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Episode #2016
Social Security Reform
Lewis: Mitchell Lewis, host
Bush: President George Bush
Vajda: Eszter Vajda
Baldwin: Dawn Baldwin, homeowner
Long: Matthew Skip Long, President, National Jobs Partnership
M: Unidentified Bush supporter
Schafstedde: Sara Schafstedde, Bush supporter
Miller: Brad Miller, N.C. Congressman
Avery: Joseph Avery, Chairman, Johnston County Republican Party
Schofield: Bob Schofield, Policy Director, N.C. Justice Center
Lewis: President Bush has proposed a modern day solution to what he has called the Social Security crisis. A lot of young workers like what they are hearing but what is not being said? We will take a look at the claims and concerns around Social Security changes next on Black Issues Forum.
Voiceover: Funding for this program was made possible in part by UNC-TV members.
[THEME MUSIC]
Lewis: Good evening everyone and welcome to Black Issues Forum. I'm Mitchell Lewis. Tonight we bring you two different viewpoints on President George Bush's proposed change to Social Security as we know it. We will meet our two guests in a moment. But first, Eszter Vajda brings us this report on the president's visit to Raleigh, North Carolina in February 2005 as he spoke on his new ideas for Social Security.
[BEGIN REPORT]
Bush: Thank you all for coming.
Vajda: A warm welcome for the commander in chief. But it didn't take long for the president to get down to the business of Social Security.
Bush: The problem is is that Social Security, the basic assumptions of Social Security, are shifting dramatically from when Social Security was founded.
Vajda: President Bush says it is a problem that needs immediate attention.
Bush: When you add up the equation, you've got more people living longer, receiving greater benefits, being supported by fewer people.
Vajda: He says that equation will leave future retirees without a Social Security check. According to a report from the Social Security trustees, in about 37 years if the system is not changed, there won't be any money left for today's young workers.
Bush: And to me that says we've got a problem.
Vajda: The solution? The president believes a personal retirement account is one way of strengthening Social Security. Under the president's plan, workers will have a choice of taking part of their payroll taxes and investing in a personal retirement account.
Bush: Because when you are able to get a rate of return on money invested over time that money grows. That money accumulates. That money expands.
Vajda: To hammer home his point, the president assembled a panel, most of them from North Carolina. Dawn Baldwin is a teacher from Lenoir Community College. Baldwin is having her first home built. She compares the process to investing in Social Security.
Baldwin: And so, I see Social Security somewhat like that, because we are building for a better day and for the future on our past. And so I thank you, Mr. President, for -
Bush: Is this your first home?
Baldwin: This is my very first home.
Bush: Imagine. Welcome to my home!
Vajda: Matthew Skip Long is president of the National Jobs Partnership, a company that works with faith-based organizations in providing jobs.
Long: And I know you've heard the saying, Mr. President, give a man a fish he will eat for a day; teach him to fish, he will eat for a lifetime. I am at a place where I believe that is the most hopeless statement I've ever heard. Here is why. Because whoever owns the pond is still in control.
Vajda: The president was clearly surrounded by staunch supporters.
M: On behalf of northeastern North Carolina, thank you, thank you, thank you for what you do for our country.
Bush: Thank you, Sir.
Schafstedde: I am just here to support the president. I think he is a great man and I believe in what he says and what he believes and so that is why I am here.
Vajda: But outside the auditorium a much different scene. Protestors lined the streets. Democratic Congressman Brad Miller is among the president's critics. He says workers may end up with less under the president's plan.
Miller: Everything would really have to go just right. You would have to buy low, sell high, the guy managing your money would have to make all the right decisions, and then you would just about break even. You would just about stay even with someone who had not invested in one of these plans.
Vajda: But President Bush stands by his mission to change Social Security.
Bush: And I am looking forward to people assuming leadership in the House and the Senate, both sides of the aisle. And I am willing to listen to their ideas. For the sake of the country. For the sake of a younger generation of Americans, we must act.
Lewis: And we are talking about Social Security reform on Black Issues Forum and I would like to introduced our guests. First we have Joseph Avery, a businessman and Chairman of the Johnston County Republican Party. And we have Bob Schofield, Policy Director for the North Carolina Justice Center. Welcome to the both of you. Let's start off by taking some looks at some of the concerns about Social Security that have been raised by the White House. Now, these concerns are actually posted online at whitehouse.gov. One says, "Social Security in America is in a state of crisis. If we do nothing, it could cost future generations $10.4 trillion." Another point, "Social Security is sound for today's seniors and for those nearing retirement, but it needs to be fixed for younger workers, our children and grandchildren." Mr. Schofield, I will start off with you. Do those statements seem to be true statements to you?
