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Social Security

Charles Babington
Washington Post Staff Writer
Tuesday, March 8, 2005; 11:00 AM

A handful of Republican lawmakers are pushing alternatives to President Bush's plan to change Social Security, broadening the debate over the administration's top domestic priority and hoping to soften Democratic opposition, which has been unyielding so far. The latest to jump in is Sen. Chuck Hagel (R-Neb.), who Monday proposed reducing Social Security benefits for some retirees while funding individual accounts through government borrowing. Hagel joins Sen. Lindsey O. Graham (R-S.C.) in offering a multifaceted alternative to the White House plan just as the president has embarked on a 60-day drive to sell his program.

Post Congressional reporter Charles Babington was online Tuesday, March 8, at 11 a.m. ET to discuss the latest in the Social Security debate.

The transcript follows.

Editor's Note: Washingtonpost.com moderators retain editorial control over Live Online discussions and choose the most relevant questions for guests and hosts; guests and hosts can decline to answer questions.


Washington, D.C.: It's my understanding that the Social Security shortfall was fixed during the Reagan Administration. Social Security withholding and retirement age were both increased. However, I'm now hearing that the money the government collected from us, and the sacrifices we have made in terms of extended retirement age, yielded a surplus that the government has used elsewhere. That means the increased Social Security withholding was essentially a regressive tax, because it was only levied on income below a certain level ($50K, about)

Bottom line, it's because they misused the money that we're in trouble again. How do we know this isn't another scam?

Charles Babington: Social Security was "fixed" in a temporary sense in 1983. You are correct in noting that the retirement age was raised, and tax rates were increased, as part of the compromise. But it wasn't a permanent fix, which is why the debate is re-engaged. You are also correct in noting that Social Security currently collects more in taxes than it pays out in benefits, and the surplus is spent by the government on other programs, via borrowing from the Trust Fund. (With the government promising to repay).This has never been a secret, however. Certainly an argument can be made that this is a regressive tax. If not for the surplus, however, the government would have to cut spending or raise taxes elsewhere.


Monterey, Calif.: Have any Republicans been willing to acknowledge to you, on or off the record, that this Social Security "reform" is basically just privatization by another name?

If so, aren't we basically talking about another brilliant and blatant attempt by business to redirect government money into the private sector?

Are the Democrats talking about this or have they misplaced their spines again?

Charles Babington: Many Democrats are criticizing the President's proposals for personal accounts, and they agree with you that this would amount to "privatization" of a portion of Social Security. Most Republicans I've talked to are in favor of some form of personal (or private) accounts because they believe the workers would get a better rate of return than the current system pays. They are less worried about the transition costs than most Dems appear to be.


Woodbridge, Va.: I find it difficult to wade through the many deliberate mis-statements by partisans on this issue. Hearing some speak of "returns" on Social Security is bizarre, because it's not an investment or savings program at all; and AARP (among others) can't seem to acknowledge that there will be a significant impact on the Federal budget when Social Security begins to run an annual deficit, about 2018.

I can't imagine how difficult it must be to report on this issue, but I encourage you and your peers to ignore the spin and obfuscation to report the truth. Just the facts, please. Thank you.

Charles Babington: Thanks for the encouragement. I do think "benefits" is a better term than "returns" if we are talking about the check a recipient gets. But Social Security's surplus is put into government bonds, and there is a "return" on such bonds, so if that is the context, the term seems appropriate.


St. Paul, Minn.: What exactly is the President selling on his 60-city tour? The details so far seem to be pretty vague and sometimes it appears that he doesn't even have a plan, just rhetoric about how bad the future would be and the desparate need for personal accounts. Wouldn't he get further actually working to come up with real plan that could be discussed instead of barnstorming for two months?

Charles Babington: Certainly a lot of people have asked the president to offer more details. He has said many ideas are still "on the table," and therefore he's not ready to nail down details on several aspects of the proposal.


Lancaster, Pa.: Please clarify the Trust Fund. Since 1983 more Social Security taxes have been collected than required and the extra has been used by the Fed Gov't to fund the deficit. It is my understanding that U.S. Treasury notes are "placed" in the fund and will be redeemed as required -- when the monthly haul in taxes no longer meets the requirement. Is this "system," assuming I have described in accurately, an obligation on the part of the Federal Governement or not? I assumed these notes have the same standing as say notes purchased by foreign governments like Japan, Korea, and China.

