Opening Statement

[National Dialogue Moderator <moderator>]

			Opening Statement
	    Investing in the Stock Market Roundtable

It is an unpleasant, yet inescapable, reality that there are three,
and only three, ways to close Social Security's long run fiscal
deficit.  Taxes can be raised, benefits can be reduced, or the
return on the reserves that the system is building up can be
increased. Given this reality, it is important to compare proposals
to raise the return on Social Security's reserves by investing a
portion of them in private securities with the alternatives.  While
there are legitimate concerns with investing the reserves either
collectively or through individual accounts in private assets,
there are problems with all of the alternatives as well whether
they involve raising payroll tax rates, increasing the taxable wage
base, increasing the age at which unreduced or initial benefits
are paid, or reducing the size of the annual cost of living
adjustment.

There are two good reasons why it makes sense to invest a portion
of the trust fund's reserves in private securities.  First, such
a policy would boost the earnings on the reserves and, thereby,
reduce the size of the benefit cuts and payroll tax increases that
will be required to fully close Social Security's long-run deficit.

Second, easing the restriction that requires Social Security to
invest its reserves exclusively in secure but low yielding government
securities will provide workers with a fairer return on their
payroll tax contributions, one that is closer to the benefit their
contributions are making to the nation's economy. To the extent
that reserve accumulation adds to national saving, it generates
total returns for the nation's economy equal to the average return
on private investment, which runs about 6 percent more than the
rate of inflation.  By paying Social Security a lower return - a
return projected to be only 3 percent more than  inflation over
the next 75 years - the system denies workers a fair return on
their contributions.

Virtually every private sector and state and local government
pension plan invests its reserves in a diversified portfolio of
assets that includes equities, bonds and government securities.
It's time we let Social security do the same.

Robert D. Reischauer