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A dialogue on the future of Social Security

WASHINGTON—HOYT: ... Let's ... start by talking about values. ... What is the government's proper role in every American's retirement security? What should the government be doing?

RYAN: I believe Social Security is and should continue to be a system that provides a defined-benefits safety net for all Americans in old age. ... Keep that intact.

On top of that, though, I think we can make Social Security a better deal... .

NOVELLI: ... Social Security is a safety net, as the congressman said. ... It can't be dismantled. But we also have to think about other kinds of pensions and savings where most of the responsibility is on the individual ... and also health-care security because you can't be safely retired if you don't have proper health care.

HOYT: ... How much risk should people who are approaching or in retirement be expected to assume?

NOVELLI: I have a little blurb here on your plan. ... And it says in here that the plan includes a guarantee of benefits equal to current law.

RYAN: Right. ...

NOVELLI: ... So I am assuming that you would argue that there wouldn't be a change in risk if we added personal accounts or private accounts.

RYAN: That is right. ...

NOVELLI: ... There are a lot of plans that essentially say ... the government is going to lend you money out of Social Security. You're going to invest it and when you're done at 65 or whatever, when you're ready, you're going to pay back the money that you borrowed, plus interest, plus 3 percent. ... And when you get into a situation like that, you're really introducing a tremendous amount of risk into a safety-net system. And I think it's very unwise.

RYAN: ... What we're proposing ... is an extremely conservative system. It's very, very important to note that Social Security is a pay-as-you-go system. A pay-as-you-go system is unsustainable when you have the kind of demographics we have today. When you go from the fact that we started Social Security after the Depression with 42 workers paying for one retiree to 1950 _16 workers paying for one retiree—to today, where you have 3.3 workers paying for one retiree, to when the boomers retire—we have two workers paying for one retiree.

... What my bill does essentially is replicate the Thrift Savings Plan that I, as a member of Congress, have and all other federal employees have, among the most conservative plans that are out there.

It's basically five index funds. Individuals don't buy stocks or bonds; they don't pick individual asset allocations—just automatic index funds. ... The rate of return is far, far, far superior than what I or anybody working today will ever hope to get from Social Security.

So how safe is that? Well, let's think about it this way. If you just put all of your payroll-tax dollars in government-backed bonds, you would probably triple your rate of return that you would now get under the current system in Social Security... .

HOYT: Is that an acceptable risk to you?

NOVELLI: ... First of all ... it's interesting to quote the idea that in the future there will be two ... workers for every retiree. And then of course people even paint a more drastic scenario: There will be, you know, one-to-one.

But the fact is that that is not really the most accurate statistic in the world because when there were 16 or 30, efficiency, productivity was far, far less. So ... three or two workers for one retiree is not the same—is not like saying we're going to cut 16 down to two and have the exact same productivity... .

But one area where I do disagree is that you said that a pay-as-you-go system is unsustainable.

RYAN: Given the current benefits, yeah.

NOVELLI: ... I don't think anybody ... thinks the status quo is just fine. ... But nonetheless, I think that we could argue that the pay-as-you-go system has served us well for 70 years, that it can be sustainable if we make modest, moderate changes on both sides of the equation, the cost side and the _

RYAN: I think that's true. I would agree to that with respect to solvency. You can make modest changes under a pay-as-you go structure to make this program technically solvent. I guess the question is—it's a value judgment—is do you want to achieve just technical solvency or do you want the program to enjoy the popular support it has today tomorrow, and you want the program to continue to produce the kinds of benefits for future retirees that it's producing for today's retirees? And so if you add that to the mix, then you have an unsustainable (program).

NOVELLI: OK. I think there is three issues that we care about—three goals that we should all be agreeing on. One goal is sustainability; we have got to get this thing to solvency. The second goal I think would be fair to say is adequacy. In other words, a benefit—benefits have to be adequate. ... And then we have got to get the national savings rate up... .

RYAN: Yeah. I agree with all that. ... I would just simply argue that I think we can keep the safety net in place and build on top of the safety system, not in place of the safety-net system—that is where I may differ with some of my colleagues. ...

NOVELLI: You cited the government Thrift Savings Plan, right?...

RYAN: Yes.

NOVELLI: But that program is Social Security with accounts, with personal accounts on top of it, and a pension.

RYAN: That's right. ...

NOVELLI: I think that is perfect. I think we should have that for the country.

RYAN: ... The reason I cited the Thrift Savings Plan is because it shows you how a well-managed conservatively run system can function. So it is not as if the government has no experience with this kind of a reform. ... It would be more than just a safety net; it would be a system that would give future retirees of Social Security the kinds of returns that current seniors are getting.

On top of it, I think you get one more benefit that we haven't touched on ... and that is inheritability... .

We don't raid transportation anymore—Congress doesn't. You pay your gas tax; it goes to roads. We do raid the Social Security Trust Fund, and Republicans and Democrats have been doing this since 1968 on and off. I got into this debate because when I first got elected in `98, I just hated the idea, that if you pay payroll taxes for Social Security and Medicare, that is where it ought to go, not somewhere else. And what I have learned is that the only real way of protecting this, ultimately, is giving individuals ownership over their own personal retirement accounts... .

HOYT: We talked about values. I also want to talk about facts for a minute and see how much each of you agree or disagree about exactly what the problem is, the scope of the problem for Social Security.

NOVELLI: Well, I haven't heard one fact ... uttered by the congressman that I disagree with.

RYAN: And likewise... .

HOYT: ... Well, let's talk about solutions because that really ought to be the biggest part of this conversation. ... I'd be curious to see how close to a resolution the two of you can get today.

