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, before you sit down, if I might, I want to do something quite serious, but I think important, here at the beginning. I would like to ask Senator Domenici and Senator Bingaman and Congressman Kolbe and Becerra to come up and stand with me, and I'd like to ask all of us to offer a moment of silent prayer for the memory and the families of the two police officers who were slain at our Nation's Capitol.
(A moment of silence is observed.)
Amen. Thank you very much.
Let me, now on a somewhat lighter note, say that Mayor Baca was reeling off all of his relatives on Social Security -- I'm glad to see one person here who I believe is now eligible for Social Security, former governor Bruce King, and his wife, Alice, over there.
I point them out for a special purpose. One of the demographic realities we have to confront is that women are living longer than men. Governor King is in a wheelchair because of a fright he received from a rattlesnake, which his wife killed. (Laughter and applause.) So we congratulate both of them.
Let me also say I'm glad to see this great and diverse group of Americans here in Albuquerque. You can always depend upon getting an audience that genuinely does look like America if you come to Albuquerque. I thank all the Native Americans here who are in the audience. Thank you very much for coming.
I see our friends from the Sikh community over there. I know there are a lot of Hispanic Americans here. I know there are African Americans, Asian Americans and others.
We thank you for coming here. And I also thank all the young people that are in the audience, because this is an issue for all ages of Americans to deal with together.
I would like to acknowledge our Social Security Commissioner, Ken Apfel; to thank Bill Gordon, the Provost of the University of New Mexico, and all the university family for making us welcome here today. I thank Horace Deets of the AARP for being here, and Harvey Meyerhoff of the Concord Coalition, and Carolyn Lukensmeyer of Americans Discuss Social Security.
I want to say a special word of thanks to the AARP and the Concord Coalition for hosting this forum. And of course, I thank the members of Congress who are here and the leaders of the Congress for nominating the members who are on this program.
We are very blessed at this moment to have a strong economy in America. The question for us is whether we will do what societies often do when times are good and sit back and enjoy it, or whether we will face the larger challenges that our present prosperity and confidence permit us to face. They are significant and formidable, if you think about the next 50 years: How are we going to build the world's best elementary and secondary education system? How are we going to bring economic opportunity to the people who don't enjoy this prosperity, whether they're in inner-city neighborhoods, or rural communities where agriculture is in trouble, or Native American communities? How are we going to deal with the challenge of growing the economy and preserving our natural environment? Big, significant challenges.
One of those challenges clearly that we must face together is saving Social Security, and I might add, with it, Medicare, for the 21st century. One of our biggest challenges is what I call a high-class problem -- we are an aging society. We are living longer and better and healthier, and that imposes costs. The older I get, the more I like that problem. That's a high-class problem.
It wouldn't have been too many years ago that it would have been rather unusual to find a mayor who could stand up and cite three of his family members who are over 75 years of age. That's not so unusual anymore. But we know now that because of the demographic challenges facing us, we have to make some adjustments in the Social Security system to strength and preserve it in a new century.
As all of you know, I have said since my State of the Union address that we should set aside every penny of any surplus until we save Social Security first. At the very moment when we have switched from deficits as far as the eye can see to surpluses as far as the eye can see, it's tempting to offer a large tax cut or perhaps a new spending program paid for by the projected surplus. Some have advocated this course, but we must not squander the hard-won legacy of fiscal responsibility that has brought us our present moment of prosperity. Instead we should use it to tackle the long-term challenges of the United States.
Any new tax cut or new spending program done before we save the Social Security system would commit funds that may be needed to honor our commitment to our parents and our commitment to our children. I think those of us who are part of the so-called baby boom generation feel that most acutely because it is in the years when all of us - that is -- and I'm the oldest of the baby boomers -- those who are between the ages of, roughly, 52 and 35 -- when we all get into the retirement system. It is then when the greatest stresses will be placed upon it at present levels of retirement, projected birthrates and projected immigration rates.
So I am very grateful for the bipartisan spirit in which we have been pursuing this. I'm grateful for the people who are here. I appreciate Senator Domenici's strong leadership and his strong support for taking the responsible course. In an election year, asking politicians to hold off on a tax cut is almost defying human nature, but Senator Domenici and many Republicans have joined our Democrats in saying together, let's deal with this problem -- the American people waited 29 years to get out of the red ink and look at the black; we can take a year to enjoy the black and deal with the long-term problems of the country before we decide everything we have to do with the surplus.
Let's deal with first things first.
Also I want to thank, as I said, Senator Bingaman, Congressman Kolbe and Congressman Becerra. We have to reach across the lines of party, philosophy and generation. This will require open minds and generous spirits. We all have to be willing to listen and learn. In preparation for this forum today, I had three different sessions with my staff members, briefing me on all the various reforms that have been advocated by the extraordinarily distinguished panel of experts from whom you will hear in a few moments. And I've been doing my best to be open to new ideas and to listen and to learn.
I have asked every member of Congress not only to support the forums we're having here today, but to hold town meetings in every district in America. And we will have a White House conference on Social Security at the end of this year. Next year I will convene the bipartisan leadership of Congress to craft a solution.
The stakes are very high. Those of you who are older or who have had family members dependent on Social Security know that for 60 years Social Security has been far more than an ID number on a tax form, even more than a monthly check in the mail. It reflects the duties we owe to our parents and to each other and this kind of society we are trying to build.
Today, 44 million Americans depend on Social Security, and for two-thirds of seniors it's the main source of income. Today nearly one in three of the beneficiaries, however, is not a retiree. Social Security is also a life insurance policy and a disability policy.
Since its enactment over 60 years ago it has changed the face of America. When President Roosevelt signed Social Security into law most seniors were poor. A typical elderly person sent a letter to FDR begging him to terminate the "stark terror of penniless old age." Now, in 1996, the elderly poverty rate was below 11 percent. Without Social Security today nearly half of all seniors would still live in poverty.
Today, the system is sound, but we all know a demographic crisis is looming. There are 76 million of us baby boomers now looking ahead to retirement age and longer life expectancies. By 2030, there will be twice as many elderly as there are today, with only two people working for every one person drawing Social Security. After 2032, contributions from payroll taxes to the Social Security trust fund will be only enough to cover about 75 cents on the dollar of current benefits.
We know the problem. We know that if we act now it will be easier and less painful than if we wait until later. I don't think any of you want to see America in a situation where we have to cut benefits 25 percent, or raise inherently regressive payroll taxes 25 percent, to deal with the challenge of the future and our obligations to our seniors.
I can tell you, I've spent a lot of time talking to the people I grew up with; most of them are middle-class people with very modest incomes and they are appalled at the thought that their retirement might lower the standard of living of their children, or undermine their children's ability to raise their grandchildren. So let's do something now in a prudent, disciplined way that will avoid our having to make much more dramatic and distasteful decisions down the road.
Now, today, we're going to discuss one of the most interesting and important issues that will affect how much it will cost to stabilize the Social Security trust fund and what the nature of it will be, and that is, whether and how there should be Social Security investments not just in low-risk government bonds, as the investments are made today, but also in the stock market. I think we have to be open-minded about these proposals and we also have to ask the hard questions.
One I'll start with is, in the six years I've been President, the value of the stock market has nearly tripled. I'm grateful for that. Can we look forward to having that happen every six years from now on? If not, what are the risks? What will it cost to administer such a program? If you don't have individual accounts where administration costs may be higher, what would be the dangers of having the government -- either itself or through some third party independent agency - make such investments?
I think that we just have to look at this and listen, and I hope all of you today will leave with a better understanding of both the appeal as well as the questions in each and every proposal that has been raised. As I said, I have spent a lot of time studying them. I have tried to set out the five principles by which I think we should judge any proposed reforms. And let me just briefly state them again.
First of all, I think we should reform Social Security in a way that protects the guarantee for the 21st century. We shouldn't abandon a program that has lifted our seniors out of poverty and that is reliable. Second, I think whatever we do we should maintain universality and fairness in the program. For a half century this has been a progressive guarantee for citizens. Third, Social Security must provide a benefit that people can count on so they can plan for their future. Regardless of the gyrations of the markets, there must be at least a dependable foundation of retirement security.
Fourth, Social Security must continue to provide financial security for disabled and low-income beneficiaries. Remember, one in three Social Security recipients is not a retiree -- something that is often lost on people when they comment on the relatively low rate of return of the retirement program.
Now, finally, we must maintain our hard-won fiscal discipline in anything that we do. That means, from my point of view, that any change we adopt must not lead to greater long-term projected deficits. We worked awful hard for a generation to get our country out of the deficit mode. It's resulted in a lot of prosperity for our country. I can tell you, as I deal with other nations around the world -- with the Asian financial crisis, with all the challenges other countries face - money moves around the world today in the flash of an eye. Investment is important. America will continue to be successful because of our great free enterprise system as long as we have a responsible economic policy in this country. So we should not abandon that.
Now, those are the principles that I will use when I try to evaluate all these proposals. But they don't answer the questions. These are hard questions. And every person who's on this panel of experts has worked hard to answer them. You'll see they have very different answers, but they all deserve a respectful listen from you and you need to start, as I always try to start, by saying, what's good about this idea, what are the positives about it, what are the inherent questions that are raised? Try to work them through for yourself, and go back and discuss them with your friends and neighbors. And most of all, let's try to keep an open, positive, old-fashioned American attitude toward this.
We dare not let this disintegrate into a partisan rhetorical battle. Senior citizens are going to be Republicans and Democrats and independents. They're going to come from all walks of life, from all income backgrounds, from every region of this country, and therefore, so will their children and their grandchildren. This is an American challenge and we have to meet it together.
Thank you very much.
ANNOUNCER: Ladies and gentlemen, please welcome Senator Pete Domenici from New Mexico.
SENATOR DOMENICI: Well, hello, everyone. It's nice to be with you. First, Mr. President, I know our Mayor talked about the longevity of his family, and I don't want to do that, but I do want to tell you, Mr. President, you probably already know, but my family just spans this entire spectrum. I have seven grandchildren under 12, I am 66, and I have eight children under 42. Now, you understand I'm very interested in the future of Social Security.
Now, first, you know there are so many people to thank, most of all, all the New Mexicans who are here because of their tremendous interest, Governor King, you and Alice because you took the time to join us, all those in the three organizations that put this event together, thank you very much, and to the distinguished members of the United States House and Senate that I share this podium with, I thank them for the privilege of being with them, but most of all, Mr. President, I have to say that I thank you.
Frankly, this President did not have to do what he's doing on Social Security. He's made a decision, which I concur in 100 percent, that America has a fantastic fiscal policy for the next, and the next, and the next generation, better than any nation in the world. You travel them, I travel them, they are all worried about how are they going to pay for their pensions for their senior citizens. Every single industrial nation is worried about it, and they don't know how yet.
But, we have a President and members of Congress who have said let's try to repair, reform and fix this system now, while we have great prosperity in our land. It is not easy to fix something like this when you are having difficult economic times.
So, first of all, I, number one, agree with your five principles. I am willing to take them as mine, as I look through the various proposals, because I think they are right.
I will say to you, I have already worked on those principles and tried to apply different things, different theories, and I find that even great expert people give me different answers, so I'm going to have to end up, as is the President, determining how you conclude, based upon differing views, as to how we can make sure we take care of America for the next century.
I also believe that it is imperative that we here in our great state keep alive the bipartisan-ness of this debate. I don't believe we ought to be picking and choosing plans right now, nor do I believe we ought to advocate them in a partisan manner now. And, I know again the President has done that precisely today, saying we should not do that, and I concur, Mr. President, because if we are going to do this next year it's got to have Republicans and Democrats in the House and Senate joining you to do what's best for our people.
SENATOR DOMENICI: I want to, in my own way, tell my fellow New Mexicans the way I see the issue. If we leave things exactly like they are, continue the taxes exactly like they are, continue all the benefits exactly as they are, which incidentally I would like to see us do and I believe we can, but if we were to do that and we don't change anything else then we will be 25 percent short of being able to pay Americans what we currently promised them starting in the year 2032. As a matter of fact, I think the President misspoke on the tax increase, I think it would actually have to be 50 percent in order to make that happen, but in addition there is no question that we would have to change a number of the benefits in order to get there unless we do something different. So, I look at that saying this is something very, very important.
Let me put it in another way for you. If the United States were able to leave the program exactly like it is and, Mr. President, if we could take the funds and put them in a separate fund, and they belonged only to Social Security, and we bought Treasury Bills with them, we would be short $3.6 trillion in terms of what would have to be in that fund to pay the benefits we have currently promised. Now, that's a lot, that's a big short fall.