Schofield: There is a kernel of truth in what the president says, Mitchell. He has identified the fact that in a few, a couple of decades, actually 15 or 13 years, the amount of money coming into the system is not going to be as big as the money going out. We have a trust fund, however, that has at that point in 2018, that will have $5.4 trillion in it, and indeed it will continue to grow for another ten years. Over time it will be depleted and there is clearly a demographic problem in this country, we have got to do something, we have to adjust to the fact that people are living longer, we have more retirees. But the president, I believe, has mischaracterized it by calling it a crisis. It is a problem and we need to make some adjustments. We don't need to throw out the whole system.
Lewis: Mr. Avery, do you see it as a crisis?
Avery: Well, I see it as a crisis and I am thankful that the president has called this to our attention. You know, when Social Security was originally set up, there were about 16 people paying in money through payroll deduction for every person that was taking money out. Now it is about three people putting money in for one taking out. What has happened is our life expectancy has grown, of course the amount of money that is coming out has grown, and the president says that in just a few more years there will be more money going out than is being put in. That is a problem, a problem that most politicians don't want to talk about. The one he is taking care of, he is talking about it for future generations.
Schofield: I think the problem, I didn't mean to interrupt, is that the president has identified the problem. He is right. He has identified the problem. But his solution doesn't do anything about it. By privatizing Social Security we are not taking care of this demographic problem, we are simply passing off what is a public problem and making it a private problem and creating winners and losers.
Avery: What the president has said is that he is open to all suggestions except for one, and that is he will not raise payroll taxes. So everything is on the table. He wants a discussion so we can get a solution to this problem.
Lewis: Well, one of the things that I have been hearing and I guess you have too is that once the president came out with this plan, there are a lot of people wondering who is really going to be affected by this, because some are saying, "Oh well, I've been putting my money in for years and all of a sudden you are telling me that Social Security is not going to be around by the time I need it." And I will start with you, Mr. Avery. Do you see any like age range that would really be affected by not having Social Security?
Avery: Well, we know Social Security makes a big difference to most citizens that are retired, are getting close to retirement. One of the things the president stressed is that those folks that are 55 years or older, there will not be any change in their benefits or the way their benefits will grow. Now when the president came to Raleigh back in February, I did bring my 32-year-old daughter to get her reaction as to what the president said. One of the things that she said that she learned is she thought that she was putting money aside through payroll deductions and when she was ready to retire, she would be taking that money out. She didn't realize, as they have said that most Americans don't realize, that the money that we are putting in right now-people like my dad at age 80-that is the money that they are taking out. So there is a concern.
Schofield: Yeah, well that is how the system has traditionally worked. It has worked just fine. It has been this enormous success over the last 75 years. It has brought millions of people out of poverty. And again there are, you are absolutely right Joseph, there are changes afoot in America. We are changing our demographics. But to simply do away with the system, to turn what has been an enormously successful collective public system into a private system, really I think the best analogy is our healthcare situation. If you like the healthcare situation we've got right now, where we have got this sort of crazy quilt of plans for individuals. You've got some people that are doing great, they've got great plans. I'm lucky enough to work in a non-profit that has a great plan. You've got huge numbers of uninsured people, though. You've got some people who have really lousy healthcare plans. If you like that system, you will like privatized Social Security because that is exactly what it is going to be.
Lewis: Thank you, gentlemen. Now, here is more on President Bush's plan for Social Security from the White House web site: "Social Security would remain a government program with only a portion of payroll taxes being invested in personal accounts. Personal retirement accounts would be voluntary and give younger workers the option to save some of their payroll taxes. Personal retirement accounts would start gradually, yearly contribution limits would be raised over time, eventually permitting all workers to set aside four percentage points of their payroll taxes in their accounts. Personal retirement accounts would be invested in a mix of conservative bond and stock funds. Gentlemen, my question to you, especially dealing with, how would this work? A portion of payroll taxes being invested in personal accounts? Mr. Schofield, I will start off with you.
Schofield: Well, I think the best analogy is let's say you are buying a house. You are paying for it over time. It is a very sort of boring, solid, staid investment but it works over time to build well. What the president has essentially promised and proposed is that you would be able to take another mortgage out; you would be able to borrow against your house, invest it in other private investments. You might get lucky. You might do well in the private stock market, as I think Congressman Miller was saying in the opening, if everything goes right, you might actually do pretty well, but if the market goes down, if you are unlucky enough to retire in a time when the market has had a big drop-off, your retirement will be dramatically affected and all of the rest of us will likely have to contribute even more to help fund those folks who are not doing as well with private accounts. That is one of the biggest worries about it.
Lewis: Well, what do you think of the banks protecting people if they lose their money? Will there be any type of protection as far as this plan is concerned? Do either of you see that?
Schofield: I think what the proponents say is that the market does well over time. If you look at the long-term, that the stock market tends to grow over time and that on average people will do okay. I think that is their guarantee. There would be no guarantee for your private investments; if the market goes up, it goes down; you pay the consequences either way.
