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CNN Crossfire
Is Private Investment the Way to Save Social Security?
Aired May 02, 2001 - 19:30 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
ROBERT NOVAK, HOST: Good evening. Welcome to CROSSFIRE.
Did George W. Bush really mean it during the campaign when he promised partial privatization of Social Security? The president took a step down that hazardous road today by naming a 16-member bipartisan commission to consider ways of saving the Social Security system.
The commission's co-chairmen are former Senator Daniel Patrick Moynihan of New York, a Democrat, and AOL Time Warner chief operating officer Richard Parsons, a Republican. The commission was told by President Bush to take a hard look at permitting Americans to voluntarily invest in personal retirement accounts two percentage points of their 12 percent payroll tax.
Now, that's mighty like what Senator Moynihan, and other members of the commission, have been saying for a long time. So, congressional Democrats are complaining that the commissioners already have their minds made up. Have they? And is private investment the way to save Social Security? Or is it too risky?
Sitting in on the left, former Secretary Of Energy Bill Richardson, now a professor of Harvard's Kennedy School of Government. Welcome, Bill.
BILL RICHARDSON, GUEST CO-HOST: Congressman Sununu, the volatility of the stock market, of the Nasdaq of the last year, with a stock market, it moves 17 percent from a high to a low; the Nasdaq, 62 percent. Isn't this an awfully risky scheme, these private accounts -- these private retirement accounts -- aren't they going to curve benefits? Aren't we talking about a massive change in the system that is unsustainable?
REP. JOHN SUNUNU (R-NH), VICE CHAIRMAN, BUDGET COMMITTEE: Is it a change in the system? Yes. What is unsustainable is the system itself. We all know about the insolvency of Social Security and the need for reform.
I think you see the changes in the stock market, the behavior of investors that actually shows that investors are rational. You didn't see panic, you didn't see massive withdrawals from the IRAs and 401(k)s that are out there. We have more than 50 percent of Americans owning some stocks, some portfolio of different investments.
I think there's every expectation -- fair expectation that investors can make good decisions, invest for the long term, and if you look at the historic return of stocks, sure. But just a portfolio of bonds, the real rate of return is much greater than Social Security.
And let's not forget: one, we are talking about voluntary accounts. And two, someone can put that money in treasuries if they want, municipal bonds if they want. There are all kinds of investments out there that are stable, sound, secure, and provide a much greater return than Social Security.
RICHARDSON: Let me turn to a quote by Congressman Gephardt.
(BEGIN VIDEO CLIP)
REP. RICHARD GEPHARDT (D-MO), MINORITY LEADER: We are not going to stand by and let Social Security be ruined. This is the most popular and important program this government has ever passed. It is a huge fundamental change to privatize it and to allow people to invest their accounts on their own. If you just look at the last year of experience with the stock market, you know that that is a risky idea.
(END VIDEO CLIP)
RICHARDSON: Now, Congressman, let's take this commission. You know it's a stacked deck. I served with some of the Democrats that are on that commission. They are for privatization. Congressman Penny, Senator Moynihan, distinguished members many. But why are we doing this commission?
The last Social Security commission's -- they have been eight in the last 20 years -- only one has had any impact, the 1982 Greenspan commission. So why do we go through with this? And what happens if this commission comes back also, and says, we have to raise the retirement age? We have to tinker with the cost of living increases? Are you going to support that?
SUNUNU: Well, let's see what they come back with first. To answer your direct question, though, why do a commission? Because President Bush is the first major presidential candidate in the last 20 years to go on the campaign trail and talk honestly and substantively about strengthening and reforming Social Security.
He laid out a set of principles and now he's following through on his promise, putting together a commission to go work through legislation that isn't keeping with those principles. Now, the suggestion that Pat Moynihan is some sort of partisan puppet of the president and Tim Penny can't make decisions for himself, and Robert Johnson isn't going to look at Social Security, and the importance...
NOVAK: Robert Johnson is the head of BET.
SUNUNU: Black Entertainment Television, a successful businessman. But he understands the need of maintaining a system, keeping promises to current retirees and those that are approaching retirement, but also, understands important of creating real wealth. And ultimately, that is what Dick Gephardt is afraid of: Americans controlling their own financial destiny. Did he take his money out of the stock market because it went down a little bit this year? I don't think so.
I think Dick Gephardt recognized that investing in the long run is the right thing to do.
NOVAK: Congressman McDermott, I thought that Congressman Sununu put it well, but with all due you respect, John, President Bush said it even better in the Rose Garden today. Let's listen to him.