So, from my standpoint, I stand ready to get started. I want to share with you a thought. First, one of my friends in the Senate says that the power of compounding is the most powerful force around, and he even says, this friend of mine, that Einstein agreed with that, Mr. President, that the most powerful force around is the power of compounding.
Now, you see if you discard the boom in the stock market, just set it aside, and look at the American stock market and bonds for 50 years, you will find that the average return is 5.5 percent. Now, what I am talking about is, should we not look at the potential for 5.5 percent compounding over a long period of time to bridge that gap that I just described of $3.6 trillion?
Now, many put it another way, many say we should have an opportunity to invest in things that will appreciate, rather than just giving us the money to put in the Trust Fund. That's another way to say it. And, frankly, we are hearing more and more young people, fearful they won't get what they put in, saying why can't we try it on our own, and we can't let them try it on their own. We can't have people just taking the money and investing it, and anybody that sees that I'm in favor of looking at this compounding should not read me that way, because obviously, we have a social responsibility, we can't let that happen.
SENATOR DOMENICI: I also want to say that today you are going to be privileged to hear four experts, and I know three of them very well and they are superb. I told the President, if people are listening across this land they will see that this is going to be the best Social Security information conference of all of those that we've had, because you've got the very best people trying to tell you what the facts are and what their positions are and I think that's good. I think we should have the best.
I would also remind you that a number of great American economists, who ten years ago would not think of the power of compounding for Social Security's enhancement, have moved in that direction today, although they have different views on who should invest the money, and therein we will hear a debate today. I will tell you my prejudice right up front. I cannot imagine the government investing $3 trillion in the stock market 20 or 30 years from now, because I believe that will be too much control of the private markets of America with government control, but I'm willing to listen. And, one of the people I respect the most will be testifying, Doctor Reischauer, who was the head of the Congressional Budget Office, will be espousing that principle, and I listen and I reap.
I would like, at this point, to merely say that there are answers to all the issues and fears you have about these various approaches, and we are not going to get them all out there to you today, excepting, I think, the country is very fortunate in that Republicans and Democrats in the House and Senate have joined in plans to look at this power of compounding the private or personalized investment concept. It is not a Republican issue. It is a Democrat and Republican issue, with Senators as esteemed as Moynihan on the Democrat side being a proponent of taking a good look at it.
So, I leave you today hopeful that this will be a marvelous event for America, and that we can look back on it and say a lot of good occurred here because we found a way to bridge our differences and look seriously at the very best way to solve this very, very serious problem.
If this is solved, I believe this President can look out at America and we who have been part of this fiscal responsibility, and we can probably say we have done more to perfect and protect Social Security, and more to keep a robust, powerful American economy because of fiscal sanity, than has ever been done in modern times.
Thank you very much.
ANNOUNCER: Thank you, Senator Domenici.
Ladies and gentlemen, it is my pleasure to welcome to our podium Senator Jeff Bingaman from New Mexico.
SENATOR BINGAMAN: Thank you.
Mr. President, I join the other speakers, and I'm sure everyone here, in welcoming you back to New Mexico, and complimenting you on the leadership you are providing on this extremely important issue, and also compliment the three organizations that are putting these forums together.
I remember shortly after I got to the Senate, Russell Long, who is a friend of your's and all of our's, I think, a former Senator from Louisiana, he told me that, he said, "The biggest mistake a politician can make is to solve his constituent's problem before his constituent knows he has a problem." And, I see these forums as an effort to focus the attention of America on the fact that we have a problem, and, hopefully, we will have a bipartisan solution to that problem as a result of this debate and discussion that's going forward.
Social Security is extremely important in New Mexico. We have some 260,000 people in our state who get a check every month from the Social Security Administration. The average payments that those checks represent is $697.00, and there are many people who receive smaller checks, and I'm sure there are some in this audience, and many, perhaps, in this audience, who receive smaller checks, so this is not a luxury program, this is a program that provides what the President referred to as the foundation of retirement security for many in our country.
Of course, today Social Security benefits are paid as a result of the payroll tax. It's a 12.4 percent tax on employers and employees combined, and the various plans to privatize the system, Social Security system, involve taking some of that payroll tax and diverting that money into private investment accounts which would then be available for investment by each individual, or at least some of the proposals are that each individual would make decisions as to the investment.
Of course, the reason we are having these forums, the reason we have a problem, is that the revenue from that payroll tax, that 12.4 percent payroll tax, is not going to be enough to pay the benefits that we promised in the system, and that, of course, the President has made clear and Senator Domenici has made clear as well.
So, a major concern I have is that through some type of so-called privatization we could reduce the money coming in to pay the benefits, and thereby have an even greater problem in Social Security in the future.
I do not believe that the necessary solution to this problem is a substantial cut in benefits or is a raising of the retirement age to 70, or even higher as in some proposals.
SENATOR BINGAMAN: I do not believe that those steps will be necessary if we take the appropriate alternative steps that we can take.
But, even if it does become necessary to make adjustments in benefits, the amount of those cuts will be a lot less if we do not reduce the amount of money going into the system to pay the foundation and basic benefits that are received and expected today.
The argument, of course, is that the money that would be diverted from the Social Security Trust Fund would be available for investment in these private investment accounts. I have some of the same skepticism that, perhaps, the President and Senator Domenici expressed, about whether or not you can count on that as a secure plan for your future retirement. I strongly believe we need to explore the option of setting up private investment accounts that individuals can put money into, and that employers of individuals can put money into, but I believe that in setting those private investment accounts up we ought to think in terms of voluntary contributions to private investment accounts, rather than diverting funds out of the current system to fund those private investment accounts.
I see this debate as, I think a good opportunity that comes from this debate is the opportunity to look more broadly than just Social Security, to look at the other opportunities people have to save, and to obtain pensions, to assist once they get to retirement, and I think private investment accounts should be looked on as a way to expand savings and pension coverage for retired workers, pension coverage that will supplement Social Security and not be a substitute for Social Security.
Thank you very much.
ANNOUNCER: Thank you, Senator Bingaman.
Ladies and gentlemen, please welcome the Representative, Jim Kolbe from Arizona.
REPRESENTATIVE KOLBE: Thank you very much.
Mr. President, my distinguished colleagues from the Congress that are here, members of the Concord Coalition and members of AARP, but most of all the citizens of New Mexico. I feel very privileged to have been asked by the speaker to be a part of this conversation, and I think it is a conversation, on what I think is one of the most important issues that's facing this country, ensuring that every American, both young and old, has a viable retirement program.
The problem is fairly simple. It's how do we reinvent Social Security so it can do today, for today's workers, what it's done in the past and for the current Social Security beneficiaries.
Social Security, as you've heard, has been a very successful program. It's protected America's families since it was created 60 years ago. It has helped reduce poverty among seniors to a very, very low level. It has aided individuals with disabilities. It has supported families with young children when the wage earner dies.
Since it is one of our most interest, arguably the most important and successful domestic program, we have to make sure that it remains strong into the future. But, as you've heard, and the President laid out the case very well, the one truth is that due to the aging of the population and the smaller number of people going into the work force, the outlook for the Social Security system is not as bright for the next generation, and so it is for our children and our grandchildren that forums like this have to take place all over this land. We have to begin discussing the options for reforming Social Security honestly, and we have to do that free of politically-motivated rhetoric.
There's a lot of inaccurate information, a lot of misleading ideas that are being thrown out during this debate, so let me just say one thing to you as you listen today, beware of the politician or anybody else that promises you a simple, quick fix for the Social Security problem. It isn't easy, and it isn't quick to fix it, and the devil lies in the details of all the reform proposals that you are going to be hearing about here today.
Yet, I do believe that it is possible that we can reform Social Security so that everybody is a winner, not a winner at somebody else's expense, but a winner for themselves individually and for their families. But, the only way we can do that is if we reach across generations and across political parties to develop a multigenerational bipartisan consensus. This isn't about being a Republican or a Democrat, this isn't about being young or old, it's about ensuring that every American will have a retirement that they can count on now and in the future.
So, there may be no simple way to reform Social Security, but the budget surplus, as has been suggested already, is a gift. It's an opportunity to go beyond the solutions of either raising already high payroll taxes or reducing benefits. We have an opportunity to use that, to couple that with fundamental changes to the system to give the American people better retirement options.
For the past three years, I've worked with my Democratic colleague, Congressman Charlie Stenholm of Texas, and with Senators John Breaux and Judd Gregg, Democrat and a Republican, to develop bipartisan Social Security reform legislation, and just in the last few days we introduced what we called the 21st Century Retirement Act.
I think it's -- well, it is, I think, the only bipartisan and bicameral proposal that has been developed, and it is also supported by a large measure of people in the private sector.
We concluded that increasing payroll taxes isn't the answer, because Social Security taxes are already very high. In fact, 71 percent of American workers pay more in payroll taxes than they do in income taxes.
Now, our plan would create individual security accounts, funded by using a very small portion of the current payroll tax to increase the savings for retirement. It promises a greater rate of return than the current system can deliver now or in the future. But our plan, very critically, also establishes a minimum benefit provision using the current system, the defined benefit system that we have today, which for the first time would guarantee that somebody who works all their life and plays by the rules will receive a pay-as-you-go defined benefit that keeps the recipient above the poverty level, and that is not the case today.
Now, the forum today is going to focus, as the President has already suggested to you, very largely on a major question, do we allow or require workers to invest for their own retirement, or do we entrust the government with that responsibility?
Now I have a bias, as I've already indicated, I think individual security accounts are the answer in terms of giving American workers direct personal control over their retirement, empowering them to take their own retirement into their hands. Individuals would be able to tailor the benefits for their own retirement needs, to build an asset that can be left to heirs. Individual security accounts are a bonus above and beyond the guaranteed traditional benefits. They provide an opportunity for wealth creation that's unavailable to most Americans today.
The alternative, having the government invest the Social Security Trust Fund, which will be debated today, and it's a good debate, but I don't think it addresses the central concern behind the calls for personal ownership, that is namely that Americans, individual Americans, should have a stake in the economy and more control over their own retirement benefits and the timing of when they retire.
The current system provides a statutory right to benefits, but Congress can change that at any time, and as you've heard would have to change it if nothing else is done to fix the problem, the underlying problem.
So, when you talk about security of the current system, it's illusory in the sense that you either have the political insecurity that exists today or you have some kind of an economic risk that exists.
Individual accounts offer workers ownership to constitutionally protected property. When I think of the options of allowing the government to invest the Trust Fund, I have four concerns which I just briefly want to share with you.
First, is it desirable for the federal government to become a large investor in the capital markets of the U.S.? The pressures to invest the funds for socially or politically desirable goals would be tremendous, and that puts at risk, not only the worker's taxes and retiree's benefits, but also the allocation of capital in our economy. And, even if we say that we wouldn't succumb to those temptations today, can you be sure that a future government, a future Congress, would not?
Second, when the Trust Fund's balance sheets depend on the performance of the market, keeping the stock market up will become an unavoidable aspect of the day-to-day economic decision-making in Washington.
Third, government investing of the Trust Fund balances, used to provide Social Security benefits, would cause risk to permeate the entire system, the system's solvency, the ability to pay Social Security benefits would depend on just how well the market is doing.
And finally, simply having the government invest in the Trust Fund surplus, invest the Trust Fund surplus rather than you as an individual, prevents you or I from selecting our own risk return profile. Some taxpayers, those, perhaps, very close to retirement, might find themselves inevitably, the government investing inevitably in riskier assets than they would choose to do if they had the choice of making that or changing it as they get closer to retirement.
So, in conclusion, let me just say it's my belief that the Social Security system that incorporates individually-owned personal accounts would resolve the conflicts associated with government ownership of private activities.
Moreover, the personal accounts would provide a mechanism for the working poor to accrue and transfer wealth from one generation to the next generation, a benefit that the current Social Security system does not provide.
So, I believe that any reform of the Social Security system that incorporates the concept of ownership of private equity should construct that framework to include individually-owned personal accounts.
ANNOUNCER: Thank you, Congressman Kolbe.
Ladies and gentlemen, it is my pleasure to welcome to the podium Representative Xavier Becerra from California.
REPRESENTATIVE BECERRA: Good morning.
Mr. President, thank you for taking the time to come to the beautiful state of New Mexico, and I say that as a proud Californian.
To my colleagues in the Senate and the House, I say thank you for being here as well to engage in this discussion. To the folks from the Concord Coalition, AARP, Americans Discuss Social Security, and if I may mention Mr. Adam Luna from the 20/30 Club, who was instrumental in making sure that the voice of young Americans was heard as well, I thank them as well for their tireless efforts to make sure that we discuss this as Americans.
My parents get a kick out of the opportunities I get periodically to be within ten feet of the President of the United States, and this is no exception. When they found out I'd have a chance to be here, they were as excited as any other time in their six years that they've seen me in Congress.