Charles Babington: You have given an excellent description of the system. As you suggest, people who say the trust fund's debt is in "worthless IOUs" misstate the case. Of course, when the day comes that the government must begin repaying that debt (i.e. when Social Security payroll taxes fall below benefits paid out), for every dollar repaid, that's a dollar not available for the other federal programs the surplus has been funding for many years.


Germantown, Md.: Various social security experts state that in 2042 and beyond there would be no crisis if:

1. The tax cut given to taxpayers making $350,000 and more be rescinded -- not made permanent as the Bush administration is pushing -- and,

2. The taxable income for FICA be increased from the current $90,000 cap up to a $140,000 cap.

Question: wouldn't this, in fact, go a long way in diffusing this so-called "social security crisis" debate? And if this is true, then where are the Republicans in not even analyzing and discussing this solution?

Charles Babington: Certainly those two actions would push back the day of reckoning by many years. But there seems to be little (well, actually, zero) appetite among congressional Republicans to roll back the tax cuts of Bush's first term. There is more talk about possibly raising the cap -- now $90,000 -- on wages subject to Social Security taxes.


Bethesda, Md.: Charles,
re. your statement: "If not for the surplus, however, the government would have to cut spending or raise taxes elsewhere."

Isn't that really the point though? Shouldn't the Social Secuity tax just collect enough to pay out Social Security benefits? Then the other taxes pay for general expenses? By mixing the two accounts through the borrowing of the phony trust fund, all we really have is a way for the government to trick people into thinking they're not paying as much in income taxes as they actually are. It's fraud.

Charles Babington: That is a very defensible argument,and frankly I'm surprised we don't hear it more often. Many people do not understand how Social Security works, including the fact that some of their "FICA" payroll taxes (look at your pay stub) fund programs other than Social Security. My only quibble is your calling the trust fund "phony." Is it any more phony than the other borrowing the government does?


Nashville, Tenn.: First, let me say that I am a 69-year old retired machinist who has been a life-long Democrat. I am afraid my benefits will be cut. Here is why:

Graduating at the head of the class in business school, as President Bush did at Harvard, requires understanding strategic behavior. It seems odd that no one comments on his apparent strategy: if some Democrats compromise on a plan, then Bush earns credit for reforming Social Security and uncooperative Democrats are exposed to charges of partisanship, perhaps electoral loss in 2006; if not enough Democrats compromise on a plan for one to pass, all Democrats can be tarred as Tom Daschle obstructionists in the 2006 elections.

The only way for Democrats to avoid being divided and conquered is to consolidate, either in favor of reform or in opposition to it. But once one Democrat breaks party lines, all other Democrats will be tarred as partisan, unless the media works hard to paint them as heroic. Yet if the media does that, it will be tarred as elitist and gerontocratic and Republicans will claim that media bias is proof of organized Democratic obstructionism in the 2006 elections.

Are my fears exaggerated or is this an accurate read of current events?

Charles Babington: I'm not sure why you say your benefits might be cut. President Bush has repeatedly noted that his plan would not apply to people now 55 and older. As for your interesting political scenario, I'll only note that it's not the duty of the news media -- at least the big part of "the media" that tries to report the news straight, not the commentators -- to "paint" anyone as heroic or not heroic.


Parkville, Md.: The way I see it, this push toward privatization of Social Security has one major unspoken aim: to reduce the chances that Social Security will become a redistributive welfare program for the elderly when their numbers start placing a much greater burden on the U.S. treasury. If Social Security is a government program, then in future years there will be a temptation to increase contributions, perhaps even increase its funding through general revenue sources and use the program as an anti-poverty tool for the elderly. But if everyone holds private accounts, then government options are more limited, as the treasury will not have the flexibility to shift resources within the program. The wealthy will be able to build up huge retirement savings accounts, while poorer seniors will have to do with much less, and the individuality of the accounts will provide an effective wall to prevent re-distribution. The end result, of course, will be an increase in rates of seniors living in poverty. Democrats aren't saying this because they don't want to admit that Social Security might need to become a redistributive system in the future to stave off poverty (smacks of socialism). Republicans aren't saying this because they don't want to admit that many of tomorrow's seniors are going to be a lot poorer than today's (not very compassionate).