Avery: What the president has said is that he wants people to participate in something that many government employees can already participate in; that is a personal retirement account. Now in that account, a small percentage, up to a third eventually of what they would normally give us as payroll deductions, would be set up in a fund which would be invested in very secure stocks and bonds, very secure stocks and bonds. And the person wouldn't be able to take any money out of this. They would be well-diversified. And then as they reach middle-age, approximately 47, of course just as a proposal because we have a problem that has to be solved, then those stocks and bonds, their value, would be put in very, very secure stocks and bonds. Now, one of the advantages of that plan that is proposed is that when a person did retire, they wouldn't take that money as a lump sum, but they would get that as a monthly check. And it would have the added benefit of being passed on to the heirs, unlike when many people, my mom retired for five years, she passed away at age 67 and that was the end of that money. My dad has continued to draw the money that he, his retirement fund, and now he is age 80.
Schofield: I think there has been some misunderstanding about this idea of an annuity that would be created and I think there are many people who are very concerned that in fact it would not be able to be passed on to the heirs. That is a detail that has to be worked out. But I think the other point that is worth mentioning is that again, unless we are all in this together, we are going to see a situation where you are going to have winners and losers. And there is just no doubt that under the president's plan some folks are going to be worse off. The other thing that he doesn't mention is that because he is unwilling to discuss the possibility of even raising the payroll tax a quarter of a percent or a half of a percent, that share of your Social Security under his privatization plan that is supposed to remain public, in other words they are going to give you half of your plan as private and half public. The public share is going to have to shrink because of this demographic issue. That is going to be there no matter what. So unless we address that problem by slightly raising taxes, perhaps expanding the period over which people get benefits, recognizing that people are living longer, we are going to face the same financial problem.
Avery: Well, the president doesn't see the need to raise payroll taxes. The main thing that he is doing which has not been done before is he has identified the problem. He is holding or has held town meetings throughout the country, let Americans know what is going on, and say everything is on the table for discussion. Everything is on the table for discussion except for one point.
Lewis: How will people, especially those folks with low incomes, the working poor, how are they going to fit into the president's plan? How do you see them fitting in?
Avery: Well, I see them fitting in because my dad was a sharecropper working poor. Left the south, went to the north, took a factory job. He knew that he would have something there when he retired. Believe me, every year there is a little bit of an increase; mom and dad look forward to that. Now my daughter, she works as a waitress, she works well, provides for her two children, single parent, she wants to be sure that something is going to be there for her but she knows that the baby boomers now are the ones that she is supporting. With the president's plan, they will have an opportunity to participate in something that will have a higher return, the money will be there for her, and for her children as well.
Schofield: I wish that were true. I wish it were true that people would really be assured of a guaranteed income as a result of these private investments. But I worry very much that that is not the case. One of the problems that we have with this proposal is that we really don't know what kind of investments are being planned. There was a time in this country in which Enron was thought to be a very safe investment, when Tyco was thought to be a very safe investment. We know for a fact that low-income people, people of modest means, are always the ones who get preyed upon first by predatory lenders, by other businesses that are trying to sell them incredible investment schemes that are going to make them rich beyond their wildest dreams. We certainly hope that is not what would be a part of this system. But to this point it is all very vague as to what kind of investments are really going to be a part of it, so I think to claim that we can rest assured that there can be a guaranteed benefit for people if we go to private accounts is just wishful thinking.
Lewis: Well, let's sort of flip the script if you will. What if these investments are made and then there is a great profit in the stock market? What type of impact would that have? Would people who get these increases, will they be penalized in any way? How do you address that issue?
Schofield: I think what will happen, in the chance that that happens, and that would be everybody's dream scenario, that these private accounts are created and that the stock market just goes on and on for 50 or 70 years and does much better than historically it has done, that would be great. We would all think that was wonderful. People in that case would about break even because they are guaranteed government benefits that are a part of the system. Because the president is unwilling to discuss the tax issue, we are going to have to shrink. So that is about how, it takes a scenario like that for people to about break even. That is sort of the inherent flaw in the proposal. If for instance your investments only went up by one or two percent, something I'm familiar with with my own retirement account recently, then you are going to be way behind.
Lewis: Do you see that as a concern?
Avery: No, I don't. I just see that as a naysayer. Here we have a plan, a program where all the kinks aren't worked out. But it is something that is very good. Now, you know, the government employees, you need a good health insurance and you are a senator or a congressman, you have an excellent program. If you are fortunate enough to work for the post office, you have an excellent program. The president is simply proposing to allow regular American citizens to have the same benefits, the same opportunity for a comfortable retirement as government employees do, by taking advantage of this investment plan with stocks and bonds. And it is very secure. There will be a limited amount and at a certain age of 47, approximately 47, they will be able to be, take stocks that are even more secure.