One thing that my father said to me was, "Xavier, we are ready to do anything we need to do. This country has been very good to us." And, what he said, I believe, reflects what I think most Americans believe, we are a people who have learned over the generations to experience and live with pain, but at the same time, and when its time, share in the gain. And, perhaps, no people better in the world, and, perhaps, in history, has found a way to both share the pain and share the gain.
Too often, we forget that one in six Americans will die before reaching the age of 67. We forget that some 98 percent of all of our children in this country can rely on Social Security if one or both of the parents dies. We don't know that three of ten Americans who are 20 years old or under will become disabled before they reach the age of 67, and, perhaps, even in New Mexico here we don't realize that there are some 30,000 children in the state who are Social Security recipients.
Social Security lasts from retirement until death. It accounts for inflation, and it helps people maintain a standard of living, and it makes sure that people who are in identical situations are treated equally.
Now, if I can just touch on one subject which I think is so important, because we will not resolve the yields of Social Security today, but there is something we can do this year, because Congress right now, in its efforts to formulate its budget for the next fiscal year, has an opportunity to do something that President Clinton said so succinctly, but yet so elegantly, way back in January. We now see budget surpluses, and we now hear talk of trying to use some of those surpluses for a number of things, including tax cuts, but if you take a look at that surplus that we have for this year of some 60 billion dollars you'll find that if you were to remove the monies that are collected for Social Security through payroll contributions by working men and women there would be no surplus in the federal budget. There would be a deficit of some $40 billion.
REPRESENTATIVE BECERRA: In fact, over the next ten years when we keep hearing how we'll have a $1.6 trillion surplus, all but two percent of that, two percent, some 40 or so billion dollars of that $1.6 trillion will be due to the reserves created by the working men and women of America contributing to Social Security and its trust fund, not because the rest of the government is balanced.
So, we have an opportunity today, this year, to do something the President said back in January. Before you think of tax cuts, before you think of spending more on other programs, save Social Security first.
REPRESENTATIVE BECERRA: And, by the way, that large surplus that's going to continue to grow some $600 billion today, which will grow to more than $3.8 trillion over the next 20 years, is no accident. Back in 1983, Congress had the vision to start looking for ways to raise more dollars for the future Baby Boom generation that would retire, because it was such a large group of people.
So, when we talk surpluses, we have to understand it's the working men and women's money that we are talking about, and if we are going to do anything with that surplus, that it is a Social Security surplus, it is to help Social Security.
Now, we can engage in change, and we must engage in change, because we know that we have to do something before the year 2032 or so, but our change can be constructive or it can be radical. No one deserves to get 75 percent of his or her benefits as we see them today, because no one bargained for three fourths of a benefit. That covenant we have with our government that says, we will invest through our contributions in a fund for our retirement, entitles those people to know that they will get 100 percent, if not more, of their money back, not 75 percent.
REPRESENTATIVE BECERRA: So, as we look at the various proposals, let me return back to my parents. My father, about a year and a half ago, underwent knee surgery to replace his kneecap, because he had lost all ability to flex his leg. He has tendons which are fused in his hand, because of the 30 to 40 years of work with a pick and shovel and a jackhammer, building the roads of America. My mother helped feed a countless number of women without husbands who had children, because the father had abandoned that family, and now, fortunately, after years of experiencing pain they are now realizing gain.
But, they have said to me what others, I believe, are saying in America, will we make sound investments with the future of Social Security?
I'm not interested in opening up the system if it will not protect everyone. I'm not interested in opening up the system if it doesn't tell everyone they are getting their money's worth, but we must open the system, and that's why we must have this debate.
My parents have experienced gain. They felt the pain, but I suspect every time they see my three young children, all under the age of five, they realize that it's important that as Americans we all be prepared to share in the pain, because it is the gain of those three young girls that I think most matters to their grandparents.
And, I must say, I see my parents in this audience, and I see my daughters in this audience. We are Americans, for years, for generations, we've learned to treat each other as family. We've learned to share in the pain, and certainly we'll learn to know how to share in the gain.
And, Senator Domenici, with all due respect to that good friend of your's who said that the power of compounding is the most powerful thing in nature, let me disagree and say the most powerful force in nature is the power of people, and it will be --
REPRESENTATIVE BECERRA: -- and it will be through the power of the people, the hearts of the people, but the minds as well of all the people, that we will make sure that Social Security today, and Social Security tomorrow, is as good as Social Security has always been in the past.
Thank you very much.
ANNOUNCER: Thank you, Congressman Becerra.
Ladies and gentlemen, please join me in applause for the President and our congressional presenters.
ANNOUNCER: The President and the Congressmen will return to the stage after our next session for the Town Hall segment of today's forum.
Ladies and gentlemen, we will continue with our program in just a few minutes.
ANNOUNCER: Ladies and gentlemen, the program will resume in just a few minutes. Please, take your seats.
ANNOUNCER: Ladies and gentlemen, we are about to resume the program. Please, take your seats immediately.
Ladies and gentlemen, it is my pleasure to introduce the moderator for the next portion of today's forum, Gloria Borger, Contributing Editor for U.S. News and World Report, and a CBS News Analyst.
MS. BORGER: Ladies and gentlemen, I'm delighted to be here today to moderate this third in a series of national forums on the future of Social Security, so let's finally get to it.
We are going to begin this session with a quick overview of Social Security, then we are going to focus on two specific questions about investing Social Security taxes in private markets. To guide us through these issues, we've invited several national experts to present their views and, of course, to answer your questions.
I'd like to introduce them to you right now. From your right, Bob Reischauer of the Brookings Institution, Carolyn Weaver of the American Enterprise Institute, Fernando Torres-Gil of UCLA, Michael Boskin from Stanford University, and Peter Diamond of the Massachusetts Institute of Technology.
First, for the overview of Social Security, I'd like to turn to Fernando, who directs UCLA's Center for Public Research on Aging, and he's also served as the U.S. Assistant Secretary for Aging.
MR. TORRES-GIL: Thank you, Gloria.
It's a pleasure to be here in New Mexico. As Gloria mentioned, my job is to provide a very brief overview of the Social Security system. I must say, however, I have a personal stake, I just turned 50 years of age, so I have two feelings. One, I finally feel like a grown up, but, secondly, I get to join the American Association of Retired Persons.
But, I note changes are afoot, and as I get older I'm reminded of a quote by Abraham Lincoln, "The dogmas of the quiet past are inadequate to the stormy present. As our case is new, so we must think anew and act anew."
And, as we consider options to strengthen Social Security over the long term, it's helpful to start with an understanding of the program's finances, and some background about how it fits within the broader picture of work, retirement and income in the next century.
As that very large Baby Boomer generation, of which I am a proud member, starts retiring around 2010, we will witness a major population shift. There will be more older people, and many of them will be spending longer periods in retirement. At the same time, there will be fewer workers per beneficiary to pay into Social Security. But, if people will be spending more of their years in retirement, they are going to have to be financially prepared or they may need to work longer. Yet, a larger proportion of older workers, particularly men, are retiring earlier than in the past.
Given both these trends, how will Social Security fit into the retirement picture in the next century? Today, it already provides a significant share of many retirees' income, for example, two out of three of them rely on Social Security for at least half their income, and for almost one third it represents at least 90 percent of their income.
Although many retirees rely on it, Social Security, as you know, was supposed to be a base on which we could build a secure retirement, along with pensions, individual savings, that three-legged stool, but as we can see it hasn't really worked that way because today's pension benefits are generally modest and individual savings are often small. Yet, if tomorrow's pensions aren't larger, and individual savings are not more substantial, many boomers will find themselves as dependent on Social Security as their older relatives are today, and that makes it all the more important for us to be here to discuss these issues.
For most of its history, Social Security has operated as a pay-as-you-go system. That means that current workers pay for current Social Security beneficiaries and the program keeps a small cushion. Social Security is financed largely from payroll taxes and from the federal income tax that some beneficiaries pay on their monthly Social Security benefits. Any money not needed to pay for current benefits is invested in special issue government securities. These securities or bonds earn interest, which is credited to the Trust Fund.
Today, the program takes in almost $100 billion more in revenue and interest than is needed to pay benefits, and will continue collecting more revenue than it needs for benefits for well over a decade. The program, however, faces two major milestones. Absent any change, by 2013, just 15 years from now, incoming revenue will no longer exceed the benefit obligations that are currently promised. At that point, Social Security will have to tap its interest and eventually redeem its bonds to cover the benefit obligations that are currently written into law, and by 2033 Social Security will have exhausted all its bonds.
While you will hear experts differ and disagree about how to deal with this problem, we all agree that the problem can be resolved and that the sooner we act the more moderate the solutions will need to be.
What can we do and what are these options for fixing the spending shortfall? In order to resolve that financial problem there are three broad approaches, reduce benefits, add revenues, or modify Social Security's current investment policies, and within these benefits and options there are many choices. Each of you has received this booklet outlining some of the features of the four benefit reduction and four revenue options. For example, raising the eligibility age, reducing COLAs, raising wages subject to the payroll tax, and each option lays out the current law, the pros and cons and a graph that shows how far a specific benefit would improve the long-range deficit of Social Security.
This booklet is only a starting point. There are many variations, and today we are going to focus on at least one or two of those options, one to invest the Trust Funds in the stock market, the other to consider individual personal accounts. While we are focusing on these two options, keep in mind that none of these options is a magic bullet, none of these options gives us a complete answer to the problems facing Social Security.
And, whatever options are ultimately considered, we certainly all have a stake in understanding the program and the financial problems facing Social Security, but certainly it affects all of us, young and old, regardless of income, and I might just add, for certain groups like minorities, women, persons with disability, and other persons with low income, they have a particular stake in the outcome of our deliberations. But, if we plan ahead and think anew, we can certainly maintain the principles of Social Security and respond to the changes facing our great nation.
MS. BORGER: Thank you, Fernando.
Let's move right along and talk about whether we should invest those Trust Funds in the stock market. Bob Reischauer and Carolyn Weaver have very differing points of view on that. Why don't we start with you, Bob.
MR. REISCHAUER: Well, thank you, and it's certainly a pleasure to be here.
Many workers, particularly younger ones, are worried that they may not be getting a very good return on the Social Security taxes that they are sending in each year. They wonder whether there isn't some other type of pension system that could give them a better payback.
The answer to their question, of course, is yes, a reformed and strengthened version of the current system can give workers better returns than those that the current system offers, and, in fact, than any other of the proposed systems could offer.
To see why this is the case, let's look at the three reasons why returns on Social Security taxes are relatively low for today's workers. The first reason is that a portion of our contributions, about $1.00 out of every $4.00, goes not for retirement purposes, but rather to provide disability and survivors insurance. Just like the fire insurance we all have on our homes, none of us should want to have a high return on this portion of our tax payments.
The second reason why future returns are low arises because most payroll tax dollars that we send in to the Treasury for retirement purposes are used immediately to pay benefits to current retirees, our parents, our grandparents, our great-grandparents. This practice dates back to 1939, when Congress decided to pay relatively generous benefits to those who had contributed payroll taxes for only a part of their working careers. This decision was a correct one, and it allowed many of these older Americans to live independently with dignity, which really benefitted all of our society. But, it also meant that younger workers' contributions were not building up as reserves that could support them when it came time for them to retire. The result is this so-called unfunded liability, that is the promises that Social Security has made to pay benefits in the future that aren't matched by reserves. This unfunded liability, which is inescapable, will reduce the returns workers can expect on their contributions, whether we retain the existing system or we choose to privatize it.
The third reason for relatively low returns is the requirement that Social Security reserves be invested in safe but low-yielding government bonds. This restriction mattered little until recently, because Social Security had so little in the way of reserves to invest. But, after 1983, the reserves began to grow, and now we have $725 billion in reserves, and this is going to grow to about $3.7 trillion by 2020, so it makes a whole lot of difference what we invest those reserves in.
Under the current law, as I said, they have to be invested in government bonds, which are expected to yield only 2.8 percent more than the rate of inflation in the future. Investments in a diversified portfolio of common stock, corporate bonds and government securities could double that, as Senator Domenici told you. So, why don't we invest the growing Social Security reserves that way?
I think to answer that question we should go back to 1935 and ask, why did Congress put restrictions on what Social Security could invest its reserves in? It had two reasons. One was that it was looking at the economic conditions of the time, and at that time, in the midst of the Depression, very few people wanted to put their retirement nest egg in the corporate bond market or in the corporate stock market.
The second, and more important, concern of Congress was that politicians like themselves might be tempted to use reserve investment policy to interfere with the market or to meddle with the activities of private business, and Senator Domenici and others have expressed that concern as well.
