THE WHITE HOUSE
Office of the Press Secretary
(Kansas City, Missouri)
For Immediate Release April 7, 1998 2:16 P.M. CDT
REMARKS BY THE PRESIDENT
IN PANEL DISCUSSION AT A NATIONAL FORUM ON SOCIAL SECURITY
Penn Valley Community College
Kansas City, Missouri
Q Thank you very much. Welcome back, everybody. Calm down. We have our highlight of the day. I'd like to welcome back to the stage our panelists Marilyn Moon, David Walker, Gary Burtless, and Fred Goldberg. (Applause.)
Ladies and gentlemen, the President of the United States. Accompanying the President are Senators Santorum, Kerrey; Representatives Hulshof and Pomeroy. (Applause.)
THE PRESIDENT: Thank you.
Q We have quite a panel here. We have quite a number of interesting questioners. We want to know what you have to say. I'd like to start off by directing a question -- I'm over here, Mr. President -- to the President. And then I would like for anyone who would like to join in to join in, but keep in mind we need to keep your answers brief because we want to hear from as much of this audience as possible.
As I mentioned earlier, the people who will be taking questions -- there is a microphone on the other side of me here -- these are people who were hand-selected by a marketing research firm to be demographically correct according to the greater Kansas City area, and they know more about Social Security after this afternoon of talk than any of the rest 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 and the question is whether this is a slippery slope or a cure. Where do you come down on that?
THE PRESIDENT: Well, I don't think it's necessarily a slippery slope. I think the issue is, if you start with 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. The facts are what we talked about this morning -- the population trends, the financial problems of the system. 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, because then you couldn't have a universal system that was fair that had a benefit certain.
Let me just back up and say, people are always saying, well, so what's your plan? And what I'm attempting to do here is to avoid announcing a plan while we go through this period first of educating the whole electorate -- all of our citizens -- on what the facts are, and then eliciting ideas from people to get the broadest range of ideas. Because if I come out and say, well, here's exactly what I think ought to be done, then that forecloses debate when I'm trying to broaden debate. I want all of you to have your say and I want us to wind up getting the best possible ideas.
But I think the important thing that you need to know about me and my position is, what are the principles I intend to follow, and are we prepared to do this. And I think I'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 to what Senator Santorum said in his opening remarks about the problems with the rate of return and what Senator Kerrey said in his opening remarks about the need to give all people some wealth-generating capacity. 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. But I think there are lots of options to do that.
Q Senator Kerrey is going to have to leave before this over to catch a plane, so I want to make sure he gets a chance to respond to that.
SENATOR KERREY: Well, first of all, 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 cost, nor do they complain about the complexity and the difficulty of it. I mean, I appreciate the problems that Uncle Milt's facing, but Uncle Milt works the federal government as well, and he has not yet come to his employer and said that this is too complicated for me. (Applause.)
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, Missouri, or is 81 years of age, that promise can be kept.
But one of the most powerful things that we've discovered, once you start to look at compounding interest rates and what it can do to generate wealth, is that we ought to be opening these accounts at birth. So Senator Moynihan and I modified our proposal so that the account gets opened for a $1,000 when the baby is born -- that's 4 million live births a year -- and $500 a year for the first 5 years. The extraordinary thing 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 is going to benefit the most. For lower income people, it is an enormous source of wealth. And secondly, that $3,500 at age five generates more wealth than 2 percent over 45 years.
So if you want to help -- if you want to solve the problem 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 to the audience for our first question. The gentleman on this side has the mike.
Q I have two points. The first is if we were to take the welfare aspects out of Social Security, such as the aid for aliens that are unable to work, and use Social Security for its own primary purpose, that would cut some costs. In addition to that, I'd like to make a point that we need no new taxes. So if an increase is necessary, all of that increase should be in the private control of the owner of the money and not the government.
MS. MOON: I think that, if I understood correctly -- and we're having a little trouble hearing up here, at least I'm having a little trouble hearing up here -- that I think the question was relating to the issue of whether or not, if there needs to be an increase in taxes, whether it should go into a government program or into these kinds of private accounts.
My sense is 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. I think we need to think about it as an add-on. I have no problems thinking about it, if we talked about it then, that any add-on should be talked about as private accounts, for example.
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're 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 that are balanced to make the program certain, secure, sustainable, improve the rates of return, and yet still have that foundation of security.
THE PRESIDENT: Let me just say, I don't know anybody who has proposed -- and I think your Missouri congressman today made this point, or one of the members who spoke before me or after me made this point -- 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.
And with the projected surpluses we have now, all of the proposed solutions that I have seen so far I believe are achievable with no increase in the payroll tax. So that goes back to what you said.
There are some people who believe that there maybe ought to be an increase of, let's say, 1 percent, but only for private savings accounts -- totally within the control of the payer. So it would be, in effect, an enforced savings plan to give you some investment in private income later on in life, that there are some proposals.