Schofield: How do you know that it is going to be secure? How can you be assured of that?
Avery: That is why it would be well-diversified. Very well diversified.
Schofield: And how do we know that is going to be the case?
Avery: Well, if we don't do anything, if we don't do anything, we will be $10 trillion-we will run out of money for Social Security. And then at that time the government will have to borrow $10 trillion, which is an amount of money that I can't even imagine. But it was a figure that my daughter, 32-years-old, dad's got a couple more years before he qualifies for it. She says, I've never had it explained like that, now I see the way it works.
Schofield: What would you-oh, go ahead, I'm sorry.
Lewis: Well, let's get to some figures close to home, okay? Now here is a look at some numbers of Social Security and North Carolinians. And this is from the North Carolina Justice Center. They say the amount of guaranteed benefits that today's average 20-year-old North Carolina worker will lose under the Bush plan is $152,000. They also report the number of North Carolinians currently receiving Social Security benefits is $1.4 million. The percentage of older Americans that would live in poverty without Social Security help is 40%. The estimated size of the Social Security shortfall over the next 75 years is .65%, less than one percent. And 1.95% of the gross domestic product is the estimated size of the 2001 and 2003 federal tax cuts over the same period if made permanent. Mr. Avery, I saw you nodding your head, "No."
Avery: Well, I was saying no to that large figure. I don't know where those figures came from, especially the $152,000 shortfall. There is no guarantee to that 20-year-old that if everything is going to continue the way it were, they could put in, contribute money until they were 55 and unfortunately have an accident. There is no guarantee to that, right? But with this new proposed plan, for those folks who do retire, they do have a guarantee that that amount of money will be passed on to their future generations.
Schofield: And I'm not at all sure that that is true that it is going to be passed on. Where the $152,000 figure comes from is that represents basically the portion of an average 20-year-old today, that portion of their benefits that they would get after they retire that would be diverted to private investments. Now, to go back to your example that maybe the stock market does well. If the stock market is off the chart, doing great, that $152,000 might be $180,000 even $190,000. If the stock market does poorly over perhaps there is a dip in the stock market right when that young person is about to retire, it might only be $90,000 or $100,000 that they will receive as a result of their private investments. That is where that came from. And with respect to the tax issue, I think it is important to note we talk about these astounding numbers and it just does seem like an incredible amount of money, trillions of dollars we are talking about. What the reality is is that if we simply repealed the tax cuts that the president has pushed through in the last four years, from 2001 to 2003, the long-term costs of those tax cuts is three times the size of the Social Security hole that we are talking about closing. So I think that they are large numbers but we need to keep in perspective that that tax issue is equally important.
Avery: Well, the repeal of the tax issue, that is a subject for another program. But when Social Security was first started it was a sign of leadership for those ancestors of ours who started this program to benefit the future generations. Now President Bush has chosen to do something that has largely been ignored, to prepare, to acknowledge a problem and say to everyone on both sides of the table, all parties involved, this is a problem, let's talk about that we have a problem, and let's get different ideas to solve the problem. Now he is not saying that this is the one answer to everything. He is saying, look, we've got a problem. What do you suggest on this?
Schofield: Well-
Avery: What do you suggest? And let's go ahead and come together and work something out so that we can protect our future generations so they won't have to worry about the possibility of whatever it may be as retiring and not having any money. Because I agree with you that Social Security makes a big difference in families whether they have a check or they don't get one.
Schofield: I think there are some areas of potential common ground and it is important that we emphasize those. One is the fact that because wages have grown so much, particularly for upper-income folks in the last couple of decades, we have had a lot of people who are simply earning so much money now because our threshold is still at around $90,000 of income. They are not paying the Social Security taxes that they ought to pay. If we just raised that threshold we would get rid of about half of the hole. The other thing is that there are possibilities-AARP has talked about this-of the whole fund, diversifying its investments, not just investing in federal government bonds but perhaps investing the whole fund in some more, larger return investments. That is a possibility we need to look at without privatizing individuals.
Lewis: I hate to cut you off here, but we have to stop here. Gentlemen I thank you for your input. Great discussion. There is a lot to be understood about the state of Social Security and any proposed changes to the current system. Hopefully tonight we provided at least enough information to motivate you to learn more and become a part of any necessary solutions. For more on this topic or a transcript of tonight's show, visit us online at www.unctv.org/bif. You can also call us on the BIF line at 919-549-7167. Join us each and every Friday night at 9:30 for more stimulating discussion. For Black Issues Forum I'm Mitchell Lewis. Good night.
[THEME MUSIC]
Voiceover: This program was made possible by contributions to UNC-TV from viewers like you. Thank you.
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