Those concerns in 1935 were certainly legitimate ones, but conditions have changed. The stock market and bond market are less volatile, larger and more efficient now than they were in 1930, and, furthermore, we can establish new institutions that can shield Social Security reserve investment decisions from political interference. This responsibility should be put in the hands of an independent entity, patterned after the Federal Reserve Board. It would have members who were chosen for their expertise for long terms, ten-year terms of office. The Board would be charged with selecting private sector fund managers, through an open and competitive process. These fund managers would be required to invest Social Security's funds passively in stocks and bonds that reflected the broadest market indexes.
Switching from holding solely government bonds to holding government bonds, stocks and corporate bonds, is one, but not the only, step necessary to reform and strengthen the Social Security system. It would give participants in the program a more equitable share of the benefits that increased reserves provide to the overall economy. Such a change would improve the returns today's workers would get on their contributions, without exposing them to the market risks and high administrative costs that would come if such investments were made through the individual accounts of a privatized system.
MS. BORGER: Now, Carolyn, I take it you'll disagree with that.
MS. WEAVER: That's correct.
Thank you, and it's an honor to be here today.
To the question, should the Trust Funds start investing in the stock market, my answer is a resounding no. American workers already pay more in federal income taxes -- pardon me, more in Social Security taxes than in federal income taxes. Asking them to pay even more so that the government can dabble in the stock market, to the tune of a trillion dollars or more under one leading proposal, would impose enormous risks to taxpayers under the ownership and competitiveness of American companies.
Meanwhile, letting the government invest in stocks would do nothing to ensure that promised benefits would be paid, that rates of return would be improved, or even that the monies so invested would be there when you retired. Workers would not own these stocks.
In the limited time I have, I'd like to stress three main points. First, unless this is carefully defined and limited by Congress every aspect of every investment decision, including who to name to the investment board, which stocks to buy, when to buy and sell, and how to exercise shareholder rights, would tend to be based on political rather than economic factors. Investment returns would suffer, as would the allocation of capital in the economy.
Second, suggesting that a set of rules can be designed to prevent Congress from tampering with the funds is a far cry from getting Congress to actually impose those rules and live by those rules. There is simply no way for the Congress to commit to living with a passive or neutral investment strategy on a sustained long-term basis.
Third, stock market risks are stock market risks. Centralizing them, sharing them, spreading them, or an otherwise socializing them, does not make them go away. The great unanswered question is, who bears these risk if not Social Security taxpayers?
As a starting point, imagine a set of public officials trying to figure out how to invest a trillion dollars or more in corporate stocks, with as much money at their disposal as the largest professional money managers in the nation. One can easily imagine the pressures that would come to bear to ban investments in, say, tobacco companies or companies moving plants abroad, or to funnel monies into politically-favored companies, perhaps, those deemed to have favorable work conditions.
Proponents concede that barriers would need to be erected to ensure that investments were completely neutrally invested, but they understate the political and economic risks that would remain.
First of all, what stock index would they invest all this money in? Using one popular index, the S&P 500, would funnel hundreds of billions of dollars into large companies, ignoring small companies, start-up companies and the millions of small enterprises that do not issue stocks.
Second, would the government really stick with an investment policy on automatic pilot, sitting back and watching, as would be necessary, as millions of dollars poured into companies without regard to who is polluting what, who has been convicted of what violations of the law, who is being sued by the federal government, and who is operating in a country with offensive human rights or dangerous nuclear weapons policies? It seems highly unlikely to me that Congress would sit by passively and watch those monies be funneled in that way.
Then, there's the all-important issue of stock market risk. Critics of personal accounts say that stock market prices are risky and suggest that somehow miraculously these risks would either be absent or much lower with centralized investments. The relentless truth, however, is that risks are risks, and centralizing them does not make them go away. If the market experiences a sharp or sustained drop in equity values, would taxes be raised or benefits be cut to make up for lost revenues?
Proponents have failed to tell us just what changes would be made in the event of unexpected stock market performance. Importantly, the only way the government can reduce stock market risks for an individual is to shift it to somebody else, and who that is we just don't know.
Finally, there's the argument that administrative costs would be much lower if the government did the investing for us. This, to me, is a bit like saying that groceries would be a whole lot cheaper if you didn't mind buying them at a huge centralized warehouse, where the government decided which groceries to stock, but wouldn't tell you in advance whether the ones you wanted would be there, and the warehouse would offer no rain checks, there would be no need to because you would have no ownership rights to those groceries. To say that groceries would be cheaper at the warehouse is hardly an argument in preventing you from shopping at your neighborhood grocery and buying whatever you please.
In closing, if the nation is interested in moving toward a saving-based system, where we set aside real resources that are saved and invested, there is a far better way to do it, through personal retirement accounts that workers own and are fully funded with their taxes. With these accounts, like 401(k) plans in the private sector, we would be sure that the monies set aside were there, period, and the ownership and control of American companies would be undisturbed.
All workers, rich and poor alike, would be given the opportunity to accumulate real wealth shielded from political manipulation.
MS. BORGER: Thank you, Carolyn and Bob.
Now, finally, we are going to hear from the audience, and we've asked Susan Dentzer, a Correspondent for the Lehrer News Hour on PBS, and Matt Miller, a Senior Writer for U.S. News and World Report, to help us gather your questions.
Before we start, I'd like to reiterate that the center audience section here has been selected by an independent research firm to reflect the demographics of the city of Albuquerque.
Susan, do you have a question for us?
MS. DENTZER: Gloria, I am here with Jennifer Palmer, a generation X'r, age 24, lives here in Albuquerque, who has a question for Bob Reischauer.
MS. PALMER: Yes. I was wondering what kind of guarantees can you offer should there be a loss in the market?
MR. REISCHAUER: Well, the Social Security system would be investing for the long run, and the benefits in the Social Security system would be, as they are now, determined by the number of years you worked and how much taxes you paid in. They would not be affected at all by the ups and downs of the stock market.
The ups and downs of the stock market would determine, in the future, how much we had to cut benefits over a long period gradually or raise taxes.
Unlike a private account, where you do have ownership, as Carolyn mentioned, when the stock market goes down that means your pension goes down. In a Social Security Defined Benefit system, that isn't the case. We, as a society, decide how the adjustment, if one is needed, should be handled. Should we raise taxes? Should we cut benefits? Should we wait and see? But, the individual would not have any immediate risk.
MS. BORGER: Carolyn, too much risk?
MS. WEAVER: I think you've failed to answer the question that's been asked, which is, how do you hold onto that defined benefit structure? How do you guarantee that those benefits can be paid, even if investment earnings are much lower than you anticipated, and that's the great unanswered question.
MS. BORGER: Matt Miller, do you have a question for us out there?
MR. MILLER: Bennie Martinez has a question for us. Stand up, sir, please.
MR. MARTINEZ: Thank you, for Mr. Reischauer, the Congressman from Arizona said that if we went into the private investment system that the returns would be so great as to raise the recipients above the poverty line. Given that in New Mexico the minimum wage is only $5.25 and the salaries in are not that high, the fact that persons would invest only a small percentage of what they contribute to Social Security, would the return be great enough to guarantee them that type of income after retirement?
MR. REISCHAUER: Well, the particular plan that the Congressman has endorsed would have a guarantee in the long run of a poverty level benefit, but what one has to keep in mind is that the poverty level each year is adjusted by the increase in inflation, but the average income in America is rising faster than inflation, about one percent a year faster than inflation.
So, 40 years from now a poverty level guarantee will look awful small compared to what the average worker is receiving. So, while that sounds like a good deal now, it won't be a very good deal at all, and sticking with a defined benefit program, like the existing Social Security system, if you are an average wage worker you will be receiving a benefit well above the poverty level, because average wages will have risen so tremendously over the next 40 years.
MS. BORGER: Susan, can we take one more quick question?
MS. DENTZER: I'm here with John Price, 32 years of age, who has a question for Carolyn Weaver.
MR. PRICE: Yes, Carolyn, I was looking at your transition over to private accounts. If I understand Social Security correctly, the current payments are what's funding the current recipients. How would the transition take place if you were to strip those funds that are currently going into the system and put them in private accounts?
MS. WEAVER: That's an important question, and I would note that it's one that is confronted whether you do centralized investment or whether you do personal accounts. In both cases you need to generate additional funds that are actually saved and invested, and that you can't get away from that with either of these proposals.
There is the transition issue that comes from the fact that we have pay-as-you-go financed benefits and a large outstanding liability, such as Senator Domenici mentioned this morning, and it's clear in order to generate additional funds you either have to trim benefits or raise taxes.
Some would go outside the Social Security system to generate additional funds, some would limit those changes to those within the system, as the legislation previously described.
MS. BORGER: Now I'd like to turn to our other two experts to talk about those private accounts and whether part of our Social Security payroll taxes should go into private accounts.
Let's start with Michael Boskin.
MR. BOSKIN: Well, obviously, I'm the pro, I think that it is vital that one pillar of a strengthened, reformed and improved Social Security system for the 21st Century involves a system of individual accounts, whereby each and every individual has an account, a defined contribution account that they can invest under some prudent rules and regulations in private financial markets that can accumulate and grow and use that magic power of compounding over a span of time, so that when they reach retirement they will have many tens, perhaps, hundreds of thousands of dollars in those accounts for the average worker, and for lower income workers still a substantial amount.
Currently, about one third to one half of people show up at retirement with almost no financial assets. Who here owns almost no -- who here does not have a large amount in stocks, private stocks and bonds, raise your hands, please. You notice that's almost the entire audience here. So, the fact of the matter is, it makes no more sense economically or, in fact, morally, to have a large fraction of the American public outside our financial market sharing in, investing in, and owning part of the American economy than it would if we would disenfranchise that large a fraction from the labor market. That would be even more outrageous. So, it's vital that we do this.
There are three major reasons that I want to emphasize. One is the relationship between economic growth and Social Security. Private accounts done properly would increase the savings, particularly of low and low/middle income people who do very little private saving now. That would help the economy grow.
The problems described earlier about the long-run financial problems of Social Security may well be more severe than the impression that was left. If we have to raise payroll taxes 50 percent for Social Security, and an analogous increase for Medicare, we will have payroll tax rates that rival those in Western Europe, and we'll very likely have an economy that has stagnant growth and massive unemployment as in Western Europe. That, in turn, means that the amount of revenue that's generated is too optimistic in these projections, so I think we have a lot at stake. Social Security is our largest, most successful, most important program. We have a lot at stake in fixing it, but how we deal with this will be vital to the future of our economy.
That also means, by the way, that all the proposals to lower and reform taxes in a sensible manner, to reduce the burden of regulation, litigation, market-based reforms in education and job training, strengthening the open rules based trading system, all those things which will strengthen the economy as we go forward also will greatly reduce the problems we face in the future in Social Security, financially and otherwise.
So, the first is to strengthen the economy because it will increase private savings, particularly for those who save very little today.
The second is, it will be enormously beneficial and relieve future pressure on Social Security if more and more people have additional private assets as they approach retirement.
Third, there is the very strong moral case I made to make all Americans owners of and participants in our capital as well as our labor markets.
Finally, I'd like to say that there are lots of people who try to scare people about individual accounts. It will undermine the defined benefit system, people won't have anything when they retire. It's too risky. People won't know what to invest in. It's too costly. All of those, in my view, amount to something like scare mongering, all of those issues can and would be addressed. There would be prudent rules about what you could invest in. There would be a sensible division among private financial institutions, employees, employers, and the government about who was responsible for setting up the accounts, maintaining the accounts, auditing, reconciling, reporting, investing, trustee, legal and so on.
It is my own view that taking advantage of this power of compounding is enormously important. Every serious proposal would have the following archetype. Take a small percentage, say two percentage points or so, of the payroll tax or of general revenues, including from the projected surpluses, and put it into an individual account for people, maintain the current system so that there is negligible or nil impact on current retirees, and gradually, over a long span of time, have that magic power of compounding help the individual account become a larger part of the retirement income security of those in the future.
It's my own opinion that this is vital. It will, however, not be sufficient. We will have to do some of the things that are outlined in those options books you have that deal with other aspects of the system, on retirement, on benefits and so on, but we can come up with a sensible package and we need to do it, hopefully, next year, but soon for two really important reasons. If we do it now, we'll leave people lots of time, younger workers and middle-aged workers, time to plan and adjust without making any changes for the elderly, and secondly, if we do it now or very, very soon we'll do it in an environment where we don't have to have wrenching increases in taxes or radical reductions in benefits, and we will strengthen our economy, continue to make it grow. We will be in a situation where we can have all Americans participate in the strength of the American economy and not be dependent on the government. Those who argue we can rely just on the current system, or investing the surplus in equity markets, I ask you how many of you believe that the government can run trillions of dollars of surpluses, invest them wisely, not try to dominate corporate America, not try to make politically motivated investments as has happened in Japan and Indonesia, and leave you with more when you retire? Raise your hand if you believe that. That's one person in the audience.
