the way life is. I didn't resent her getting it. I benefitted from her getting it. That's part of what the demographic change has been and some of that we're not going to recoup. So anybody who promises you that they can get you a return like what your grandmother got run the other way.
MS. IFILL: Matt.
MR. MILLER: Great question here from Dave Odegar.
PARTICIPANT: How are other nations dealing with this issue? I assume the demographics are similar around the world. Are we learning anything from how other countries are dealing with it?
MS. IFILL: Good question.
MR. BURTLESS: Well, I'm about to publish a book on that very question. Very few countries have actually taken the steps as early as the United States did to confront demographic aging, and that's ironical because actually we're one of the younger countries that is rich.
We planned to raise the retirement age in amendments that Congress passed back in 1983, and that was a partial recognition of population aging and its long term impact on Social Security. In the last couple of years other rich countries like Germany and France have also raised their retirement age.
One country, Great Britain, has moved a long way toward letting people opt out of part of the social security system and opt into a private individual account. I don't think so far we know whether that has been a success but because the United Kingdom has done it you will hear a lot of people say it is a success just because a country has done it. But I don't know whether it's actually going to be successful for British old people.
MS. IFILL: I think we have time for one more audience question and a round of responses. Susan?
MS. DENTZER: Gwen, I have Rhonda Dickson here with a question about the burden of Social Security taxes on young people.
PARTICIPANT: I am the mother of three teenage daughters who float in and out of the work system. They're trying to go to school full time, one is in college at Penn Valley, and I think it's very unfair that we might be looking at prorating the Social Security tax for young people while they're trying to receive their education and raise their economic standard. So we need to really address how this affects the young people and the amount of money that's coming out of their paycheck.
MS. IFILL: Who would like to leap into that one?
PARTICIPANT: This is very unfair.
MR. BURTLESS: I think a lot of people who attribute to Social Security and the payroll tax the burdens that young people in their twenties and early thirties now face are missing a very important fact about the economy. That is that there has been a tremendous shift in how much employers are paying their workers depending on how old they are.
People who are just entering the work force today are seeing their wages being 10-15 percent lower than was the case even at the beginning of the 1980s. That's what's straining the circumstances of young people. It's not the burden they face from the Social Security tax, which actually has not gone up since the beginning of the 1980s.
MR. GOLDBERG: I agree with what you're saying. I think that's why some form of private accounts makes sense. But I think it's part of a broader set of issues. What about our colleges and universities that punish working families that try to save because they take away their scholarships? What about government programs that punish working families that try to save because they cut back on education grants and cut back on Medicaid. I think you are on to something. I think it's very important and I agree with you.
MR. WALKER: I think one of the reasons we want to reform things sooner rather than later is to make sure that the younger workers don't have an unreasonable increase in their payroll taxes in the future and to make sure that they have a reasonable rate of return on their investments.
The fact of the matter is that people who were first covered under Social Security back in 1940 got a great deal because they didn't pay much in in taxes and they got a tremendous amount of benefits. Over time the rate of return goes down but don't forget: Social Security isn't just retirement income, it's survivor's insurance, it's disability insurance and that's why you need to look at things as a package and in the aggregate.
MS. IFILL: I know I promised one more question but I changed my mind. Moderator's privilege. Matt?
MR. MILLER: We've got Suzanne Pell, an angry or moderately angry 31 year old, with a question.
PARTICIPANT: Now we are making more than we are spending so it's going to the reserve. Why aren't we using that money and investing it now instead of paying off more stuff with it?
MS. IFILL: Excellent question.
MR. GOLDBERG: Suzanne, that's a good question. The answer is that if you were to take the surpluses that we are now running and you were to integrate that with modest long term reforms in Social Security, some of which would result in change in benefits, that surplus can fund those modest retirement accounts starting now while retaining a balanced budget. I think that's a good suggestion and I think, yes, we ought to ask the politicians when they come back in the room.
MS. IFILL: It occurs to me that one thing we all seem to have agreed on up here on some level, different degrees, is that there should be some sort of -- that the change that we're talking about in the Social Security system has to involve some level of privatizing, some level of individual self involvement in reinvesting their Social Security monies. Am I correct, are we all agreed on that level? No. Let's have a fight then.
MS. MOON: I'm not sure we totally agree. I agree that we should focus on getting people to save for retirement and to put additional monies away. The question is should that come out of some of the dollars that now go into Social Security, should that be in addition to it, and how and who should control it.
I am on the fence a bit in this. I don't disagree at all that we should save more for retirement. I think the important question is how much of that should come out of the current base that we think of as Social Security.
MR. WALKER: I think there are two important elements. One: whether or not it should come out of Social Security, but secondly, no matter what happens with Social Security Social Security was never intended to provide total retirement income for Americans. Therefore, whatever we do in Social Security we need to strengthen the private pension system and personal savings. We need to deal with all three and avoid the attempt to look at things piecemeal and in silos.
MS. IFILL: Briefly.
MR. BURTLESS: I would say whatever reform we undertake we want to avoid setting up a system that is going to rely too much on the investment skills and the self discipline of my Uncle Milt and Cousin Flo. Because I just don't think it's very realistic to believe that if they were given the entire responsibility for allocating those investments that they could save enough and have enough in their nest egg to pay for their full retirement. That's why the crucial social safety net aspect of the Social Security system should be preserved.
MR. GOLDBERG: Marilyn is asking a very important question and it took me a long time to understand it. But what she's saying is right now you pay about 10 percent in for the retirement piece of Social Security. One thing you could do is adjust long term benefits or tax rates and then take two percent of that 10 percent and put it away. Another alternative is to keep paying in that 10 percent, which means you make smaller adjustments in benefits, but put in an additional two percent that gets put away. That's an important question but I don't think we're the ones to answer it. I think you folks are.
MS. IFILL: Thank you very much. Welcome back, everybody. Calm down. We have our highlight of the day. I'd like to welcome back to the stage our panelists Marilyn Moon, David Walker, Gary Burtless, and Fred Goldberg.
Ladies and gentlemen, the President of the United States. Accompanying the President are Senators Santorum, Kerrey; Representatives Hulshof and Pomeroy.
THE PRESIDENT: Thank you.
MS. IFILL: We have quite a panel here. We have quite a number of interesting questioners. We want to know what you have to say. I'd like to start off by directing a question -- I'm over here, Mr. President -- to the President. And then I would like for anyone who would like to join in to join in, but keep in mind we need to keep your answers brief because we want to hear from as much of this audience as possible.
