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Privatizing Social Security: A Debate on Bush's Social Security Plan

StoryDecember 15, 2004
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A two-day conference on the economy hosted by President Bush opens today in Washington, and Social Security is at the top of the agenda. We host a debate on Bush’s plan to privatize part of Social Security with independent journalist Eric Laursen and Michael Tanner of the Cato Institute. [includes rush transcript]

A two-day conference on the economy hosted by President Bush opens today in Washington, and Social Security is at the top of the agenda.

The White House has repeatedly said that Social Security is facing a financial crisis to the tune of 10 trillion dollars. Bush says he wants to shore up these finances by allowing workers to shift some of their Social Security payroll taxes into private accounts that could be invested in stocks or bonds.

Critics are already voicing their opposition to Bush’s plans. Today we host a debate on Social Security.

This is a rush transcript. Copy may not be in its final form.

AMY GOODMAN: We’re joined by Eric Laursen, independent journalist who has covered Social Security for many years, is writing a new book, it’s called, People’s Pension: The Politics of Social Security Policymaking Since 1980. Michael Tanner joins us on the line, he’s head of the project on Social Security choice at the Cato Institute, authored a study entitled, "The 6.2% Solution, a Plan for Reforming Social Security." Michael Tanner, what’s the problem?

MICHAEL TANNER: Well, there are several problems with Social Security. The one that we talk about most, of course, is its financial problem. The fact is that Social Security will begin to run a deficit within 15 years, spending more money on benefits than it takes in through taxes. At that point, of course, it will have to draw on the so-called Social Security trust fund in order to continue to pay benefits until about 2042, but of course, the trust fund actually has no assets in it. It is simply a claim against future tax revenues. So the government will actually begin having to find additional money, will begin running a cash shortfall in less than 15 years. Overall, Social Security is facing some 12 trillion dollars in unfunded Social Security liabilities. But beyond that, we also have the problem that Social Security as a system is providing poor returns to younger workers is discriminating against working women, low income individuals and minorities, and does not give workers any ownership, control, or legal right to benefits.

AMY GOODMAN: We are also joined in our studio by Eric Laursen, independent journalist, who has written a book — writing a book on Social Security. Well, is Social Security in danger?

ERIC LAURSEN: The short answer is that we don’t know. The protections that we get from the Social Security trustees that they put out every year deal with 75-year periods. They also have projections on when the system is going to start to pay out more money than it takes in. But really, these are very speculative numbers. They have to do with birth rates. They have to do with immigration rates. We don’t know. They’re projections they’re not meant to be used as hard and fast rules, here is how you change the system. Social Security is — it’s a social compact. It’s not really a — an investment account. To treat it that way is really the wrong way to address the problem. What’s disturbing about the privatization proposals that are coming up is that they treat it as something akin to a savings account or an investment account rather than as a social compact. The numbers that Michael cites are ones that actuaries come up with, but they don’t really have much to do with the guts of the system, which is a modest benefit for people who are retired, disabled or the children of deceased workers. What we need to concentrate on is the social promise that’s being made there and how we as a society want to fulfill it.

AMY GOODMAN: What’s wrong with partially privatizing Social Security? Can’t you trust workers to invest?

ERIC LAURSEN: Well, to put that in perspective a little bit, there are portfolio managers on Wall Street today with degrees in higher math who lose millions of dollars every day on huge investment accounts. For them it’s all right because theoretically, these investment portfolios they manage go on forever. For workers to have to operate into the same system is a very different story. You have to learn how to ratchet down the level of risk in a portfolio, as you approach retirement or as you approach your death. And that’s a very difficult thing to do. It’s not patronizing at all to say that this is not a job that should be given to each and every worker in the country. Because it’s a formidable task. And to impose a system like that that’s highly risky on workers who deserve to have a secure retirement is not fair.

AMY GOODMAN: Michael Tanner?

MICHAEL TANNER: Well, no one is suggesting that workers are going to have to sit down at night with the Wall Street Journal and try to pick between General Electric and General Motors. All the plans being currently discussed would actually have workers invest in a very small number of broadly diversified index-style funds, very similar in fact to the federal thrift savings program that every federal worker is invested in, every mailman and GS2 secretary is participating in the private investments for the thrift savings program. We are suggesting that the average American worker should be able to invest the same way. That would give many workers who are now cut out of the opportunity to build real inheritable wealth a chance to get in on investment and wealth creation the same way that wealthier people can do. We can make every waitress and every lathe operator on the factory floor a participant in capitalism, a participant in ownership of the American economy. We can democratize with a small d, the ownership of capital in the country and that will have a profound effect on the future of American labor.

AMY GOODMAN: Eric Laursen.

ERIC LAURSEN: There’s something a little bit disingenuous in what Michael is saying, I think. Democratize, yes, for people who have accounts or high wage earners who would have accounts that are large enough to be viable. Most workers, who work at demanding or even debilitating jobs do not make the kind of money that would allow them to accumulate a large enough account to make it viable. This is not a formula for democratizing investment. This is a formula for augmenting the ability of people who already have the resources to increase them. It’s going to help to create a more bifurcated, a more wage split society than we already have.