The only thing I've said about taxes is, 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. For example, I think the Kerrey-Moynihan plan -- Senator Kerrey just left -- has a fairly steep cut in the payroll tax in the first 20 or 30 years or something like that, and then, because if you check the demographics, actually has it creeping up again because we try to have 75 year plans of Social Security -- actually has it creeping up again in 30, 35 years, something like that.
But I don't think you have to worry -- most of us, I believe, are committed to trying to find a way to solve this problem that doesn't involve an increase in the payroll tax. And if there were any, all of the plans I've seen are those that say this should be a savings account that's yours to invest as you see fit.
Q Mr. President, what is to prevent the Congress to enact binding legislation that would prohibit any further borrowing from Social Security funds, and why haven't you taken a proactive stance to get this achieved? (Applause.)
THE PRESIDENT: Because I'm against it. I haven't taken a position to get it achieved because I think it would be a big mistake. The Social Security fund has been investing in government securities, which have the full faith and credit of the government behind it. The government then takes that money and spends it on other things -- that's true. But it's an investment by the Social Security trust fund. If they take in more money in any given year than they give out as benefits, they have to do something with that money. They have to invest it somehow. If they invest it in government securities, they get the money back plus interest, and it's the safest possible investment.
Now, there was a lot of talk for years about how this amounted to a raid on the Social Security trust fund, and I could understand that talk because we were running huge deficits every year, so people had a right to ask, what's going to happen when the government has to pay back the Social Security trust fund and the trust fund needs the money to pay out benefits, which is one reason it was so imperative that we balance the budget and then start running a surplus.
But now the projected surpluses we have over the next 10 to 20 years are surpluses over and above what it will take to pay back the Social Security trust fund, the money of their investment plus interest. And I believe it was a good investment by the Social Security trust fund. I also think it was good for the taxpayers at large. It kept the government from going out into the private markets, borrowing money, running interest rates up, and driving your interest rates up by making it harder for you to get money. So I don't agree that it was a bad policy, but it would have become a horrible policy if we hadn't balanced the budget and started running a surplus, because then when it came time for the government to pay back the Social Security trust fund, we wouldn't have been able to pay the money back 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 this deficit down. We're going to run a surplus, and it's going to look 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 there are 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 these surpluses into an untouchable account. And I think the Speaker of the House last week, when he came before our committee -- and I'm going to paraphrase but it was essentially this -- testified that there is a universal attraction between a politician and a pot of unspent money. (Laughter.) And I think your point is, clearly, you've heard several of us talk about surplus funds, and yet, if we continue to lack the discipline -- in other words, if we continue to look at new programs or investing more of your tax monies for programs, then there will be less of a surplus, and therefore less money for us to use in the long term.
And so it was talked about with the policy individuals earlier, the experts here -- we can't view this in a vacuum. It's great to have this debate, but we need to take our blinders off because it is a very far-reaching problem that we face.
THE PRESIDENT: If I could just follow up, because he made a point there that I think deserves some greater attention. I didn't mean to dismiss your question as lightly as it may have sounded. There are people who believe that it would be better -- let's assume that what I said is right. It is right now 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 surplus and they invested their surplus in government securities and they'll get it back plus interest. But wouldn't it be better, if we had any surplus, that in effect the surplus was invested in a way that went to the individual in accumulating benefits of the people who were paying the taxes. That's basically what a lot of people say.
See, one reason the return is not any higher than it is, is that 90 percent of your taxes, when you pay Social Security every year, are going to pay for the current Social Security benefits of your parents and grandparents. And that's what Senator Kerrey was talking about. That's what a lot of people -- the individual account argument is. If you get money this year, even if it's just $2. If all you get is a 5 percent return on it, if you keep it there for 50 years, pretty soon you're going to have a pretty good chunk of change. That's the argument for having something for children at birth.
But I just want to point out, it will not be all that easy to shift from a system where you take all the surplus of any given year and apply it to each individual's future retirement when 90 percent of the money you're paying out now is being used to pay your parents' and grandparents' retirement. So it sounds like a good idea, but it's going to be hard to make the transition.
Q Mr. Walker mentioned that 1998 will probably be spent studying this problem and 1999 might be a year of action. In your previous session today you mentioned the third rail problem and the need for congresspersons and others to get out and lead and duplicate the good effort you started here today with thousands of these kinds of forums around the country.
When I found out I get to participate in this program and I started asking my friends, what do you all want me to tell or ask the President, I sensed that while folks certainly know that there's a Social Security program, we don't have much good information about the details of the crisis that we've been given here today.