As I mentioned earlier, the people who will be taking questions- there is a microphone on the other side of me here -- these are people who were hand-selected by a marketing research firm to be demographically correct according to the greater Kansas City area, and they know more about Social Security after this afternoon of talk than any of the rest of us have in our whole lives.
So first I want to direct this question to Mr. President, which is, there has been much talk about privatizing Social Security and the question is whether this is a slippery slope or a cure. Where do you come down on that?
THE PRESIDENT: Well, I don't think it's necessarily a slippery slope. I think the issue is, if you start with certain basic principles and you start with certain basic facts, then I think there are any number of options that can be chosen that both fit the facts -- because if you start -- you get in trouble in life if you start denying the facts. The facts are what we talked about this morning -- the population trends, the financial problems of the system. To keep a system that's universal, that's fair, that has a benefit certain as abaseline, and that deals with the problems of the disabled and the low income people that are presently helped.
If you do all that, could you construct some system which also made allowance for private accounts? I think you could, yes. But could you -- would I favor totally privatizing the system? No, because then you couldn't have a universal system that was fair that had a benefit certain.
Let me just back up and say, people are always saying, well, so what's your plan? And what I'm attempting to do here is to avoid announcing a plan while we go through this period first of educating the whole electorate -- all of our citizens -- on what the facts are, and then eliciting ideas from people to get the broadest range of ideas. Because if I come out and say, well, here's exactly what I think ought to be done, then that forecloses debate when I'm trying to broaden debate. I want all of you to have your say and I want us to wind up getting the best possible ideas.
But I think the important thing that you need to know about me and my position is, what are the principles I intend to follow, and are we prepared to do this. And I think I've answered those questions today.
But I think it would be a real mistake to rule out -- what I think we all would like to see -- let me go back to what Senator Santorum said in his opening remarks about the problems with the rate of return and what Senator Kerrey said in his opening remarks about the need to give all people some wealth-generating capacity. I think we'd all like to see a higher rate of return on the system, on the investments. The question is, how do you get that and still keep the system that has lifted so many seniors out of poverty and dealt with disability and dealt with premature death and dealt with all the other problems the Social Security system deals with. But I think there are lots of options to do that.
MS. IFILL: Senator Kerrey is going to have to leave before this over to catch a plane, so I want to make sure he gets a chance to respond to that.
SENATOR KERREY: Well, first of all, Senator Moynihan and I have crawled out on a limb with a specific proposal, and I don't want in this answer to describe the details of that. But, in essence, it provides an $800 billion tax cut in the payroll tax area, which, for the median family, payroll taxes are twice as high as the income taxes.
Secondly, it allows that money to be invested in individual accounts similar to the thrift savings account for federal employees. Not a single federal employee complains about administrative cost, nor do they complain about the complexity and the difficulty of it. I mean, I appreciate the problems that Uncle Milt's facing, but Uncle Milt works the federal government as well, and he has not yet come to his employer and said that this is too complicated for me.
And thirdly, it restores and fixes Social Security in perpetuity, so that whatever promise you've got on the table, whether the individual was just born in Columbia, Missouri, or is 81 years of age, that promise can be kept.
But one of the most powerful things that we've discovered, once you start to look at compounding interest rates and what it can do to generate wealth, is that we ought to be opening these accounts at birth. So Senator Moynihan and I modified our proposal so that the account gets opened for a $1,000 when the baby is born -- that's 4 million live births a year -- and $500 a year for the first 5 years. The extraordinary thing about that is, A, it's very progressive -- that is to say, if you're making $5, $6, $7 an hour, you're the person who is going to benefit the most. For lower income people, it is an enormous source of wealth. And secondly, that $3,500 at age five generates more wealth than 2 percent over 45 years.
So if you want to help -- if you want to solve the problem of the rich getting richer and the poor getting poorer, it can be solved through Social Security.
MS. IFILL: Okay, thank you very much. I'd like to turn to the audience for our first question. The gentleman on this side has the mike.
PARTICIPANT: I have two points. The first is if we were to take the welfare aspects out of Social Security, such as the aid for aliens that are unable to work, and use Social Security for its own primary purpose, that would cut some costs. In addition to that, I'd like to make a point that we need no new taxes. So if an increase is necessary, all of that increase should be in the private control of the owner of the money and not the government.
MS. MOON: I think that, if I understood correctly -- and we're having a little trouble hearing up here, at least I'm having a little trouble hearing up here -- that I think the question was relating to the issue of whether or not, if there needs to be an increase in taxes, whether it should go into a government program or into these kinds of private accounts.
My sense is that that's a good way to think about how you'd want to change in the future. I think more resources are needed in toto to solve the problems of a secure retirement for a generation that's going to be much larger than the current generations of retirees. I think we need to think about it as an add-on. I have no problems thinking about it, if we talked about it then, that any add-on should be talked about as private accounts, for example.
MR. WALKER: In the end, Social Security reform really has to pass two tests. First, it's got to make sense. And the American people will determine whether or not the reform makes sense. And, secondly, it's got to be politically feasible. It's got to be doable. And the American people again can lead the way to help convince the politicians what they're willing to take or not.
Realistically today, I think many people believe, if not most, that simply raising taxes and keeping the current system is not politically feasible. Therefore, we need to look at more comprehensive reforms that are balanced to make the program certain, secure, sustainable, improve the rates of return, and yet still have that foundation of security.
THE PRESIDENT: Let me just say, I don't know anybody who has proposed -- and I think your Missouri congressman today made this point, or one of the members who spoke before me or after me made this point- I don't know anybody who thinks that we should try to preserve the status quo program with an increase in the payroll tax. Most Americans are paying more in payroll tax than they are in income tax today -- most working families are. And I don't know anybody who favors that.
And with the projected surpluses we have now, all of the proposed solutions that I have seen so far I believe are achievable with no increase in the payroll tax. So that goes back to what you said.
There are some people who believe that there maybe ought to be an increase of, let's say, 1 percent, but only for private savings accounts -- totally within the control of the payer. So it would be, in effect, an enforced savings plan to give you some investment in private income later on in life, that there are some proposals.
