[Public Papers of the Presidents of the United States: William J. Clinton (1998, Book II)]
[July 27, 1998]
[Pages 1346-1352]
[From the U.S. Government Publishing Office www.gpo.gov]



Remarks in a National Social Security Forum Townhall Meeting in 
Albuquerque
July 27, 1998

[Moderator Gloria Borger, U.S. News and World Report, explained that she 
would take questions from the audience but first wanted the President to 
comment on a USA Today poll in which two-thirds of the voters liked the 
idea of private investment accounts, but most also did not want the 
Government investing their money for them.]

    The President. Well, I think there are a couple of explanations. 
First of all, we live in a time where people are using technology to 
become more and more self-sufficient and to get more and more 
information directly. I mean, the Internet is the fastest growing 
communications organism in human history. So I think that. Secondly, I 
think there's always been a healthy skepticism of Government. And 
thirdly, the Government hasn't been in very great favor over the last 17 
or 18 years, although it's doing better now than it was a few years ago. 
Now, I think--in public esteem--all the surveys also show that.
    I think the real question is, from my point of view, we ought to get 
down to the merits of this. The first question you have to ask yourself 
is, should a portion of the Social Security tax funds go into 
securities, into stocks? And if they should go into stocks or into 
corporate bonds, should that decision be made according to individual 
accounts, or should they be invested en masse either by the Government 
or by some sort of nonprofit, nonpolitical corporation set up to handle 
this?
    And I think there are genuine concerns. For example, if the 
Government did it and they invested the money in stocks, would private 
retirement funds just have to make up the difference by buying 
Government bonds, or would there be no aggregate increase in saving or 
investment in the country? Would it give the Government too much 
influence over any company or any sector of our economy?
    But I think most people just think, ``If there is going to be a risk 
taken, I'd rather take it than have the Government take it for me.'' I 
don't think it's very complicated, so I think that those who believe 
that it's safer and better for people to have the public do the 
investing--

[[Page 1347]]

or the Government do the investment--have to bear that burden. Those who 
favor, by the way, having individual accounts, have to ask what happens 
to people who happen to retire after the market has gone down for 5 
years. So there are problems with both approaches, and benefits.

[An audience member asked if the Government would guarantee current 
benefits if individual accounts were exhausted by old age, bad 
investments, or market downturns; if doing so would create another 
problem; or if not doing so would inevitably plunge old people into 
poverty.]

    The President. Well, why don't we let--I think those are good 
questions, but I think there are answers to them. And maybe I should let 
either Dr. Weaver or Professor Boskin answer, and then if I want to add 
anything, or any of the Members do, we can.

[Carolyn Weaver, American Enterprise Institute, suggested that at least 
a portion of personal account accumulations should be converted into 
some type of annuity or withdrawal on a phased basis so that the 
individual could not exhaust those funds. Michael Boskin, Hoover 
Institution, agreed, explaining that paying benefits for current and 
future retirees plus the individual accounts would create trillions of 
dollars of debt. Peter Diamond, Massachusetts Institute of Technology, 
noted the extra cost of annuities to insurance companies and voiced 
concern that, when people want early access to their money upon 
retirement, requiring everyone to buy annuities might be a major 
political question for future Congresses. Senator Pete Domenici 
suggested to avoid a risk of a downturn at the end, investment firms 
would be required to invest in less risky accounts for a person in the 
last 5 to 7 years prior to retirement. Mr. Boskin noted that, 
historically, long term investment in the stock market has accumulated 
vastly more than investing in Government bonds. An audience member asked 
about the experience in Chile and Australia in terms of the costs and 
the benefits and the risks of setting up private accounts.]

    The President. I would invite everybody to comment on Chile and 
Australia and maybe on the UK and now on Canada, since Canada is 
investing the money directly. And maybe if you all could give us 
whatever information you have about that--in whatever order.
    Jim, do you want to start?

[Representative Jim Kolbe said that Chile had been successful over the 
last 18 years in going to total privatization, despite a bad economy. He 
also said that Britain, Australia, Mexico, and most of Latin America 
were pleased with their systems of individual accounts. Mr. Diamond said 
that the administrative costs were high in Chile; in Britain, with a 
voluntary opt-out system, the costs were even higher; and in Australia, 
where the employer must set up the system, the employees sometimes did 
not get any choices, and account spending was not regulated, which often 
left survivors with nothing but poverty support from the Government. 
Representative Xavier Becerra cautioned that because the United States 
is very different from other countries, its solution must be unique. Ms. 
Weaver agreed but pointed out that under the Chilean system, people 
could always know precisely what they had accumulated and how to adjust 
their savings and retirement date. An audience member then asked if it 
would be possible to rely on watchdog organizations to either cap fees 
associated with the privatization and individual accounts or allow a 
limited amount of profit per transaction.]