(BEGIN VIDEO CLIP)
GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: Personal savings accounts will transform Social Security from a government IOU into personal property and real assets, property that workers will own in their own names and that they can pass along to their children. Ownership, independence, access to wealth should not be the privilege of a few.
(END VIDEO CLIP)
NOVAK: Now, isn't that what you are afraid of, Jim McDermott, you and the labor union bosses and the Democratic chiefs that people will become independent and when they become owners of stock, they will become Republicans. Isn't that what you are really afraid of?
REP. JIM MCDERMOTT (D-WA), WAYS & MEANS COMMITTEE: What we are really worried about is that you will ruin the system that has brought economic security to senior citizens in this country.
In 1935, the government didn't put this together because things were going well -- things were in a mess. We watched two, three Republican presidents in a row ignore a problem. And Franklin Delano Roosevelt had to do something to bring the seniors out of it. And what you are saying now is, we want to take a risk, we want to take 2 percent out of the pot.
Everybody knows this is a pay as you go plan. If you take that 2 percent out of the pot and say to people, invest it yourself. Where do you replace it? Or do you cut benefits? You'll have to cut benefits. If you gave 2 percent, you'd have to cut benefits 54 percent in order to make it work out.
NOVAK: You didn't answer my question of whether you were afraid of wealth in the hands of the people who now vote Democratic. I think you are.
MCDERMOTT: No.
NOVAK: But you used to be a psychiatrist, Dr. McDermott, so you saw our charts. I want to show you a chart that is very interesting and it belies all of this scare talk from Bill Richardson.
Take a look. You know what that is? That's the Dow Jones Average since 1920. Do you know it always goes up. You can't see in those first few years, but there's a steady movement upward. There has never been a 20-year period of the stock market where the Dow Jones Industrial Average didn't go up, so this is all scare tactics on your part.
MCDERMOTT: I know that liars -- figures never lie.
(LAUGHTER)
The fact is if you watch the drop of 43 percent from 1972 to 1973, it was ten years before it came back. So, if you happen to be unlucky enough to be retiring in 1975 or '76, you lost your money. If you started last March and you had been planning to do this April and retire, would you have been 28 percent down.
SUNUNU: If you took everything that Jim says at fast value, then that's an argument for not having IRAs, not having 401(k)s, not having the government create any -- we passed a bill on the floor of the House today that over 350 votes, bipartisan votes, that expands opportunities for IRAs and 401(k)s -- he's sincere none the less -- they left out people on the bottom.
(CROSSTALK)
RICHARDSON: Private accounts drained too much from the program, because as Congressman McDermott said, Social Security is a pay as you go program. You still will have these young people in this new scheme; they have to pay for their families' retirement. Where are we going to get that money?
SUNUNU: First of all, there's clearly going to be a greater rate return of investments and bonds and treasuries, municipal bonds or stocks, higher rate of return on average -- you can look at any 10, 20-year period, there's clearly going to be a higher rate of return.
Second, this is one of the issues that the commission has to look at. I mean, there are ways that you can use general revenues to support a transition if it -- if it takes us to financial solvency...
MCDERMOTT: This is news.
SUNUNU: ... if it's "actuarally" balanced...
RICHARDSON: But -- but, but congressman...
SUNUNU: ... that may be a recommendation that they make.
RICHARDSON: Congressman, Social Security is not an investment program. It's an insurance program, also. What's going to happen to those...
SUNUNU: And -- and President Bush has made the point that it needs to be an investment program.
RICHARDSON: ... widows, to disabled workers, to those that live long? A lot of their benefits are going to be adversely affected. SUNUNU: Disability benefits, survivor benefits -- no one is talking about changing disability benefits and survivor benefits.
RICHARDSON: The General Accounting Office is. If you go into...
(CROSSTALK)
SUNUNU: Well, does the General Accounting Office have someone on the commission?
RICHARDSON: Here's a physician, he'll tell you.
SUNUNU: No one is talking about changing those programs. And for you or anyone else to suggest that this is a ploy to change Social Security disability or this is a ploy to eliminate survivor benefits is just wrong.
That's not what they're charged with evaluating.
NOVAK: Congressman, there's something that's fallen between -- something that's fallen between the cracks here, and that is that No. 1 -- and tell me if I'm wrong on this because I know I'm not wrong -- that this is a voluntary program. You have to -- you have to decide that you are going to take 2 percent -- here's -- you're going to have a very limited scale of investments, just like a 401(k). And secondly, it doesn't affect people who are on pension right now. It affects them not at all.