Thank you, end of case. Peter, you are the second person.
MS. BORGER: I think Peter Diamond may believe that. So, why don't we let Peter respond.
MR. BOSKIN: Thank you very much.
MS. BORGER: Why don't we let Peter respond to Michael.
MR. DIAMOND: Thank you.
It's an honor to be here. The good news is that I'm the last speaker before the extended question periods.
As the third questioner, the last questioner, clearly understood, and you all understand, every dollar that is deposited in an individual account must come from somewhere. Every dollar deposited is one dollar less in the Social Security Trust Fund. For each dollar deposited then, someone must give up some Social Security benefits.
So, the question is whether it is better to put that dollar in an individual account or to use that dollar to strengthen Social Security. Using it to strengthen Social Security gives a higher return, a safer return, and a more equitable Social Security.
First, let's start with the costs. Creating individual accounts would obviously increase costs. Keeping track of 140 million accounts costs a whole lot more than a single trust fund. The standard estimate is that private firms would charge individual accounts one percent of the assets that they were managing. One percent doesn't sound like much, but this charge would be made every year, so a dollar that you deposit at the start of your career would be charged one percent 40 times by the time you retire.
Considering all of the charges over a 40-year career, one percent per year lowers benefits at retirement by nearly 20 percent. This is very important, so let me say it again. Individual accounts make the benefits financed out of the individual accounts 20 percent lower than could be financed by direct Trust Fund investment.
MR. DIAMOND: There is a cheaper way to organize individual accounts, and that's to let the government organize it. To such accounts receiving, say, two percent of payroll, my best guess is the cost will be lower, around eight or nine percent, rather than 20 percent. The Social Security Administration's costs then would be roughly triple what they are now.
In addition to costs there is the issue of risk. With individual accounts, workers investing in stocks must live with the ups and downs of the stock market, and some workers will have the shock of retiring just after the stock market has had a dramatic drop. If the Trust Fund holds the same portfolio as individual accounts, then the stock market risk can be spread more widely. Yes, as Carolyn Weaver said, the risk doesn't go away, Congress has to do something about it, but when the market would have cut your benefit is the time when Congress has to think about, now how do we spread around cutting the same benefits. The benefit only comes if the market would already have lowered benefits.
If the Trust Fund is not allowed to hold stocks, then individual accounts would have somewhat better investment opportunities, but would still have the costs and the investment risks.
If we have individual accounts, workers make investment decisions. Tens of millions of workers have never bought a share of stock. Surveys show that people are not generally well informed on the principles of investing. It would be irresponsible to arrange for workers to make choices without giving them enough education to make good choices.
People do not get educated just by mailing them a pamphlet. Providing education that works would cost a lot, reducing benefits by much more than the eight to 20 percent reductions I have described.
You've heard concern about what future Congresses would do if there were Trust Fund investment in the market, but there are also important political concerns about what future Congresses would do if we had individual accounts. Let me identify some of the most important.
In addition to retirement income, Social Security provides benefits for children who lose a parent and for the disabled. While there is lots of time to save for retirement, the risk of disability or death for a young worker requires insurance, since savings wouldn't have enough time to be large enough. Creating individual accounts puts the level of these insurance benefits at political risk.
It's not necessary to reduce these benefits, but that might be, and I suggest is likely to be, the political outcome. For example, many proposals use the same formula for disability benefits and retirement benefits. So, when retirement benefits are reduced, in order to finance the individual accounts, with the individual accounts supposed to cover that for the retirees, well, disability benefits are cut too, because it's the same formula, only the disabled haven't saved much in an individual account.
Even though the rules of Social Security are the same for men and women, the rules provide very important protections which tend to benefit women, protections that might be weakened by having individual accounts. Workers with low earnings receive a better rate of return on their taxes than do high earners, and women tend to have lower earnings than men. Men and women who earn the same amount receive the same benefit each month, and women tend to live longer after retirement.
There are survivor's benefits, and women are more likely to outlive their husbands than men are to outlive their wives. There are benefits for divorced spouses, and divorced women are much more likely to have low earnings and so collect these. Also extremely important is the fact that benefits are adjusted for inflation. The adjustment for inflation is more important the longer you live, and women tend to live longer after retirement.
Would such protections be preserved with individual accounts? Maybe yes, maybe no. That's the source of political risk. Let me give you a couple of examples. In the private market, high earners with larger accounts get a better rate of return, just the opposite from Social Security. Some proposals would allow a worker to spend all the money in the account, leaving the surviving spouse with nothing from the account. Most proposals I've seen don't say a word about divorce.
In conclusion, rather than helping with financing retirement incomes, individual accounts are expensive and cause lower benefits. Individual accounts put more investment risk directly on workers. Individual accounts introduce serious political risks, particularly for children losing a parent, for the disabled and for women.
Individual accounts are a source of new problems, not a solution to our current ones.
MS. BORGER: Now, I see Michael Boskin is shaking his head. I'm going to go to Matt first for an audience question, then maybe we can get into it in the panel a little bit.
MR. MILLER: This may fit together, I think. We've got Dale Hanson, who has got a question, I think, for Michael Boskin about the potential role of Wall Street in all these potential moves.
MR. HANSON: Well, they covered both my questions pretty good, but my first question is, right now Social Security is operating with an administrative fee of about one percent, what do you see privatization doing to that one percent, taking it to what percentage of cost?
MR. BOSKIN: Well, first of all, if individual accounts were established, there are many alternative mechanisms and probably over time you might start by the government doing some things and then farming it out to financial institutions, but I believe the costs would rise and I believe it will be necessary to have the government set up a rule that the costs would have to be uniform precisely to deal with the issue of the high burden on low earners and low contributions for any fixed charges.
However, I do want to stress that many of the other criticisms that Peter Diamond mentioned are much more valid criticisms if we are talking about junking the Social Security system completely and moving all the way to private accounts. What's being talked about by almost everybody is maintaining all or much of the current system for a very, very long time and setting up a system of small individual accounts that can compound and grow for people your age and below over time.
MS. BORGER: Bob Reischauer wants to get into the argument here.
MR. REISCHAUER: Yes, just to add a little bit to what Mike said. We would have duplicative administrative costs. He said most of these plans have private accounts, they retain some Social Security type things. Then we have disability and survivor's insurance. And so, we would have a whole four different administrative costs to bear.
Right now, they are all put together, disability, survivor's insurance and retirement benefits, in a coordinated kind of way that has to be the cheapest administrative way to run our system.
MR. BOSKIN: But, nobody is talking about ripping the disability and survivor's part out of Social Security. Every proposal just takes a part of retirement and moves it out, so I think it's very, very unfair to talk about the administrative costs as if we are going to greatly increase administrative costs doing that. There's the incremental administrative costs of the individual accounts which is a legitimate concern.
MS. BORGER: Let's go to our audience for a minute.
MS. DENTZER: I have Ipa Machkia here, who is 41 year's old. She has a question for all the panel.
MS. MACHKIA: My question is that it sounds like it's going to cost billions of dollars to make any kind of reform, and at this point I'm wondering why can't we have a program that takes into account the things that people maybe need.
Everyone here is different, we all have different needs, okay, and most of us, most of us need education and our children need education about this system. I know my children did not even hardly learn how to balance a checkbook in school so we need to really back up a bit and find out where is that money coming from to change this system? Where are we going to educate? How are we going to educate? How much is that going to cost us, and how that individualizing the system for the people who need disability, SSI, all those different programs will come into play?
MS. BORGER: Let me start with Carolyn Weaver, would you like to answer that?
MS. WEAVER: I'm not sure I know precisely what aspect of this you are concerned about, but certainly any role for personal accounts would involve a significant education effort, not the least of which would be stemming directly from the financial institutions that would be offering funds, no doubt the mutual fund industry, for example, which already provides a low cost way for ordinary men and women to participate in the stock market in a highly diversified manner.
What we see is that with more education and more experience workers at all income levels make better investment decisions, so certainly that would be an important part of any kind of reform along those lines.
MS. BORGER: Fernando?
MR. TORRES-GIL: I think the question also raises a much larger issue, Social Security and these options today are critical and we are going to focus on them, but we can't divorce ourselves from the larger reality that we have to ensure we have a literate population with good education, public education or private education, and if we take as a given that we are going to live longer, and I suggest as a gerontologist we assume we are going to live to be 100 years of age and plan accordingly, then we should be teaching in primary and secondary levels, in middle schools, in high schools, young people about aging, demographics and the complexity of how we are going to handle the long life span, including Social Security and any of these options. Unless we start then, any proposals may or may not work because people will be vulnerable.
MS. BORGER: Matt, we have one more question?
MR. MILLER: From Jeremy Bowman, who is 25.
MR. BOWMAN: For the members who think that something like private accounts aren't a viable option, I'm just kind of curious what do they think, something has got to give, what do they think is a better answer? I mean, do we increase the age at which you can receive your benefits? Do we decrease the amount of benefits we are going to get? I'm just curious.
MS. BORGER: Well, let's direct that, perhaps, to Peter Diamond.
MR. DIAMOND: The central thing to keep in mind is, since private accounts have more administrative costs than direct Trust Fund investment, whatever financial problem we have to deal with with these other responses when we have direct Trust Fund investment you have a larger problem to deal with with private accounts.
Private accounts do not make that financial difficulty go away. They help because you get better investment, that's all, they don't make the whole problem go away.
Direct Trust Fund investment is another way of accessing that same additional source of revenue and accessing it with a higher rate of return. One percent per year higher rate of return, you've heard repeatedly the magic of compound interest, the bigger the interest the bigger the magic.
MS. BORGER: Well, that will have to be it for this portion of the forum. I'd like to thank our audience and, of course, our panel for participating in this second session. I hope it's been illuminating.
MS. BORGER: After a very brief break, you'll have a chance to question President Clinton, members of Congress and our experts will be back as well.
Thank you very much.
ANNOUNCER: Thank you, Ms. Borger.
Ladies and gentlemen, we will resume the program in a very few minutes, with the Town Hall segment of our forum, with President Clinton, our panel of experts, congressional representatives and citizens. Please stay in your seats.
MS. BORGER: Thank you. I'll be asking some questions today, I'll be taking questions from the audience, along with Matt Miller and Susan -- who are out here with me. But I guess I'd like to take the moderator's prerogative to ask the President the first question, and it's about an interesting poll that appears in USA Today this morning, Mr. President, in which voters said -- two-thirds of the voters said that they liked this idea of private investment accounts, but most of them also say that they don't want the government investing their money for them. So how do you explain that?
THE PRESIDENT: Well, I think there are a couple of explanations. First of all, we live in a time where people are using technology to become more and more self-sufficient and to get more and more information directly. I mean, the Internet is the fastest growing communications organism in human history. So I think that's first.
Secondly, I think there's always been a healthy skepticism of government. And thirdly, the government hasn't been in very great favor over the last 17 or 18 years, although it's doing better now than it was a few years ago.
Now, I think -- in public esteem -- all the surveys also show that. I think the real question is, from my point of view, we ought to get down to the merits of this. The first question you have to ask yourself is, should a portion of the Social Security tax funds go into securities, into stocks. And if they should go into stocks or into corporate bonds, should that decision be made according to individual accounts, or should they be invested en masse either by the government or by some sort of non-profit, non-political corporation set up to handle this.
And I think there are genuine concerns. For example, if the government did it and they invested the money in stocks, would private retirement funds just have to make up the difference by buying government bonds, or would there be no aggregate increase in saving or investment in the country? Would it give the government too much influence over any company or any sector of our economy?
But I think most people just think if there is going to be a risk taken, I'd rather take it than have the government take it for me. I don't think it's very complicated, so I think that those who believe that it's safer and better for people to have the public do the investing -- or the government do the investment -- have to bear that burden. Those who favor, by the way, having individual accounts, have to ask what happens to people who happen to retire after the market has gone down for five years. So there are problems with both approaches -- and benefits.
AUDIENCE MEMBER: If individual accounts are set up, for many they will be come exhausted either by old age, bad investments, or downturn in the market, or all three of those things, but they won't last forever. Will there be a guarantee of current benefits by the government? If so, what problem have we solved, or have we simply created another problem? If not, are we simply creating a system that is inevitably going to plunge a lot of very old people into poverty?
THE PRESIDENT: Well, why don't we let -- I think those are good questions, but I think there are answers to them. And maybe I should let either Dr. Weaver or Professor Boskin answer, and then if I want to add anything, or any of the members do, we can.