The only thing I've said about taxes is, I think that we ought to admit that we can solve this problem without an increase in the payroll tax, but we ought not to put ourselves in the position of saying that we won't even listen to somebody who's got a different idea. For example, I think the Kerrey-Moynihan plan -- Senator Kerrey just left -- has a fairly steep cut in the payroll tax in the first 20 or 30 years or something like that, and then, because if you check the demographics, actually has it creeping up again because we try to have 75 year plans of Social Security -- actually has it creeping up again in 30, 35 years, something like that.
But I don't think you have to worry -- most of us, I believe, are committed to trying to find a way to solve this problem that doesn't involve an increase in the payroll tax. And if there were any, all of the plans I've seen are those that say this should be a savings account that's yours to invest as you see fit.
PARTICIPANT: Mr. President, what is to prevent the Congress to enact binding legislation that would prohibit any further borrowing from Social Security funds, and why haven't you taken a proactive stance to get this achieved?
THE PRESIDENT: Because I'm against it. I haven't taken a position to get it achieved because I think it would be a big mistake. The Social Security fund has been investing in government securities, which have the full faith and credit of the government behind it. The government then takes that money and spends it on other things -- that's true. But it's an investment by the Social Security trust fund. If they take in more money in any given year than they give out as benefits, they have to do something with that money. They have to invest it somehow. If they invest it in government securities, they get the money back plus interest, and it's the safest possible investment.
Now, there was a lot of talk for years about how this amounted to a raid on the Social Security trust fund, and I could understand that talk because we were running huge deficits every year, so people had a right to ask, what's going to happen when the government has to pay back the Social Security trust fund and the trust fund needs the money to pay out benefits, which is one reason it was so imperative that we balance the budget and then start running a surplus.
But now the projected surpluses we have over the next 10 to 20 years are surpluses over and above what it will take to pay back the Social Security trust fund, the money of their investment plus interest. And I believe it was a good investment by the Social Security trust fund. I also think it was good for the taxpayers at large. It kept the government from going out into the private markets, borrowing money, running interest rates up, and driving your interest rates up by making it harder for you to get money. So I don't agree that it was a bad policy, but it would have become a horrible policy if we hadn't balanced the budget and started running a surplus, because then when it came time for the government to pay back the Social Security trust fund, we wouldn't have been able to pay the money back or we would have had to sock you with a huge tax increase. But you don't have to worry about that now because we got this deficit down. We're going to run a surplus, and it's going to look like a good investment of the trust fund, I think.
REPRESENTATIVE HULSHOF: I think the questioner, though, raises a good point. And if you're wondering if there are bills out there you're going to get more information on -- yes. In fact, the chairman of the Social Security subcommittee, Jim Bunning of Kentucky, has an idea to actually wall off these surpluses into an untouchable account. And I think the Speaker of the House last week, when he came before our committee -- and I'm going to paraphrase but it was essentially this- testified that there is a universal attraction between a politician and a pot of unspent money. (Laughter.)And I think your point is, clearly, you've heard several of us talk about surplus funds, and yet, if we continue to lack the discipline -- in other words, if we continue to look at new programs or investing more of your tax monies for programs, then there will be less of a surplus, and therefore less money for us to use in the long term.
And so it was talked about with the policy individuals earlier, the experts here -- we can't view this in a vacuum. It's great to have this debate, but we need to take our blinders off because it is a very far-reaching problem that we face.
THE PRESIDENT: If I could just follow up, because he made a point there that I think deserves some greater attention. I didn't mean to dismiss your question as lightly as it may have sounded. There are people who believe that it would be better -- let's assume that what I said is right. It is right now as long as we keep the balanced budget, we run the surplus. Let's assume that's right. Still there are people who say, okay, Mr. President, so the Social Security trust fund had a surplus and they invested their surplus in government securities and they'll get it back plus interest. But wouldn't it be better, if we had any surplus, that in effect the surplus was invested in a way that went to the individual in accumulating benefits of the people who were paying the taxes. That's basically what a lot of people say.
See, one reason the return is not any higher than it is, is that 90 percent of your taxes, when you pay Social Security every year, are going to pay for the current Social Security benefits of your parents and grandparents. And that's what Senator Kerrey was talking about. That's what a lot of people -- the individual account argument is. If you get money this year, even if it's just $2. If all you get is a 5 percent return on it, if you keep it there for 50 years, pretty soon you're going to have a pretty good chunk of change. That's the argument for having something for children at birth.
But I just want to point out, it will not be all that easy to shift from a system where you take all the surplus of any given year and apply it to each individual's future retirement when 90 percent of the money you're paying out now is being used to pay your parents' and grandparents' retirement. So it sounds like a good idea, but it's going to be hard to make the transition.
PARTICIPANT: Mr. Walker mentioned that 1998 will probably be spent studying this problem and 1999 might be a year of action. In your previous session today you mentioned the third rail problem and the need for congresspersons and others to get out and lead and duplicate the good effort you started here today with thousands of these kinds of forums around the country.
When I found out I get to participate in this program and I started asking my friends, what do you all want me to tell or ask the President, I sensed that while folks certainly know that there's a Social Security program, we don't have much good information about the details of the crisis that we've been given here today.
And so my question is this: could you use your good offices, as you've started here today with these national political leaders, to encourage more local political leaders, such as governors, mayors, councilpersons, state representatives, to duplicate this process on the local grass-roots level, because many of the grass-roots people just are not aware of the nature of the crisis.
And just one final thing, my good friend, Tom Neely, told me to ask you the next time you come to town to rent a bigger hall so more people can come and participate with you. (Laughter.)
THE PRESIDENT: Thank you. Senator Santorum.
SENATOR SANTORUM: Well, I would just say first off, I think that's a great question. I've had forums all over the state of Pennsylvania and will continue to do so and have been for years, because Pennsylvania has the second oldest per capita elderly population in the country. And I believe it's vitally important to get the information out. I think the President was right in his discussion earlier, and we've talked earlier, that we have to lay a foundation of understanding here before we as a Congress can act. We don't want to get way out ahead of the American public and have to get reined back in saying, no, that's not what we meant.
And I think in doing these kinds of town meetings, I commend the President for having this kind of forum. We need to go out into our districts -- congressman and senators and others -- the facts are what they are. I don't think you saw any disagreement in the presentations as to what the problem was in the system. I think we all were very consistent. Now, you can argue as to how we solve those problems and what the impact of those solutions are, but I think the facts are fairly clear and we should, in a bipartisan way, get that information out.