    The President. Well, I think maybe Mr. Boskin, haven't you commented 
on that before? I think Michael has--at least I believe, in the 
preparation I did running up to this, that the most forceful advocates 
of individual accounts have recognized that it might be necessary to 
have some kind of limit on the individual administrative costs.
    One of the problems in Chile has been that they've got all these 
different people competing for your account. And if they're competing to 
give you higher return for lower costs, that's good. They offer people 
vacation trips and then when the market is down maybe they offer them 
toasters, I don't know. But there are a lot of built-in costs, and you 
might be able to get the best of both worlds at least on the costs, that 
is, to have the individuals do the investments, make the investment 
decisions. I think there would be ways to put caps on the aggregate 
costs.

[Mr. Boskin agreed that fees should be uniform to avoid hurting low 
income people with small accounts and suggested that competition would 
keep costs down. Mr. Diamond pointed out that regulating fees could be 
tricky.]

[[Page 1348]]

    The President. In fairness now--I should say, I'm very grateful for 
a lot of the work that Professor Diamond has done, and I'm very 
sympathetic with a lot of it. But I don't think that's a very good 
argument. I mean, we have a Securities and Exchange Commission to 
regulate the stock market. We have more than one Federal agency that 
overlooks various aspects of what our banks do. And one of the reasons 
that our market economy works so well is that we have basic Government 
intermediary institutions that set rules and regulations and parameters. 
And that's how we get the benefit of the market without having to bear 
all the downsides.
    So I would think that nearly everybody would want some sort of 
Government regulation if we were to get into this. But that doesn't 
necessarily mean that direct investment by the Government would be 
better than the individual investment. It doesn't answer the question 
one way or the other. I don't mean that it--but I think that, to me, 
that's not a reason to attack this. I think we should all--that's what 
we do in almost every major area of our national life.

[Mr. Diamond responded that additional regulation would be needed but 
that he was concerned about regulation of prices, not regulation about 
safety and soundness of financial institutions.]

    The President. You all may want to ask some more questions; I don't 
want to interrupt anymore. But I think it's important. We're not just 
talking about price here. One of the major issues is--sometimes I think 
we get into one little thing, and we forget how it fits into the big 
picture. So let me just back up.
    Suppose you took--I'll take the simplest case--suppose you said 
we're going to give everybody one percent of payroll to invest in an 
individual account, okay--and we're going to take all the rest of the 
payroll and keep on paying Social Security, but we're going to reduce 
the basic guaranteed benefit, both because we can't afford it because of 
what's happening to population and life expectancy, and because we just 
took a percent out of payroll. That's the bad news. The good news is we 
think you'll get a bigger benefit out of the one percent. Right? That's 
the argument here.
    Now, on the administrative costs, what you have to figure out is, it 
will be more expensive administratively--I don't care what we do--than 
having the Social Security Administration or the Government run it all. 
Why? Because of just economies of scale. But if you get a much bigger 
rate of return, then you're still ahead.
    So what you have to do is calculate all these things. And all these 
folks in Congress here are going to have to figure it out, too. So I 
just ask you, don't forget what the framework here is. And one big thing 
we haven't discussed is--although our panelists did while I was out of 
the room, because I watched them--it's not just the administrative 
costs, it's what are the range of investment decisions that will be 
available to American citizens for their payroll tax in their individual 
account? Are there any investment decisions they won't be able to make? 
And then, how will they get the information necessary, the advice 
necessary to make good decisions, and how is that figured into the 
costs? I think you have to look at it like that. What you want to know 
is, where are you going to come out on the other end of this deal, in 
all probability.

[Robert Reischauer, Brookings Institute, discussed with Representative 
Kolbe and Professor Boskin what might happen if Social Security benefits 
were reduced and people invested unwisely or unluckily in their private 
accounts. An audience member then asked who would pay for the transition 
to privatization and suggested that the program follow the lead of the 
Federal Employees Retirement System, incorporating a traditional 
pension, Social Security, and a private investment plan. Representative 
Kolbe agreed that the Thrift Savings Plan was a possible solution.]