And so my question is this: could you use your good offices, as you've started here today with these national political leaders, to encourage more local political leaders, such as governors, mayors, councilpersons, state representatives, to duplicate this process on the local grass-roots level, because many of the grass-roots people just are not aware of the nature of 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 to rent a bigger hall so more people can come and participate with you. (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 the state of Pennsylvania and will continue to do so and have been for years, because Pennsylvania has the second oldest per capita elderly population in the country. And I believe it's vitally important to get the information out. I think the President was right in his discussion earlier, and we've talked earlier, that we have to lay a foundation of understanding here before we as a Congress can act. We don't want to get way out ahead of the American public and have to get reined back in saying, no, that's not what we meant.
And I think in doing these kinds of town meetings, I commend the President for having this kind of forum. We need to go out into our districts -- congressman and senators and others -- the facts are what they are. I don't think you saw any disagreement in the presentations as to what the problem was in the system. I think we all were very consistent. Now, you can argue as to how we solve those problems and what the impact of those solutions are, but I think the facts are fairly clear and we should, in a bipartisan way, get that information out.
THE PRESIDENT: Let me just say, if I could follow up on that, one of the most important things about a democracy, a representative 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 bold way, but that you have the trust of the people and the support of the people. And this is an interesting issue. This is a fairly complex issue.
Now, I think the people have been ahead of the politicians as a whole in the sense that I think it's widely understood that there's a problem here and, therefore, all of you want us to do something about it.
On the other hand, there is a fairly small number of the political leaders in Congress, let's say, and there's a fairly significant number of people in the press, the people that are covering this, who've been thinking about this problem for a long time and they know we need to do something about it. So all of us who are activists, you know, the tendency is that we want to go in a room now and just -- you know there's a problem, so we'll figure out what to do about it.
The nearest thing I can think of that we're trying to avoid happened a few years ago, before I came President, on catastrophic health insurance. I don't know if you remember this -- and the AARP even got burned on this -- where everybody in the country knew there was a problem, right? So the politicians figured, well, the people all know there's a problem. The AARP says there's a problem. So we'll all sit down and do what seems like a reasonable thing and come up with a solution, and the public outcry was so great that a then Democratic Congress and a Republican President had to undo what was done.
Now, it was too bad, really, in that, but it wasn't catastrophic for the country. This is big-time business. We can't -- once we do this, we have to do it, do it right, and we can't undo it. We've got to do this right, and so that's why we'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 in Washington, part of the White House, that deals with state and local officials. We'll work with the Congress and try to see how we can multiply these things. Thank you.
Q Mr. President, I just want to commend you. I think this is one of the greatest things. I'm a nurse. I knew there were lots of issues when you raised health care issues, and I think it's changed a lot of the system. Whether it changed everything you wanted to, I don't think that will ever happen. I don't think it will happen here. But I would present several challenges. I don't expect answers today.
I don't know if privatization of Social Security is good or not. My husband and I can afford it. We have an income over $100,000 a year. There's people in here, though, who don't, and I guess I have several challenging questions. One is, how do I know that when my three and a half year old is 15 and gets in a car 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 to myself or my husband.
Would Social Security -- I think Marilyn Moon brought up a significant question of if we privatize Social Security, what happens to that? What happens to this disabled child over here in a wheelchair who really depends on those funds? And if we take, whether it be that 1 percent or 2 percent, and put it into private accounts, then are we really socially secure and not taking out that security piece?
I presently take care of heart failure patients in the home. I would say 90 percent of them spend a good chunk of their monthly Social Security check, on top of their benefits, on medicine. And so, when they spend $200 out of their $750 a month check on medicine and the rest is left for living expenses, then what 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 and the Senate to say -- what makes you think people are going to say -- 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. (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 chance at that. Go ahead. We'll start here, we'll just go around. You've asked, in some ways, the question on which everything else depends, so I'll give everybody a shot at that. Why don't you start.
MR. WALKER: Well, 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.
The debate is -- 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? How much of a change do you make there? How do you make those changes? How do you phase them in? And then do you have savings on top of that?
One of the debates about savings is, if you do have savings, do they come out of existing tax, should it be an add-on, how much of a burden is that going to be for lower income individuals. If it's voluntary, then who's going to save? Chances are, it's the people that have more money will save rather than those who may need to save.
And that's why you have to look at this as a package, as a balanced package, not just on Social Security, but also private pensions and other issues.
MR. GOLDBERG: I think that there's a remarkable agreement among those who have spoken today and among those of you who have asked questions. 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 workers don't retire into poverty. And that's the starting point for all of us.
We respond to different stories. I respond to the story of the single mother who works for 45 years, raises her kids, cares for her kids, pays 10 percent off the top every year. She dies at 65 and she gets nothing to leave her children and nothing to leave her grandchildren. That's the story that grabs me. The story about your kids and the injury, if something happens to you.
All of these stories make sense and they're very important. I believe we can design a system that responds to each and every one of them and responds in the right way.
