RE: Questions Missing from Ron Gebhardtsbauer's Chart

[National Dialogue Moderator <moderator>]

I'd like to comment on a couple of points.

First, I completely agree with your point about looking at what status of the trust fund is at the end of the period instead of simply looking at the seventy five year period.  The issue shouldn't be solvency for fifty years versus seventy five years, it is whether the system is on a long-term sustainable path.  I share your concern about plans that achieve actuarial balance over a certain period of time, but leave the trust fund in a weakening condition at the end of the period.  That is one of my concerns about the President's plan, which achieves balance for fifty years, but leaves the trust fund depleted in 2055. For a reform plan to put Social Security on a truly sustainable path, it should have a trust fund ratio (the size of the trust fund relative to benefits in that year) that is stable and rising at the end of the period.  That is one of the measures that we considered important in developing the Kolbe-Stenholm plan.  Under our current plan, the trust fund ratio is 1945 (in other words, enough reserves to pay nearly two years of benefits) and growing by approximately 6% a year.  In short, the Social Security system is getting stronger at the end of the period.

However, I would disagree with you that a large trust fund balance is inherently a good thing.  While a trust fund balance does represent assets for the Social Security system, as Representative Nadler correctly pointed out, it also represents a liability to the rest of government.  Therefore, a trust fund balance of $3 trillion may be a good thing if from the perspective of Social Security, but it could be a dangerous thing if you are concerned about other government programs, because that $3 trillion represents a debt that will have to be paid out of the Treasury before we can meet any other needs.  For example, the trust fund will have a large balance in 2014, which will allow the Social Security system to remain solvent for twenty years.  However, the price of doing that will be coming up with trillions of dollars from general revenues, which would force cuts of more than 16% in other government programs under the fairly optimistic CBO projections, which assume we use 100% of the surplus for debt reduction.  So while it is important to have a stable trust fund to ensure stability of the system, relying on a huge trust fund to survive long periods of larger cash shortfalls into the system shortchanges the rest of government in a very dangerous way.

In terms of projected returns, the estimates that the Social Securty Administration Actuaries and Congressional Research Service have provided assume that individuals will earn a real rate of return of approximately 4.5%, after taking into account administrative costs.  Under those assumptions, virtually all workers would have enough income in their individual accounts to offset reductions in defined benefits.  What is extremely important to remember about our plan, however, is that the lower income workers who rely on Social Security to meet their basic needs in retirement will be better off under our proposal than they are under current law because of our minimum benefit provision.  For those low-income workers, any income they recieve from their individual account is icing on the cake; even if their individual accounts is wiped out they would still be better off than they are under current law.  The primary risk under the Kolbe-Stenholm plan is borne by the upper income workers who are most affected by the reductions in the defined benefits because they have the greatest opportunity to benefit from individual accounts.  These workers would benefit under Kolbe-Stenholm even if their accounts do not recieve returns sufficient to offset their reduction in defined benefits, because they will be protected from the increased tax burdens from the general revenue liabilities that Kolbe-Stenholm addresses.  So while we use the assumptions of the SSA actuaries and CRS about the returns that individual accounts will earn in describing our plan, I would continue to support our plan even if I thought the returns would be lower than the projections.