    The President. Go ahead, Michael.

[Mr. Boskin said that a plan that compounded at a higher rate would 
offer benefits exceeding the transition costs, as well as addressing 
unfunded liabilities under the current system.]

    The President. Maybe I could say this at a little--I keep trying to 
get back to the basic thing. If we don't do anything, sometime in about 
35 years, we're going to have to--Senator Domenici said 50 percent; I 
think it comes a little later than that, 50 percent. But let's say in 
2030, we run out of money. We're going to have to do one of three 
things: We're either going to have to raise the payroll tax by quite a 
lot; we're going to have to cut benefits by quite a lot; or we're going 
to have to have the Government stop doing a huge percentage of 
everything else it's doing, most of which are

[[Page 1349]]

things that you believe we should be doing, and just put the money into 
Social Security.
    So we really got into this whole discussion--both if you take 
Professor Reischauer's view that the Government should invest more in 
equities to get a higher rate of return, or the view expressed by Dr. 
Weaver that individual accounts should do it--we got into this 
discussion to figure out whether we could have, at acceptable risk, a 
higher rate of return on the money that's already there so we wouldn't 
have to raise taxes, cut benefits dramatically, or shut down a whole lot 
of the rest of the Government. So there's going to be a transition cost 
regardless.
    Now, one of the things that I want to compliment all these Members 
of Congress here for doing, we want to avoid having to have a big tax 
increase for the transition, which is why we're trying to hold on to 
this surplus we've got for the first time in 29 years, because whatever 
we decide to do with this, we're going to have to commit a substantial 
part of the money that has been accumulated or will be accumulated to 
fund that.
    And I want to ask you one question. Are you saying that you would 
support some portion of the payroll tax being made available for 
individual accounts if retirees, or future retirees--savers, workers--
also had the option to opt into a system like the one we've got, so you 
could choose the one we have or you could choose one with a smaller 
guaranteed benefit and more investment? Is that what you're saying? I 
just want to make sure because I think that's something we need to know.

[Mr. Reischauer said that the Federal employee system would not solve 
the problem if Social Security were cut. Senator Bingaman voiced concern 
that if money were taken out of the payroll tax to finance individual 
retirement accounts, then benefits would have to be cut and the 
retirement age would have to be raised. Audience members then discussed 
how to invest the budget surplus.]

    The President. The point is, though--I agree that we have a surplus 
because, basically, we're still getting more money every year in from 
Social Security taxes than we're paying out in retirement on a current 
basis. And the money, therefore, is invested in bonds, and when it pays 
back, the Government has it to pay retirement later.
    But--so that's fine. But the real question is, can we get a higher 
rate of return in the future for a fixed amount of money that's going to 
be invested by the American people in their retirement through the taxes 
of their employers and themselves than we have gotten in the past? 
Because if we can get a higher rate of return, then even though there 
will be fewer people working compared to the people retired, people can 
have a comfortable, decent retirement; we'll be earning more for the 
money we've got. That's really the question. Is there a safer way to do 
that?
    Now, I'd like to ask Mr. Reischauer a question; then we'll go back 
to the audience. You make a very compelling argument that economically 
there's no difference in having individuals do it and having the 
Government do it, or having the Government set up somebody to do it, 
except that there's far less risk on the individual, you can average the 
benefits, and if somebody retires in a bad year or if there's 5 bad 
years in a row--like in Japan, which 8 years ago, everybody would say we 
should do everything they do; now for 5 years, their stock market has 
lost half its value--if somebody has 5 of those bad years, if the 
Government is doing it in the aggregate, it is true that over any 40-
year period the return will still be greater--even in Japan I think 
that's true, even now--but you protect people from those bad years, as 
well as from their own mistakes.
    How will you ever convince the American people of that, since they 
always believe the Government would mess up a two-car parade? [Laughter] 
I mean, even if you're right, politically, how do we ever--how do you 
make that sale to the American people?
    Mr. Reischauer. Well, Mr. President, it's not in my job description 
to defend the Federal Government. [Laughter]
    The President. Well, you tell me how to do it then.

[Mr. Reischauer suggested setting up an institution that would be 
protected from interference of politicians and, by law, would be 
required to invest passively, by selecting a little of all available 
stocks and bonds. An audience member asked who would make the final 
decision if there were no bipartisan agreement.]

