Social Security Panel Discussion

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President Clinton Speaks at Social Security Panel Discussion

THE WHITE HOUSE
Office of the Press Secretary
(Kansas City, Missouri)
For Immediate Release April 7, 1998

REMARKS BY THE PRESIDENT
IN PANEL DISCUSSION AT A NATIONAL FORUM ON SOCIAL SECURITY

Penn Valley Community College
Kansas City, Missouri

2:16 P.M. CDT
Q Thank you very much. Welcome back, everybody. Calmdown. We have our highlight of the day. I'd like to welcome back to thestage our panelists Marilyn Moon, David Walker, Gary Burtless, and FredGoldberg. (Applause.)
Ladies and gentlemen, the President of the United States.Accompanying the President are Senators Santorum, Kerrey; RepresentativesHulshof and Pomeroy. (Applause.)
THE PRESIDENT: Thank you.
Q We have quite a panel here. We have quite a numberofinteresting questioners. We want to know what you have to say. I'd liketostart off by directing a question -- I'm over here, Mr. President -- to thePresident. And then I would like for anyone who would like to join in tojoinin, but keep in mind we need to keep your answers brief because we want tohear from as much of this audience as possible.
As I mentioned earlier, the people who will be takingquestions -- there is a microphone on the other side of me here -- thesearepeople who were hand-selected by a marketing research firm to bedemographically correct according to the greater Kansas City area, and theyknow more about Social Security after this afternoon of talk than any oftherest of us have in our whole lives.
So first I want to direct this question to Mr. President,which is, there has been much talk about privatizing Social Security andthequestion is whether this is a slippery slope or a cure. Where do you comedown on that?
THE PRESIDENT: Well, I don't think it's necessarily aslippery slope. I think the issue is, if you start with certain basicprinciples and you start with certain basic facts, then I think there areanynumber of options that can be chosen that both fit the facts -- because ifyoustart -- you get in trouble in life if you start denying the facts. Thefactsare what we talked about this morning -- the population trends, thefinancialproblems of the system. To keep a system that's universal, that's fair,thathas a benefit certain as a baseline, and that deals with the problems ofthedisabled and the low income people that are presently helped.
If you do all that, could you construct some system whichalsomade allowance for private accounts? I think you could, yes. But couldyou-- would I favor totally privatizing the system? No, because then youcouldn't have a universal system that was fair that had a benefit certain.
Let me just back up and say, people are alwayssaying, well, so what's your plan? And what I'm attempting to dohere is to avoid announcing a plan while we go through thisperiod first of educating the whole electorate -- all of ourcitizens -- on what the facts are, and then eliciting ideas frompeople to get the broadest range of ideas. Because if I come outand say, well, here's exactly what I think ought to be done, thenthat forecloses debate when I'm trying to broaden debate. I wantall of you to have your say and I want us to wind up getting thebest possible ideas.
But I think the important thing that you need toknow about me and my position is, what are the principles Iintend to follow, and are we prepared to do this. And I thinkI've answered those questions today.
But I think it would be a real mistake to rule out-- what I think we all would like to see -- let me go back towhat Senator Santorum said in his opening remarks about theproblems with the rate of return and what Senator Kerrey said inhis opening remarks about the need to give all people somewealth-generating capacity. I think we'd all like to see ahigher rate of return on the system, on the investments. Thequestion is, how do you get that and still keep the system thathas lifted so many seniors out of poverty and dealt withdisability and dealt with premature death and dealt with all theother problems the Social Security system deals with. But Ithink there are lots of options to do that.
Q Senator Kerrey is going to have to leave beforethis over to catch a plane, so I want to make sure he gets achance to respond to that.
SENATOR KERREY: Well, first of all, SenatorMoynihan and I have crawled out on a limb with a specificproposal, and I don't want in this answer to describe the detailsof that. But, in essence, it provides an $800 billion tax cut inthe payroll tax area, which, for the median family, payroll taxesare twice as high as the income taxes.
Secondly, it allows that money to be invested inindividual accounts similar to the thrift savings account forfederal employees. Not a single federal employee complains aboutadministrative cost, nor do they complain about the complexityand the difficulty of it. I mean, I appreciate the problems thatUncle Milt's facing, but Uncle Milt works the federal governmentas well, and he has not yet come to his employer and said thatthis is too complicated for me. (Applause.)
And thirdly, it restores and fixes Social Securityin perpetuity, so that whatever promise you've got on the table,whether the individual was just born in Columbia, Missouri, or is81 years of age, that promise can be kept.
But one of the most powerful things that we'vediscovered, once you start to look at compounding interest ratesand what it can do to generate wealth, is that we ought to beopening these accounts at birth. So Senator Moynihan and Imodified our proposal so that the account gets opened for a$1,000 when the baby is born -- that's 4 million live births ayear -- and $500 a year for the first 5 years. The extraordinarything about that is, A, it's very progressive -- that is to say,if you're making $5, $6, $7 an hour, you're the person who isgoing to benefit the most. For lower income people, it is anenormous source of wealth. And secondly, that $3,500 at age fivegenerates more wealth than 2 percent over 45 years.
So if you want to help -- if you want to solve theproblem of the rich getting richer and the poor getting poorer,it can be solved through Social Security. (Applause.)
Q Okay, thank you very much. I'd like to turn tothe audience for our first question. The gentleman on this sidehas the mike.
Q I have two points. The first is if we were totake the welfare aspects out of Social Security, such as the aidfor aliens that are unable to work, and use Social Security forits own primary purpose, that would cut some costs. In additionto that, I'd like to make a point that we need no new taxes. Soif an increase is necessary, all of that increase should be inthe private control of the owner of the money and not thegovernment.
MS. MOON: I think that, if I understood correctly-- and we're having a little trouble hearing up here, at leastI'm having a little trouble hearing up here -- that I think thequestion was relating to the issue of whether or not, if thereneeds to be an increase in taxes, whether it should go into agovernment program or into these kinds of private accounts.
