Saving Social Security

This is a partial transcript of "Special Report With Brit Hume," Dec. 17, 2004, that has been edited for clarity.

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JIM ANGLE, GUEST HOST: Washington is just beginning a debate that could put money in your pocket and make your future more secure, or could be a disaster, depending on whom you believe. The debate has just begun over personal accounts in Social Security.

The president is pushing hard, but many critics, including many Democrats, are pushing back. But former Democratic Congressman Tim Penny is a supporter of personal accounts. And he joins us now to shed light on the debate.

Thanks for joining us.

TIM PENNY, HUMPHREY POLICY FORUM: Hey, good to be with you.

ANGLE: Let me ask you first. You were a Democratic congressman. There were a lot of Democrats who are very skeptical of this idea. How did you come to support personal accounts?

PENNY: Well, it started with one of the very first votes I cast when I entered Congress at age 30 in 1983. We had to vote on the Greenspan Commission, which was necessitated because the Social Security system was in the red at the time. We were spending basically Medicare (search) money in order to pay monthly Social Security checks.

And so our solution ended up being benefit cuts, freezing the cost of living adjustment, raising the retirement age, and tax increases in order to get the program back in the black. And I looked at that and I thought so here’s the deal. We’re going to tax future workers more and we’re going to promise them less. How is that a solution to this problem?

So that began me in the process of kind of looking at how can we deal with this program for the longer term in a more sensible way? And that’s ultimately what led me to support personal accounts as a part of the solution.

ANGLE: Well, before we talk about some of the details, let me ask you about something else. You were also known as a deficit hawk. And the administration has acknowledged it would probably have to borrow up front some $1 two $2 trillion. Because you would have to pay benefits while you’re giving money people to put in their personal accounts.

Borrowing that much money would obviously add to the deficit. Does that bother you at all?

PENNY: I’m not a huge fan of deficit spending, regardless the cause. But I do think that when you look at the long term of Social Security, you have to do the math that includes all the unfunded costs of the current system. And as the president said in his remarks yesterday, that is at least $10 trillion of unfunded liabilities (search) in the current system. I liken this to paying now, or paying later. Or, in a sense, paying off your credit card now or paying the minimum payment year after year, after year after year, and never getting ahead of it.

So I think there is some value in pre-funding part of our Social Security needs, so that over the longer term we don’t have these ongoing costs in the system. And as I said earlier, that’s trillions of dollars of unfunded liabilities in the current system that need to go away. And I think personal accounts can help us get to that point.

ANGLE: Now, how would personal accounts help the individual? And how would it help the Social Security system as a whole? Obviously, one of the problems, as you identify, is that over the long term Social Security has financial problems that need to be addressed. So how does it help a person who has a personal account and how does it help the system?

PENNY: Well, with each passing generation, we’re going to be cutting and pasting, as we did back in 1983. Which means that for each age cohort, we’re going to end up taxing them more and paying them less. That’s the only way you can keep the current system in the black.

With personal accounts, they may have to give up a little in their basic benefit, but they have opportunity, through these personal accounts, to earn all of that back plus more.

Actually, we had the Social Security Administration run numbers on a plan that we did as part of the president’s commission. And it demonstrated that in every wage bracket, American workers in the future, under this sort of a combined system a floor of benefits under the traditional program, plus a supplement invested in these personal accounts, would do better than they would do under the promised benefits in the current system. So that’s how it affects the individual.

How it affects the system as a whole is simply that this then becomes a permanent fix. At some point in the future, with you then have a system that is solvent. It has enough revenue coming in each year to pay the safety net benefits. But it also has these supplemental accounts owned by the individuals. And those accounts then become money that the government can’t cut or take away from you in the future.

ANGLE: Well, that is one of the benefits, because people would actually own this money and could leave it to their heirs, which they can’t do today.

PENNY: Yes.

ANGLE: But one of the things that critics bring up is this is risky, that people are going to be investing in the stock market. Now, the president said yesterday you’re not going to be able to take this money to the racetrack. But what can you do with this money? How would it work?

PENNY: Yes. Well, we haven’t seen a detailed plan come from the White House. I do know that we recommended a couple or three options to the president when we served on his commission a few years ago. And I do know that there are some plans floating around on Capitol Hill. All of this will have to be negotiated.

But my sense is that Congress will likely follow the model that’s been established for the federal work force. We have a thrift savings plan for them. They have five different mutual funds that they can invest in. Very low administrative costs for those funds. And all of those funds have shown a dramatic gain over the last number of years. And federal work force is very happy with that plan.

I think something similar that contains the risk of investments could be established for the Social Security workers.

ANGLE: Yes. Some of those funds were — the lowest one was 4 percent; the highest two were nine and more than 10 percent, almost 11 percent. So there’s a range in there. But...

PENNY: Those are annual gains, and that compounds over time. So, I mean that’s a significant way to earn assets for yourself. Apply those to your retirement income, and of course, anything that’s left is available to your heirs. And that’s something the current Social Security can’t do for you.

ANGLE: Tim, 15 seconds only. How tough a battle is this going to be to get Democratic support?

PENNY: Well, it’s a big challenge on Capitol Hill (search), because it’s a big, complicated issue. But clearly, doing this sooner, rather than later, makes an enormous amount of sense. And I think Democrats — there will be some that will come on board.

ANGLE: OK. Got to go. Thank you very much, Tim Penny.

PENNY: Thank you.

ANGLE: We appreciate your help.

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