Sen. John Breaux (D-La.)
Wednesday, September 9, 1998
With the recent downturn of stock markets, the stability of America's retirement system is once again at the forefront of an ongoing debate over Social Security. As a co-chairman of the bipartisan National Commission on Retirement Policy, Sen. John Breaux (D-La.) is one of the leading participants in the struggle to keep Social Security solvent in the coming century.
In July, Breaux co-sponsored a bill that would create mandatory individual retirement accounts, increase the minimum social security eligibility age and create means testing for more affluent retirees. He answered questions on Wednesday, Sept. 9.
The first question was from Annapolis, Md.
Annapolis, Md.: What is the smartest and most practical approach the federal government can take now and over the next five to 10 years to ensure that Social Security will not go bankrupt when the Baby Boomer generation enters retirement?
Sen. John Breaux: I think that what we have suggested and the legislation we have suggested S. 2313 introduced by Sen. Judd Gregg (R-N.H.) and myself is a proper and doable approach. What we have done is to make a number of suggestions to improve the financial solvency of the program by refunding two percentage points of the current 12.4-percent payroll tax into personal savings accounts for individuals that would be modeled on the federal thrift savings plan. These people would then be able to invest that money in a high, medium or low-risk investment which would dramatically increase the amount of funds available for retirement.
That's one suggestion. The other part of our proposal is to gradually increase the retirement age over the next 30 years, ultimately to 70 years of age. We eliminate the earnings test for retirees. And finally we create a minimum benefit plan within Social Security which guarantees that anyone who works for 40 years in their lifetime would receive a minimum benefit of at least a 100 percent of the poverty rate. They do not have that now.
Durham, N.C.: Democrats in general appear to be advocating the allocation of projected surpluses exclusively to Social Security. Would you consider a balanced approach that splits the projected surpluses three-ways among Social Security, the national debt, and tax cuts?
Sen. John Breaux: Well, personally I think that that suggestion is a good one. There are those who say you should put it all on Social Security and others who say you should put it all on a tax cut.
I think we have wonderful opportunity to address all of those concerns maybe not 100 percent on each, but to address them. I think that idea is a good one. It shouldn't have to be all or nothing.
Washington, D.C.: I can't believe the Washington Post called you a leading defender of Social Security. Why do you want to cut benefits in order to fund individual accounts?
Sen. John Breaux: We are trying to save a program that demographics tell us will be insolvent by the year 2029. What we are suggesting is giving individuals an opportunity to create their own personal savings account, but in a limited fashion by allowing them to invest 2 percent of the 12.4 percent they currently pay in payroll taxes. In addition, we have followed the federal model and limited those investments into a range of investments that history tells us are secure but are much better than what Social Security currently does with their taxes.
In addition, low-income people would be much better off under our system, because the cuts are only to Americans on the higher-income end of the spectrum. But in the end, everyone would win.
Baton Rouge, La.: Will Medicaid reform affect state retirement systems?
Sen. John Breaux: Will Social Security affect the state retirement plans?
The Gregg-Breaux proposal would require that future state employees be brought into the national Social Security retirement plan, but that people who are currently in their state retirement plans would be able to remain. Most all of the plans being discussed in Washington would make that change.
My personal preference is to allow those state plans that are fully funded to continue to operate, and I will continue to fight for that.
Pittsburgh, Pa.: Why do you want to raise the retirement age to 70?
Sen. John Breaux: The changing nature of our society dictates this policy recommendation because life expectancy is changing very rapidly. In 1935 when Social Security was created, life expectancy was about 63 years of age. In 2030, life expectancy will be 84 years of age. What our plan attempts to do is to roughly keep pace with the goal of having people retire for between 20 to 25 percent of their adult life, raising the retirement age gradually, and would no one who is currently on Social Security.
It is very slowly phased in over the next 30 years at the rate of only a two-month per year increase, so that people will have plenty of time to prepare. Under the current law, a person such as myself who is 54 years old would be able to retire at age 66. Under this proposal, I would be able to retire at 66 years and six months. That's the only difference.
Bayonne, N.J.: Would you consider supporting a bill which would stop the use of Social Security contributions for any other purpose other than for the personal benefit of the account owner and his dependents?