My sense is that that's a good way to think abouthow you'd want to change in the future. I think more resourcesare needed in toto to solve the problems of a secure retirementfor a generation that's going to be much larger than the currentgenerations of retirees. I think we need to think about it asan add-on. I have no problems thinking about it, if we talkedabout it then, that any add-on should be talked about as privateaccounts, for example.
MR. WALKER: In the end, Social Security reformreally has to pass two tests. First, it's got to make sense.And the American people will determine whether or not the reformmakes sense. And, secondly, it's got to be politically feasible.It's got to be doable. And the American people again can leadthe way to help convince the politicians what they're willing totake or not.
Realistically today, I think many people believe, ifnot most, that simply raising taxes and keeping the currentsystem is not politically feasible. Therefore, we need to lookat more comprehensive reforms that are balanced to make theprogram certain, secure, sustainable, improve the rates ofreturn, and yet still have that foundation of security.
THE PRESIDENT: Let me just say, I don't knowanybody who has proposed -- and I think your Missouri congressmantoday made this point, or one of the members who spoke before meor after me made this point -- I don't know anybody who thinksthat we should try to preserve the status quo program with anincrease in the payroll tax. Most Americans are paying more inpayroll tax than they are in income tax today -- most workingfamilies are. And I don't know anybody who favors that.
And with the projected surpluses we have now, all ofthe proposed solutions that I have seen so far I believe areachievable with no increase in the payroll tax. So that goesback to what you said.
There are some people who believe that there maybeought to be an increase of, let's say, 1 percent, but only forprivate savings accounts -- totally within the control of thepayer. So it would be, in effect, an enforced savings plan togive you some investment in private income later on in life, thatthere are some proposals.
The only thing I've said about taxes is, I thinkthat we ought to admit that we can solve this problem without anincrease in the payroll tax, but we ought not to put ourselves inthe position of saying that we won't even listen to somebodywho's got a different idea. For example, I think theKerrey-Moynihan plan -- Senator Kerrey just left -- has a fairlysteep cut in the payroll tax in the first 20 or 30 years orsomething like that, and then, because if you check thedemographics, actually has it creeping up again because we try tohave 75 year plans of Social Security -- actually has it creepingup again in 30, 35 years, something like that.
But I don't think you have to worry -- most of us, Ibelieve, are committed to trying to find a way to solve thisproblem that doesn't involve an increase in the payroll tax. Andif there were any, all of the plans I've seen are those that saythis should be a savings account that's yours to invest as yousee fit.
Q Mr. President, what is to prevent the Congressto enact binding legislation that would prohibit any furtherborrowing from Social Security funds, and why haven't you taken aproactive stance to get this achieved? (Applause.)
THE PRESIDENT: Because I'm against it. I haven'ttaken a position to get it achieved because I think it would be abig mistake. The Social Security fund has been investing ingovernment securities, which have the full faith and credit ofthe government behind it. The government then takes that moneyand spends it on other things -- that's true. But it's aninvestment by the Social Security trust fund. If they take inmore money in any given year than they give out as benefits, theyhave to do something with that money. They have to invest itsomehow. If they invest it in government securities, they getthe money back plus interest, and it's the safest possibleinvestment.
Now, there was a lot of talk for years about howthis amounted to a raid on the Social Security trust fund, and Icould understand that talk because we were running huge deficitsevery year, so people had a right to ask, what's going to happenwhen the government has to pay back the Social Security trustfund and the trust fund needs the money to pay out benefits,which is one reason it was so imperative that we balance thebudget and then start running a surplus.
But now the projected surpluses we have over thenext 10 to 20 years are surpluses over and above what it willtake to pay back the Social Security trust fund, the money oftheir investment plus interest. And I believe it was a goodinvestment by the Social Security trust fund. I also think itwas good for the taxpayers at large. It kept the government fromgoing out into the private markets, borrowing money, runninginterest rates up, and driving your interest rates up by makingit harder for you to get money. So I don't agree that it was abad policy, but it would have become a horrible policy if wehadn't balanced the budget and started running a surplus, becausethen when it came time for the government to pay back the SocialSecurity trust fund, we wouldn't have been able to pay the moneyback or we would have had to sock you with a huge tax increase.But you don't have to worry about that now because we got thisdeficit down. We're going to run a surplus, and it's going tolook like a good investment of the trust fund, I think.(Applause.)
REPRESENTATIVE HULSHOF: I think the questioner,though, raises a good point. And if you're wondering if thereare bills out there you're going to get more information on --yes. In fact, the chairman of the Social Security subcommittee,Jim Bunning of Kentucky, has an idea to actually wall off thesesurpluses into an untouchable account. And I think the Speakerof the House last week, when he came before our committee -- andI'm going to paraphrase but it was essentially this -- testifiedthat there is a universal attraction between a politician and apot of unspent money. (Laughter.) And I think your point is,clearly, you've heard several of us talk about surplus funds, andyet, if we continue to lack the discipline -- in other words, ifwe continue to look at new programs or investing more of your taxmonies for programs, then there will be less of a surplus, andtherefore less money for us to use in the long term.
And so it was talked about with the policyindividuals earlier, the experts here -- we can't view this in avacuum. It's great to have this debate, but we need to take ourblinders off because it is a very far-reaching problem that weface.
THE PRESIDENT: If I could just follow up, becausehe made a point there that I think deserves some greaterattention. I didn't mean to dismiss your question as lightly asit may have sounded. There are people who believe that it wouldbe better -- let's assume that what I said is right. It is rightnow as long as we keep the balanced budget, we run the surplus.Let's assume that's right. Still there are people who say, okay,Mr. President, so the Social Security trust fund had a surplusand they invested their surplus in government securities andthey'll get it back plus interest. But wouldn't it be better, ifwe had any surplus, that in effect the surplus was invested in away that went to the individual in accumulating benefits of thepeople who were paying the taxes. That's basically what a lot ofpeople say.