THE PRESIDENT: Let me just say, if I could follow up on that, one of the most important things about a democracy, a representative democracy like ours, is that the political system -- when you quoted President Ford today, it was a great comment -- the political system act, when it's required to act in a bold way, but that you have the trust of the people and the support of the people. And this is an interesting issue. This is a fairly complex issue.
Now, I think the people have been ahead of the politicians as a whole in the sense that I think it's widely understood that there's a problem here and, therefore, all of you want us to do something about it.
On the other hand, there is a fairly small number of the political leaders in Congress, let's say, and there's a fairly significant number of people in the press, the people that are covering this, who've been thinking about this problem for a long time and they know we need to do something about it. So all of us who are activists, you know, the tendency is that we want to go in a room now and just -- you know there's a problem, so we'll figure out what to do about it.
The nearest thing I can think of that we're trying to avoid happened a few years ago, before I came President, on catastrophic health insurance. I don't know if you remember this -- and the AARP even got burned on this -- where everybody in the country knew there was a problem, right? So the politicians figured, well, the people all know there's a problem. The AARP says there's a problem. So we'll all sit down and do what seems like a reasonable thing and come up with a solution, and the public outcry was so great that a then Democratic Congress and a Republican President had to undo what was done.
Now, it was too bad, really, in that, but it wasn't catastrophic for the country. This is big-time business. We can't -- once we do this, we have to do it, do it right, and we can't undo it. We've got to do this right, and so that's why we're doing it in this way. And I thank you for what you said, and I'll do what I can to try -- I've got an office in Washington, part of the White House, that deals with state and local officials. We'll work with the Congress and try to see how we can multiply these things. Thank you.
PARTICIPANT: Mr. President, I just want to commend you. I think this is one of the greatest things. I'm a nurse. I knew there were lots of issues when you raised health care issues, and I think it's changed a lot of the system. Whether it changed everything you wanted to, I don't think that will ever happen. I don't think it will happen here. But I would present several challenges. I don't expect answers today.
I don't know if privatization of Social Security is good or not. My husband and I can afford it. We have an income over $100,000 a year. There's people in here, though, who don't, and I guess I have several challenging questions. One is, how do I know that when my three and a half year old is 15 and gets in a car accident and ruptures his spine- not that that will happen -- but if it did, that he would be covered by Social Security? Or that he would make it through college if something happened to myself or my husband.
Would Social Security -- I think Marilyn Moon brought up a significant question of if we privatize Social Security, what happens to that? What happens to this disabled child over here in a wheelchair who really depends on those funds? And if we take, whether it be that 1 percent or 2 percent, and put it into private accounts, then are we really socially secure and not taking out that security piece?
I presently take care of heart failure patients in the home. I would say 90 percent of them spend a good chunk of their monthly Social Security check, on top of their benefits, on medicine. And so, when they spend $200 out of their $750 a month check on medicine and the rest is left for living expenses, then what are we going to do?
I don't know. I could privatize my Social Security; I don't have a problem with that. But I challenge Congress and the Senate to say- what makes you think people are going to say -- this mother back here with three children is going to buy them tennis shoes? She's not going to save. She's going to put money away for college. (Applause.)She's not going to save.
MS. IFILL: Who would like to respond to the question?
THE PRESIDENT: I think we should all have a chance at that. Go ahead. We'll start here, we'll just go around. You've asked, in some ways, the question on which everything else depends, so I'll give everybody a shot at that. Why don't you start.
MR. WALKER: Well, first I think there seems to be some agreement that we need a foundation to build upon, and that with regard to Social Security a foundation is a base-defined benefit element; secondly, survivor's insurance; and, thirdly, disability insurance.
The debate is -- and that needs to be targeted towards lower and middle income individuals who are most in need. The debate is, what else do you do? How much of a change do you make there? How do you make those changes? How do you phase them in? And then do you have savings on top of that?
One of the debates about savings is, if you do have savings, do they come out of existing tax, should it be an add-on, how much of a burden is that going to be for lower income individuals. If it's voluntary, then who's going to save? Chances are, it's the people that have more money will save rather than those who may need to save.
And that's why you have to look at this as a package, as a balanced package, not just on Social Security, but also private pensions and other issues.
MR. GOLDBERG: I think that there's a remarkable agreement among those who have spoken today and among those of you who have asked questions. No one wants to walk away from current retirees. No one wants to walk away from the disabled. No one wants to walk away from a promise that workers don't retire into poverty. And that's the starting point for all of us.
We respond to different stories. I respond to the story of the single mother who works for 45 years, raises her kids, cares for her kids, pays 10 percent off the top every year. She dies at 65 and she gets nothing to leave her children and nothing to leave her grandchildren. That's the story that grabs me. The story about your kids and the injury, if something happens to you.
All of these stories make sense and they're very important. I believe we can design a system that responds to each and every one of them and responds in the right way.
MR. BURTLESS: If you do take away some of the money that is currently going into the main Social Security fund -- 1 percent of it or 2 percent of it -- to direct to individual accounts, it does mean that we have to adjust downward the benefits that we're paying out of that basic fund. So the basic system does have to be kept in balance if you decide you're going to put 1 percent away.
Now, there are certainly ways to do that and still protect disabled children and disabled adults and indigent widows. But the fact is that something has to come out of that basic system. You can't both have a private account on one side and the same package of benefits we currently have.
MS. MOON: I think David and Gary expressed my views on this very well. I would only add that I hope that we will all be held accountable at the end of the day on how well we protect the most vulnerable of our citizens. And that should be the final line. Those of us who are fortunate enough to do very well in this system will do very well. We have to make sure that the folks who get left behind have a decent safety net that protects them.
REPRESENTATIVE HULSHOF: I want to incorporate a part of two questions -- and Marilyn mentioned this while we were backstage -- and that is raising additional revenues. And I think there was a young mother who got up to speak here today, talking about how difficult it was. And perhaps the questioner was referring to that one of you in the audience. That because of the level of taxation now, payroll taxes and other taxes, that it is impossible for them to save -- whether it's that single mother raising a child or whether it's a young couple in their twenties or thirties, they are simply unable to put aside and save. And when you think about it, if you do invest your own funds, it's being taxed as well. So in a sense you could say that you're being punished for your thriftiness.
