Turn Social Security Over To Wall Street? Divided Panel Comes Up With 3 Ways To Save Program
After more than two years of work, a deeply divided federal advisory panel Monday issued recommendations on how to strengthen the Social Security system against the impending onslaught of retiring Baby Boomers.
But the ink on the report, which includes calls for partly privatizing the popular New Deal program, was barely dry before the capital’s army of lobbyists began drawing battle lines in what is sure to be one of the year’s most contentious political fights.
The question at the heart of the debate over shoring up Social Security is this: Would the system be improved if workers paid a part of their Social Security taxes into personal savings accounts and were allowed to invest the money in stocks and bonds?
The issue pits Wall Street, which stands to reap billions of new investment dollars, against labor union and other leaders, who say workers’ retirement pockets would be ripe for the picking if neophyte investors began placing personal Social Security funds in the private markets.
The Social Security Advisory Council, a citizens’ group appointed every four years to review the retirement system’s status, was not able to reach agreement on the issues. The council’s 13 members broke into three factions, and tensions among them were such that they declined to make an appearance together to publicize their long-awaited study.
“They’re not real thrilled with each other,” said Phil Gambino, spokesman for the Social Security Administration.
Edward Gramlich, the council’s chairman, downplayed the three-way split, saying that the group’s disagreements mirror those of the nation as a whole.
“We have more or less agreed to disagree and present our alternative plans,” said Gramlich, an economist at the University of Michigan.
The ultimate decision on Social Security’s future is up to President Clinton, who has yet to take a position on it, and Congress, which will begin hearings on the council’s report later this month.
In the report, delivered Monday to Congress and Clinton administration officials, seven of the council’s 13 members advocate proposals involving personal accounts. They say such accounts would bolster the public’s faith in the system while raising the financial return younger taxpayers eventually would receive on their Social Security contributions.
Among those seven, however, there were disagreements over the size and scope of such accounts. Several, including Gramlich, supported small accounts offering limited investment choices that would be piggybacked onto the current system, though benefit payments would be scaled back.
Others lined up behind a more dramatic restructuring proposal for larger personal accounts and a wide array of investment options, accompanied by a greatly reduced, flat benefit paid to full-career workers.
A third faction, comprising former Social Security Commissioner Robert Ball and five other members, most of whom have ties to organized labor, vowed to wage a full-scale attack on proposals for personal accounts. The faction’s plan relied on more traditional fixes, including a payroll tax increase and slight reductions in benefits. However, all three plans include a payroll tax increase.
Ball’s faction urged the government to consider investing surplus Social Security funds, now placed in Treasury bonds, in the stock market as a way of raising Uncle Sam’s financial return. But it proposed that a newly formed federal board, rather than individual workers, oversee such investments.
But allowing government to invest in the stock market would itself be controversial. For example, many Americans might have misgivings about investments in tobacco stocks, regardless of their profitablility.
The Social Security program now takes in about $60 billion more annually than it pays out. But by 2012, when large numbers of Baby Boomers begin retiring, the program’s trust fund is expected to run into the red. Without changes to the system, by 2029 it would no longer be able to pay all its obligations.
Appearing at a press conference with unionists on the council, Ball stressed that the program’s finances won’t reach a crisis point for years. He said that half its projected deficit could be erased by a series of relatively modest steps.
Among those measures, which were endorsed by the entire council, are increasing income taxes on Social Security benefits, adjusting cost-of-living increases, and extending coverage to several million state and local government employees.
But the council parted company on how to close the remaining half of the funding shortfall. Ball’s faction said that personal savings accounts would be a risky gamble for workers, who could find their lifetime retirement savings eaten up by fickle markets or dishonest brokers.
Union members “worry because they don’t have the time or the confidence they feel they would need to manage their own investment strategies,” said George Kourpias, a council member and president of the International Association of Machinists and Aerospace Workers. “And they’re very concerned about becoming prey to hordes of shyster consultants.”
xxxx Investing Social Security The three plans put forward by the Social Security panel differ mostly over how much money should be invested in the stock market and who should make investment decisions: Maintain benefits: The most conservative of the three, this would essentially maintain the current system. Backers also support government investing a block of about 40 percent of collections into private stock to increase returns. Individual accounts: Keep the current system but add a 1.6 percent payroll tax, paid entirely by the worker. The new money would be invested in investment accounts on behalf of individuals, who would have a limited number of choices. Government would manage the funds. Personal security accounts: The most radical, the plan would divert 5 percentage points of workers’ current payroll tax into personal investment accounts. Individuals decide where to invest their money. Payments would depend on the success of these investments. The other portion of the money would stay in a system like the current one. - Associated Press