See, one reason the return is not any higher than itis, is that 90 percent of your taxes, when you pay SocialSecurity every year, are going to pay for the current SocialSecurity benefits of your parents and grandparents. And that'swhat Senator Kerrey was talking about. That's what a lot ofpeople -- the individual account argument is. If you get moneythis year, even if it's just $2. If all you get is a 5 percentreturn on it, if you keep it there for 50 years, pretty soonyou're going to have a pretty good chunk of change. That's theargument for having something for children at birth.
But I just want to point out, it will not be allthat easy to shift from a system where you take all the surplusof any given year and apply it to each individual's futureretirement when 90 percent of the money you're paying out now isbeing used to pay your parents' and grandparents' retirement. Soit sounds like a good idea, but it's going to be hard to make thetransition.
Q Mr. Walker mentioned that 1998 will probably bespent studying this problem and 1999 might be a year of action.In your previous session today you mentioned the third railproblem and the need for congresspersons and others to get outand lead and duplicate the good effort you started here todaywith thousands of these kinds of forums around the country.
When I found out I get to participate in thisprogram and I started asking my friends, what do you all want meto tell or ask the President, I sensed that while folks certainlyknow that there's a Social Security program, we don't have muchgood information about the details of the crisis that we've beengiven here today.
And so my question is this: could you use your goodoffices, as you've started here today with these nationalpolitical leaders, to encourage more local political leaders,such as governors, mayors, councilpersons, state representatives,to duplicate this process on the local grass-roots level, becausemany of the grass-roots people just are not aware of the natureof the crisis.
And just one final thing, my good friend, Tom Neely(phonetic), told me to ask you the next time you come to town torent a bigger hall so more people can come and participate withyou. (Laughter.)
THE PRESIDENT: Thank you.
SENATOR SANTORUM: Well, I would just say first off,I think that's a great question. I've had forums all over thestate of Pennsylvania and will continue to do so and have beenfor years, because Pennsylvania has the second oldest per capitaelderly population in the country. And I believe it's vitallyimportant to get the information out. I think the President wasright in his discussion earlier, and we've talked earlier, thatwe have to lay a foundation of understanding here before we as aCongress can act. We don't want to get way out ahead of theAmerican public and have to get reined back in saying, no, that'snot what we meant.
And I think in doing these kinds of town meetings, Icommend the President for having this kind of forum. We need togo out into our districts -- congressman and senators and others-- the facts are what they are. I don't think you saw anydisagreement in the presentations as to what the problem was inthe system. I think we all were very consistent. Now, you canargue as to how we solve those problems and what the impact ofthose solutions are, but I think the facts are fairly clear andwe should, in a bipartisan way, get that information out.
THE PRESIDENT: Let me just say, if I could followup on that, one of the most important things about a democracy, arepresentative democracy like ours, is that the political system-- when you quoted President Ford today, it was a great comment-- the political system act, when it's required to act in a boldway, but that you have the trust of the people and the support ofthe people. And this is an interesting issue. This is a fairlycomplex issue.
Now, I think the people have been ahead of thepoliticians as a whole in the sense that I think it's widelyunderstood that there's a problem here and, therefore, all of youwant us to do something about it.
On the other hand, there is a fairly small number ofthe political leaders in Congress, let's say, and there's afairly significant number of people in the press, the people thatare covering this, who've been thinking about this problem for along time and they know we need to do something about it. So allof us who are activists, you know, the tendency is that we wantto go in a room now and just -- you know there's a problem, sowe'll figure out what to do about it.
The nearest thing I can think of that we're tryingto avoid happened a few years ago, before I came President, oncatastrophic health insurance. I don't know if you remember this-- and the AARP even got burned on this -- where everybody in thecountry knew there was a problem, right? So the politiciansfigured, well, the people all know there's a problem. The AARPsays there's a problem. So we'll all sit down and do what seemslike a reasonable thing and come up with a solution, and thepublic outcry was so great that a then Democratic Congress and aRepublican President had to undo what was done.
Now, it was too bad, really, in that, but it wasn'tcatastrophic for the country. This is big-time business. Wecan't -- once we do this, we have to do it, do it right, and wecan't undo it. We've got to do this right, and so that's whywe're doing it in this way. And I thank you for what you said,and I'll do what I can to try -- I've got an office inWashington, part of the White House, that deals with state andlocal officials. We'll work with the Congress and try to see howwe can multiply these things. Thank you.
Q Mr. President, I just want to commend you. Ithink this is one of the greatest things. I'm a nurse. I knewthere were lots of issues when you raised health care issues, andI think it's changed a lot of the system. Whether it changedeverything you wanted to, I don't think that will ever happen. Idon't think it will happen here. But I would present severalchallenges. I don't expect answers today.
I don't know if privatization of Social Security isgood or not. My husband and I can afford it. We have an incomeover $100,000 a year. There's people in here, though, who don't,and I guess I have several challenging questions. One is, how doI know that when my three and a half year old is 15 and gets in acar accident and ruptures his spine -- not that that will happen-- but if it did, that he would be covered by Social Security?Or that he would make it through college if something happened tomyself or my husband.
Would Social Security -- I think Marilyn Moonbrought up a significant question of if we privatize SocialSecurity, what happens to that? What happens to this disabledchild over here in a wheelchair who really depends on thosefunds? And if we take, whether it be that 1 percent or 2percent, and put it into private accounts, then are we reallysocially secure and not taking out that security piece?
I presently take care of heart failure patients inthe home. I would say 90 percent of them spend a good chunk oftheir monthly Social Security check, on top of their benefits, onmedicine. And so, when they spend $200 out of their $750 a monthcheck on medicine and the rest is left for living expenses, thenwhat are we going to do?
I don't know. I could privatize my Social Security;I don't have a problem with that. But I challenge Congress andthe Senate to say -- what makes you think people are going to say-- this mother back here with three children is going to buy themtennis shoes? She's not going to save. She's going to put moneyaway for college. (Applause.) She's not going to save.
Q Who would like to respond to the question?
