President Presses Debate on Change in Social Security

By: Richard W. Stevenson
The New York Times, April 8, 1998

Kansas City, Mo. -- With charts at his side and an array of solutions being debated before him, President Clinton began trying to build consensus today on addressing Social Security's looming financial problems, and he said he thought the job could be accomplished without raising the payroll taxes that finance the retirement system.

Speaking to the first of four regional conferences on Social Security this year, Mr. Clinton for the most part kept to generalities and left open the possibility of sweeping changes, including the proposal to make individual investment accounts a part of what until now has been solely a guaranteed Government benefit program.

He all but ruled out increasing the 12.4 percent payroll tax rate, split equally between employees and employers, as a way to close the financial gap that Social Security will face as the baby boom generation retires in coming decades. And he said he would be reluctant to eliminate the cap on earnings, now $68,400, above which workers pay no further payroll taxes for Social Security.

Mr. Clinton said the debate was critical now, when the strong economy and the nation's newfound fiscal health present "a rare opportunity to prepare our nation for the challenges and the opportunities of the 21st century, or in the words of an old saying, to f ix the roof while the sun is still shining."

"If we act now", he said, "we can insure strong retirement benefits for the baby boom generation without placing an undue burden on our children and our grandchildren. And we can do it, if we act now, with changes that will be far simpler and easier than if we wait until the problem is closer at hand."

Generally, Mr. Clinton stuck to his strategy of neither endorsing nor shooting down any of the major options for reshaping Social Security and of calling on Congress to leave any future budget surpluses untouched until Congress and the White House have settled on a plan. Pressed by questioners to take a specific position, Mr. Clinton said that doing so now would inhibit the national debate and that he would put his ideas on the table in December at a bipartisan White House conference.

Mr. Clinton suggested, and his aides later confirmed, that the Administration would be willing to consider individual accounts as part of a comprehensive solution only if the overall plan insured that Social Security would continue to provide recipients with a guaranteed retirement benefit. "Social Security must provide a benefit that people can count on," Mr. Clinton said. "Regardless of the ups and downs of the economy or the financial markets, we have to provide a solid and dependable foundation of retirement security."

But there was plenty of evidence right on the platform with Mr. Clinton that allowing investments in Social Security would be central to the debate over how to prepare the system for the retirement starting in about a decade of the 76-million-member baby boom generation.

The two speakers immediately following Mr. Clinton in the first portion of the daylong program - Senators Rick Santorum of Pennsylvania, a Republican, and Bob Kerrey of Nebraska, a Democrat - backed the idea of private accounts. A third. Representative Kenny Hulshof of Missouri, a Republican, said the idea deserved study, and a fourth, Representative Earl Pomeroy of North Dakota, a Democrat, said the Social Security system itself might invest in the stock market.

Other options being discussed are cutting benefits, accelerating a Planned increase in the retirement age to 67, increasing taxes on benefits received by the affluent and using Federal budget surpluses - projected by the White House at more than $1 trillion over the next decade -,to extend Social Security's solvency' Without any changes, Social Security will run short of money starting in 2029 and would thereafter be able to pay only 75 percent of promised benefits.

Mr. Clinton said that each $100 billion dedicated to Social security would extend the program's solvency by a year. But his aides said Mr. Clinton had yet to decide how much of any surplus he would like to dedicate to Social Security, despite his challenge to Congress not to spend any of the surplus until Social Security's problems had been dealt with.

Republicans have been wary of letting Mr. Clinton manage the national debate. Republicans in the House are pressing for creation of a Congressionally mandated commission to come up with a legislative proposal, but the Administration rejected that in favor of a White House conference in December.

Mr. Pomeroy said he was encouraged that the debate over Social Security as an investment program versus, an insurance program had not become a partisan chasm and that there appeared to be broad agreement that the system should retain some guaranteed-benefit. "The rest we can negotiate," Mr. Pomeroy said.

For Mr. Clinton, today's event, held in a gym at Penn Valley Community College and sponsored by the American Association of Retired Persons and the Concord Coalition, a fiscal watchdog group, was an opportunity to plunge into the details of a Policy debate and leave behind the scandals in Washington.

Fielding questions in the afternoon from an audience selected by a market research company to reflect the demographic and economic characteristics of the Kansas City area, Mr. Clinton touched on an array of issues relating to retirement security, health care and taxes.

