Speakers clarify Social Security
Steve Kerins | Thursday, March 24, 2005
The Higgins Labor Research Center and Notre Dame’s department of economics and policy studies sponsored a nonpartisan panel Thursday entitled “The Future of Social Security: A Non-Partisan Panel Discus-sion on Prospects for Reform.”
The panel included Professor Teresa Ghilarducci of the department of economics and policy studies; Lance Wescher, a doctoral student from the department of economics and econometrics; Bob Walsh and Doug Nguyen of the Social Security Administration; and Nancy Griffin, the state director of the American Association of Retired People (AARP) of Indiana. The discussion was moderated by Bob Montgomery of WSBT radio, the South Bend CBS affiliate.
Panelists tried to clarify aspects of the Social Security system that cause frequent confusion and underscored the controversy surrounding President Bush’s plan to introduce private personal savings accounts into the system.
Professor Ghilarducci, the first speaker, presented on “Social Security Funding: The International Experience.”
“[I am going to] lay out the facts and let you all make up your own mind,” she said.
Ghilarducci compared Social Security in the United States to equivalent programs around the world, noting elderly Americans currently have a higher poverty rate than their counterparts in many industrialized nations.
She called America’s stance on poverty among the elderly either “just not that successful” or “just not aggressive.”
Ghilarducci also said many nations have lower worker-to-retiree ratios than the United States, whose current ratio is approximately three to one.
“[Many believe that] the fact that we’re moving from three to one to two to one is the problem … it isn’t,” she said. “The problem is economic growth.”
Forty percent of retirees’ incomes in the United States comes from the public sector, which includes Social Security, and 10 percent comes from the private sector, Ghilarducci said. The government funds the program, specifically a payroll tax.
Ghilarducci briefly discussed Chile, a nation with a privatized retirement system.
“We’re making choices about the distribution of risks,” she said.
Ghilarducci finished by saying the United States can solve any Social Security funding concern simply by increasing taxes, decreasing benefits or increasing the rate of return on trust funds.
“The solution to Social Security and unemployment is the same solution,” she said. “You have to have a healthy economy.”
Nguyen, of the Social Security Administration’s regional office in Chicago, and Walsh, of the office in South Bend, spoke next about the structure and history of Social Security in the United States.
“Over 47 million Americans receive a monthly benefit,” he said. “Social Security is the only income for 20 percent of these retired workers.”
The Social Security also helps to administer the Medicare and Supplemental Security Income Programs, Walsh said.
Walsh offered words of caution concerning Social Security benefits.
“There is only a 40 percent [average] replacement rate for earned wages. People should try to replace 70-80 percent of their earned income,” he said. “[It’s] a valuable program for women and minorities. [It’s] the only source of income for 40 percent of today’s African-American seniors.”
Citing the size of the Social Security trust fund, Walsh said Social Security is “doing very well” today.
Nguyen discussed the structure of the Social Security administration, focusing specifically on the Board of Trustees and its most recent report, released Thursday afternoon. He also reviewed recent demographic trends in the United States, including birth rates and life expectancy.
“There’s a projection that [birth rates are] leveling out,” he said. “Immigration also plays a factor.”
Nguyen reviewed projections for the Social Security trust fund. By 2017, he said, “the outflow will exceed the incoming payroll. Nguyen said by 2042 the only approximately 74 percent of benefits will be paid if nothing changes in the current system.
Wescher then addressed evaluating different proposals for the future of Social Security. He used hypothetical scenarios to illustrate future trends.
“The Social Security system that we choose today may not have an impact on the working population in 2050,” he said, noting any projection would depend on many outside factors.
“Where the plans differ significantly is how you’re going to invest [your] money,” he said. “If money is returned in the form of tax cuts, there are no growth prospects.”
There is a need to consider risks inherent in any plan for Social Security, Wescher said. “Social Security is fundamentally an insurance program, not a retirement savings program.”
Wescher reviewed the government’s prospects for success when investing in stocks of private companies, which, he argued, are variable and depend largely on the state of the company and the economy.
“It puts [individual accounts] in a more realistic light,” he said.
Griffin was the final speaker of the evening, Indiana’s state director of the AARP. She reviewed a number of plans that would reduce or eliminate the future funding shortage to keep Social Security solvent beyond 2042.
Among her suggestions were raising the current cap on Social Security taxes from $90,000 to $140,000 over ten years, raising the age for benefits eligibility to 70 by 2083, raising the Social Security tax by five-tenths of a percent, and slightly lowering monthly benefits starting in 2018 to compensate for increased life expectancy.
“There is a full range of options that we could use now [to maintain Social Security],” she said.
Griffin said there is a necessity to preserve the program as an insurance policy for retirees, survivors and the disabled.
“Social Security is designed to be there for all Americans,” she said. “It’s the only thing that is.”
The panel concluded with a question-and-answer session. Questions focused largely on the structure and practices of the Social Security system, its purpose and the proliferation of ideas on how to keep the program solvent in years to come.
Kate Antonacci contributed to this report.