THE PRESIDENT: I think we should all have a chanceat that. Go ahead. We'll start here, we'll just go around.You've asked, in some ways, the question on which everything elsedepends, so I'll give everybody a shot at that. Why don't youstart.
MR. WALKER: Well, first I think there seems to besome agreement that we need a foundation to build upon, and thatwith regard to Social Security a foundation is a base-definedbenefit element; secondly, survivor's insurance; and, thirdly,disability insurance.
The debate is -- and that needs to be targetedtowards lower and middle income individuals who are most in need.The debate is, what else do you do? How much of a change do youmake there? How do you make those changes? How do you phasethem in? And then do you have savings on top of that?
One of the debates about savings is, if you do havesavings, do they come out of existing tax, should it be anadd-on, how much of a burden is that going to be for lower incomeindividuals. If it's voluntary, then who's going to save?Chances are, it's the people that have more money will saverather than those who may need to save.
And that's why you have to look at this as apackage, as a balanced package, not just on Social Security, butalso private pensions and other issues.
MR. GOLDBERG: I think that there's a remarkableagreement among those who have spoken today and among those ofyou who have asked questions. No one wants to walk away fromcurrent retirees. No one wants to walk away from the disabled.No one wants to walk away from a promise that workers don'tretire into poverty. And that's the starting point for all ofus.
We respond to different stories. I respond to thestory of the single mother who works for 45 years, raises herkids, cares for her kids, pays 10 percent off the top every year.She dies at 65 and she gets nothing to leave her children andnothing to leave her grandchildren. That's the story that grabsme. The story about your kids and the injury, if somethinghappens to you.
All of these stories make sense and they're veryimportant. I believe we can design a system that responds toeach and every one of them and responds in the right way.
MR. BURTLESS: If you do take away some of the moneythat is currently going into the main Social Security fund -- 1percent of it or 2 percent of it -- to direct to individualaccounts, it does mean that we have to adjust downward thebenefits that we're paying out of that basic fund. So the basicsystem does have to be kept in balance if you decide you're goingto put 1 percent away.
Now, there are certainly ways to do that and stillprotect disabled children and disabled adults and indigentwidows. But the fact is that something has to come out of thatbasic system. You can't both have a private account on one sideand the same package of benefits we currently have.
MS. MOON: I think David and Gary expressed my viewson this very well. I would only add that I hope that we will allbe held accountable at the end of the day on how well we protectthe most vulnerable of our citizens. And that should be thefinal line. Those of us who are fortunate enough to do very wellin this system will do very well. We have to make sure that thefolks who get left behind have a decent safety net that protectsthem. (Applause.)
REPRESENTATIVE HULSHOF: I want to incorporate apart of two questions -- and Marilyn mentioned this while we werebackstage -- and that is raising additional revenues. And Ithink there was a young mother who got up to speak here today,talking about how difficult it was. And perhaps the questionerwas referring to that one of you in the audience. That becauseof the level of taxation now, payroll taxes and other taxes, thatit is impossible for them to save -- whether it's that singlemother raising a child or whether it's a young couple in theirtwenties or thirties, they are simply unable to put aside andsave. And when you think about it, if you do invest your ownfunds, it's being taxed as well. So in a sense you could saythat you're being punished for your thriftiness.
I would be a little remiss if I didn't take 20seconds, Mr. President, to talk about the Savings Advancement andEnhancement Act that Dennis Kucinich, a congressman from Ohio,and I are proposing, that would allow, if you have a modestamount of interest income, that that would not be taxed, to helpthe low and moderate income worker whose incomes consist of wagesand a little bit of interest income. Because as I think wetalked about earlier, we have to incorporate private pensions,private savings, as well as making sure the system remainsfinancially sound.
REPRESENTATIVE POMEROY: I said earlier whatever wedo we can't take security out of Social Security, and I think wecome back to that again. And what today has done for me,participating in the debate among policy makers and listening toyou all, is really impress me with the concurrence that we haveon the point of the guarantees -- guarantee for a dependablepayment for as long as you live in retirement -- (applause) -- aguarantee that if you die and leave a spouse and little kidsthere's going to be a payment for them, making up for the incomethat you're no longer going to be bringing to that family. Andif you become disabled, incapacitated, unable to work, there willbe an income stream through Social Security disability benefit.
Now, if we are agreed, and I think there is prettybroad agreement that's been expressed across party lines, thatthose guarantees have got to be locked in going forward, well,then I'm a lot more comfortable with talking about otheralternatives. What I was afraid was happening was that we werelocking into a debate, being polarized against Social Security asan insurance program versus Social Security as an investmentprogram, and this partisan chasm was going to start to open up onthis debate.
I think, Mr. President, your leadership in conveningthis meeting and the discussion we've had has actually had usconfirming that we agree on the guarantee, and the rest we cannegotiate. Thank you. (Applause.)
REPRESENTATIVE POMEROY: I'm in a remarkableposition of agreeing with everything that's been said so far,because I think you're right -- we do agree that there has to bea foundation. As I said before, my three P's: to protect, topreserve, and then to provide the opportunity. And we don't havethe opportunity in the system right now.
And I would address your question specifically forthe poor. They really do not have the opportunity, and you say,well, I can afford it now. Well, in a sense, you are the oneswe're not most worried about. What Senator Kerrey said earlieris about creating wealth among lower and moderate incomeindividuals, where they do not have the opportunity because theyare spending everything they can right now to maintain life.They don't have the opportunity to put that money aside.
If we have -- and you said how can they save? Well,I can tell you under any plan I would put forward -- I can'tspeak for others -- that portion that would be put in forpersonal savings would be not able to be withdrawn for anypurpose -- period. That money would be in that account, couldnot be taken out for any purpose. It would be, in fact,reserved, set aside for their retirement, and so that's how theywould save, because instead of paying that money -- I pull out mypassbook again -- instead of paying that money to Washington,that money goes -- a portion of it goes into this account, whichthey must keep in that account and invest for a later day.