Members of the audience added their opinions.
"I don't know if privatization of Social Security is a good idea or not," said one woman, who identified herself as a nurse, while addressing a question to Mr. Clinton. "My husband and I can afford it. We have an income of over $100,000 a year. There's people in here, though, who don't, and I guess I have several challenging questions." Foremost among them, she said was that if the nation allocates some of Social Security's money for private accounts, "then, are we really socially secure and not taking out that security piece?"

Ultimately, Mr. Clinton told the audience, it would be up to the nation to tell political leaders how they would make tradeoffs between options like raising the retirement age, eliminating the income cap and establishing private accounts.

Excerpts From the Discussion About Social Security

By The New York Times

Kansas City, Mo., April 7 - Following are excerpts from a discussion today on the future of Social Security among President Clinton, members of a panel and an audience. The panel included Senators Rick Santorum, Republican of Pennsylvania, and Bob Kerrey, Democrat of Nebraska; Representatives Earl Pomeroy, Democrat of North Dakota, and Kenny Hulshof, Republican of Missouri; Marilyn Moon of the Urban Institute ' David Walker, a trustee,:)f the Social Security and Medicare Trust Fund' Gary Burtless of the Brookings Institution, and Fred Goldberg, former executive director of the Commission on Social Security and Entitlements. The discussion was moderated by Gwen Ifill of NBC News. A transcript of the discussion as provided by the Federal News Service, a private transcription service.

MS. IFILL. There has been much talk about privatizing Social Security, and the question is whether this is a slippery slope or a cure. Where do you come down on that?

MR. CLINTON. Well, I don't think it's necessarily a slippery slope. I think the issue is if you start worth certain basic principles and you start with certain basic facts, then I think there are any number of options that can be chosen that both fit the facts, because if you start - you get in trouble in life if you start denying-the facts.... I think it's important to keep a system that's universal, that's fair, that has a benefit-certain as a baseline, and that deals with the problems of the disabled and the low-income people that are presently helped. If you do all that, could you construct some system which also made allowance for private accounts? I think you could, yes. But could you - would I favor totally privatizing the system? No. ...

I think we'd all like to see a higher rate of return on the system, on the investments. The question is, how do you get that and still keep the system that has lifted so many seniors out of poverty and dealt with disability and dealt with premature death and dealt with all the other problems the Social Security system deals with? ...

MO. KERREY. Senator Moynihan and I have crawled out on a limb with a specific proposal. And I don't want in this answer to describe the details of that, but in essence, it provides an $800 billion tax cut in the payroll tax area which for the median family, payroll taxes are twice as high as the income taxes. Secondly, it allows that money to be invested in individual accounts similar to the thrift savings account for Federal employees. Not a single Federal employee complains about administrative costs, nor do they complain about the complexity and the difficulty of it. . . .

And thirdly, it restores and fixes Social Security in perpetuity, so that whatever promise you've got on the table, whether the individual was just born in Columbia, Mo., or is 81 years of age, that promise can be kept.

MS. MOON. My sense is that that that's a good way to think about how you'd want to change in the future. I think more resources are needed in toto to Solve the problems of a secure retirement for a generation that's going to be much larger than the current generations of retirees….

MR. WALKER. In the end, Social Security reform really has to pass two tests. First, it's got to make sense, and the American people will determine whether or not the reform makes sense. And secondly, it's got to be politically feasible. It's got to be doable, and the American people again can lead the way to help convince the politicians what they are willing to take or not. Realistically today, I think many people believe, if not most, that simply raising taxes and keeping the current system is not politically feasible. Therefore, we need to look at more comprehensive reforms….

MR. CLINTON. I don't know anybody who thinks that we should try to preserve the status quo program with an increase in the payroll tax. Most Americans are paying more in payroll tax than they are in income tax today - most working families are - and I don't know anybody who favors that….

I think that we ought to admit that we can solve this problem without an increase in the payroll tax, but we ought not to put ourselves in the position of saying that we won't even listen to somebody who's got a different idea….

AUDIENCE. I challenge Congress and the Senate to say what makes you think people are going to save? This mother back here with three children is going to buy them tennis shoes, she's not going to save. She's going to put money away for college. She's not going to save.

MR. WALKER. First, I think there seems to be some agreement that we need a foundation to build upon, and that, with regard to Social Security, a foundation is a base-defined benefit element; secondly, survivor's insurance; and thirdly, disability insurance, and that needs to be targeted towards lower and middle-income individuals who are most in need. The debate is, what else do you do? ...