    The President. Well, I think what we're--let me just say what the 
good news is about this panel. You may leave here more confused than

[[Page 1350]]

you came in about the details of these options. And if so, I would tell 
you that's a good thing, not a bad thing. I've been working very 
seriously on this for a couple of years; these are complex problems. But 
I think that there is the good news here, which is that most of us have 
been on opposite sides of a bunch of issues over the last 20 years, and 
we all believe that we have to act now rather than later.
    Keep in mind, every year we let go by, all options become less 
attractive and require greater risk and more exertion. So, as compared 
with 10 years from now, anything we would do today is quite modest in 
scope and has the opportunity to build in more protections. And because 
you're 32, I think I should also emphasize that under all these options, 
nearly everybody believes we have to guarantee the system as it is for 
people, let's say, at 55 and up, and then some period of transition, and 
ultimate protections built into the system over the long run.
    So I think that you don't have any guarantee. If nobody ever makes 
this decision, then 35 years from now the system will run out of money 
and the market will make the decision. I mean, people will stop getting 
checks, or there will be a big tax increase, or we'll shut down a whole 
bunch of the Government to pay the difference.
    So that's why I think that you should feel good. There is a big 
bipartisan consensus, I think, in the Congress that we have to reach 
agreement, and we have to act, and we have to do it soon.

[An audience member asked what the President would do if it were 
entirely up to him and a decision had to be made today.]

    The President. If I answered that question today, it would make it 
less likely the decision would be made. That's the truth. You have to 
understand--let me just say--and I'm not dodging this. I honestly don't 
know what I would do today, because I have--and I've spent hours and 
hours just getting ready for this meeting, trying to master all the 
details of the various plans that the people at this table have 
proposed.
    I don't know what I would do. But I am open to the idea that if we 
can get a higher rate of return in some fashion than we have been 
getting in the past, while being fair to everybody, and guaranteeing 
that we'll still be lifting the same percentage of people out of 
poverty, we ought to be open to those options. Because I think that's 
better than raising the payroll tax a lot more--because it's a 
regressive tax and, for example, more and more people work for small 
business, and if you're a small-business person you've got to pay a 
payroll tax whether you make any money or not. Seventy percent of the 
people pay more payroll tax than they do income tax today, working 
people. And I'd hate to do that.
    I don't want to cut benefits substantially, because most people have 
something besides Social Security, but Social Security alone lifts half 
our seniors out of poverty--48 percent, literally. And we've got the 
smallest Government we've had in 35 years, and I don't want to close 
down the National Park Service or stop supporting education or stop 
running our environmental protection programs. And we've cut the 
national defense about all we can, given our present responsibilities in 
the world and our need to modernize it.
    So the reason I'm here with you is I think all these people deserve 
to be heard, because if there's any way we can get a higher rate of 
return in a market economy while minimizing the risk, whether it's in 
either one of these approaches, we ought to go for it, because the other 
alternatives are much less pleasant already. And if we wait around for 5 
or 10 years, they're going to get a whole lot worse than they are today.

[Senator Bingaman asked if a privatized retirement system would maintain 
the insurance, disability benefits, and survivors benefits of the 
present Social Security system. Mr. Boskin, Representative Kolbe, Mr. 
Diamond, Senator Domenici, and Representative Becerra discussed how the 
disability and survivors benefits could be maintained.]

    The President. Can I ask a question here? I would like to ask the 
Social Security Commissioner or someone else here who's in the audience 
or with our staff to come up and give me the answer to the question the 
gentleman asked about disability--the exact answer. About a third of the 
people who draw Social Security checks are either dependents of people 
who were killed or disabled on the work force or disabled people 
themselves. So I want somebody to come bring me that information and how 
much it's grown, and I'll give it to you precisely.

[[Page 1351]]

[Ms. Weaver voiced concern about the growing number of people drawing 
disability benefits.]

    The President. Commissioner Apfel just said that the number of 
people drawing disability has grown dramatically from more or less 
equally from two sources: One is the addition of mental impairments to 
physical ones; the other is the aging of the baby boom generation 
because the rate of disability increases as you approach age 50. So for 
people like from their late forties until retirement age not drawing 
Social Security, there's significantly increased number of people 
because there are just more baby boomers in that age group now.