MCDERMOTT: Well, I just found out we're going to take the money from general revenue to fill the hole that you dig by taking that 2 percent out and saying, "Go invest it yourself." But the real issue here is, OK, so you've now got it and you're counting on it. You've got less money than I have, because you took your money and invested it -- you lost. Should we make it up? No. You took your money (UNINTELLIGIBLE) to the market, goodbye.
If it -- if it doesn't work for you, do I have responsibility to now dig you out of a hole you put yourself in?
NOVAK: Isn't this a philosophical question, congressman. You're one of the most left-wing members of Congress. I think you're proud of it. No, you're proud of it.
(LAUGHTER)
You don't -- you don't like to give individuals a right to make personal decisions. You want to say, "You're going to be guaranteed this little 2 percent growth rate, and we're not going to give you a chance to try invest and improve your fortune." You want everybody in a low common denominator. Isn't that correct?
MCDERMOTT: I -- I come from a family where they were selling stock for energy companies in Illinois back in 1928. And they came down to central Illinois -- my grandma wanted to put money into it. My grandfather said, if it's such a good deal, why are they coming all the way down from Chicago, down here into the cornfields selling this stuff. And everybody lost their money except my grandfather. Now that's -- people understand what happened then, and you can see what happened in the dot-com bust. People are walking around who were rich yesterday and suddenly...
SUNUNU: But we have moved through that -- we have moved through that...
MCDERMOTT: How do you know?
SUNUNU: ... without investors -- because the market dropped 45 percent and now it's come back a bit, and investors haven't panicked, they haven't left...
NOVAK: They haven't -- they haven't cleaned out their 401(k)s.
SUNUNU: The notion that you shouldn't allow someone who's is already paying 12 1/2 percent to control two percentage points of what they're being taxed each week, put it into an account that will be there for them to retire is a determination to prevent people from creating wealth.
NOVAK: We're going to have to take a break, and when we come back, we'll talk about whether Alan Greenspan has it right on this question or he's wrong too.
(COMMERCIAL BREAK)
RICHARDSON: Welcome back to CROSSFIRE. I'm Bill Richardson, former secretary of energy, sitting in for Bill Press on the left. Al Gore wanted to put it in a lockbox, George W. Bush wants to put it, at least some of it anyway, in the stock market. We're talking about your Social Security dollars. What is the best way to reform the system that could be in real trouble in about 35 years? That's a question tonight for our guests: Republican Congressman John Sununu of New Hampshire and Democratic Congressman Jim McDermott of Washington state.
NOVAK: Congressman McDermott, I would like you to listen to a comment made at the Rose Garden ceremony when this bipartisan commission was picked by the Republican co-chairman, who, by the way, is the chief operating officer of AOL Time Warner, which I think owns CNN, but we don't care about that much. That's irrelevant.
MCDERMOTT: You don't trust them, either.
NOVAK: No, no, I trust them. I want you to listen to Richard Parsons' words and listen carefully please.
(BEGIN VIDEO CLIP)
RICHARD PARSONS, AOL TIME WARNER: We've all known the system needs to be reformed, and to sort of borrow a phrase from my college days, you know, if not now, when, and if not us, who?
(END VIDEO CLIP) NOVAK: Now, I want to ask you if you agree that the system needs to be reformed, not just tax more dollars to save it from going into bankruptcy. Does it need a basic reform?
MCDERMOTT: No, I don't think so.
(LAUGHTER)
It's a system that works. It's worked very well since 1935 and it will continue to work. The big thing we can do right now is put the surplus into the Social Security system in those areas where we have gotten it from Social Security. If we give it out in a tax break, as clearly is intended by this Congress, there isn't going to be any money in the general fund to fill -- the -- there's no money left. There's no money left.
SUNUNU: You're talking about just putting funds in there without changing the system so it does nothing about the long-term solvency. And in order to deal with the long-term solvency, you do need reform. And again, we get back to the basic reform.
MCDERMOTT: The only reform you're talking about is cutting benefits. That's what you're going to do.
NOVAK: Congressman...
SUNUNU: Two things -- a number of things: raising the rate of return, creating real wealth,
MCDERMOTT: That money doesn't go into Social Security.
NOVAK: It goes into the individual's accounts.
SUNUNU: Is Social Security going to be there for them when they retire?
MCDERMOTT: Maybe...
(CROSSTALK)
SUNUNU: They say no. If you ask them if their IRA or 401(k) is going to be there for them when they retire, they know it is.
NOVAK: Congressman...
SUNUNU: And giving them the opportunity to make that investment gives them the piece of mind that you know when you own a real asset that will be left to your own family.
