DAILY SUMMARY May 13

[National Dialogue Moderator <moderator>]

Daily Summary May 13, 1999

Moderator's Question -- "Explain Social Security" (Using general tax revenues to fund the Social Security system)

Thursday, May 13: Bob Rosenblatt noted that the President's plan and the Archer- Shaw plan, for the first time, commit general tax revenues to Social Security. Both depend on future budget surpluses to help Social Security. Both plans put promissory notes (Treasury securities) into the Social Security trust fund, and the securities are backed by general tax revenues. If the government earns a surplus in the future, the payments may be made without affecting other programs. If the surpluses don't happen, then taxes must be raised or other spending reduced. Rosenblatt asked whether this is a good idea, or whether it puts too much future resources into programs for the elderly, Social Security and Medicare (which also would get some of the surplus under the President's program.

Roundtable panelists comments

• John Rother said the use of general revenues to improve Social Security is "an understandable approach" in an era of projected budget surpluses. It is one of the few available alternatives if the public fails to support increases in the retirement age or the payroll tax.

  Rother said using the surplus for this purpose "seems to resonate with the public." He said future Congresses can change this approach if they find it to no longer be workable.

• Ann Combs does not support using general revenues to support the existing system. The current linkage between payroll taxes and benefits imposes a necessary discipline on the system. The President's plan contributes more Treasury bonds to the system, and the bonds have to be paid off, with interest, in the future - thereby pushing the problem off on our children and grandchildren.

  Nonetheless, she accepts the use of general revenues to pay current beneficiaries while we transition to a partially funded system where workers contribute a percentage of their current payroll taxes into individual accounts that they own and control.

• Gerry Shea supports the use of general revenues to help finance Social Security. They represent a "progressive source of financing" that can be used in a responsible way to strengthen the system.

  Shea prefers the President's proposal, because it yields a substantial reduction in debt "held by the public" - reducing interest rates and government interest costs and thereby increasing the government's ability to fund the social security obligations with general fund revenues. The Archer-Shaw proposal does not reduce the debt.

Public comments and questions "Explain Social Security"

The public is skeptical about using general revenues/budget surpluses to fund Social Security. They doubt the accuracy of the projections of budget surpluses and whether the proposals actually help Social Security or the Treasury:

• One commenter stated that the government is currently operating at a deficit (before counting the current surplus in the Social Security program). He asks where does the money come to pay for the 62 percent of the budget surplus?

• Another commenter disputed Shea's claim that the government's debt and interest costs will be reduced. He said the government's debt is transferred from the public to Social Security.

• A number of commenters stated that the Clinton and Archer-Shaw proposals unfairly determine obligations and tax policies for the next generation.

• One commenter said the "projected surpluses" will never appear for any significant period of time - that the proposals are "put the problem off till later" approaches.

• Another expressed similar frustration with the credibility of the surpluses: "The two major political parties are out of control - and there simply isn't much chance of real reform for anything unless we get them out of there. The answer [for] our social security problems, less voter apathy and term limits.

• The commenters want the government to take legitimate action to address what they see as the problems of Social Security - by increasing revenues to the system and/or adjusting benefits.

• One commenter asked for the justification to tax more than 50 percent of Social Security benefits. He said benefits are financed equally by employer contributions, on which an income tax deduction has been taken, and employee contributions, which are required to be included in reported taxable income and for which no deduction is allowed.

Other public comments:

• On raising the retirement age, one commenter stated that raising the retirement age is unrealistic. Only a handful of lucky people will get to age 70 to receive benefits - at the expense of others. Social Security will become a lottery game. He asked whether the benefits will compensate someone who worked 50 years and retired at age 70.

• recommended privatization, stating that patching the on-size fits all unfunded system will revert back to the current situation with deteriorating demographics, eroding returns on contributions, and government control over the freedom and security of workers during retirement.

Ashley Schannauer