MS. WEAVER: I'll just make an initial reaction, which is, as to the accumulation not lasting forever, presumably, you mean there that the individual has chosen not to purchase an annuity. And in most of the discussions about personal accounts, there have been concerns that at least a portion of those accumulations be converted into some type of annuity or withdrawn on a phased basis to ensure that the individual does not exhaust those funds.
MR. BOSKIN: That's exactly correct. Just for those of you who don't know the term, an annuity is an annual payment, perhaps monthly, that goes on for the rest of your life. And for families, there would probably be joint survivor annuities. And most of these proposals would require or strongly incent people -- once they've accumulated their private accounts, when they start taking it out - to maintain an amount that's sufficient for them over their time period.
Now, it is important to understand that as this is going on you can't maintain the current system not only for the current retirees, but for people who are now just being born and people who are 10 and 20 years -- pay all those benefits plus the individual accounts. We're trillions and trillions and trillions of dollars in the hole if we do that.
MR. DIAMOND: I'd like to add something to that if I could. If individuals when they retire go to an insurance company and buy an annuity -- that's a promise that the money will last forever - the first question is, will they be able to buy annuities that keep pace with inflation? Will they choose to, or might they be required to, and what will this cost? We talked earlier about the cost in the accumulation process. And I talked about 20 percent decrease in benefits from the cost of accumulating.
There's an extra cost in paying the insurance companies over and above what they will pay back for buying annuities. The current best estimates of that cost are an additional 10 to 20 percent on top of the 20 percent cost of the accumulation. So that solution has with it a cost element. There's also the question, will future Congresses, when people are clamoring to get early access to their money after they've retired, will future Congresses continue to require everybody to buy these annuities? Maybe yes, maybe no. That, it seems to me, is a major political question.
SENATOR DOMENICI: I think maybe this is a time to clarify something, to qualify something. The question gets asked, what happens if the stock market busts. And we've had a few of those; the others have been ups and downs. I think anybody who is seriously proposing individual personalized accounts is talking about a very long-term investment. The senior's who are currently on retirement and those close to it are going to be protected, without any question.
One of the guidelines that probably would be imposed on a firm who was going to take money and invest it would be that in the last five years, or maybe even the last seven years prior to retirement, that they would be required to make a completely different investment at that time, versus what they had been making for 30 years. I think most people assume at that point the investment for the remaining years would be in much less risky accounts of one kind or another. And I know that's in Dr. Martin Feldstein's plan, that you would not get a downturn at the end because it wouldn't be invested in that kind of stock.
MR. BOSKIN: One fact is worth mentioning here. Following up on Senator Domenici. If you take any 30- or 40-year period in American history, in the last 100 years, and people had invested all or a sizeable part, or half of their investments and equities year after year, as opposed to in bonds, even if the year they retired was the year of the 1929 stock market crash or the much more mild 1987 stock market crash, they would have had accumulated vastly more than if they had been investing in bonds. And we had the issue of education come up earlier. The least literate investment policy is to have the trust funds be 100 percent in government bonds.
AUDIENCE MEMBER: I just wanted to ask some of the academic experts if there was enough information available on some countries that have already tried this? For example, I hear about Chile and Australia. What has been the experience in those countries both in terms of the costs and the benefits and the risks of setting up private accounts, and also in the sense that I've heard, for example, in Chile, of letting the popular people engage in the capital markets and giving them a greater sense of participation in the capital markets -- not just the wage labor markets.
THE PRESIDENT: I would invite everybody to comment on Chile and Australia and maybe on the UK and now on Canada, since Canada is investing the money directly. And maybe if you all could give us whatever information you have about that -- in whatever order.
Jim, do you want to start?
REPRESENTATIVE KOLBE: Well, let me just start off by saying, yes, Chile is kind of the grandparent of all of this. They started - they were the first to do this, although Britain also did it just about at the same time. Very different kinds of systems. In Chile, they went to total privatization, which is very different than any plan that I've heard seriously talked about here -- that we're talking about where it's a very partial or very modest part that would be invested in individual accounts or that the government would invest on its own behalf.
The success has been good in Chile, although they've had a bad economy, thanks to the copper prices in the last couple of years. And so the investments haven't done as well. But they have, over the last 18 years, done quite well.
In Britain, they have been very pleased with it. Australia has been very pleased. You also now have Mexico, and most of Latin America now has followed Chile's lead and gone into a system of individual investments, individual accounts.
You have to remember, though, in Chile, where they went the whole way, that the benefits the people would get from the system in Chile before they went to this were so minimal, it wasn't very hard for them to say, I'll take the risk and give it up because they really weren't giving up very much.
MR. DIAMOND: Mr. President, let's start with some of the numbers on Chile. Ten percent of payroll goes into your individual account, and you have to pay on top of that an additional amount to pay for disability insurance, to pay for survivor insurance, and as a commission to the firms that are accumulating that money.
The commission is about 2 percent of payroll, or about 20 percent of what goes into the account. It's like a front load of 20 percent. And the one percent number, that's a typical mutual fund number here -- one percent per year over a 40-year career is like 20 percent collected up front. So the costs in Chile are high. In Chile, they're very concerned about the costs. The regulator has just changed some regulations hoping to get the costs down. It hasn't happened yet. The people are certainly enthused about the system -- what they had before, as you said, was a disaster. They had 24 separate Social Security systems, very high administrative costs, better systems for white collar workers than blue collar workers, the kinds of mistakes that our system has avoided right from the beginning. The rate of return was very high, but for the first five years, all of the money was 100 percent in government bonds or government-owned bank accounts. So the rate of return was high, because all interest rates were high. It wasn't wonderful investment skills.
In Britain, which is a voluntary opt-out system -- people say, well, the costs are high in Chile, maybe it's bad regulation, maybe it's an underdeveloped country, so let's look at Britain. The costs in Britain are noticeably higher than the costs in Chile. And in Britain, since it was a voluntary system, the various insurance companies, banks, and mutual funds that were hoping to handle this money, were very active in convincing people that it was a good idea to opt out and particularly a good idea to come to them. In the British press this is referred to as the mis-selling scandal, and there are billions of pounds that these firms are going to repay because of a violation of the general fiduciary obligations of the firms.
Australia -- if you'll excuse my running on, but I've written about all of these countries, and you know what an academic is like on something he's written on. In Australia, the mandate is not on the worker. The mandate is on the employer. Every employer must set up a system. The employer can set up, if the employer has a large enough defined benefit system, the employer doesn't have to do anything. Otherwise, the employer has to set up a defined contribution system, get trustees to run it. Some of them give the workers no choice at all, the employer picks the portfolio. Some of them, the workers get choices similar to our 401(k)s.
For low-paid workers, small employers, they've got a major problem. The costs of running the small accounts are very large. The costs of running the accounts from the large employers are reasonable -- a bit less than the one percent a year are the numbers I've seen, but then, they're getting the economies of scale from the large employers.
So all of these countries are showing high costs and that problem, it seems, is pervasive. In Australia, they haven't put in any regulations requiring people to slow down the spending of the money. So in Australia they can run through the money right away and start collecting from the government for the poverty support, or they can run through it and a survivor can be left with nothing other than the government money.
REPRESENTATIVE BECERRA: I must just caution, in looking at other countries, it's useful to see how they do, but in the end we have to remind ourselves the United States of America is a far different country than any of the others. We're larger, we're more diverse, we have a different political system, and we have a different history with Social Security. So, ultimately, what we do has got to be a unique, American solution.
MS. WEAVER: I would certainly agree with that, but Peter seems preoccupied with costs and I think it's worth elaborating on the benefits. Certainly in the Chilean system the benefits are broadly perceived to have exceeded the cost. Clearly, when you have to purchase your services, whether from mutual fund or any other private service, you have to pay for those costs. And the costs are generally believed to have been well exceeded by the benefits, at least by the Chilean people.
As you may know, every Chilean worker that participates in this system has their own passbook. They know precisely what they own, what they're accumulating for retirement. They can go to a machine that will tell them how they can adjust their savings and adjust their retirement date, so there are many other benefits worth thinking about.
Just another quick point on the mutual fund fees. Peter has said several times today about the 100 basis points for a typical mutual fund. If you get into a nice broad-based indexed equity fund, for example, you would be looking at fees of 20 to 30 percent of that.
AUDIENCE MEMBER: Everybody here has been talking about the fees associated with the privatization and the individualization of accounts, but can we not, as a government, and as a people, rely on watchdog organizations to either cap fees or allow an X amount of profit per transaction, or something to ensure that nobody is getting rich on this?
THE PRESIDENT: Well, I think maybe Mr. Boskin, haven't you commented on that before? I think Michael has -- at least I believe, in the preparation I did running up to this, that the most forceful advocates of individual accounts have recognized that it might be necessary to have some kind of limit on the individual administrative costs.
One of the problems in Chile has been that they've got all these different people competing for your account. And if they're competing to give you higher return for lower costs, that's good. They offer people vacation trips and then when the market is down maybe them offer them toasters, I don't know. But there are a lot of built-in costs, and you might be able to get the best of both worlds at least on the costs -- that is, to have the individuals do the investments, make the investment decisions. I think there would be ways to put caps on the aggregate costs.
MR. BOSKIN: I think what you need to make sure you did, because of the fact that some of the costs are in the nature of a fixed amount per account, to make sure you didn't disproportionately hurt people with low incomes putting only a small amount in. You'd have to have some requirement of the fees being uniform and things of that sort.
But we rely on competition to keep costs down and it does a great job in a lot of other arenas. The costs for mutual funds have come down. While we still have a third or half of Americans who aren't in stocks and bonds and we need to spread that, we have a vast increase in the fraction of the population that is because of the growth of mutual funds our well-developed financial markets. That's a great achievement.
MR. DIAMOND: Let me just pick up on what Mike said. Notice the scenario here. We start by saying we don't trust the government, so we don't want the government to be making the investment. And then the next step is, oh, well, the market won't do so well, let's have the government regulate the markets.
And we'll introduce regulations on the fees, but then we know that the firms will want the big accounts, not the small accounts, so we'll have to regulate that. And then it gets tricky -- how do you regulate a CD?
THE PRESIDENT: In fairness now -- I should say, I'm very grateful for a lot of the work that Professor Diamond has done and I'm very sympathetic with a lot of it. But I don't think that's a very good argument. I mean, we have a Securities and Exchange Commission to regulate the stock market. We have more than one federal agency that overlooks various aspects of what our banks do. And one of the reasons that our market economy works so well is that we have basic government intermediary institutions that set rules and regulations and parameters. And that's how we get the benefit of the market without having to bear all the downsides.
So I would think that nearly everybody would want some sort of government regulation if we were to get into this.
But that doesn't necessarily mean that direct investment by the government would be better than the individual investment. It doesn't answer the question one way or the other. I don't mean that it -- but I think that, to me, that's not a reason to attack this. I think we should all -- that's what we do in almost every major area of our national life.
MR. DIAMOND: Mr. President, you've made a very important point. Our capital markets are the best in the world because they're the best regulated in the world. But when we went through a period of deregulation in the '70s and the '80s, the focus of deregulation was deregulation of prices, where the regulatory process tended to raise prices. Absolutely, if we have individual accounts we need additional regulation and that would go well. What I'm concerned about is regulation about prices, not regulation about safety and soundness of financial institutions.
THE PRESIDENT: You all may want to ask some more questions - I don't want to interrupt anymore. But I think It's important. We're not just talking about price here. One of the major issues is sometimes I think we get into one little thing and we forget how it fits into the big picture. So let me just back up.
Suppose you took -- I'll take the simplest case -- suppose you said we're going to give everybody one percent of payroll to invest in an individual account, okay -- and we're going to take all the rest of the payroll and keep on paying Social Security, but we're going to reduce the basic guaranteed benefit both because we can't afford it because of what's happening to population and life expectancy, and because we just took a percent out of payroll. That's the bad news. The good news is we think you'll get a bigger benefit out of the one percent. Right? That's the argument here.
Now, on the administrative costs, what you have to figure out is, it will be more expensive administratively -- I don't care what we do -- than having the Social Security administration or the government run it all. Why? Because of economies of scale, but if you get a much bigger rate of return, then you're still ahead.
So what you have to do is calculate all these things. And all these folks in Congress here are going to have to figure it out, too. So I just ask you, don't forget what the framework here is. And one big thing we haven't discussed is -- although our panelists did while I was out of the room, because I watched them -- it's not just the administrative costs, it's what are the range of investment decisions that will be available to American citizens for their payroll tax in their individual account? Are there any investment decisions they won't be able to make. And then, how will they get the information necessary, the advice necessary to make good decisions and how is that figured into the costs? I think you have to look at it like that. What you want to know is, where are you going to come out on the other end of this deal in all probability.