MR. GOLDBERG. No one wants to walk away from current retirees, no one wants to walk away from the disabled, no one wants to walk away from a promise that people - workers don't retire into poverty. And that's the starting point for all of us....

MS. MOON. I would only add that I hope that we will all be held accountable at the end of the day on how well we protect the most vulnerable of our citizens, and that should be the final line. . . .

MR. POMEROY. Whatever we do, we can't take security out of Social Security, and I think we come back to that again. ... A guarantee that, if you die and leave a spouse and little kids, there is going to be a payment for them, making up for the income that you're no longer going to be bringing to that family. And if you become disabled, incapacitated, unable to work, there will be an income stream through a Social Security disability benefit....

SENATOR SANTORUM. Under any plan I would put forward ... that portion that would be put in for personal savings would be not able to be withdrawn for any purpose, period. That money won be in that account, Could not be taken out for purpose. ... The poor and minorities in t country, unfortunately, don't have life expectancies as the general population and so many of them, As was said earlier, die before they have any kind of return on their Social Security. ... Well, under the plan that we're putting forward, what they would have is this to pass on, to create that security and the opportunity for the next generation….

MR. CLINTON. We want a system first in Social Security that has some sort of a disability benefit and a survivor benefit to give a baseline threshold of existence to people that could have horrible misfortune.... But there are other things that we want to happen in the course of a family's life. We want more and more people to be able to save for their own retirement.

And keep in mind, more and more companies are offering their employees defined contribution plans, not defined benefit plans. There are very few… an increasingly smaller percentage of our work force works for a company that can afford to guarantee you a retirement that say here's what you're benefits are going to be forever…

What we're trying to do slowly but surely is to create a system in which middle-class people who are strapped for cash can afford to save in a comprehensive way….

I'd like to do when I leave office and the century starts, I'd like to know that any family that's out there with one person or two people are working their hearts out doing the best can, no matter how meager their income, the going to have the chance to create a little thing for their children and themselves late and have a chance to do even better, and the 20-year-old person will ever have to worry whether his or her Social Security taxes are to be wasted because there will be a retire system when they retire….

AUDIENCE. Why do we have a cap on income by Social Security, and wouldn't we generate more revenue for our overall security by raising this cap? ...

MR. WALKER. As you know, there's current cap on how much of your wages are subject 6.2 percent Social Security tax. It's in the $60,000 number ... if you eliminate that that's a significant increase in tax burden, for individuals making over $68,000. The real question ... one, it doesn't come anywhere to raising enough revenue to deal with the problem ... and secondly, the question is, to extent might you lose support from the pro because the tax burden on those individual therefore, their rate of return, just goes terribly.

MR. CLINTON. You say, "Well, what do I about some baseball player making $10 million a year," right? That's sounds right. But if you think about it, what would happen is, you would be charging - you would be putting people position of paying, over the course of their lifetime, 50, 60, 100 times more than they would draw out of the Social Security system.

MR. POMEROY. I'm certainly not going to advance that the way we fix the system is delay eligibility for Social Security. But in the context of a reform ... having some type of - in the out 20, 30 years from now - an adjustment, rec ing the reality that people are living I working longer, provided that you have the valve where you can still access the early at age 62, if that's what you choose to do, at a reduced rate, I think you have a program certainly deserves consideration. . . .

MR. CLINTON. In the year 2029, we'll stop being in a balance and then we'll go into a deficit of roughly where we can only pay 75 percent of the cost of the existing system of Social Security with the revenues we have.... You have to understand; your members of Congress here, they are going to have to actually make difficult decisions at a something-less-than-an-abstract level….

Let me say, again, you know, I believe those of us who can - who have higher incomes should pay more.... I don't have a problem with that. The only point I was making is, if you took the cap off altogether on upper-income they literally - they wouldn't be in a Security system anymore; they'd just be 6 percent of their income for something they'd never see....

MR. HULSHOF. When it comes to fixing Security, this is not a Republican issue, it's not a Democratic issue, it's an American issue.

MR. CLINTON. The members of Congress in both parties know that at some point in the future, Social Security will stop functioning, with grievous consequences to the fabric of American life that affect people who are Republicans and Democrats and Independents in all walks of life, with all manner of circumstances. And basically, there's enough patriotism in the Congress to want to address it, that's the honest truth… It's an issue of our survival as a people, our unity as a people.

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