MR. BURTLESS: If you do take away some of the money that is currently going into the main Social Security fund -- 1 percent of it or 2 percent of it -- to direct to individual accounts, it does mean that we have to adjust downward the benefits that we're paying out of that basic fund. So the basic system does have to be kept in balance if you decide you're going to put 1 percent away.
Now, there are certainly ways to do that and still protect disabled children and disabled adults and indigent widows. But the fact is that something has to come out of that basic system. You can't both have a private account on one side and the same package of benefits we currently have.
MS. MOON: I think David and Gary expressed my views on this very well. 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. Those of us who are fortunate enough to do very well in this system will do very well. We have to make sure that the folks who get left behind have a decent safety net that protects them. (Applause.)
REPRESENTATIVE HULSHOF: I want to incorporate a part of two questions -- and Marilyn mentioned this while we were backstage -- and that is raising additional revenues. And I think there was a young mother who got up to speak here today, talking about how difficult it was. And perhaps the questioner was referring to that one of you in the audience. That because of the level of taxation now, payroll taxes and other taxes, that it is impossible for them to save -- whether it's that single mother raising a child or whether it's a young couple in their twenties or thirties, they are simply unable to put aside and save. And when you think about it, if you do invest your own funds, it's being taxed as well. So in a sense you could say that you're being punished for your thriftiness.
I would be a little remiss if I didn't take 20 seconds, Mr. President, to talk about the Savings Advancement and Enhancement Act that Dennis Kucinich, a congressman from Ohio, and I are proposing, that would allow, if you have a modest amount of interest income, that that would not be taxed, to help the low and moderate income worker whose incomes consist of wages and a little bit of interest income. Because as I think we talked about earlier, we have to incorporate private pensions, private savings, as well as making sure the system remains financially sound.
REPRESENTATIVE POMEROY: I said earlier whatever we do we can't take security out of Social Security, and I think we come back to that again. And what today has done for me, participating in the debate among policy makers and listening to you all, is really impress me with the concurrence that we have on the point of the guarantees -- guarantee for a dependable payment for as long as you live in retirement -- (applause) -- a guarantee that if you die and leave a spouse and little kids there's 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 Social Security disability benefit.
Now, if we are agreed, and I think there is pretty broad agreement that's been expressed across party lines, that those guarantees have got to be locked in going forward, well, then I'm a lot more comfortable with talking about other alternatives. What I was afraid was happening was that we were locking into a debate, being polarized against Social Security as an insurance program versus Social Security as an investment program, and this partisan chasm was going to start to open up on this debate.
I think, Mr. President, your leadership in convening this meeting and the discussion we've had has actually had us confirming that we agree on the guarantee, and the rest we can negotiate. Thank you. (Applause.)
REPRESENTATIVE POMEROY: I'm in a remarkable position of agreeing with everything that's been said so far, because I think you're right -- we do agree that there has to be a foundation. As I said before, my three P's: to protect, to preserve, and then to provide the opportunity. And we don't have the opportunity in the system right now.
And I would address your question specifically for the poor. They really do not have the opportunity, and you say, well, I can afford it now. Well, in a sense, you are the ones we're not most worried about. What Senator Kerrey said earlier is about creating wealth among lower and moderate income individuals, where they do not have the opportunity because they are 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't speak for others -- that portion that would be put in for personal savings would be not able to be withdrawn for any purpose -- period. That money would be in that account, could not be taken out for any purpose. It would be, in fact, reserved, set aside for their retirement, and so that's how they would save, because instead of paying that money -- I pull out my passbook again -- instead of paying that money to Washington, that money goes -- a portion of it goes into this account, which they must keep in that account and invest for a later day.
And the point of wealth generation is, as I said earlier, the poor and minorities in this 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 -- 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 security and the opportunity for the next generation for the children and grandchildren to be able to have a better start at their life or a better chance in their life. (Applause.)
THE PRESIDENT: I can't add much to what's been said, except I would like -- this is the one and only time I'll try to do this because the Social Security issue itself is sufficiently complex and important -- but just for a moment, since you talked about families that are at risk of having something bad happen, I'd like to fold the Social Security issue into the larger issue of family savings, just for a moment, and ask you to think about it and think about it from the point of view of a family living on, let's say, $20,000 a year and one living on $40,000 a year and then one living on $100,000 a year.
We want a system, first, in Social Security that has some sort of disability benefit and a survivor benefit to give a baseline threshold of existence to people that could have horrible misfortune. Then we want a baseline predictable retirement benefit that is universal -- again, today it's lifting 15 million seniors out of poverty.
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. An increasingly smaller percentage of our workforce works for a company that can afford or guarantee a retirement that says, here's what your benefits are going to be forever.
So what have we done? We've tried to stabilize any retirement systems that are under water or at risk with various actions in Washington. And the Congress in a complete bipartisan fashion has tried to dramatically increase the ease with which, and the incentives to which, people have to take out 401(k) plans and then can carry them from job to job.