MR. REISCHAUER: Mr. President, I think that's quite right, on average. But everybody isn't average. There will be some who do very well with their private account and certainly do get much better returns. The average person might also.
But there will be many who invest unwisely or are unlucky, for one reason or another. And the question is what happens to them. Their Social Security benefit has been reduced and this additional account doesn't pay back what even Social Security would have paid back. And so we want to keep this balance. There is no Lake Woebegone effect here. Everybody can't be above average, everybody can't even be average unless we restrict very carefully what people invest in.
REPRESENTATIVE KOLBE: Just one sentence, Bob. You're right. But the point is that they won't be worse off by having this than they would be in the current system.
MR. REISCHAUER: No, they can be worse off. They can very much be worse of if they make stupid investment or they're unlucky.
MR. BOSKIN: If, but only if, you reduce their Social Security benefit dollar for dollar for this. There are a variety of proposals that would do that for some people, but would not do it for people at the bottom with any guarantee.
MS. BORGER: Mr. Boskin, let's try and take another question here from an audience member -- another high-class individual who is 68 years old. Go ahead.
AUDIENCE MEMBER: Shame on you. You shouldn't have said that. (Laughter.)
MS. BORGER: We're all in this together.
THE PRESIDENT: I don't believe that.
AUDIENCE MEMBER: I have a question, I have a solution, and I have a statement. I'm going to make my statement first. I believe that the people who are advocating privatization are just like the tobacco people who are the ones that garner the big money with their programs.
I think the Wall Street brokers are the ones that are going to make the money. My question is this, and it's to the economists at the table, who's going to pay for this privatization? Billions of dollars it's going to cost to do that transition, from where we're at now into privatization.
My solution is right under our very nose. And Mr. President, I think that I'm going to address this to you. The federal government has in place for its employees what they call the Federal Employees Retirement System, FERS, which incorporates these three elements in their pension plan: a traditional pension, Social Security, and a private investment plan. Why can't we follow the Fed's example? Thank you.
REPRESENTATIVE KOLBE: Very quickly, thank you. That's exactly the plan that I outlined to you before, the thrift savings plan, which is the private part of the 401(k) part of the federal employee plans. How may in here are federal employees who are involved in that? Yes, you know what we're talking about there. That's exactly what we're talking about, taking that portion and doing that for Social Security. So, you're exactly right. You could have exactly a solution like that.
THE PRESIDENT: Go ahead, Michael.
MR. BOSKIN: I think you raised a good question about the costs of transition and they're important to get those right and to try to minimize those. However, it's very important to understand we face huge unfunded liabilities in the current system -- trillions and trillions and trillions of dollars. If we go on the way we are today, we have to have trillions and trillions of dollars of tax increases that will wreck the economy, or substantial reductions in the growth of benefits out there in the future.
The idea is, even though there might be some costs of transition, as the President and others have said, to set up something and take some of that pressure off, builds up, compounds at a higher rate than we're getting now, and has benefits that exceed these costs that are substantial, and reduces the costs involved that we have not funded in Social Security so far.
THE PRESIDENT: Maybe I could say this at a little -- I keep trying to get back to the basic thing. If we don't do anything, sometime in about 35 years, we're going to have to -- Senator Domenici said 50 percent -- I think it comes a little later than that, 50 percent -- but let's say in 2030, we run out of money. We're going to have to do one of three things. We're either going to have raise payroll tax by quite a lot, we're going to have to cut benefits by quite a lot, or we're going to have to have the government stop doing a huge percentage of everything else its doing, most of which are things that you believe we should be doing, and just put the money into Social Security.
So we really got into this whole discussion, both if you take Professor Reischauer's view that the government should invest more in equities to get a higher rate of return, or the view expressed by Dr. Weaver that individual accounts should do it -- we got into this discussion to figure out whether we could have, at acceptable risk, a higher rate of return on the money that's already there so we wouldn't have to raise taxes, cut benefits dramatically, or shut down a whole lot of the rest of the government. So there's going to be a transition cost regardless.
Now, one of the things that I want to compliment all these members of Congress here for doing, we want to avoid having to have a big tax increase for the transition, which is why we're trying to hold on to this surplus we've got for the first time in 29 years, because whatever we decide to do with this, we're going to have to commit a substantial part of the money that has been accumulated -- or will be accumulated -- to fund that.
And I want to ask you one question. Are you saying that you would support some portion of the payroll tax being made available for individual accounts if retirees, or future retirees -- savers, workers -- also had the option to opt into a system like the one we've got, so you could choose the one we have or you could choose one with a smaller guaranteed benefit and more investment? Is that what you're saying? I just want to make sure because I think that's something we need to know.
MR. REISCHAUER: You can't really have a voluntary opt-in system, because those people who would do better opting out of the system, will; those who won't will stay in the existing system and the total cost of the system will be much larger than it otherwise would be. By and large, high-income people would opt out, as we heard this morning. Then they pay higher taxes relative to the benefits they receive and part of their taxes go to support those who have lower earnings.
Just so people don't think that the federal employee system is nirvana, I happen to be a former congressional employee so I am under it, or a piece of me is under it, and it consists of Social Security, first. You pay Social Security taxes, you get Social Security benefits. Then there is the thrift savings plan on top of that, which is like a company 401(k) plan, no different. Well, what if we cut Social Security? People might think, well, that 401(k) plan isn't as adequate as we thought it was before. We haven't really solved the problem.
SENATOR BINGAMAN: Mr. President, I wanted to just focus on the issue Bob Reischauer was talking about a little before, because it seems to me some of the proposals out there sort of promise more than I believe they're going to be able to deliver in that they say, look, we're going to be able to maintain the basic benefits that we now have in the Social Security system; we're not going to have to raise the retirement age to 70, we're not going to have to cut the COLA. But at the same time, we're going to have money, somehow or other, available to put into these individual retirement accounts.
I don't know how you get it all done. It seems to me that if you're going to take money to put in the individual retirement accounts out of the payroll tax, you're going to have to have cuts in benefits, you're going to have to have an increase in the retirement age. And if there's some way to get from here to there without those cuts and without that increase in the retirement age, I'd be glad to know about it.
SENATOR DOMENICI: Well, Senator Bingaman, I can tell you that Professor Martin Feldstein has a plan. It's not completed, but it's about 95 percent completed, and it does just what you've said. There is no cut in any benefit. There's two percent invested. And there is -- in fact, there is a high probability when he's finished that you can guarantee the same benefits you're getting. Because the point is -- the point is you expect to do better, and if you do better then you can obviously guarantee that everybody will get what they've got.
Now, if you're investing proportionate to the last 50 years -- take out for boom years -- if you're there long enough you expect to get between 5 and 5.5 percent interest. And so you can do both. In fact, he's done it on paper.
MR. REISCHAUER: But there is a very important issue here, and that is Professor Feldstein has taken the surpluses that we will have for the next 20 years and put them into private accounts. We could take those surpluses and put them into Social Security, invest in the same types of assets that the private accounts would be invested in and be even better off.
SENATOR DOMENICI: Well, look, he's saying you use that money for the transition money that the President just spoke to. The President said we've got to save the surplus because we don't know how much we need in transition.
Now, he'd use it in transition to perfect the personal account which he says will work; you would use it to put in Social Security and have the government invest. So you're back to the issue of which is better -- having the government invest or the individual invest in accounts that have been somewhat restrained.
Incidentally, the accounts are not going to permit people to buy every kind of speculative stock. They're going to be within guidelines established by someone, so the government will be in the regulation of what you get to buy.
REPRESENTATIVE BECERRA: Mr. President, may I ask a question on this? I'm confused now. These transitional costs are big and if we're talking about investing the surplus to help pay for those transitional costs, I'm lost, because my understanding is that those surpluses are already Social Security funds. And with those Social Security funds already being invested -- and we're told over the next 10 years, 98 percent of the so-called surplus that we'll see over the next 10 years of $1.6 trillion, is Social Security monies already being provided by working men and women -- there is no surplus to talk about that isn't Social Security money.
So you're taking -- it seems to me, there's a shell game going here. You're taking Social Security surplus --
-- money and calling it a federal budget surplus and saying, and we're going to use this to pay for the deficit in Social Security. Well, you can't take money that isn't enough already to cover Social Security into the future and say it's going to pay for the cost of covering Social Security into the future. You've got to recognize that the Social Security trust fund surpluses that are going to accumulate over the 10 years, 20 years, are why we have a budget surplus. And we really don't have a budget surplus, apart from Social Security, that we can take that money and use it to try to make up the deficit in Social Security. So I'm a little bit lost.
THE PRESIDENT: The point is, though -- I agree that we have a surplus because, basically, we're still getting more money every year in from Social Security taxes than we're paying out in retirement on a current basis. And the money, therefore, is invested in bonds and when it pays back, the government has it to pay retirement later.
But -- so that's fine. But the real question is, can we get a higher rate of return in the future for a fixed amount of money that's going to be invested by the American people in their retirement through the taxes of their employers and themselves than we have gotten in the past? Because if we can get a higher rate of return, then even though there will be fewer people working compared to the people retired, people can have a comfortable, decent retirement; we'll be earning more for the money we've got. That's really the question. Is there a safer way to do that?
Now, I'd like to ask Mr. Reischauer a question, then we'll go back to the audience. You make a very compelling argument that economically there's no difference in having individuals do it and having the government do it, or having the government set up somebody to do it, except that there's far less risk on the individual, you can average the benefits, and if somebody retires in a bad year or if there's five bad years in a row -- like in Japan, which eight years ago, everybody would say we should do everything they do; now for five years, their stock market has lost half its value -- if somebody has five of those bad years, if the government is doing it in the aggregate, it is true that over any 40-year period, the return will still be greater -- even in Japan I think that's true, even now -- but you protect people from those bad years, as well as from their own mistakes.
How will you ever convince the American people of that, since they always believe the government would mess up a two-car parade? (Laughter and applause.) I mean, even if you're right, politically, how do we ever -- how do you make that sale to the American people?
MR. REISCHAUER: Well, Mr. President, it's not in my job description to defend the federal government. (Laughter.)
THE PRESIDENT: Well, you tell me how to do it then.
MR. REISCHAUER: But I, quite frankly, do have a great deal of faith in our government and in the innovative ways we have gone about creating institutions publicly to serve our nation. One of them, as I mentioned, was the Federal Reserve Board, which is responsible for monetary policy, which is a highly sensitive policy in America -- it can throw people out of work immediately by raising interest rates.
I think we can set up such an entity that is protected from interference of politicians and, by law, is required to invest passively. In other words, it's not playing the market, it's not picking this stock versus that stock, it's picking a little bit of all the stocks and bonds that are available. And, as such, it would be separated from the political forces that swirl around in Washington -- and get that better return.
If I didn't think that was possible, I wouldn't go forward with this at all -- for a minute. If I thought you couldn't develop an institutional structure to protect investments from political interference I think it would be a terrible mistake. But I think we can.
AUDIENCE MEMBER: First of all, I'd like to say "mega ditto" to Mr. President, from Albuquerque. And it's quite obvious the baby boom and the older generation are very influential. Who is going to make the final decision if there is no bipartisan agreement?
THE PRESIDENT: Well, I think what we're -- let me just say what the good news is about this panel. You may leave here more confused than you came in about the details of these options. And if so I would tell you that's a good thing, not a bad thing. I've been working very seriously on this for a couple of years; these are complex problems. But I think that there is the good news here, which is that most of us have been on opposite sides of a bunch of issues over the last 20 years, and we all believe that we have to act now rather than later.
Keep in mind, every year we let go by, all options become less attractive and require greater risk and more exertion. So, as compared with 10 years from now, anything we would do today is quite modest in scope and has the opportunity to build in more protections. And because you're 32, I think I should also emphasize that under all these options, nearly everybody believes we have to guarantee the system as it is for people, let's say, at 55 and up, and then some period of transition, an ultimate protections built into the system over the long run.
So I think that you don't have any guarantee. If nobody ever makes this decision, then 35 years from now the system will run out of money and the market will make the decision. I mean, people will stop getting checks, or there will be a big tax increase, or we'll shut down a whole bunch of the government to pay the difference.
So that's why I think that you should feel good. There is a big bipartisan consensus, I think, in the Congress that we have to reach agreement, and we have to act, and we have to do it soon.
MS. BORGER: Anybody else on the panel want to talk about that? We have another question here then.
AUDIENCE MEMBER: Yes, Mr. President. If it were entirely up to you and a decision had to be made today, what would you do? (Laughter.)
THE PRESIDENT: If I answered that question today, it would make it less likely the decision would be made. That's the truth.