And the point of wealth generation is, as I saidearlier, the poor and minorities in this country, unfortunately,don't have life expectancies as the general population. And somany of them, as was said earlier, die before they have any kindof return on their Social Security -- die at age 61, 62, or 63,and what do they have?
Well, under the plan that we're putting forward.What they would have is this to pass on to create that securityand the opportunity for the next generation for the children andgrandchildren to be able to have a better start at their life ora better chance in their life. (Applause.)
THE PRESIDENT: I can't add much to what's beensaid, except I would like -- this is the one and only time I'lltry to do this because the Social Security issue itself issufficiently complex and important -- but just for a moment,since you talked about families that are at risk of havingsomething bad happen, I'd like to fold the Social Security issueinto the larger issue of family savings, just for a moment, andask you to think about it and think about it from the point ofview of a family living on, let's say, $20,000 a year and oneliving on $40,000 a year and then one living on $100,000 a year.
We want a system, first, in Social Security that hassome sort of disability benefit and a survivor benefit to give abaseline threshold of existence to people that could havehorrible misfortune. Then we want a baseline predictableretirement benefit that is universal -- again, today it's lifting15 million seniors out of poverty.
But there are other things that we want to happen inthe course of a family's life. We want more and more people tobe able to save for their own retirement. And keep in mind, moreand more companies are offering their employees definedcontribution plans, not defined benefit plans. An increasinglysmaller percentage of our workforce works for a company that canafford or guarantee a retirement that says, here's what yourbenefits are going to be forever.
So what have we done? We've tried to stabilize anyretirement systems that are under water or at risk with variousactions in Washington. And the Congress in a complete bipartisanfashion has tried to dramatically increase the ease with which,and the incentives to which, people have to take out 401(k) plansand then can carry them from job to job.
In addition to that, in the IRA proposals that wepassed in the last year as a part of the balanced budget act andthen again last year we liberalized them I think some, you cannow save for an IRA -- and you can say, well, you can't afford tosave. But if you can, you don't have to pay taxes on that money.And then later if you withdraw now from an IRA, for example, topay for your child's education expenses, you don't have to paytaxes on that either.
So what we're trying to do slowly but surely is tocreate a system in which middle class people who are strapped forcash can afford to save in a comprehensive way. Now, what arethe problems? Relatively low rate of return on Social Security.And if you move away from low rate of return to higher rate ofreturn, can you continue to maintain the baseline benefit and theuniversality, number one. Number two, do you create so much riskthat if people happen to retire and need the money when there's abig drop in the stock market, they're in bad shape? SenatorSantorum has really thought a lot about how to minimize thedownside risk.
But I hear your message, I agree with it. And Ithink those are the real dilemmas we're going to have to figureout. What are people going to have to do for themselves outsidethe Social Security system and what can we do to help them dothat, how are we going to increase the return, how are we goingto minimize the risk, how can we do that and keep the benefitlevel at an acceptable level?
But to me, what I'd like to do when I leave officewhen the 21st century starts, I'd like to know that any familythat's out there with one person or two people that are workingtheir hearts out, doing the best they can, no matter how meagertheir income, they're going to have a chance to create a littlesomething for their children and themselves later on and have achance to do even better, and that no 20-year-old person willever have to worry about whether his or her Social Security taxesare going to be wasted, because there will be a retirement systemwhen they retire.
Q We have just so many questions in the audience.We're going to try to rip through as many of them as possible.
Q My question to the panel is, why do we have acap on income tax by Social Security? And wouldn't we generatemore revenue for our overall security by removing this cap?
MR. WALKER: One of the options that's talked aboutfrom time to time -- as you know, there's currently a cap on howmuch of your wages are subject to the 6.2 percent Social Securitytax. It's in the upper $60,000 number. And several years agothe cap was eliminated for Medicare, the hospital insuranceprogram, although we have to keep in mind that for the Medicareprogram it's 1.45 percent for the individual and the employer,whereas Social Security is 6.2. If you eliminate that cap,that's a significant increase in tax burden, albeit forindividuals making over $68,000.
The real question -- there are a couple of pointshere. One, it doesn't come anywhere close to raising enoughrevenue to deal with the problem. And I think one of the thingsthat we need in the future is some metrics -- what percentage ofthe deficit does the proposed reform solve. I think that wouldhelp a lot, quite frankly, in the future. This doesn't comeanywhere close to solving the problem.
And secondly, the question is, to what extent mightyou lose support from the program, because the tax burden onthose individuals, and therefore their rate of return, goes downterribly. So it's a legitimate debate.
THE PRESIDENT: Maybe I should answer this sincethis is really a question, if we're going to defend this, that aDemocrat should answer, if we're going to try to keep thisnonpolitical.
If you think about it, there may be an argument forraising the income some because of inflation and because a lotmore people have moved into higher income brackets in the lastfive years. But if you think about it -- let's suppose you tookit off altogether. You say, what do I care about some baseballplayer making $10 million a year, right? But if you think aboutit, what would happen is you would be putting people in aposition of paying over the course of their lifetime 50, 60, 100times more than they would ever draw out of the Social Securitysystem. And you can say, well, they owe it to society. Butthese people also pay higher income taxes and the rates are stillpretty progressive for people in very high rates.
So I think you can make -- in fact, if you took itoff altogether, the gap that will exist in 2029 is the equivalentof about 2.25 percent of payroll. And that would close -- Ithink if you took it off altogether -- I think about a 1.5percent of payroll. But you would really have tremendouslychanged the whole Social Security system. You would havebasically said, if you get to where you make $70,000 or more ayear we're going to soak you and you're never going to getanything out of this compared to what you're putting in.
Like I said, I wouldn't rule out raising it some,but I think we should be very careful before we get out of theidea that this is something that we do together as a nation andthere at least is some correlation between what we put in andwhat we get out -- except we want people on the bottom to get outa whole lot more than they put in so we can give them a decentretirement. It goes back to what our nurse said there.