I would be a little remiss if I didn't take 20 seconds, Mr. President, to talk about the Savings Advancement and Enhancement Act that Dennis Kucinich, a congressman from Ohio, and I are proposing, that would allow, if you have a modest amount of interest income, that that would not be taxed, to help the low and moderate income worker whose incomes consist of wages and a little bit of interest income. Because as I think we talked about earlier, we have to incorporate private pensions, private savings, as well as making sure the system remains financially sound.
REPRESENTATIVE POMEROY: I said earlier whatever we do we can't take security out of Social Security, and I think we come back to that again. And what today has done for me, participating in the debate among policy makers and listening to you all, is really impress me with the concurrence that we have on the point of the guarantees -- guarantee for a dependable payment for as long as you live in retirement--
-- a guarantee that if you die and leave a spouse and little kids there's going to be a payment for them, making up for the income that you're no longer going to be bringing to that family. And if you become disabled, incapacitated, unable to work, there will be an income stream through Social Security disability benefit.
Now, if we are agreed, and I think there is pretty broad agreement that's been expressed across party lines, that those guarantees have got to be locked in going forward, well, then I'm a lot more comfortable with talking about other alternatives. What I was afraid was happening was that we were locking into a debate, being polarized against Social Security as an insurance program versus Social Security as an investment program, and this partisan chasm was going to start to open up on this debate.
I think, Mr. President, your leadership in convening this meeting and the discussion we've had has actually had us confirming that we agree on the guarantee, and the rest we can negotiate. Thank you.
SENATOR SANTORUM: I'm in a remarkable position of agreeing with everything that's been said so far, because I think you're right- we do agree that there has to be a foundation. As I said before, my three P's: to protect, to preserve, and then to provide the opportunity. And we don't have the opportunity in the system right now.
And I would address your question specifically for the poor. They really do not have the opportunity, and you say, well, I can afford it now. Well, in a sense, you are the ones we're not most worried about. What Senator Kerrey said earlier is about creating wealth among lower and moderate income individuals, where they do not have the opportunity because they are spending everything they can right now to maintain life. They don't have the opportunity to put that money aside.
If we have -- and you said how can they save? Well, I can tell you under any plan I would put forward -- I can't speak for others- that portion that would be put in for personal savings would be not able to be withdrawn for any purpose -- period. That money would be in that account, could not be taken out for any purpose. It would be, in fact, reserved, set aside for their retirement, and so that's how they would save, because instead of paying that money -- I pull out my passbook again -- instead of paying that money to Washington, that money goes- a portion of it goes into this account, which they must keep in that account and invest for a later day.
And the point of wealth generation is, as I said earlier, the poor and minorities in this country, unfortunately, don't have life expectancies as the general population. And so many of them, as was said earlier, die before they have any kind of return on their Social Security -- die at age 61, 62, or 63, and what do they have?
Well, under the plan that we're putting forward. What they would have is this to pass on to create that security and the opportunity for the next generation for the children and grandchildren to be able to have a better start at their life or a better chance in their life.
THE PRESIDENT: I can't add much to what's been said, except I would like -- this is the one and only time I'll try to do this because the Social Security issue itself is sufficiently complex and important -- but just for a moment, since you talked about families that are at risk of having something bad happen, I'd like to fold the Social Security issue into the larger issue of family savings, just for a moment, and ask you to think about it and think about it from the point of view of a family living on, let's say, $20,000 a year and one living on $40,000 a year and then one living on $100,000 a year.
We want a system, first, in Social Security that has some sort of disability benefit and a survivor benefit to give a baseline threshold of existence to people that could have horrible misfortune. Then we want a baseline predictable retirement benefit that is universal- again, today it's lifting 15 million seniors out of poverty.
But there are other things that we want to happen in the course of a family's life. We want more and more people to be able to save for their own retirement. And keep in mind, more and more companies are offering their employees defined contribution plans, not defined benefit plans. An increasingly smaller percentage of our workforce works for a company that can afford or guarantee a retirement that says, here's what your benefits are going to be forever.
So what have we done? We've tried to stabilize any retirement systems that are under water or at risk with various actions in Washington. And the Congress in a complete bipartisan fashion has tried to dramatically increase the ease with which, and the incentives to which, people have to take out 401(k) plans and then can carry them from job to job.
In addition to that, in the IRA proposals that we passed in the last year as a part of the balanced budget act and then again last year we liberalized them I think some, you can now save for an IRA -- and you can say, well, you can't afford to save. But if you can, you don't have to pay taxes on that money. And then later if you withdraw now from an IRA, for example, to pay for your child's education expenses, you don't have to pay taxes on that either.
So what we're trying to do slowly but surely is to create a system in which middle class people who are strapped for cash can afford to save in a comprehensive way. Now, what are the problems? Relatively low rate of return on Social Security. And if you move away from low rate of return to higher rate of return, can you continue to maintain the baseline benefit and the universality, number one. Number two, do you create so much risk that if people happen to retire and need the money when there's a big drop in the stock market, they're in bad shape? Senator Santorum has really thought a lot about how to minimize the downside risk.
But I hear your message, I agree with it. And I think those are the real dilemmas we're going to have to figure out. What are people going to have to do for themselves outside the Social Security system and what can we do to help them do that, how are we going to increase the return, how are we going to minimize the risk, how can we do that and keep the benefit level at an acceptable level?
But to me, what I'd like to do when I leave office when the 21st century starts, I'd like to know that any family that's out there with one person or two people that are working their hearts out, doing the best they can, no matter how meager their income, they're going to have a chance to create a little something for their children and themselves later on and have a chance to do even better, and that no 20-year-old person will ever have to worry about whether his or her Social Security taxes are going to be wasted, because there will be a retirement system when they retire.
MS. IFILL: We have just so many questions in the audience. We're going to try to rip through as many of them as possible.
PARTICIPANT: My question to the panel is, why do we have a cap on income tax by Social Security? And wouldn't we generate more revenue for our overall security by removing this cap?
MR. WALKER: One of the options that's talked about from time to time -- as you know, there's currently a cap on how much of your wages are subject to the 6.2 percent Social Security tax. It's in the upper $60,000 number. And several years ago the cap was eliminated for Medicare, the hospital insurance program, although we have to keep in mind that for the Medicare program it's 1.45 percent for the individual and the employer, whereas Social Security is 6.2. If you eliminate that cap, that's a significant increase in tax burden, albeit for individuals making over $68,000.