And I'm not dodging this. I honestly don't know what I would do today, because I have -- and I've spent hours and hours just getting ready for this meeting, trying to master the details of the various plans that the people at this table have proposed.
I don't know what I would do. But I am open to the idea that if we can get a higher rate of return in some fashion than we have been getting in the past, while being fair to everybody, and guaranteeing that we'll still be lifting the same percentage of people out of poverty, we ought to be open to those options. Because I think that's better than raising the payroll tax a lot more -- because it's a regressive tax and, for example, more and more people work for small business, and if you're a small businessperson you've got to pay a payroll tax whether you make any money or not -- 70 percent of the people pay more payroll tax than they do income tax today, working people. I hate to do that.
I don't want to cut benefits substantially because most people have something besides Social Security, but Social Security alone lifts half our seniors out of poverty -- 48 percent, literally. And we've got the smallest government we've had in 35 years, and I don't want to close down the National Park Service or stop supporting education or stop running our environmental protection programs. And we've cut the national defense about all we can, given our present responsibilities in the world and our need to modernize it.
So the reason I'm here with you is I think all these people deserve to be heard, because if there's any way we can get a higher rate of return in a market economy, while minimizing the risk, whether it's in either one of these approaches, we ought to go for it, because the other alternatives are much less pleasant already. And if we wait around for five or 10 years, they're going to get a whole lot worse than they are today.
SENATOR BINGAMAN: At some point I just wondered if we could have -- maybe some of the experts who are in favor of going to the privatized system answer the concern which I know others have expressed about what is going to happen to the insurance part of Social Security, what's going to happen to the benefits for the disabled, what's going to happen to the survivors. Is it the intent of people who want to set up the private accounts and privatize to maintain those other elements of what we today see as Social Security, or would they be whittled away, as some people have feared?
MR. BOSKIN: I don't think people should fear that at all. All of the serious proposals maintain those parts of the system. They are not privatization, per se, they're taking a portion, and generally a modest portion, of the current defined benefit payroll tax and moving it to establish individual accounts, or, Senator Domenici talked about another plan using refundable credits from the general revenues and the surplus to start to establish them. So I think that you really needn't worry about that in general for most of the plans that people are talking about.
I think it's very instructive to look at the last time we went through this as a nation -- which was in the early 1980s, that led up to the 1983 Social Security reforms. We established a commission appointed by the President and the leaders of Congress, and many members of both parties and both Houses were on it. And they came up with a variety of things and were hailed as having solved the problem. There were many good things about what they did. It was supposed to build a surplus that would eventually get to $21 trillion and solve this until about the last 30 years of the next century. Within a few years -- I was writing a book and it became obvious that we had solved only one-sixth of the long-term problem.
If at that time we had established a modest individual account plan where people could have invested -- now, yes, it's been a tremendous bull market since then, almost exactly coinciding, but like Senator Domenici, I don't want to count on that -- let's look at long-run averages -- our problem today would be much smaller. People would have a sense of ownership. We'd have a much better Social Security and private retirement system.
REPRESENTATIVE KOLBE: May I just add that the National Commission on Retirement Policy that I co-chaired, our proposal does not touch the disability or the survivors. We recognize that the disability is an issue that clearly has to be looked at and there has to be some reforms, but we keep it intact. It's exactly as is. We only take two percent -- two percent -- of the 12.4 percent now in payroll tax to put into this new personal account.
It seems to me a fairly modest amount to put aside so that young people will have an opportunity to save, that they can put something for their own retirement, while at the same time, we're making sure that people now on retirement, on Social Security, get it, and those who are the baby boomers will get it, as well.
MR. DIAMOND: Senator Kolbe, could I ask you about this? I've read what I could find on this proposal, and I know all the details aren't worked out, and they're to be worked out. And I understand you're preserving the disability program by having the same relation to the benefit formula as there is currently. Is that correct?
REPRESENTATIVE KOLBE: As it is now, yes.
MR. DIAMOND: And the benefit formula, though, is cut two percent a year, year after year, to free up the money that -- not the whole benefit formula, just the part on top -- is cut two percent a year, year after year, to free up the money to finance what's going in the individual accounts. That cut on the retirement benefits -- which makes sense, because people can accumulate up until retirement -- also implies the same cut on disability benefits. Now, the system can be changed, but there's an issue.
PARTICIPANT: The question I have is on the disability part of the benefits. How much has that grown over the past 10 years, by the expansion of the definition of disability from physical disabilities, to psychological disabilities, that in the past, have been defined as behavioral problems?
SENATOR DOMENICI: I don't know the dollar amount. It's the fast growing part. But maybe somebody else who has worked on this knows an amount.
REPRESENTATIVE KOLBE: I don't, but I think there may be somebody that has those numbers. But it is -- it has been a very rapid increase, a quadrupling of the number of people on disability in the last, I think, 12, 15 years.
REPRESENTATIVE BECERRA: This is a general societal problem --
REPRESENTATIVE KOLBE: Yes, it's a general problem.
SENATOR DOMENICI: Well, I'd like to make two points. First, with response to the shell game, let me see if I can tell you how the transition money, from whatever source it is, why it is important and why it will not be shell.
First of all, the goal is to use this money to do better than we are doing. And if we don't do better, obviously, we've made a bad mistake. In other words, if you take all those resources you say should stay in Social Security and you leave them there, we're still $3.1 trillion short. And you're trying to use that transition money to make up for that $3.1 by using a piece of it to invest.
I would also say that one plan that I'm aware of does not take all of the proceeds of the individual account and give it to the individual. Portions of the proceeds go back into Social Security to make sure it is maintained and the commitment to the disability program and the other is maintained.
REPRESENTATIVE BECERRA: Mr. President, if I could just pick up on what the Senator said -- and I agree completely with what the Senator just said -- if those transitional dollars we get through these surpluses stay within Social Security, there's no shell game, because we can use the Social Security pot that's growing and growing to do something that we believe will give us a higher rate of return if we do it within Social Security.
But as soon as you pluck it out of Social Security and do something else with it, in, say, private accounts, then you have left the Social Security system with a deeper hole than the $3.8 trillion that we already estimate we'll have.
My concern is how we invest that money. If we do it within the Social Security pot and do it in ways that perhaps we take advantage of the higher return in equities, great. But I start to get concerned when we take it out of the pot of Social Security, which all of us agree is already way shy of what it needs to meet the needs of people in the future.
THE PRESIDENT: Can I ask a question here? I would like to ask the Social Security Commissioner or someone else here who's in the audience or with our staff to come up and give me the answer to the question the gentlemen asked about disability -- the exact answer. About a third of the people who draw Social Security checks are either dependents of people who were killed or disabled on the work force or disabled people themselves. So I want somebody to come bring me that information and how much it's grown and I'll give it to you precisely.
MS. WEAVER: Well, could I add something on that while we're waiting for that information, because one of the things we do know is that since the mid-1980s, the disability program has grown very rapidly and, in fact, Congress had to reallocate part of the Social Security tax to keep benefits going out on time in the disability program.
And the two areas of particular growth are benefit awards to people with mental impairments and among young people. And this raises a particular concern because young people with mental impairments have, under the program, relatively poor recovery prospects. We're finding people coming on younger and staying longer. So there are very serious problems that need to be dealt with in the disability program as well.
THE PRESIDENT: Commissioner Apfel just said that the number of people drawing disability has grown dramatically from more or less equally from two sources. One is the addition of mental impairments to physical ones. The other is the aging of the baby boom generation because the rate of disability increases as you approach age 50. So for people like from their late 40s until retirement age not drawing Social Security, there are significantly increased number of people because there are just more baby boomers in that age group now.
AUDIENCE MEMBER: Currently the maximum annual income subject to the Social Security tax is $68,400. Yet, benefits are paid to anyone, regardless of income from other sources. My question is how was the amount of $68.400 determined, and why not raise the ceiling for incomes subject to Social Security tax?
THE PRESIDENT: Let me say, first of all, the incomes of American people have grown to the point now that there is a larger percentage of people who get the benefit of the cap than there used to be. That is, a higher percentage of our people -- I forget what it is, maybe one of you know -- but most Americans are under the cap. That is, most Americans have income under the tax cap.
People at higher income levels pay higher tax rates on their Social Security incomes than people at lower income levels. And I think that's -- one of the reasons that the cap has not been raised at least a dramatic amount more is to avoid having it be an actual negative investment for the people involved, where you're just taxing people's payroll far more than they'll ever get back and they're just subsidizing the system. The way it is now, it happens a little bit, but not much. And people at higher incomes, once they start to draw that Social Security, do pay a higher rate of tax on it than people at lower incomes.
Michael, you wanted -- anybody else want to say anything?
MR. BOSKIN: The benefit formula that's financed by the tax is also very progressive, so people get back 90 percent of the first chunk of their average earnings, then 32 percent of the next. And the people you're talking about, whose cap you might want to remove, are only getting 15 percent back at the margin of their addition. So you have to think of both the tax side and the benefit side when you think about the fairness. You can't just look at the tax side itself.
MS. WEAVER: To her specific question, I just wanted to mention that the amount of wages subject to tax was increased quite substantially in legislation in 1977, and since that time has been indexed each year. So the amount of taxable wages goes up each year by the growth of average wages in the economy.
REPRESENTATIVE BECERRA: Mr. President, if I could just say, I think the question makes it perfectly clear how delicate a balancing act this all is. You raise the cap too much, and you start to make wealthier Americans feel like it's not a good investment for them and look for ways to get out of it completely. You keep it too low, and you don't bring enough money in.
The ultimate solution will be just -- just a group of all sorts of different elements in it. It will include various things -- maybe this is well, raising of the cap. But you have to remember that ultimately, you want all Americans to still feel very good about Social Security, and you have to figure out a way to make sure that all Americans say, that's what I want to do.
REPRESENTATIVE KOLBE: It's worth noting that in 1935, when Social Security was created, only $3,000 of income was subject to the Social Security tax. Today, it's $68,400. It's been raised, I think, 21 times. And the rate was one percent.
SENATOR DOMENICI: I think one answer, very specifically and precisely, is that the people in the higher income brackets get back much less of the money they earn than those in the lower brackets. The form is a reverse form so that in the lower portions, lower income, get back much more; the higher incomes, much less -- and if you went much higher, they would be getting nothing back of the money they put in Social Security. And I think what Xavier is saying is that's a large group of Americans who would be asking the same kind of question everybody is -- what do we get out of this. MS. BORGER: Mr. President, we only have a few minutes left in this forum, and I just wanted to give you the opportunity to give us your final thoughts about what's occurred here today and what's coming in the future.
THE PRESIDENT: Well, I'd like to go back to the question the gentleman asked me when he said, if this were up to you, and you had to decide today, what would you do if you were all by yourself -- there may come a time when I wish that by yourself. There may come a time when I wish -- when we have so many headaches working this out, I wish it were just my decision to make, all by myself.
I think it's important for me and for the others in the Congress who care about this to maintain -- but especially for the President -- to maintain an open mind as much as possible now, because I don't want a particular proposal just because it's been endorsed by me to have to be supported or opposed by other people because of their political position. I'm doing my best to keep this a matter of people and progress over partisan politics.
But I also want to make it clear to you that I honestly, myself, have not made up my mind exactly what I think we ought to do on this because, as you can hear from this debate, there are arguments on both sides of all proposals and it's a rather complicated matter.
I can tell you this: I want a guaranteed benefit. I want it to be fair and progressive and universal. I want to have the best earnings we possibly can within that framework. And I don't want to come to a point down the road where we have to wreck the financial responsibility we worked so hard to bring into this country to give us our present prosperity to pay for the retirement of my generation because we didn't have the responsibility to take action now, when we should.
And I think if we can stay with these general principles and continue to learn and explore all these debates and learn as much as we can from the experiences of other countries -- we didn't have a chance to get into this today, but you all laughed when I was kidding Mr. Reischauer about the popular skepticism of government making these investments. But Canada is starting to do it, and we'll have a chance to watch them and see how they do it and see how they deal with some of the objections that have been raised.
So I think that what I would urge you to do is to continue to learn about this. If you know what you think, make your voices heard. And support your senators and your congressmen in saying that we have to act on this and we have to do it next year, because we can't afford to wait. We're taking this year, studying, raising public awareness, presenting all the alternatives to people. By next year we'll be ready to act and we should do it.
And if we have the support of the people in this room, that vary across age and income groups and all kinds of other ways, then we'll be able to do what's right for America because we will be doing the work of democracy.
Thank you very much.
MS. BORGER: Thank you Mr. President. I'd like to thank all the panel members, as well, for participating in this national forum on Social Security. Have a good day.
I'd also like to thank the city of Albuquerque for being such wonderful hosts and asking such great questions. Thank you very much.