Q Yes, we've spoken a lot about the privateaccounts and investments. And I'm wondering whether thecongressional delegation, if they were going to be willing toexamine the options of raising the retirement age even further orreducing the cost of living. Is Congress going to be willing totake up those rather unpopular things?
SENATOR SANTORUM: I would say that this gets backto Earl's point that he made during his speech. I think anyproposal that looks at things piecemeal is a mistake. I think wehave to look at this in a comprehensive fashion and see --Senator Moynihan and Senator Kerrey put together a bill that doesraise the retirement age, accelerates the retirement age going upto 67 to an earlier period of time, and then basically indexes itor, in fact, raises it I think a month every two years for someperiod of time, the retirement age. They also deal with the costof living. But they do it in a package providing personalsavings accounts and doing other things, providing otherbenefits.
So, as was said earlier, I mean, there's going tohave to be, if you're going to provide a personal savings accountcomponent, there's going to have to be changes to the basicstructure. And whether that includes some of the things that yousuggest, in all likelihood it will probably include something.I'm not too sure it will include a dramatic change in cost ofliving. I don't think it will be a dramatic change in retirementage. But I think all of those things are the differentcomponents that we need to look at over time to see how we can infact divert some of the money that's going into pay currentbeneficiaries and future beneficiaries into private and personalsavings accounts.
So I would say, in the context of the overall reformthose are things that will be looked at, but to do them piecemealI think would be a mistake and would get to the problem that Ihave, which is if you keep the old system and all you do is raisethe retirement age and cut COLAs and raise taxes, you're going toexacerbate the inequity in the system; you're not going toimprove it. And that's where I would have a problem with it.
REPRESENTATIVE POMEROY: I agree with much of whatthe Senator has said, specifically on the COLA, much of that--there was a great concern about the COLA as we discussed thebudget because there was actually a concern that the cost ofliving adjustment factor for Social Security overstatedinflation; in other words, it was raising benefits higher thanwhat most economists, many of the economists, thought inflationactually was. So we had an inaccurate inflation adjustor.
The Bureau of Labor Statistics in the Department ofLabor that adjusts these sort of things I think responded to muchof the public concern and the concern expressed in Congress onmaking arbitrary COLA adjustment, and they have refined theirmethodology and basically reduced the COLA that was projectedearlier. So much of the work on the COLA, I think, to bring itin line with what inflation actually is has already taken place.
On the retirement age, I think that -- I'm certainlynot going to advance the way we fix the system is to delayeligibility for Social Security -- but within the context of abroad reform, as the Senator mentions, having some type of -- inthe out years, 20, years from now -- an adjustment recognizingthe reality that people are living longer, working longer,provided that you have the safety valve where you can stillaccess the early benefit at age 62 if that's what you chose todo, albeit at a reduced rate, I think you have a program thatcertainly deserves consideration, among a number of otherproposals that deserve consideration.
But we certainly shouldn't just lock on reducingbenefits by cutting COLAs and delaying eligibility as a quick fixto a difficult problem.
THE PRESIDENT: Let me just make one suggestionhere, if I might, for all of you, and I'm embarrassed that Ican't remember exactly the numbers for the question that the ladyjust asked. But you need to keep in mind, if the specifics arereal important to you -- I mean all the specifics -- then I thinkyou need to always know what the impact of any specific proposalis. So again I'll say, in the year 2029, we'll stop being inbalance, and then we'll go into a deficit of roughly where we canonly pay 75 percent of the cost of the existing system of SocialSecurity with the revenues that we have.
So if somebody says to you, well, what if we raisethe retirement age to 70, or what if we cut the cost of living byhalf a percent, or what if we took the ceiling off the incomesearnings, to go back to this gentleman, I think it's important,if you really want to seriously discuss that level of detail,that you know what the impact of each specific one would be. Andwe can get you that information. For example -- or if you want 1percent of payroll devoted to individual savings account, whatwill that add to the gap of 2.23 percent in the short run. Andthen you just have to decide what you're prepared to do to closethe gap.
But you have to understand, your members of Congresshere, they're going to have to actually make difficult decisionsat something less than an abstract level. They're going to haveto sit down and say okay, if I raise the payroll ceiling thismuch, it will close .4 percent of this 2.25 percent payroll gap.
And one of the things that surprised me -- thereason I brought this up -- one of the things that surprised mewhen I started studying it in this way is what a small impact itwould have to accelerate the rate at which we're going to 67 tothe retirement age. I mean, it does you some good, but itdoesn't have anything like the impact that I had imagined itwould.
Do you want to say anything?
MR. WALKER: Mr. President, I think that's anexcellent point. You need to recognize that whatever SocialSecurity reform package gets enacted, it's going to be a balance.It's going to be a balanced package. You need to have a feel asto how much of an effect does it mean. For example, raising thenormal retirement age from 67 to 70 gradually to where it's 70 bythe year 2030 -- so we're talking a number of years out -- wouldroughly make up about 44 percent of the projected deficit.Changing the COLA by half a percent would roughly make up about30 percent of the projected deficit. Eliminating the earnedincome limitations so as not to provide a disincentive for peopleto work would cost 5 percent. But sometimes, you may decide youmay want a stronger minimum benefit. That might cost money, buton the other hand there are other elements that would save money.And we need a balanced package, and you need to have a feel forthat in making choices.
Q Mr. President, I want to thank you for thesuperb job that you are doing in running the country and bringingthis forum here to Kansas City. I'm a person on Social SecurityDisability from the Equitable Life Insurance Company, and I alsodraw an income security plan from them. I do like the securityof the Social Security system, but I also agree with the Senatorover here about, like my retirement plan is locked in. I look atit every year. It's locked in an annuity with the Equitable for6 percent -- I'm 50 now, until I'm 62 to 65 -- and I can't touchit. I like that system.
THE PRESIDENT: You like the fact that it's lockedin?
Q Yes and I can't touch it. I can't cash in. Ican't go buy shoes or anything like that. It's locked in for me.(Laughter and applause.)
THE PRESIDENT: Thank you. (Applause.)