AMY GOODMAN: Michael Tanner, what about someone who’s investment gets wiped out?

MICHAEL TANNER: Well, first of all, I just respond to that by saying that’s an argument for creating larger individual accounts and not stopping with 2% of payroll. Let’s let the low wage workers invest their half of the Social Security payroll tax so that they can accumulate substantial amounts of wealth. As for people whose investments don’t do as well as others. First of all, I would say, that given a large enough time horizon, whether we are talking about people investing for 30, 40, 50 years, investment is remarkably safe. There’s never been a 20 year period in which you would have lost money in the markets, but if you did, every major proposal on Capitol Hill includes some level of safety net or minimum benefit. In fact, many of the proposals actually increase the current benefit up to 100% or 120% of the poverty level.

ERIC LAURSEN: There’s a saying in the social welfare profession in the country that programs for the poor tend to be poor programs. You can have a minimum benefit, you can have a sort of a welfare net for people whose savings accounts in Social Security don’t work out. But the fact of the matter is, we know what happens to welfare systems in this country. We know what happened to Aid to Families with Dependent Children. They get whittled down. The people who receive them are demonized as welfare queens or whatever. Ultimately, those benefits get cut because they don’t have a constituency for them. There’s all sorts of goodwill behind some of the proposals that are — that have gone forward on Social Security, but ultimately, we’re talking about a guaranteed benefit that is being turned into an at-risk account.

MICHAEL TANNER: But just imagine the undermining of support for the social welfare aspects of the Social Security system if we have to raise taxes — payroll taxes by as much as 50%, which is what could happen in order to preserve the current system. If we have to raise taxes on middle income people in order to continue to provide the current level of Social Security benefits, that is going to undermine the long term social compact here. Much better that we give all Americans a chance to build and create real wealth, and then those few Americans who have a problem, let’s step in and make the welfare aspects of Social Security explicit and take care of them.

ERIC LAURSEN: Again, making the welfare aspects explicit is an invitation to cut them. I think also, you have to keep in mind here that this is not a free lunch. As it’s being portrayed by members of the Bush administration, and I think also by think tanks like Cato in a lot of cases. Private accounts would come at the cost of a cut in benefits. One of president Bush’s plans that was outlined in his 2001 Social Security Commission that has been scored by the Congressional Budget Office that worker who was born in this decade would take a 40% cut in benefits. And this is in a system that only makes up on average maybe 30% of a person’s working income on average. That’s a substantial cut in the kind of — in the only part of the system that’s guaranteed, and what you get in return is a private account that is very much at risk. Michael points out no 20-year period of the market has lost money. Over a 16-year period from 1966 to 1982, if you invested $100 in the market, you would have made nothing until 1982. It depends very much on your timing — when you participate in the market. That’s not something that workers who are in low wage jobs can afford.

AMY GOODMAN: We’re talking to Eric Laursen, writing a book on Social Security in our studio, Michael Tanner on the line with us from the Cato Institute. New York Times had a news analysis piece yesterday by Edmund Andrews that says while Bush is focusing almost all his rhetorical energy on the need to let people divert some of their taxes to private retirement accounts, nearly every leading Republican proposal on Capitol Hill acknowledges that private accounts by themselves do little to solve the system’s projected shortfall of at least $3.5 trillion. Instead, these proposals rely on deep cuts in benefits to future retirees. He says, the uncomfortable political truth was driven home Monday by the head of the investigative arm of Congress, named David Walker, the controller general of the government accountability office. He said that the creation of private accounts for Social Security will not deal with the solvency and sustainability of the Social Security fund. Your response to that, Michael Tanner?

MICHAEL TANNER: Individual accounts and private investment will not get us all the way out of the hole. The unfunded liabilities of Social Security are so huge that even the powers of private investment cannot get us all the way out of there. What they’re doing is simply acknowledging that fact. But those — that hole exists whether or not you create individual accounts. The benefit cuts they are talking about would occur now, by law, that when Social Security has no longer enough revenue coming in to pay the benefits they are promised, it must by law cut those benefits by at least 23%. The benefit cuts are coming if we don’t make any reforms at all. What individual accounts do is offset some of the cuts that would otherwise be coming, and raise people’s benefits above the level of what Social Security can actually pay. Making any comparison at all to the promised level of Social Security benefits is meaningless. Because those promised benefits are simply a fantasy. They cannot be paid.

AMY GOODMAN: We only have 10 seconds, but Eric Laursen, why is Social Security so important?

ERIC LAURSEN: Social Security is the primary income support for over 50% of the elderly in this country. And to reduce it to dollars and cents and not address the fact that it’s a social promise that we make that’s vital is a very skewed and frankly kind of creepy way to look at the system it’s not about numbers. It’s about what we are willing to, as a society, provide for the elderly, who have worked all their lives.

AMY GOODMAN: On that note, I want to thank you both very much for being with us. Eric Laursen, independent journalist, writing a book on Social Security. Michael Tanner of the Cato Institute.

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