Charles Babington: Quite a few Republicans are calling for some type of guaranteed minimum benefit for future retirees (if the system is changed)... I don't mention Democrats because, almost to a person, they are making no recommendations at all for now.


Valley Forge, Pa.: Please take the trust fund discussion a bit further. If part of the solution turns out to be increased revenues (higher tax rate, removal of the cap on taxable wages, etc.) won't we have to resurrect the concept of the "lockbox"? How would that work? How would the funds be invested?

Charles Babington: Many say a "lockbox" cannot work, because it would be unmanageable. I assume by "lockbox" you mean a government-run account that takes all the surplus SS taxes (i.e. those exceeding current benefits being paid out) and invests them in some type of instrument -- stocks? bonds? -- and keeps all of it (including the accruing interest) in the "locked" account, where it can't be used for other purposes. But if the instruments are government bonds, then that supplies money for the government, which it promises to repay. And that is how the current system works, and thus it's not really a "lockbox" as you envision... If the instruments are stocks, the billions and billions of dollars poured into the stock market would drive prices sharply down-- or so I am told by people who understand this better than I do.


Charleston, W.Va.: Charles:

Thanks for your wonderful work tracking down the facts on this very complex issue.

Two questions:
1 Robert Samuelson called for means testing in his column "Cut My Benefits" a couple weeks ago. Is anyone talking about this?

2 How is it that when Congress talks about cutting spending they always look at domestic spending instead of defense spending? Shouldn't the Pentagon make a concommitant contribution?

Charles Babington: thanks for writing.
1. Yes, there's a fair amount of discussion about "means testing" of benefits, which would involve trimming benefits for upper-income people. I sense no consensus, however.
2. Congress does talk about possible cuts in military spending, but it gains little traction when we are at war.


Washington, D.C.: I don't understand why raising the retirement age in a phased manner isn't being seriously discussed. I would think that most younger workers like myself assume that some reduction in benefits or other tradeoffs are inevitable and so wouldn't be opposed to raised the age to 70. And older workers wouldn't be affected so they wouldn't care either. Exactly who is opposed to raising the retirement age and why?

Charles Babington: There's some discussion of a higher retirement age. Sen. Chuck Hagel, for example, includes it in his recently announced plan. Those who oppose benefit cuts, however, rightly note that a higher retirement age is a form of benefit reduction.


Aptos, Calif.: It is good to see some effort at compromise, rather than the yes/no absolute dialogue that has been going on. My question has to do with specific values of support for people once they hit retirement age. As you know, many Americans don't have pensions or health care, things that are vital when you retire. What type of 'safety net' do you feel that the government should provide in these areas and how do you propose to do it?
Casey Dawes

Charles Babington: Well, first, it's not my job to propose solutions. I cover the people who do that.
Social Security is, for the most part, a "safety net" program that provides a minimum income for the elderly (plus survivors and the disabled). Most of the plans now being discussed claim they would not do away with the safety net, though they differ in exactly how low-income retirees would be protected.


Worthington, Ohio: Where is President Bush's proposal for Social Security reform? Nowhere can I locate a position paper or proposed legislation bill. I've research several congressional sites as well as the white house links.

Charles Babington: Wow, that's interesting. Many newspapers have covered the debate -- including Bush's proposals -- as it has played out. I think that's all the detail we have so far... I'm a little surprised it's not on some GOP websites.


Alexandria, Va.: Every so often when people want to raise alarms about a Social Security "crisis," the doomsday date is something pretty near. But this date keeps getting extended. As it is, we're not really in trouble until 2042. If that. So why this urgent push now to hurt a system that is, by all reports, going to function just fine for nearly another half a century?

Charles Babington: Well, others might say: Why wait til we're in really deep trouble to mend a program that clearly faces demographic challenges when the Baby Boomers retire?