The real question -- there are a couple of points here. One, it doesn't come anywhere close to raising enough revenue to deal with the problem. And I think one of the things that we need in the future is some metrics -- what percentage of the deficit does the proposed reform solve. I think that would help a lot, quite frankly, in the future. This doesn't come anywhere close to solving the problem.
And secondly, the question is, to what extent might you lose support from the program, because the tax burden on those individuals, and therefore their rate of return, goes down terribly. So it's a legitimate debate.
THE PRESIDENT: Maybe I should answer this since this is really a question, if we're going to defend this, that a Democrat should answer, if we're going to try to keep this nonpolitical. If you think about it, there may be an argument for raising the income some because of inflation and because a lot more people have moved into higher income brackets in the last five years. But if you think about it -- let's suppose you took it off altogether. You say, what do I care about some baseball player making $10 million a year, right? But if you think about it, what would happen is you would be putting people in a position of paying over the course of their lifetime 50, 60, 100 times more than they would ever draw out of the Social Security system. And you can say, well, they owe it to society. But these people also pay higher income taxes and the rates are still pretty progressive for people in very high rates.
So I think you can make -- in fact, if you took it off altogether, the gap that will exist in 2029 is the equivalent of about 2.25 percent of payroll. And that would close -- I think if you took it off altogether -- I think about a 1. 5 percent of payroll. But you would really have tremendously changed the whole Social Security system. You would have basically said, if you get to where you make $70,000 or more a year we're going to soak you and you're never going to get anything out of this compared to what you're putting in.
Like I said, I wouldn't rule out raising it some, but I think we should be very careful before we get out of the idea that this is something that we do together as a nation and there at least is some correlation between what we put in and what we get out -- except we want people on the bottom to get out a whole lot more than they put in so we can give them a decent retirement. It goes back to what our nurse said there.
PARTICIPANT: Yes, we've spoken a lot about the private accounts and investments. And I'm wondering whether the congressional delegation, if they were going to be willing to examine the options of raising the retirement age even further or reducing the cost of living. Is Congress going to be willing to take up those rather unpopular things?
SENATOR SANTORUM: I would say that this gets back to Earl's point that he made during his speech. I think any proposal that looks at things piecemeal is a mistake. I think we have to look at this in a comprehensive fashion and see -- Senator Moynihan and Senator Kerrey put together a bill that does raise the retirement age, accelerates the retirement age going up to 67 to an earlier period of time, and then basically indexes it or, in fact, raises it I think a month every two years for some period of time, the retirement age. They also deal with the cost of living. But they do it in a package providing personal savings accounts and doing other things, providing other benefits.
So, as was said earlier, I mean, there's going to have to be, if you're going to provide a personal savings account component, there's going to have to be changes to the basic structure. And whether that includes some of the things that you suggest, in all likelihood it will probably include something. I'm not too sure it will include a dramatic change in cost of living. I don't think it will be a dramatic change in retirement age. But I think all of those things are the different components that we need to look at over time to see how we can in fact divert some of the money that's going into pay current beneficiaries and future beneficiaries into private and personal savings accounts.
So I would say, in the context of the overall reform those are things that will be looked at, but to do them piecemeal I think would be a mistake and would get to the problem that I have, which is if you keep the old system and all you do is raise the retirement age and cut COLAs and raise taxes, you're going to exacerbate the inequity in the system; you're not going to improve it. And that's where I would have a problem with it.
REPRESENTATIVE POMEROY: I agree with much of what the Senator has said, specifically on the COLA, much of that --there was a great concern about the COLA as we discussed the budget because there was actually a concern that the cost of living adjustment factor for Social Security overstated inflation; in other words, it was raising benefits higher than what most economists, many of the economists, thought inflation actually was. So we had an inaccurate inflation adjustor.
The Bureau of Labor Statistics in the Department of Labor that adjusts these sort of things I think responded to much of the public concern and the concern expressed in Congress on making arbitrary COLA adjustment, and they have refined their methodology and basically reduced the COLA that was projected earlier. So much of the work on the COLA, I think, to bring it in line with what inflation actually is has already taken place.
On the retirement age, I think that -- I'm certainly not going to advance the way we fix the system is to delay eligibility for Social Security -- but within the context of a broad reform, as the Senator mentions, having some type of -- in the out years, 20, years from now- an adjustment recognizing the reality that people are living longer, working longer, provided that you have the safety valve where you can still access the early benefit at age 62 if that's what you chose to do, albeit at a reduced rate, I think you have a program that certainly deserves consideration, among a number of other proposals that deserve consideration.
But we certainly shouldn't just lock on reducing benefits by cutting COLAs and delaying eligibility as a quick fix to a difficult problem.
THE PRESIDENT: Let me just make one suggestion here, if I might, for all of you, and I'm embarrassed that I can't remember exactly the numbers for the question that the lady just asked. But you need to keep in mind, if the specifics are real important to you -- I mean all the specifics -- then I think you need to always know what the impact of any specific proposal is. So again I'll say, in the year 2029, we'll stop being in balance, and then we'll go into a deficit of roughly where we can only pay 75 percent of the cost of the existing system of Social Security with the revenues that we have.
So if somebody says to you, well, what if we raise the retirement age to 70, or what if we cut the cost of living by half a percent, or what if we took the ceiling off the incomes earnings, to go back to this gentleman, I think it's important, if you really want to seriously discuss that level of detail, that you know what the impact of each specific one would be. And we can get you that information. For example -- or if you want 1 percent of payroll devoted to individual savings account, what will that add to the gap of 2. 23 percent in the short run. And then you just have to decide what you're prepared to do to close the gap.
But you have to understand, your members of Congress here, they're going to have to actually make difficult decisions at something less than an abstract level. They're going to have to sit down and say okay, if I raise the payroll ceiling this much, it will close .4 percent of this 2.25 percent payroll gap. And one of the things that surprised me -- the reason I brought this up -- one of the things that surprised me when I started studying it in this way is what a small impact it would have to accelerate the rate at which we're going to 67 to the retirement age. I mean, it does you some good, but it doesn't have anything like the impact that I had imagined it would.
Do you want to say anything?