In addition to that, in the IRA proposals that we passed in the last year as a part of the balanced budget act and then again last year we liberalized them I think some, you can now save for an IRA -- and you can say, well, you can't afford to save. 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, to pay for your child's education expenses, you don't have to pay taxes on that either.
So 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. Now, what are the problems? Relatively low rate of return on Social Security. And if you move away from low rate of return to higher rate of return, can you continue to maintain the baseline benefit and the universality, number one. Number two, do you create so much risk that if people happen to retire and need the money when there's a big drop in the stock market, they're in bad shape? Senator Santorum has really thought a lot about how to minimize the downside risk.
But I hear your message, I agree with it. And I think those are the real dilemmas we're going to have to figure out. What are people going to have to do for themselves outside the Social Security system and what can we do to help them do that, how are we going to increase the return, how are we going to minimize the risk, how can we do that and keep the benefit level at an acceptable level?
But to me, what I'd like to do when I leave office when the 21st century starts, I'd like to know that any family that's out there with one person or two people that are working their hearts out, doing the best they can, no matter how meager their income, they're going to have a chance to create a little something for their children and themselves later on and have a chance to do even better, and that no 20-year-old person will ever have to worry about whether his or her Social Security taxes are going to be wasted, because there will be a retirement system when 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 a cap on income tax by Social Security? And wouldn't we generate more revenue for our overall security by removing this cap?
MR. WALKER: One of the options that's talked about from time to time -- as you know, there's currently a cap on how much of your wages are subject to the 6.2 percent Social Security tax. It's in the upper $60,000 number. And several years ago the cap was eliminated for Medicare, the hospital insurance program, although we have to keep in mind that for the Medicare program 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 for individuals making over $68,000.
The real question -- there are a couple of points here. One, it doesn't come anywhere close to raising enough revenue to deal with the problem. And I think one of the things that we need in the future is some metrics -- what percentage of the deficit does the proposed reform solve. I think that would help a lot, quite frankly, in the future. This doesn't come anywhere close to solving the problem.
And secondly, the question is, to what extent might you lose support from the program, because the tax burden on those individuals, and therefore their rate of return, goes down terribly. So it's a legitimate debate.
THE PRESIDENT: Maybe I should answer this since this is really a question, if we're going to defend this, that a Democrat should answer, if we're going to try to keep this nonpolitical.
If you think about it, there may be an argument for raising the income some because of inflation and because a lot more people have moved into higher income brackets in the last five years. But if you think about it -- let's suppose you took it off altogether. You say, what do I care about some baseball player making $10 million a year, right? But if you think about it, what would happen is you would be putting people in a position of paying over the course of their lifetime 50, 60, 100 times more than they would ever draw out of the Social Security system. And you can say, well, they owe it to society. But these people also pay higher income taxes and the rates are still pretty progressive for people in very high rates.
So I think you can make -- in fact, if you took it off altogether, the gap that will exist in 2029 is the equivalent of about 2.25 percent of payroll. And that would close -- I think if you took it off altogether -- I think about a 1.5 percent of payroll. But you would really have tremendously changed the whole Social Security system. You would have basically said, if you get to where you make $70,000 or more a year we're going to soak you and you're never going to get anything 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 the idea that this is something that we do together as a nation and there at least is some correlation between what we put in and what we get out -- except we want people on the bottom to get out a whole lot more than they put in so we can give them a decent retirement. It goes back to what our nurse said there.
Q Yes, we've spoken a lot about the private accounts and investments. And I'm wondering whether the congressional delegation, if they were going to be willing to examine the options of raising the retirement age even further or reducing the cost of living. Is Congress going to be willing to take up those rather unpopular things?
SENATOR SANTORUM: I would say that this gets back to Earl's point that he made during his speech. I think any proposal that looks at things piecemeal is a mistake. I think we have to look at this in a comprehensive fashion and see -- Senator Moynihan and Senator Kerrey put together a bill that does raise the retirement age, accelerates the retirement age going up to 67 to an earlier period of time, and then basically indexes it or, in fact, raises it I think a month every two years for some period of time, the retirement age. They also deal with the cost of living. But they do it in a package providing personal savings accounts and doing other things, providing other benefits.
So, as was said earlier, I mean, there's going to have to be, if you're going to provide a personal savings account component, there's going to have to be changes to the basic structure. And whether that includes some of the things that you suggest, in all likelihood it will probably include something. I'm not too sure it will include a dramatic change in cost of living. I don't think it will be a dramatic change in retirement age. But I think all of those things are the different components that we need to look at over time to see how we can in fact divert some of the money that's going into pay current beneficiaries and future beneficiaries into private and personal savings accounts.