Lincoln, Neb.: With so many deficit-hawks in Washington these days, Chuck Hagel's Social Security reform bill seems destined to fail in the Congress, given the magnitude of borrowing it proposes. But it also seems calculated to persuade hardcore conservatives who want the retirement age raised that Hagel is a true conservative, not a Susan-Collins-Anthony-Kennedy-moderate. Given that hardcore conservatives are the biggest donors to the Republican Party and the party chairman has declared that any seekers of Bush's support in the 2008 primaries must win at party fundraising first, can't this be seen as a naked stunt by Hagel to ensure his shot at the Republican Presidential nomination in 2008?

Charles Babington: How did Anthony Kennedy get into this debate? Isn't he on the Supreme Court?


Washington, D.C.: The Democrats call personal accounts "risky." The U.S. Government's Thrift Savings Plan allows various investment options, among them the "G" Fund, which consists of government securities. A personal account holder could invest in the "G" fund with NO RISK. Also, among the personal account options ought to be a CD fund -- also virtually riskless. Now, you might say, the "G" fund and a CD fund would only return that which Social Security earns today (as it is invested in govt securities), so why bother?But, the difference is, a personal account is YOURS, and you can pass it on to your heirs. So, then what is the Democrats's point about risk?

Charles Babington: That's a good point about taking the risk level to zero (but doesn't it defeat the purpose of trying to get a better return via the magic of the stock market?). The other complaint aimed at personal accounts is they require a big "transition cost" -- that is, some way to replace the payroll taxes that would be diverted into personal accounts instead of going to pay current benefits, as they do now.


Virginia Beach, Va.: Something I've not heard mentioned but is certainly true of SSI in my life and my family's life is the fact that knowing that there is an absolute floor beneath we could not fall actually gave us the confidence to accept the risks of going it alone and push ahead to achieve personal self reliance and financial security. Without SSI and the failsafe fall back position it provides, wouldn't American's hordeing cash for their old age have crippled business growth and discrectionary spending?

Charles Babington: A lot of smart people say Americans do not save nearly enough. And most "savings" are invested in stocks, bonds, real estate, etc. -- this is, investments that help spur the economy -- rather than stuffed in mattresses in the form of cash. Right?


Estates of Riverdale Park, Md.: Hello Mr Babington,

In promoting personal accounts, the White House cites the stock-market's historial return on investment (ROI) of 8 percent per year.

But to make an informed choice about where to put your retirement money, that historical average isn't enough. No one's retirment is 100 years away.

Instead, what you need is a distribution curve that shows the range of ROI for each, say, 20-year period. Such a curve could tell you, for instance, how often in the past the average ROI has been lower than 8% after a 20-year period. That info is more useful and more relevant than a single historical average.

Charles Babington: thanks for writing. All kinds of historical data are available on stock market returns. You can slice and dice it any way you like.


Edenton, N.C.: The question to be asked about the Bush Social Security Plan is "Where is it?" It seems strange to call the plans being put forth in the past week as alternatives when there is no bill to use as comparison.

Of what little is know, the following questions come up:
1. Does the increase of the minimum wage change the math? For each 100,000 affected by a $1 increase, Social Security gets $25,000,000 per year.
2. Does the suggested increase in the $90,000 wage cap change the math? If the cap is moved to $120,000, as above, the increase per $30,000.00 adds $375,000,000 to Social Security for every 100,000 affected.
3. If an annuity is required for the first dollars of private investment the point at which choice of private investment can be made until the wage earner makes $25,000. How many in the work force will never see real private accounts?
4. Don't we already have private accounts, 401K, IRA, Simple IRA, Roth, etc?
5. If the thrust of the Bush plan is to find a better return on the Social Security tax, why then don't we take the surplus and buy Euros?

Charles Babington: 1. I've not heard the minimum wage debate mentioned in the same breath as the Soc. Sec. debate.
2. Yes, a higher cap would change the math, push back the day that SS taxes fall below promised benefits.
3. I don't know.
4. Many of us do, but many do not. You are talking about private programs and investments. Soc. Sec. is a government program.
5. I'll pass that idea along.


Charles Babington: Thanks for all the excellent questions and comments, I enjoyed the chat.


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