MS. MOON: I think that's an important element of anindividual savings account that we would think about into thefuture because I think it is going to be very tempting at somepoint to tap into those, just as we have loosened up therequirements on 401(k)s and IRAs and so forth. And so I thinkthat's something that also needs to be thought about in terms ofthe practical questions. Some of them are easy because you don'twant people to use it for frivolous reasons. Some of them aredifficult -- when a 50-year-old is facing catastrophic healthproblems, for example, and doesn't think they're going to everlive to use their retirement account and may want to tap into it.So it's going to cause some problems in terms of holding thatpromise. But I do think that's an important element of thediscussion.
Q Mr. President, the question jogged in my mind,the inter-relationship between a defined contribution, like401(k) private plan and a defined benefit nature of SocialSecurity. The 401(k) -- maybe you annuitize it, maybe youexhaust the benefit, maybe you've invested, it doesn't get thereturn you project, maybe you had to withdraw early. It may ormay not get you to where you thought it would in terms of yourretirement savings planning, but the Social Security programwraps around that very nicely with the defined benefit,predictable, dependable, monthly payment for as long as you livein retirement.
And so I think that as we see the private systemgoing more toward risk on the individual in a 401(k) plan -- andI don't -- I'm not objecting to the 401(k) plan, but while wemake that move, we should, I think, give very seriousconsideration to backstopping that risk with a defined benefitstructure in the Social Security program.
MR. WALKER: Mr. President, I think an importantpoint here is if you take 401(k)-type plans, the issue you'retalking about it preservation. And preservation is reallyimportant since the money is there when you retire. In a 401(k)plan, about 70 percent of lump sum distributions are spent, notpreserved to retirement -- at least a portion of the lump sumdistribution. And so the issue of preservation is not only anissue of importance with regard to Social Security if there is apiece of an individual account in future reform. But it's alsoimportant right now with regard to pension policy.
Q Mr. President, you said during your remarksthat there was a poll that showed that young people thought thatmaybe they'd see UFOs before they saw their Social Securitychecks. Our questioner is 20 years old; she may be one of them.
Q Well, I have a question -- well, it's notreally a question, but, Senator Santorum, you said that, okay,that money from the checking account that we put away, now who'sto say that we're not going to have to use that money forsomething else, like pay medical bills that our parents -- likeif they go into the hospital? So, I mean, you always say save,save, save, but what if we can't save and we have to use thatmoney for something else?
SENATOR SANTORUM: Again, I think it's important tounderstand that that money is going to be fenced off. I mean,that is as important as anything I think I can say here -- iswhat the gentleman said here, is that that money should not beable to be used for any other purpose other than for retirement.And I understand that there are needs, but the way I'menvisioning it -- I think this is the point you may have jumpedin on -- is that when a person dies, that that money would pourinto that other -- to your children's account to help theiraccount. So it would help their retirement.
THE PRESIDENT: But I do want to emphasize that yourproposal would be not to increase the amount of payroll tax butto take a percentage away so --
SENATOR SANTORUM: No. Take a percentage away so itwouldn't be an increased tax burden on you.
THE PRESIDENT: Let me say to the young lady thatasked this question, we changed the law on IRAs, IndividualRetirement Accounts, which would require you to be able to beable to put away something over and above your Social Securitytax, but now, if you put money into an IRA now, and you have towithdraw from that IRA to meet a medical emergency or for afirst-time home, or to pay for education, you can do that withouta penalty now. And if you do it for education, you do it withoutpaying any tax at all on the gain.
So there is a way under the present system, as ayoung person, that you can save. And if you face a medicalemergency, you could withdraw from the savings without penalty,but it would have to be over and above what you pay in yourpayroll tax. And that wouldn't be changed by what SenatorSantorum -- he wouldn't make it any harder for you to do that.And we tried to make it easier in the way we changed the law inthe last two years.
Q Mr. President, my family represents four levelsof the Social Security system. My mother is on Social Security;my brother and my two sisters and I are all paying into SocialSecurity; I have a -- I am legal guardian of a child who isdisabled and on Social Security; and I have a 21-year-old childwho is in college and is facing this crisis head on. My questionto you is, why do we have the cap and not a security net? Inother words, change that cap from the top and put it on thebottom. Those of us that are struggling are the ones that needthe Social Security when we get older, but we're also the onesthat are paying for those ballplayers when they get their SocialSecurity. (Applause.)
THE PRESIDENT: You think that there should be a capon the size of your tax or that we should have a higher floor onthe benefits?
Q Neither one. I think that the -- instead ofputting a cap on the top level, put the cap down where it belongsand don't -- not charge the Social Security tax on those of usthat can't afford it anyway. Put the cap at $30,000 a year -- wedon't pay anything into it, or a very minimal amount. Go aheadand tax the ones that can clearly afford it in the first place.
SENATOR SANTORUM: Well, there is a program in placethe Congress passed under Reagan -- and under President Clintonexpanded it dramatically -- the Earned Income Tax Credit. Andthe Earned Income Tax Credit is to address the very issue thatyou suggest, which was that the Congress identified under -- thatthe Democratic Congress and the Republican President identified aproblem with low income people paying -- the greatest tax burdenis on payroll taxes.
So they developed the Earned Income Tax Credit whichwas in a sense to help families pay for their Social Security taxby claiming this credit. And the President extended it twice, Ibelieve -- or at least once -- in the '93 act I know he extendedit to a higher income family. You probably know that numberbetter than I do --
THE PRESIDENT: $31,000.
SENATOR SANTORUM: It's up to around $30,000 -- andyou would get some credit to help you pay your Social Securitytax.
So in a sense, I do know that people earning under,I think it's $20,000, pay no Social Security tax net of the EIC.So there is no Social Security tax burden net when you take thetax credit in effect.
THE PRESIDENT: Let me say again, I believe thatthose of us who have higher incomes should pay more on the SocialSecurity. I don't have a problem with that. The only point Iwas making is if you took the cap off altogether on upper incomepeople they wouldn't be in a Social Security system anymore,they'd just be writing six percent of their income for somethingthat they'd never see.