MR. WALKER: Mr. President, I think that's an excellent point. You need to recognize that whatever Social Security reform package gets enacted, it's going to be a balance. It's going to be a balanced package. You need to have a feel as to how much of an effect does it mean. For example, raising the normal retirement age from 67 to 70 gradually to where it's 70 by the year 2030 -- so we're talking a number of years out -- would roughly make up about 44 percent of the projected deficit. Changing the COLA by half a percent would roughly make up about 30 percent of the projected deficit. Eliminating the earned income limitations so as not to provide a disincentive for people to work would cost 5 percent. But sometimes, you may decide you may want a stronger minimum benefit. That might cost money, but on the other hand there are other elements that would save money. And we need a balanced package, and you need to have a feel for that in making choices.
PARTICIPANT: Mr. President, I want to thank you for the superb job that you are doing in running the country and bringing this forum here to Kansas City. I'm a person on Social Security Disability from the Equitable Life Insurance Company, and I also draw an income security plan from them. I do like the security of the Social Security system, but I also agree with the Senator over here about, like my retirement plan is locked in. I look at it every year. It's locked in an annuity with the Equitable for 6 percent -- I'm 50 now, until I'm 62 to 65 -- and I can't touch it. I like that system.
THE PRESIDENT: You like the fact that it's locked in?
PARTICIPANT: Yes and I can't touch it. I can't cash in. I can't go buy shoes or anything like that. It's locked in for me.
(Laughter and applause.)
THE PRESIDENT: Thank you.
MS. MOON: I think that's an important element of an individual savings account that we would think about into the future because I think it is going to be very tempting at some point to tap into those, just as we have loosened up the requirements on 401(k)s and IRAs and so forth. And so I think that's something that also needs to be thought about in terms of the practical questions. Some of them are easy because you don't want people to use it for frivolous reasons. Some of them are difficult -- when a 50-year-old is facing catastrophic health problems, for example, and doesn't think they're going to ever live to use their retirement account and may want to tap into it. So it's going to cause some problems in terms of holding that promise. But I do think that's an important element of the discussion.
REPRESENTATIVE POMEROY: Mr. President, the question jogged in my mind, the inter-relationship between a defined contribution, like 401(k) private plan and a defined benefit nature of Social Security. The 401(k)- maybe you annuitize it, maybe you exhaust the benefit, maybe you've invested, it doesn't get the return you project, maybe you had to withdraw early. It may or may not get you to where you thought it would in terms of your retirement savings planning, but the Social Security program wraps around that very nicely with the defined benefit, predictable, dependable, monthly payment for as long as you live in retirement.
And so I think that as we see the private system going more toward risk on the individual in a 401(k) plan -- and I don't -- I'm not objecting to the 401(k) plan, but while we make that move, we should, I think, give very serious consideration to backstopping that risk with a defined benefit structure in the Social Security program.
MR. WALKER: Mr. President, I think an important point here is if you take 401(k)-type plans, the issue you're talking about it preservation. And preservation is really important since the money is there when you retire. In a 401(k) plan, about 70 percent of lump sum distributions are spent, not preserved to retirement -- at least a portion of the lump sum distribution. And so the issue of preservation is not only an issue of importance with regard to Social Security if there is a piece of an individual account in future reform. But it's also important right now with regard to pension policy.
MS. IFILL: Mr. President, you said during your remarks that there was a poll that showed that young people thought that maybe they'd see UFOs before they saw their Social Security checks. Our questioner is 20 years old; she may be one of them.
PARTICIPANT: Well, I have a question -- well, it's not really a question, but, Senator Santorum, you said that, okay, that money from the checking account that we put away, now who's to say that we're not going to have to use that money for something else, like pay medical bills that our parents -- like if they go into the hospital? So, I mean, you always say save, save, save, but what if we can't save and we have to use that money for something else?
SENATOR SANTORUM: Again, I think it's important to understand that that money is going to be fenced off. I mean, that is as important as anything I think I can say here -- is what the gentleman said here, is that that money should not be able to be used for any other purpose other than for retirement. And I understand that there are needs, but the way I'm envisioning it -- I think this is the point you may have jumped in on -- is that when a person dies, that that money would pour into that other -- to your children's account to help their account. So it would help their retirement.
THE PRESIDENT: But I do want to emphasize that your proposal would be not to increase the amount of payroll tax but to take a percentage away so-
SENATOR SANTORUM: No. Take a percentage away so it wouldn't be an increased tax burden on you.
THE PRESIDENT: Let me say to the young lady that asked this question, we changed the law on IRAs, Individual Retirement Accounts, which would require you to be able to be able to put away something over and above your Social Security tax, but now, if you put money into an IRA now, and you have to withdraw from that IRA to meet a medical emergency or for a first-time home, or to pay for education, you can do that without a penalty now. And if you do it for education, you do it without paying any tax at all on the gain.
So there is a way under the present system, as a young person, that you can save. And if you face a medical emergency, you could withdraw from the savings without penalty, but it would have to be over and above what you pay in your payroll tax. And that wouldn't be changed by what Senator Santorum -- he wouldn't make it any harder for you to do that. And we tried to make it easier in the way we changed the law in the last two years.
PARTICIPANT: Mr. President, my family represents four levels of the Social Security system. My mother is on Social Security; my brother and my two sisters and I are all paying into Social Security; I have a -- I am legal guardian of a child who is disabled and on Social Security; and I have a 21-year-old child who is in college and is facing this crisis head on. My question to you is, why do we have the cap and not a security net? In other words, change that cap from the top and put it on the bottom. Those of us that are struggling are the ones that need the Social Security when we get older, but we're also the ones that are paying for those ballplayers when they get their Social Security.
THE PRESIDENT: You think that there should be a cap on the size of your tax or that we should have a higher floor on the benefits?
PARTICIPANT: Neither one. I think that the -- instead of putting a cap on the top level, put the cap down where it belongs and don't -- not charge the Social Security tax on those of us that can't afford it anyway. Put the cap at $30,000 a year -- we don't pay anything into it, or a very minimal amount. Go ahead and tax the ones that can clearly afford it in the first place.
SENATOR SANTORUM: Well, there is a program in place the Congress passed under Reagan -- and under President Clinton expanded it dramatically -- the Earned Income Tax Credit. And the Earned Income Tax Credit is to address the very issue that you suggest, which was that the Congress identified under -- that the Democratic Congress and the Republican President identified a problem with low income people paying -- the greatest tax burden is on payroll taxes.