So I would say, in the context of the overall reform those are things that will be looked at, but to do them piecemeal I think would be a mistake and would get to the problem that I have, which is if you keep the old system and all you do is raise the retirement age and cut COLAs and raise taxes, you're going to exacerbate the inequity in the system; you're not going to improve it. And that's where I would have a problem with it.
REPRESENTATIVE POMEROY: I agree with much of what the Senator has said, specifically on the COLA, much of that --there was a great concern about the COLA as we discussed the budget because there was actually a concern that the cost of living adjustment factor for Social Security overstated inflation; in other words, it was raising benefits higher than what most economists, many of the economists, thought inflation actually was. So we had an inaccurate inflation adjustor.
The Bureau of Labor Statistics in the Department of Labor that adjusts these sort of things I think responded to much of the public concern and the concern expressed in Congress on making arbitrary COLA adjustment, and they have refined their methodology and basically reduced the COLA that was projected earlier. So much of the work on the COLA, I think, to bring it in line with what inflation actually is has already taken place.
On the retirement age, I think that -- I'm certainly not going to advance the way we fix the system is to delay eligibility for Social Security -- but within the context of a broad reform, as the Senator mentions, having some type of -- in the out years, 20, years from now -- an adjustment recognizing the reality that people are living longer, working longer, provided that you have the safety valve where you can still access the early benefit at age 62 if that's what you chose to do, albeit at a reduced rate, I think you have a program that certainly deserves consideration, among a number of other proposals that deserve consideration.
But we certainly shouldn't just lock on reducing benefits by cutting COLAs and delaying eligibility as a quick fix to a difficult problem.
THE PRESIDENT: Let me just make one suggestion here, if I might, for all of you, and I'm embarrassed that I can't remember exactly the numbers for the question that the lady just asked. But you need to keep in mind, if the specifics are real important to you -- I mean all the specifics -- then I think you need to always know what the impact of any specific proposal is. So again I'll say, in the year 2029, we'll stop being in 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 that we have.
So if somebody says to you, well, what if we raise the retirement age to 70, or what if we cut the cost of living by half a percent, or what if we took the ceiling off the incomes earnings, 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. And we can get you that information. For example -- or if you want 1 percent of payroll devoted to individual savings account, what will that add to the gap of 2.23 percent in the short run. And then you just have to decide what you're prepared to do to close the gap.
But you have to understand, your members of Congress here, they're going to have to actually make difficult decisions at something less than an abstract level. They're going to have to sit down and say okay, if I raise the payroll ceiling this much, it will close .4 percent of this 2.25 percent payroll gap.
And one of the things that surprised me -- the reason I brought this up -- one of the things that surprised me when I started studying it in this way is what a small impact it would have to accelerate the rate at which we're going to 67 to the retirement age. I mean, it does you some good, but it doesn't have anything like the impact that I had imagined it would.
Do you want to say anything?
MR. WALKER: Mr. President, I think that's an excellent point. You need to recognize that whatever Social Security 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 as to how much of an effect does it mean. For example, raising the normal retirement age from 67 to 70 gradually to where it's 70 by the year 2030 -- so we're talking a number of years out -- would roughly make up about 44 percent of the projected deficit. Changing the COLA by half a percent would roughly make up about 30 percent of the projected deficit. Eliminating the earned income limitations so as not to provide a disincentive for people to work would cost 5 percent. But sometimes, you may decide you may want a stronger minimum benefit. That might cost money, but on the other hand there are other elements that would save money. And we need a balanced package, and you need to have a feel for that in making choices.
Q Mr. President, I want to thank you for the superb job that you are doing in running the country and bringing this forum here to Kansas City. I'm a person on Social Security Disability from the Equitable Life Insurance Company, and I also draw an income security plan from them. I do like the security of the Social Security system, but I also agree with the Senator over here about, like my retirement plan is locked in. I look at it every year. It's locked in an annuity with the Equitable for 6 percent -- I'm 50 now, until I'm 62 to 65 -- and I can't touch it. I like that system.
THE PRESIDENT: You like the fact that it's locked in?
Q Yes and I can't touch it. I can't cash in. I can'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 an individual savings account that we would think about into the future because I think it is going to be very tempting at some point to tap into those, just as we have loosened up the requirements on 401(k)s and IRAs and so forth. And so I think that's something that also needs to be thought about in terms of the practical questions. Some of them are easy because you don't want people to use it for frivolous reasons. Some of them are difficult -- when a 50-year-old is facing catastrophic health problems, for example, and doesn't think they're going to ever live to use their retirement account and may want to tap into it. So it's going to cause some problems in terms of holding that promise. But I do think that's an important element of the discussion.
