DAILY SUMMARY May 3-4, 1999

[National Dialogue Moderator <moderator>]

Title: Daily Summary May 3-4, 1999

Daily Summary May 3-4, 1999

Moderator's Questions:

Monday, May 3: Bob Rosenblatt asked what steps Congress should take this year or in 2000 before adjourning to fight the election campaign.

• Gerry Shea recommended that action be taken now. Quick action will assure Americans that the program will be intact for them and will require less drastic steps later. He also recommended two elements of any reform package: contribution of a large share of unified budget surpluses to Social Security and an increase in the payroll tax contributions cap
• John Rother stated that action is necessary before the end of summer, after which the budget process will lock in the treatment of the projected budget surpluses and the election campaigns for 2000 will make compromise difficult. He also said the President has to hold direct discussions with Congress and the public must put pressure on Congress.
• Ann Combs agreed that action is necessary before the start of the 2000 political campaigns. She recommended that legislative proposals be drafted, hearings held promptly, and action taken before election year politics begins in 2000. She also stated that, if Congress is not willing to undertake true reform, they should not make the task more difficult by proposing solutions that undermine the possibility of reform.
• Sam Beard said, in response to a related question from the public, that Congress should create a two-tier system that includes a minimum safety net of benefits and personal retirement accounts (PRAs). The PRAs would be funded by a portion of the existing payroll taxes and would be owned and managed by individuals.
• Ron Gebhardtsbauer agreed that acting sooner is better than later. Quick action can be applied to baby boomers before they retire, enables more gradual implementation of changes, and helps restore confidence in the system sooner. He also suggested that the panelists encourage Ways and Means Chairman Archer and President Clinton to discuss the issues directly and that the discussions occur before next year's election campaigns.

Tuesday, May 4: Bob Rosenblatt noted Shea's recommendation to raise the taxable wage base above the current $72,600 cap. He asked Shea to define how high the cap should be raised, how much of the funding gap the increase would close, and whether the move would alienate voters. Rosenblatt also asked the other panelists to address the question.

• Gerry Shea did not define how high the cap should be raised. He said the AFL-CIO's bottom line is that a wage base increase should be part of any ultimate reform package. He said there are a number of ways that could be done - the $72,600 base could be increased for employers and/or workers and the wage base could be raised for purposes of calculating benefits.
  Shea gave examples: (1) eliminating the cap on wages subject to the payroll tax solely for employers and not changing the method of calculating benefits would reduce more than half of the shortfall; (2) raising the cap to $100,000 for employers and workers and reflecting the increase for benefit calculations would eliminate about one-fourth of the shortfall.
  Shea said potential negative reactions of affluent voters were a concern, but those citizens have benefited disproportionately from recent economic growth.
• John Rother said AARP would be open to a moderate increase in the wage cap to bring it closer to historical levels. Today, about 87 percent of wages are subject to the payroll tax, compared to the 89 to 90 percent historical rate.
• Ann Combs opposes raising the wage cap for two reasons: equity and the potential loss of support for the program among middle and upper income workers. Higher income workers will pay more than they collect in benefits and be more likely to promote more fundamental changes in the program. The change also constitutes a tax increase on work, giving employers incentives to keep wages low and high-paid jobs few.
• Sam Beard said raising the wage cap to $100,000 (apparently for taxes and benefit calculations) is reasonable. Raising the cap beyond $100,000 would add revenues but strain the system's ability to fund the higher benefits.
• Ron Gebhardtsbauer noted that ADSS polls found that higher income people supported raising the cap somewhat but that employers opposed it. He noted, however, that only the Democrats seem to support the idea and only one Democratic bill (the Moynihan/Kerry bill) has been introduced.

Gebhardtsbauer also made an interesting point about the President's proposal to use 62 percent of the budget "surplus" to add revenues to the Social Security program. He said that the surplus is actually attributable to Social Security's FICA taxes, which the Social Security actuaries already include in their projections of shortfalls.

 

Public comments:

• recommended a combination of surplus-generated investments through the Social Security Trust Fund and individual accounts to mitigate risk and reach a political consensus on reform
• noted that "guarantees" of minimum benefit levels under current system are not strong, given insecurity of future funding and Congress' power to reduce "guaranteed" benefits
• critique of AFL-CIO position as risk-averse preferring defined-benefit plans and need, instead, for defined-contribution personal retirement accounts
• reference to paper by Douglas Arnold, Professor of Politics and Public Affairs at Princeton entitled: "The Politics of Reforming Social Security" http://epn.org/psq/arnold.html
• proposal to establish lifetime caps in cumulative contributions for two classes of workers: those who want to opt out of the system and receive no benefits and those who intend to receive a presumably lesser share of benefits
• questioned whether proposals achieve "actuarial balance" (ability to pay benefits when due for next 76 years) versus "genuine solvency" ("sufficient to finance the full gap between recipients from taxpayers and expenditures on beneficiaries")
• reference to rebuttal on Economic Security 2000's web site to Sam Beard's (Economic Security 2000's) position in favor of private accounts http://www.economicsecurity2000.org/PressRoom/support/
• asked which is more important: (1) the accounting issue of how to extend the life of the Social Security system (making sure that the system will pay full benefits in 2034) or (2) the economic issue of how to maintain (improve) standards of living in the United States in the face of a declining worker/retiree ratio (i.e., improving worker productivity); asked whether the nature of the debate and the chosen reforms depend on how the issue is framed.