So they developed the Earned Income Tax Credit which was in a sense to help families pay for their Social Security tax by claiming this credit. And the President extended it twice, I believe -- or at least once -- in the '93 act I know he extended it to a higher income family. You probably know that number better than I do-
THE PRESIDENT: $31,000.
SENATOR SANTORUM: It's up to around $30,000 -- and you would get some credit to help you pay your Social Security tax.
So in a sense, I do know that people earning under, I think it's $20,000, pay no Social Security tax net of the EIC. So there is no Social Security tax burden net when you take the tax credit in effect.
THE PRESIDENT: Let me say again, I believe that those of us who have higher incomes should pay more on the Social Security. I don't have a problem with that. The only point I was making is if you took the cap off altogether on upper income people they wouldn't be in a Social Security system anymore, they'd just be writing six percent of their income for something that they'd never see.
And we do tax them more on the income tax side, considerably more. And we also have no cap on what they pay into the Medicare trust fund, which you pointed out. But the thing that has made Social Security work in the past is that everybody has had to pay in and everybody got to draw out, that there was a guarantee and a mutuality of responsibility.
The Earned Income Tax Credit has been somewhat controversial in Congress, but if it were up to me I would have it even more generous. Because the way it works now is the average family of four with an income of $30,000 a year or less is paying approximately $1,000 less in income tax, including eligibility for refunds, than they would have paid if the law hadn't been changed in '93. And we did it to try to take account of the fact that the payroll tax was so high for people and that incomes of people -- the lower 20 percent of our work force had not gone up very much in the last 10 years.
But it seems to me that it's better to have some give back there and still have a universal participation in the system, since we want everybody to be a part of both the responsibility for paying in and then be able to get the minimum amount coming out.
PARTICIPANT: I don't question whether or not there is broad bipartisan agreement on whether or not to fix Social Security. However, I would point out that just a couple of years ago that there was broad bipartisan support for reforming finance campaign laws. What reassurance can you give us that anything will actually be done with this?
SENATOR SANTORUM: Well, I would answer that, that I think your premise is wrong, there was not broad bipartisan agreement on how to reform the campaign finance system, number one.
Number two, I don't think it's safe to say that there is broad bipartisan agreement on how to fix Social Security. I think there's broad bipartisan agreement that we know that there's a problem and we both recognize it. And now we are working through the process of getting to that solution. And I think in a sense we're far ahead of the game in campaign finance.
Here we have a good foundation, we both see the problem, the same problem. In campaign finance I don't think we saw the same problem- let's be honest. I mean, we just didn't. Here we do. I think we're dealing from the same basic -- and as far as the general outline for solutions, I think what we heard here today is there still has to be a Social Security system; there has to be certain guarantees for people who are at or near retirement as well as for future generations, for disability and for the working poor and for survivors. I mean, I do believe we have a pretty good foundation.
How we go from there -- I mean, we're a long way from there. And that's why this public discussion and debate is so important.
REPRESENTATIVE HULSHOF: Let me give you a freshman congressman's perspective.
First of all, I appreciate you all participating in this great debate in help kicking this off. We've talked a lot about numbers, and that's as it should be. But I think ultimately the debate about Social Security is more about rights, it's more about responsibility, it's more about vision, it's more about values.
The freshman class, there are 35 new Republicans in Congress and I think 43 new Democratic members in Congress. And as I mentioned in my opening remarks, we have come together on tough issues like campaign finance reform. In fact, we had a freshman bill that we put forth, that we worked together in a bipartisan way.
When it comes to, as Senator Santorum talked about -- when it comes to fixing Social Security, this is not a Republican issue, it's not a Democratic issue, it's an American issue. And if I can provide any assurance to you as a fresh face in Washington, the vast majority of newly elected members of the 105th Congress are looking beyond the next election to the next generation. So I'm excited about this year being the year of education. And going to this gentleman's question, that 1999 hopefully will be a year of action.
MS. IFILL: Mr. President, I want to give you the last word, because that's the overall question which everybody wants to take away from this today; which is, now that we're talking about Social Security, now that touching the third rail doesn't make us dead anymore, exactly what can they expect of all of you?
THE PRESIDENT: Well, that question melds rather nicely with the last question that was asked from the audience. I deeply regret that we haven't passed campaign finance reform legislation.
But to answer this, why is this different, for one thing, the divisions in the campaign finance reform are not only divisions- they're divisions of party and also divisions of incumbency and non-incumbency. And then they're honest differences of opinion about what would work and wouldn't -- all kinds of problems and complicated by Supreme Court decisions and a zillion other things.
But the other thing is, frankly, every member of Congress that really doesn't want to pass it knows, that the republic will go on if it's a system we have is capable of producing significant positive change -- witness the Balanced Budget Act and the fact that we had the biggest increase in aid to higher education in 50 years and the biggest increase in the coverage of children's health insurance in 35 years. So people know that this system can be made to function.
The members of Congress in both parties know that at some point in the future, Social Security will stop functioning with grievous consequences to the fabric of American life that affect people who are Republicans and Democrats and independents in all walks of life with all manner of circumstances. And basically, there's enough patriotism in the Congress to want to address it. That's the honest truth. It's an issue of our survival as a people, our unity as a people, and the innate patriotism of the people that are serving. That's why I believe it will happen.
What I think will happen, what I want to see is that we will spend the time between now and December trying to answer the question this gentlemen had, how can we get out this information to people. We also want you to become more familiar, so you can answer questions for yourselves. If you had to choose, for example, between a faster movement to a higher retirement age, or an individual savings account or, you know, raising the cap on income, or all of these choices they're going to have to make, what choices would you make and why? And how would you answer the other charges? This ought to be a big national debate. There is no other program that affects so many of you in suchan intimate, personal way.
And then what I believe will happen is all these members will have lots of forums in their own states. They'll listen to their own people. They'll listen to these experts. You're going to see 100 or more articles written by people like our panelists here, coming up with new refinements on ideas, analyzing the proposals that Senator Kerrey and others have made.
And then in December, in January, we'll sit down and come up with the best possible solution. It won't please everybody 100 percent, but it will save Social Security for the 21st century and it will make us a stronger more united country. And then I think the Congress will come in and pass it because it is the right thing to do. That may seem naive and I may be old-fashioned, but I'm more idealistic today than I was the day that I took the Oath of Office -- that's what I think will happen. And I think you will make it possible, because you'll support people like these folks who will do the right thing by your children and your future.