Q Mr. President, the question jogged in my mind, the inter-relationship between a defined contribution, like 401(k) private plan and a defined benefit nature of Social Security. The 401(k) -- maybe you annuitize it, maybe you exhaust the benefit, maybe you've invested, it doesn't get the return you project, maybe you had to withdraw early. It may or may not get you to where you thought it would in terms of your retirement savings planning, but the Social Security program wraps around that very nicely with the defined benefit, predictable, dependable, monthly payment for as long as you live in retirement.
And so I think that as we see the private system going more toward risk on the individual in a 401(k) plan -- and I don't -- I'm not objecting to the 401(k) plan, but while we make that move, we should, I think, give very serious consideration to backstopping that risk with a defined benefit structure in the Social Security program.
MR. WALKER: Mr. President, I think an important point here is if you take 401(k)-type plans, the issue you're talking about it preservation. And preservation is really important since the money is there when you retire. In a 401(k) plan, about 70 percent of lump sum distributions are spent, not preserved to retirement -- at least a portion of the lump sum distribution. And so the issue of preservation is not only an issue of importance with regard to Social Security if there is a piece of an individual account in future reform. But it's also important right now with regard to pension policy.
Q Mr. President, you said during your remarks that there was a poll that showed that young people thought that maybe they'd see UFOs before they saw their Social Security checks. Our questioner is 20 years old; she may be one of them.
Q Well, I have a question -- well, it's not really a question, but, Senator Santorum, you said that, okay, that money from the checking account that we put away, now who's to say that we're not going to have to use that money for something else, like pay medical bills that our parents -- like if 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 that money for something else?
SENATOR SANTORUM: Again, I think it's important to understand that that money is going to be fenced off. I mean, that is as important as anything I think I can say here -- is what the gentleman said here, is that that money should not be able to be used for any other purpose other than for retirement. And I understand that there are needs, but the way I'm envisioning it -- I think this is the point you may have jumped in on -- is that when a person dies, that that money would pour into that other -- to your children's account to help their account. So it would help their retirement.
THE PRESIDENT: But I do want to emphasize that your proposal would be not to increase the amount of payroll tax but to take a percentage away so --
SENATOR SANTORUM: No. Take a percentage away so it wouldn't be an increased tax burden on you.
THE PRESIDENT: Let me say to the young lady that asked this question, we changed the law on IRAs, Individual Retirement Accounts, which would require you to be able to be able to put away something over and above your Social Security tax, but now, if you put money into an IRA now, and you have to withdraw from that IRA to meet a medical emergency or for a first-time home, or to pay for education, you can do that without a penalty now. And if you do it for education, you do it without paying any tax at all on the gain.
So there is a way under the present system, as a young person, that you can save. And if you face a medical emergency, you could withdraw from the savings without penalty, but it would have to be over and above what you pay in your payroll tax. And that wouldn't be changed by what Senator Santorum -- 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 in the last two years.
Q Mr. President, my family represents four levels of the Social Security system. My mother is on Social Security; my brother and my two sisters and I are all paying into Social Security; I have a -- I am legal guardian of a child who is disabled and on Social Security; and I have a 21-year-old child who is in college and is facing this crisis head on. My question to you is, why do we have the cap and not a security net? In other words, change that cap from the top and put it on the bottom. Those of us that are struggling are the ones that need the Social Security when we get older, but we're also the ones that are paying for those ballplayers when they get their Social Security. (Applause.)
THE PRESIDENT: You think that there should be a cap on the size of your tax or that we should have a higher floor on the benefits?
Q Neither one. I think that the -- instead of putting a cap on the top level, put the cap down where it belongs and don't -- not charge the Social Security tax on those of us that can't afford it anyway. Put the cap at $30,000 a year -- we don't pay anything into it, or a very minimal amount. Go ahead and tax the ones that can clearly afford it in the first place.
SENATOR SANTORUM: Well, there is a program in place the Congress passed under Reagan -- and under President Clinton expanded it dramatically -- the Earned Income Tax Credit. And the Earned Income Tax Credit is to address the very issue that you suggest, which was that the Congress identified under -- that the Democratic Congress and the Republican President identified a problem with low income people paying -- the greatest tax burden is on payroll taxes.
So they developed the Earned Income Tax Credit which was in a sense to help families pay for their Social Security tax by claiming this credit. And the President extended it twice, I believe -- or at least once -- in the '93 act I know he extended it to a higher income family. You probably know that number better than I do --
THE PRESIDENT: $31,000.
SENATOR SANTORUM: It's up to around $30,000 -- and you would get some credit to help you pay your Social Security tax.
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 the tax credit in effect.
THE PRESIDENT: Let me say again, I believe that those of us who have higher incomes should pay more on the Social Security. 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 people they wouldn't be in a Social Security system anymore, they'd just be writing six percent of their income for something that 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 into the Medicare trust fund, which you pointed out. But the thing that has made Social Security work in the past is that everybody has had to pay in and everybody got to draw out, that there was a guarantee and a mutuality of responsibility.
