The 06.03.05 City Club debate on Social Security reform started on the sidewalks outside the City Club, where many activists opposed to privatization handed out literature and asked passer-by-ers to sign petitions expressing opposition, to be sent to our legislators. Inside the City Club, the audience appears of like sentiment, populating tables sponsored by the AFL-CIO, AARP, and Friends of Sherrod Brown.
The introduction to the debate surfaces the complexity of the subject, as City Club Vice President Sanjiv K. Kapur lists reforms under consideration and possible outcomes, concluding it is no easy task to reach consensus on this matter. The presenter in favor of privatization is former Congressman Tim Penny, o-director of the
Humphrey Institute Policy Forum at the University of Minnesota [1], and a former Minnesota Democrat who is now an Independent. Sherrod Brown is Congressman from the 13 District, in Northeast Ohio, who recently spoke at a City Club forum [2] in concern about global trade, while launching his new book, Myths of Free Trade: Why American Trade Policy Has Failed [3].
Tim has written several books and has been involved with government policy reform for many years. He takes the podium first and speaks of the history of Social Security and how changing demographics require reform. He sat on President Bush's social security reform board and states that the fact is we will reach a point around 2041 when payroll deductions will no longer be sufficient to pay claims. What to do? Reduce spending - raise taxes - or borrow money? All three options are difficult and some model for reform will need to be implemented by 2017. He thus proposes pre-investing to address the problem - initiate a private investment fund to earn back all or more of what people give up in reduced benefits.
Tim asks his audience to consider only 25% of Americans between 45 and 54 years old avail themselves of an IRA and the average investment is $13,000 - what type of system do we want to have 70 years from now? We need to get citizens in a pattern of saving and investing.
Sherrod takes the podium next and he points out he is excited to have this debate in an open public forum where anyone of any opinion can questions public officials on their positions. Sherrod finds it strange the President has made social security his #1 platform issue when we have extreme budget and trade deficits and they’re getting worse - and the process of privatizing Social Security will add $ trillions to that deficit. We're spending over a $ billion a week in Iraq with no exit strategy, and we face pension scandals with major corporations dumping their responsibilities to retirees on the Federal Government.
Sherrod says he's held several public forums to debate the state of Social Security and most citizens feel it is in pretty good shape - with a few having opinions it is a mess. Sherrod ponders, with all this going down, why is Bush flying around the county, at a cost to the public of $10s of millions, holding invitation only media-circus town hall meetings promoting nothing but privatization. It is not the best way to solve the nation's problems by working in a vacuum.
Sherrod says he doesn't know why Bush makes privatization his #1 issue - perhaps it is payback for political donations from Wall Street - perhaps just Bush's passion. The fact is Social Security has for over 70 years been one of America's most successful initiatives - through all the decades Wall Street ops and downs and investor disasters from Enron to the DotCom bust, Social Security has never missed a payment. Considering the degree of corporate scandal in America - from scam businesses like Enron to the steel companies and airlines eliminating pensions - is this the time for taking risks with Social Security, which is the safety net that guarantees every American will have some protection against poverty in retirement.
Retirement protection is a three-legged stool. But we have the lowest savings rate in the industrialized world, we see in implosion of our private pension system… now is not the time to saw off the third leg of our stool.
In response, Tim Penny says SS has a several year horizon before risking crisis. There are many other shorter-term budget issues that must be addressed, but in a few short years SS will become a huge issue and it should not be reformed through taking on greater debt. Tim feels it is valuable we are now debating these issues, before they become real day-to-day problems. Tim feels if we can pre-invest now with private personal investment accounts for the future, we will reduce the risk ahead of not doing anything. If we can get people investing in their retirement they will be better positioned for retirement. SS is not rock solid - we are not taking in enough funding for the obligations ahead. We can allow individuals to invest in safe bond and mutual funds, as is allowed for federal workers - these are paying 6-11%, even in these times of market volatility and risk.
Sherrod responds he is uncomfortable that there is no one here representing Republicans, who are pushing SS reform. He asks us to consider historically in 1935 95 out of 96 Republicans voted against SS, and they have battled against SS ever since, including calling for privatization of SS for decades - since 1983 the Cato Institute has been the primary champion of privatization - proposes a Leninist guerilla warfare attack against SS - we now see a perfect alignment where the Republicans control all of the branches of government and so are positioned to privatize SS. They tried the same privatization approach with medical reform - under funding public Medicare while forcing people into private sector health insurance. This a political movement entirely pursued by Republicans - there is no debate on that.
Q. Mr. Brown - you wonder why Bush is attacking SS and the answer is Bush's mission is to disassemble every social service program in America. Mr. Penny, the reason private savings are so low is because people are on the brink of poverty. What do you think of that?
A. Sherrod says it is disturbing that the Bush administration and Republican Party are so fanatical.
A. Penny feels the Republican motives are not to be pulled along with the President on this issue - SS is a bedrock program - a valued program - Bush should be credited for putting this on the front burner as his party is not eager or malevolent, as Sherrod suggests. This is a generational issue that we must address for the next generation. We can't just patch this up every 20 years. We can't help young people save better if we don't help them save in the SS system, because otherwise they don't save.
Q. Mr. Brown - you said the President wants to saw off the third leg and privatize the entire plan - I wish you'd be more honest. Consider my wife and I receive over $30,000 per year in SS retirement payments, well exceeding safety net they require – but they don’t have options – should reform payment to wealthy – what about Pozen’s plan.
A. Brown defends his honesty in pointing out the Cato institute has proposed total privatization. Brown doesn't support Pozen's plan. We need to quit steeling from the trust fund and start paying it back, and we should put our fiscal house in order - eliminate trade and spending deficits. If we improve economy, increased income taxes will more than cover deficit issues. The current budget explosion has been unnecessary - the tax cuts have impacted national wealth. And that Bush keeps the rhetoric in private forums rather than public debate is unacceptable.
A. Penny argues we are on the brink of a SS crisis and that the solution isn't just in taxing the rich - we need a universal program. We promise bigger benefits - we don't base payment on need - we need reform.
Q. The Democrats claim there really isn't a problem and the Republicans only offer the one proposal for privatization - I'm an investment manager and see how poorly sophisticated investors handle their 401ks and other investments and the thought of all Americans being responsible to manage personal retirement account scares me to death. I didn't need the last tax cut – many federal fiscal policies are not in alignment with reality. Why are we only debating one thing, being privatization?
A. Sherrod says Bush has just been holding a media circus. Democrats do not think there is a crisis - we want to sit down and deal with this but there hasn't been any bipartisan debate on anything at the federal level since No Child Left Behind. This country is not well represented when both parties are not at the table.
A. Penny agrees everything has to be on the table - both parties are locked into a certain amount of rhetoric and the White House is saying many things are non-negotiable. We need more open debate and every possibility must be on the table. Penny sees moving private funds into accounts people control, but under the umbrella of SS administration. If you put personal accounts in the mix it becomes part of permanent solution.
Q. Mr. Penny, don't you think the President will have a hard time passing some level of privatization - I've been in the insurance and pension industry and there are funds that guarantee certain returns - it can be a safe process.
A. Penny sees Bush is serious about getting this done during his term and he expects that to happen, but he will have to make some concessions.