RYAN: I'd love that. I don't know the answer to that question.

NOVELLI: I don't, either. ... I think you're moving us to a place that's not just policy but politics, which is at least half the battle or perhaps three-quarters of the battle. ... I think it's fair to say by virtually every account that the idea of carving these personal accounts ... out of Social Security is not gaining traction... .

What (Senior White House adviser Karl) Rove is basically saying is that adding accounts onto Social Security like the government's Thrift Savings Plan is not acceptable. And I would like to ask the congressman whether he sees that as a way to bridge this gap.

RYAN: Are you talking about add-on accounts?

NOVELLI: Yeah, just like your government savings plan—taking Social Security and making it solvent by taking prudent steps and then, in addition to that, building the national savings program by having a universal 401(k) or whatever else you all can come up with.

RYAN: There are two breakdowns in the logic of that. Number one, we already have add-on accounts. They're called 401(k)s. They're voluntary.

NOVELLI: But only half of the public has access.

RYAN: That's right. They're voluntary. Mandating add-on accounts is just a mandatory tax increase—a mandatory payroll-tax increase. But more importantly, it sidesteps the issue of restoring solvency to Social Security. Add-on accounts ... do nothing to fix the underlying solvency problem of Social Security... .

For every dollar I have in my personal retirement account, I will not get that dollar in a traditional Social Security benefit. ... And therefore Social Security is off the hook to pay me that benefit. That brings the system into solvency... .

NOVELLI: ... You're talking under your bill about half of payroll taxes collected being diverted into these accounts.

RYAN: Yeah, on average.

NOVELLI: So half of all the money ... would be diverted away from the trust fund. So what this would cost, according to the Social Security chief actuary, would be ... a present value of $7.1 trillion to create the accounts and pay full benefits to current retirees and people over 55. And that's to be compared with the present value cost to make the existing system solvent, which is about $3.7 trillion.

And then you list three sources of funding—if I've got this right: cutting other federal spending by 1 percent _

RYAN: Yeah, the growth (in) federal spending, right.

NOVELLI: OK, that's ... an adventure. Secondly, borrowing from the public, i.e., increasing the federal debt; and third, higher corporate tax receipts, which you're basically assuming by faster growth. ... The plan would make the long-term federal budget outlook much worse.

RYAN: Let me rebut all of that. ... The actuary has certified that this bill brings Social Security into permanent solvency. And instead of going into permanent deficits in 2018, we go into permanent surpluses in 2024. ... We'd go positive cash flow by 2046, meaning the debt's paid off ... .

Bill is right in saying if I can take half of my payable taxes and put it in my personal retirement account, that's ... money that's not going into the current system, right? That brings the current system into deficit, but that money I put in my personal retirement account—the system is off the hook to pay me that benefit when I retire. So that brings the system into solvency. But between now and the time the system goes into solvency, you've got to cover that deficit. That's what we call transition financing or transition costs... .

HOYT: ... These are other things that have been talked about as pieces of a solvency solution: investing part of the Social Security Trust Fund, not individual accounts, in the capital markets.

RYAN: Well, number one, the actuaries looked at that and that does not solve the problem. ... I think there is a problem with the government owning large shares of stocks and bonds of private enterprises. It's sort of a de facto nationalization of private business... .

NOVELLI: We think it's a good idea, and I don't see the difference between collective—I mean, if the government is going to interfere with the markets, why won't they interfere with the markets under your program versus this program? ...

RYAN: ... Individual ownership we already have: 401(k)s, IRAs, people owning stocks and bonds. This is nothing different from that. Having the government be the largest shareholder of private enterprises is a whole new encroachment into the private market that has never occurred before... .

NOVELLI: Well, the Social Security Administration says it solves 15 percent of the solvency problem. I mean, I think you would agree with that.

RYAN: I think it gets you 14 percent in the 75th year... .

HOYT: Increasing the tax rate? ... Non-starter for both of you?

NOVELLI: The Congress is not going to accept that; the president is not going to accept that.

HOYT: Increase the cap.

NOVELLI: Good idea.

RYAN: It doesn't get you much. If you blow the cap completely and have all wages (subject to the payroll tax) it buys you six years of solvency. If you increase the cap to $140,000 it simply delays permanent deficits from 2018 to 2021, not to mention, I think, the problems that you have with the self-employed, who pay both sides of the payroll tax, like farmers or dentists or Realtors, who would face an income tax rate higher than what large corporations pay... .

HOYT: ... Increase the retirement age beyond what's already in motion now.

NOVELLI: Well, we think it ought to be looked at. The problem there is—and we've talked to a lot of our members—it's very unpopular, and the reason is the average person says to himself, well, where would I get a job at 68? And then of course you've got the laborers you'd have to think about... .

RYAN: ... The white-collar worker says, yeah, go ahead and raise the retirement age. The blue-collar worker—I mean, I grew up driving tractors and scrapers for our family earth-moving business. That's hard work. Your body can't keep doing that kind of work. So I personally don't like the idea of raising the retirement age... .

HOYT: ... If the two of you were basically locked in this room ... is there a Ryan-Novelli, Novelli-Ryan compromise that addresses the problems of Social Security and that both of you could sign on to?

NOVELLI: ... I don't think so, and the reason ... is there is a fundamental breach here between us, which is taking accounts out of Social Security versus adding them on to Social Security... .

RYAN: I think it's early to declare defeat on that idea. ... I have a different read on the public. I think ... this debate is ever changing; it's a very dynamic debate. ... I think Bill is right in saying there is a breach that at this time we can't get over... .

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(c) 2005, Knight Ridder/Tribune Information Services.

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