About Social Security Privatization
By Peter Baker
President Clinton said today he was "open-minded" about proposals to invest Social Security funds in the stock market and other private investments, although he warned that "we also have to ask the hard questions" about the risks involved.
As political momentum builds for some form of "privatization" of Social Security, Clinton signaled his willingness to consider what once would have been an unthinkable and radical remake of the government's main program for the elderly as he seeks to build a national consensus on how to fix its long-term problems.
While not committing to anything, Clinton said private investment of at least some retirement funds could be a more palatable alternative to what he sees as the only other options for bolstering the finances of Social Security -- reducing benefits, raising taxes or shutting down other portions of government. But he added that he wanted to be sure that it would not be so risky that it would throw many retirees back into poverty.
"I don't know what I would do, but I am open to the idea that if we can get a higher rate of return in some fashion than we have been getting in the past, while being fair to everybody and guaranteeing that we'll still be lifting the same percentage of people out of poverty, we ought to be open to those options," Clinton said at a forum on Social Security at the University of New Mexico. "Because I think that's better than raising the payroll tax a lot more. . . . I don't want to cut benefits substantially . . . and I don't want to, you know, close down the National Park Service or stop supporting education."
Clinton sounded more receptive to the idea than has his treasury secretary, Robert E. Rubin, who made a fortune on Wall Street but has been highly skeptical of proposals to invest Social Security funds in private markets that are far more volatile than the government bonds in which they are now invested.
The main question at today's town hall meeting seemed to be not so much whether to privatize Social Security, but how much and in what way. Most fundamentally, should the government decide how to invest the money or should individuals be allowed to choose for themselves?
The think-out-loud forum was the third of its kind on the subject during a year of dialogue leading up to a White House summit on Social Security in December and to be followed by legislation in 1999. Clinton has set his sights on restructuring the six-decade-old New Deal program, which benefits 44 million elderly and disabled Americans, seeing it as one of the last big tasks -- and most important legacies -- of his presidency. Once fall elections are over, the White House believes it will have a short window of opportunity to forge a bipartisan consensus before jockeying for the 2000 presidential election politicizes the atmosphere again.
In a welcome distraction from his looming confrontation with independent counsel Kenneth W. Starr, Clinton was able to spend a few hours far outside the Beltway engaged in the sort of freewheeling, robust policy discussion he savors.
He sounded genuinely uncertain what course to follow as he explored the complexities with a panel of nine members of Congress and economic experts before an audience of several hundred New Mexicans. In typical Clinton fashion, he threw out plenty of facts and figures and, at one point, summoned an adviser up to the stage to whisper other details in his ear.
Clinton used the opportunity to urge congressional Republicans once again not to use projected budget surpluses for deep tax cuts and to stash it away for Social Security. "In an election year, asking politicians to hold off on a tax cut is almost defying human nature," he said. But "let's deal with first things first."
In thinking about privatization, Clinton acknowledged the obvious appeal of individual security accounts, in which taxpayers could decide how to invest a portion of their Social Security taxes. But he seemed sympathetic to experts who warned that some would lose even as others win. On the other hand, if the government were in charge of investing some Social Security funds on behalf of retirees, he feared that could not be sold to the public.
"How will you ever convince the American people . . . since they always believe the government would mess up a two-car parade?" he asked.
The libertarian Cato Institute argues that allowing the government to invest Social Security funds in private markets would amount to "the socialization of a large portion of the U.S. economy." On the other side of the spectrum, the AFL-CIO criticizes individual security accounts, maintaining that they would deeply cut guaranteed benefits that have been the foundation of Social Security.
When a man asked what he would do if he had to decide right now, Clinton said: "If I answered that question today, it would make it less likely the decision would be made. I'm not dodging this. I honestly don't know what I would do today."
Aides said afterward that Clinton's soliloquys reflected the same sort of discussions he has been having with his advisers behind closed doors. "He is very much struggling with the tough questions that have to be asked under any of the different strategies put forward," said Gene Sperling, head of the White House National Economic Council. "He truly, truly has not made a final decision."
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