And we do tax them more on the income tax side,considerably more. And we also have no cap on what they pay intothe Medicare trust fund, which you pointed out. But the thingthat has made Social Security work in the past is that everybodyhas had to pay in and everybody got to draw out, that there was aguarantee and a mutuality of responsibility.
The Earned Income Tax Credit has been somewhatcontroversial in Congress, but if it were up to me I would haveit even more generous. Because the way it works now is theaverage family of four with an income of $30,000 a year or lessis paying approximately $1,000 less in income tax, includingeligibility for refunds, than they would have paid if the lawhadn't been changed in '93. And we did it to try to take accountof the fact that the payroll tax was so high for people and thatincomes of people -- the lower 20 percent of our work force hadnot gone up very much in the last 10 years.
But it seems to me that it's better to have somegive back there and still have a universal participation in thesystem, since we want everybody to be a part of both theresponsibility for paying in and then be able to get the minimumamount coming out.
Q I don't question whether or not there is broadbipartisan agreement on whether or not to fix Social Security.However, I would point out that just a couple of years ago thatthere was broad bipartisan support for reforming finance campaignlaws. What reassurance can you give us that anything willactually be done with this?
SENATOR SANTORUM: Well, I would answer that, that Ithink your premise is wrong, there was not broad bipartisanagreement on how to reform the campaign finance system, numberone.
Number two, I don't think it's safe to say thatthere is broad bipartisan agreement on how to fix SocialSecurity. I think there's broad bipartisan agreement that weknow that there's a problem and we both recognize it. And now weare working through the process of getting to that solution. AndI think in a sense we're far ahead of the game in campaignfinance.
Here we have a good foundation, we both see theproblem, the same problem. In campaign finance I don't think wesaw the same problem -- let's be honest. I mean, we just didn't.Here we do. I think we're dealing from the same basic -- and asfar as the general outline for solutions, I think what we heardhere today is there still has to be a Social Security system;there has to be certain guarantees for people who are at or nearretirement as well as for future generations, for disability andfor the working poor and for survivors. I mean, I do believe wehave a pretty good foundation.
How we go from there -- I mean, we're a long wayfrom there. And that's why this public discussion and debate isso important.
REPRESENTATIVE HULSHOF: Let me give you a freshmancongressman's perspective.
First of all, I appreciate you all participating inthis great debate in help kicking this off. We've talked a lotabout numbers, and that's as it should be. But I thinkultimately the debate about Social Security is more about rights,it's more about responsibility, it's more about vision, it's moreabout values.
The freshman class, there are 35 new Republicans inCongress and I think 43 new Democratic members in Congress. Andas I mentioned in my opening remarks, we have come together ontough issues like campaign finance reform. In fact, we had afreshman bill that we put forth, that we worked together in abipartisan way.
When it comes to, as Senator Santorum talked about-- when it comes to fixing Social Security, this is not aRepublican issue, it's not a Democratic issue, it's an Americanissue. And if I can provide any assurance to you as a fresh facein Washington, the vast majority of newly elected members of the105th Congress are looking beyond the next election to the nextgeneration. So I'm excited about this year being the year ofeducation. And going to this gentleman's question, that 1999hopefully will be a year of action.
Q Mr. President, I want to give you the lastword, because that's the overall question which everybody wantsto take away from this today; which is, now that we're talkingabout Social Security, now that touching the third rail doesn'tmake us dead anymore, exactly what can they expect of all of you?
THE PRESIDENT: Well, that question melds rathernicely with the last question that was asked from the audience.I deeply regret that we haven't passed campaign finance reformlegislation.
But to answer this, why is this different, for onething, the divisions in the campaign finance reform are not onlydivisions -- they're divisions of party and also divisions ofincumbency and non-incumbency. And then they're honestdifferences of opinion about what would work and wouldn't -- allkinds of problems and complicated by Supreme Court decisions anda zillion other things.
But the other thing is, frankly, every member ofCongress that really doesn't want to pass it knows, that therepublic will go on if it's a system we have is capable ofproducing significant positive change -- witness the BalancedBudget Act and the fact that we had the biggest increase in aidto higher education in 50 years and the biggest increase in thecoverage of children's health insurance in 35 years. So peopleknow that this system can be made to function.
The members of Congress in both parties know that atsome point in the future, Social Security will stop functioningwith grievous consequences to the fabric of American life thataffect people who are Republicans and Democrats and independentsin all walks of life with all manner of circumstances. Andbasically, there's enough patriotism in the Congress to want toaddress it. That's the honest truth. It's an issue of oursurvival as a people, our unity as a people, and the innatepatriotism of the people that are serving. That's why I believeit will happen.
What I think will happen, what I want to see is thatwe will spend the time between now and December trying to answerthe question this gentlemen had, how can we get out thisinformation to people. We also want you to become more familiar,so you can answer questions for yourselves. If you had tochoose, for example, between a faster movement to a higherretirement age, or an individual savings account or, you know,raising the cap on income, or all of these choices they're goingto have to make, what choices would you make and why? And howwould you answer the other charges? This ought to be a bignational debate. There is no other program that affects so manyof you in so an intimate, personal way.
And then what i believe will happen is all thesemembers will have lots of forums in their own states. They'lllisten to their own people. They'll listen to these experts.You're going to see 100 or more articles written by people likeour panelists here, coming up with new refinements on ideas,analyzing the proposals that Senator Kerrey and others have made.
And then in December, in January, we'll sit down andcome up with the best possible solution. It won't pleaseeverybody 100 percent, but it will save Social Security for the21st century and it will make us a stronger more united country.And then I think the Congress will come in and pass it because itis the right thing to do. That may seem naive and I may beold-fashioned, but I'm more idealistic today than I was the daythat I took the Oath of Office -- that's what I think willhappen. And I think you will make it possible, because you'll
support people like these folks who will do the right thing byyour children and your future.
Thank you. (Applause.)