Sen. John Breaux: That is what we are trying to do with our proposal. Currently the surplus in the trust fund is used to offset the deficit, and what we are doing with our two-percent proposal is attempting to pre-fund those retirement plans. That money would be taken off the table and the government would not be able to use it for any other purpose. It would be part of their individual retirement account.
Alexandria, Va.: Do policymakers plan to include a discussion of "values" as they look at the personal, business, and government roles in retirement planning and funding? For example, what are the incentives for people to carefully plan and put away funds for retirement if a significant portion of that ends up in taxes, supporting those who chose not to plan or put money away? What is the "message" we as a country send to people about our values for work, planning for the future, community responsibility?
Sen. John Breaux: One aspect of our proposal is to involve the individual with their own retirement much more than under the current system. Many young people today do not believe that Social Security will be there for them. Our proposal for creating a personal retirement account which you would control gives you a greater stake in building your own retirement plan. It would also allow additional voluntary contributions to be made to encourage even more savings for your individual account. All of this helps try and connect individuals with the notion that work and savings go together in guaranteeing an adequate retirement plan for their later years.
Louisville, Ky.: Quite a few of us still believe that the stock market is the best place to invest for retirement in the "long run". What sort of time frame would you use to define "long run" as a relatively safe strategy, and has your definition changed over the past few weeks?
Sen. John Breaux: That's a good question, because when the stock market dropped 500 points in one day, people suggested that our idea is not a good one. But history tells us that there has never been a 20-year period in the stock market that has given us a negative return since 1926. So individuals must look at this as an opportunity over the long term to have secure investments. It is clear that the current practice of investing Social Security taxes in only government securities that return an average of 2.7 percent annually can simply not be sustained.
New Orleans, La.: Is there any chance that in the next reform of Social Security we will stop kidding the American people with the insurance/investment rhetoric that historically has been used to characterize what is actually a regressive tax system? Why don't we apply the Social Security tax to all income?
Sen. John Breaux: The question makes the accurate point that approximately 80 percent of Americans pay more today in payroll taxes than they do in income taxes. It is very regressive, and we have rejected the suggestion by some of just increasing the payroll tax, and have rather proposed this alternative, which gives back to individuals two percent of the current tax that they pay for use in a private investment.
Fairfax, Va.: The current surplus in Social Security System revenues is being used to produce the appearance of a balanced federal budget. Shouldn't Social Security be moved "off-budget" so that Social Security funds stay clearly in that system and so that discretionary spending has to adhere to a true bottom line?
Sen. John Breaux: That's the $64 question. What we have traditionally done is to use the surplus to offset the deficit.
There will be another time to determine if we should take it off budget. What we are trying to do with our proposal is to make sure that enough funds to exist to pay the benefits.
It is an obligation of our government which must be honored, and we are trying to make sure that we honor it by our proposal.
Helena, Mt.: How can Congress and the administration ever get back to working on the complexities of Social Security when the Lewinsky matter is so all-consuming? What do you see as a realistic timeline for meaningful legislation?
Sen. John Breaux: Our obligation as legislators is to legislate. And we cannot stick our heads in the sand like an ostrich and pretend that the president's problems do not exist. But we cannot ignore the pressing problems that exist with Social Security and Medicare. And the timing suggests that we should do it in the early part of next year.
Every expert that has testified has said we must do reform as soon as possible or the problem will continue to get worse.
Wrangell, Alaska: I am 54 years old and now I'm an unemployed timber faller, due to environmental constraints. If some how I can keep working till I'm 65 will I be able to draw Social Security, or will that be gone too?
Sen. John Breaux: The early retirement age under our proposal would be 65 years of age, and you could always take the early retirement option.
Since you are the same age as me, that would only increase to 66 years of age and six months for full retirement benefits.
Also, under our plan, an individual could access his personal account that he created at any time.
Baton Rouge, La.: If "means testing" is applied to the Social Security program in the future to limit or exclude benefits provided to more affluent retirees, what assurance do we have that the threshold for qualification will not subsequently be lowered to exclude all but the poorest senior citizens?
Sen. John Breaux: None of the proposals that are currently being considered recommend means testing for retirement, and ours does not either. When we're looking at an issue such as Medicare, means testing has been considered by members of Congress, but not for Social Security.
That was our last question for today's guest, Sen. John Breaux. Thank you very much for joining us today. We'd love to have you back again soon.
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