NOVAK: Congressman, you're not fostering this absolute illusion that this is an insurance system, are you, when there's no -- I'm a Social Security recipient. There's no fund marked for "Robert Novak." They're just taking this money and throwing it as us. They have no idea whether it's solvent or not. Isn't that true?
MCDERMOTT: Mr. Roosevelt said -- he gave us this number and everybody thought there was drawer somewhere, and there has never been a drawer. It has always been a pot that we paid benefits to elderly people, like yourself. And when we do that, we know that we got so many people and we've got to plan for that. And we should be putting as much money in the pot as we can. If the economy...
NOVAK: I wish I had the money I put in that pot.
MCDERMOTT: I don't think so.
RICHARDSON: Congressman, Senator, I want to show you a quote from Senator Daschle.
(BEGIN VIDEO CLIP)
SEN. TOM DASCHLE (D-SD), MINORITY LEADER: The panel members on this Social Security commission would be the equivalent of oil companies on a commission on ANWR.
(END VIDEO CLIP)
(LAUGHTER)
RICHARDSON: Now, I have to dispute some of the things you said. Now, you know both -- all the members of that commission favor privatization, so I'm going to put that aside and ask you a broader question, because you're a member of the Republican leadership. You're going to be -- you've got a lot of aspirations.
I have to ask you this. You've got a $1.3 trillion tax cut coming. A lot of economists say that this plan, this privatization plan, is going to cost $1 trillion. The president just announced a missile defense plan the other day. You all want to do prescription drugs. How are you going to pay for all this? Aren't you really tinkering with an economy that, in the last eight years, has been a pretty strong economy?
SUNUNU: Absolutely not. And what we're doing on the tax relief side is saying: We have record surpluses. We've increased funding for national defense and education. We're paying down $2 trillion in debt, setting aside reserves for Social Security and Medicare, and we still have money left over. That money ought to go back to the taxpayers. That's what the president's tax relief plan is about.
The unfunded liability for Social Security is more than a trillion dollars. If you go out over a 75-year period, it's 8 or $9 trillion. That's why we need a substantive bipartisan commission.
And to suggest that all of these commissioners have made up their mind is ridiculous. Now, are they willing to think about real reforms? Allowing people to invest money in retirement accounts that they own and control...
RICHARDSON: What if they want to raise the retirement age? What if they want to tinker with a cost-of-living increase? Are you going to praise this commission... SUNUNU: The president is going to have to put together their proposals in a piece of legislation and put it forward. And their proposals are going to have to be looked at in their sum.
NOVAK: We're almost out of time, but I have to ask you -- I promised I'd say something about Greenspan. Greenspan thinks this is a good idea. You're smarter than Greenspan, Congressman McDermott?
MCDERMOTT: Greenspan has not always been right. And if you look what he's done by raising the interest rates and then tipping the economy over, you have to ask yourself, is he 100 percent right?
NOVAK: That's the first good point you've made tonight.
(LAUGHTER)
NOVAK: Congressman Jim McDermott, thank you very much.
MCDERMOTT: Thank you.
NOVAK: Congressman John E. Sununu, thank you very much.
SUNUNU: Thank you.
NOVAK: And former Congressman Bill Richardson and never-a- Congressman Novak will tell you what it's all really about in closing comments, coming up.
(COMMERCIAL BREAK)
NOVAK: Bill, I had a laugh when Congressman McDermott said I would be better off having all of my money that I spent in Social Security over the last 50 years getting 2 percent or less interest, when I could have invested in myself. For so many people who have 401(k)s know that, surely, Bill, the 30 years that you put money into Social Security -- don't you wish you could invest it yourself and have taken advantage of the wealth of America in those 30 years?
RICHARDSON: Well, I'm now in the private sector so my answer today is yes, but 30 years ago it would have been no. I just think, Bob, that this commission may become a real problem for not just Republicans, but Democrats. What if they come out and say: We've got to raise the retirement age, tinker with the cost-of-living increase.
I mean, there are big issues here that they're going to tackle.
NOVAK: I'll tell you something. I love you, Bill Richardson, you know that. But I love Pat Moynihan even more. He's a guy who has been ahead of the curve on Social Security.
RICHARDSON: He's a distinguished guy. He's a good guy.
NOVAK: Trust him. Trust him.
RICHARDSON: But he's made up his mind.
From the left, I'm Bill Richardson. Good night from CROSSFIRE.
NOVAK: From the right, I'm Robert Novak. Join us again next time for another edition of CROSSFIRE.
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