[An audience member suggested raising the ceiling for incomes subject to 
Social Security tax.]

    The President. Let me say, first of all, the incomes of American 
people have grown to the point now that there is a larger percentage of 
people who get the benefit of the cap than there used to be. That is, a 
higher percentage of our people--I forget what it is, maybe one of you 
know--but most Americans are under the cap. That is, most Americans have 
income under the tax cap.
    People at higher income levels pay higher tax rates on their Social 
Security incomes than people at lower income levels. And I think 
that's--one of the reasons that the cap has not been raised at least a 
dramatic amount more is to avoid having it be an actual negative 
investment for the people involved, where you're just taxing people's 
payroll far more than they'll ever get back, and they're just 
subsidizing the system. The way it is now, it happens a little bit, but 
not much. And people at higher incomes, once they start to draw that 
Social Security, do pay a higher rate of tax on it than people at lower 
incomes.
    Michael, you wanted--anybody else want to say anything?

[Mr. Boskin, Ms. Weaver, Representative Becerra, Senator Kolbe, and 
Senator Domenici discussed taking both the tax side and benefit side 
need into careful consideration so that all Americans would still feel 
that Social Security is a good investment.]

    Ms. Borger. Mr. President, we only have a few minutes left in this 
forum, and I just wanted to give you the opportunity to give us your 
final thoughts about what's occurred here today and what's coming in the 
future.
    The President. Well, I'd like to go back to the question the 
gentleman asked me when he said, ``If this were up to you, and you had 
to decide today, what would you do if you were all by yourself?'' There 
may come a time when I wish that we have so many headaches working this 
out, I wish it were just my decision to make, all by myself.
    I think it's important for me and for the others in the Congress who 
care about this to maintain--but especially for the President--to 
maintain an open mind as much as possible now, because I don't want a 
particular proposal just because it's been endorsed by me to have to be 
supported or opposed by other people because of their political 
position. I'm doing my best to keep this a matter of people and progress 
over partisan politics.
    But I also want to make it clear to you that I honestly, myself, 
have not made up my mind exactly what I think we ought to do on this 
because, as you can hear from this debate, there are arguments on both 
sides of all proposals, and it's a rather complicated matter.
    I can tell you this: I want a guaranteed benefit. I want it to be 
fair and progressive and universal. I want to have the best earnings we 
possibly can within that framework. And I don't want to come to a point 
down the road where we have to wreck the financial responsibility we 
worked so hard to bring into this country to give us our present 
prosperity to pay for the retirement of my generation because we didn't 
have the responsibility to take action now, when we should.
    And I think if we can stay with these general principles and 
continue to learn and explore all these debates and learn as much as we 
can from the experiences of other countries--we didn't have a chance to 
get into this today, but you all laughed when I was kidding Mr. 
Reischauer about the popular skepticism of Government making these 
investments. But Canada is starting to do it, and we'll have a chance to 
watch them and see how they do it and see how they deal with some of the 
objections that have been raised.
    So I think that what I would urge you to do is to continue to learn 
about this. If you know what you think, make your voices heard. And 
support your Senators and your Congressmen in saying that we have to act 
on this, and we have to do it next year because we can't afford to wait. 
We're taking this year, studying,

[[Page 1352]]

raising public awareness, presenting all the alternatives to people. By 
next year we'll be ready to act and we should do it.
    And if we have the support of the people in this room, that vary 
across age and income groups and all kinds of other ways, then we'll be 
able to do what's right for America because we will be doing the work of 
democracy.
    Thank you very much.

Note: The discussion began at 12:48 p.m. in the Johnson Center Gymnasium 
at the University of New Mexico. In his remarks, the President referred 
to Commissioner of Social Security Kenneth S. Apfel. The panel included 
Carolyn L. Weaver, resident scholar, American Enterprise Institute; 
Fernando Torres-Gil, director, Center for Policy Research on Aging, 
University of California Los Angeles; Robert D. Reischauer, senior 
fellow, Brookings Institute; Michael J. Boskin, senior fellow, Hoover 
Institution; and Peter A. Diamond, institute professor, Massachusetts 
Institute of Technology. Moderator Gloria Borger was assisted by Matt 
Miller and Susan Dantzler. Vice President Al Gore participated in a 
panel discussion at a National Social Security Forum, also sponsored by 
the American Association of Retired Persons and the Concord Coalition, 
in Cranston, Rhode Island, on July 1.