The Earned Income Tax Credit has been somewhat controversial in Congress, but if it were up to me I would have it even more generous. Because the way it works now is the average family of four with an income of $30,000 a year or less is paying approximately $1,000 less in income tax, including eligibility for refunds, than they would have paid if the law hadn't been changed in '93. And we did it to try to take account of the fact that the payroll tax was so high for people and that incomes of people -- the lower 20 percent of our work force had not gone up very much in the last 10 years.
But it seems to me that it's better to have some give back there and still have a universal participation in the system, since we want everybody to be a part of both the responsibility for paying in and then be able to get the minimum amount coming out.
Q I don't question whether or not there is broad bipartisan agreement on whether or not to fix Social Security. However, I would point out that just a couple of years ago that there was broad bipartisan support for reforming finance campaign laws. What reassurance can you give us that anything will actually be done with this?
SENATOR SANTORUM: Well, I would answer that, that I think your premise is wrong, there was not broad bipartisan agreement on how to reform the campaign finance system, number one.
Number two, I don't think it's safe to say that there is broad bipartisan agreement on how to fix Social Security. I think there's broad bipartisan agreement that we know that there's a problem and we both recognize it. And now we are working through the process of getting to that solution. And I think in a sense we're far ahead of the game in campaign finance.
Here we have a good foundation, we both see the problem, the same problem. In campaign finance I don't think we saw 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 as far as the general outline for solutions, I think what we heard here today is there still has to be a Social Security system; there has to be certain guarantees for people who are at or near retirement as well as for future generations, for disability and for the working poor and for survivors. I mean, I do believe we have a pretty good foundation.
How we go from there -- I mean, we're a long way from there. And that's why this public discussion and debate is so important.
REPRESENTATIVE HULSHOF: Let me give you a freshman congressman's perspective.
First of all, I appreciate you all participating in this great debate in help kicking this off. We've talked a lot about numbers, and that's as it should be. But I think ultimately the debate about Social Security is more about rights, it's more about responsibility, it's more about vision, it's more about values.
The freshman class, there are 35 new Republicans in Congress and I think 43 new Democratic members in Congress. And as I mentioned in my opening remarks, we have come together on tough issues like campaign finance reform. In fact, we had a freshman bill that we put forth, that we worked together in a bipartisan way.
When it comes to, as Senator Santorum talked about -- when it comes to fixing Social Security, this is not a Republican issue, it's not a Democratic issue, it's an American issue. And if I can provide any assurance to you as a fresh face in Washington, the vast majority of newly elected members of the 105th Congress are looking beyond the next election to the next generation. So I'm excited about this year being the year of education. And going to this gentleman's question, that 1999 hopefully will be a year of action.
Q Mr. President, I want to give you the last word, because that's the overall question which everybody wants to take away from this today; which is, now that we're talking about Social Security, now that touching the third rail doesn't make us dead anymore, exactly what can they expect of all of you?
THE PRESIDENT: Well, that question melds rather nicely with the last question that was asked from the audience. I deeply regret that we haven't passed campaign finance reform legislation.
But to answer this, why is this different, for one thing, the divisions in the campaign finance reform are not only divisions -- they're divisions of party and also divisions of incumbency and non-incumbency. And then they're honest differences of opinion about what would work and wouldn't -- all kinds of problems and complicated by Supreme Court decisions and a zillion other things.
But the other thing is, frankly, every member of Congress that really doesn't want to pass it knows, that the republic will go on if it's a system we have is capable of producing significant positive change -- witness the Balanced Budget Act and the fact that we had the biggest increase in aid to higher education in 50 years and the biggest increase in the coverage of children's health insurance in 35 years. So people know that this system can be made to function.
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, and the innate patriotism of the people that are serving. That's why I believe it will happen.
What I think will happen, what I want to see is that we will spend the time between now and December trying to answer the question this gentlemen had, how can we get out this information to people. We also want you to become more familiar, so you can answer questions for yourselves. If you had to choose, for example, between a faster movement to a higher retirement age, or an individual savings account or, you know, raising the cap on income, or all of these choices they're going to have to make, what choices would you make and why? And how would you answer the other charges? This ought to be a big national debate. There is no other program that affects so many of you in so an intimate, personal way.
And then what i believe will happen is all these members will have lots of forums in their own states. They'll listen to their own people. They'll listen to these experts. You're going to see 100 or more articles written by people like our 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 and come up with the best possible solution. It won't please everybody 100 percent, but it will save Social Security for the 21st century and it will make us a stronger more united country. And then I think the Congress will come in and pass it because it is the right thing to do. That may seem naive and I may be old-fashioned, but I'm more idealistic today than I was the day that I took the Oath of Office -- that's what I think will happen. And I think you will make it possible, because you'll
support people like these folks who will do the right thing by your children and your future.
Thank you. (Applause.)