Social Security Reform: What Should the Reform Commission Do?
Capitol Hill Briefing
May 7, 2001
Reforming Social Security
The first public remarks on Social Security policy from any member of President Bush's new Social Security commission were made during a recent Academy Capitol Hill briefing carried live on C-SPAN.
Speaking in favor of privatization, Commissioner Estelle James argued that diversifying the investment of Social Security funds into public and private accounts would better protect recipients over the long haul from the effect of benefit cuts and plan changes.
"If you diversify between public and private elements, you diversify between political and financial risk," James told the crowd of about 150. At the same time, she added, individual accounts would be good for workers and the economy by encouraging long-term savings, productivity, and output.
The Academy's May 7 briefing on Social Security reform was held less than a week after Bush created his reform commission. In addition to James, the briefing's speakers were Bruce Schobel, chairman of the Academy's Committee on Social Insurance, Peter Orszag, president of Sebago Associates and former special assistant to President Clinton for economic policy, Steve Robinson, staff director of the Senate Finance Social Security Subcommittee, and Ron Gebhardtsbauer, the Academy's senior pension fellow.
The timing of reform, said Schobel, is critical. "We need to reform while the economy is healthy," Schobel said. Schobel also urged that any reform be implemented incrementally to allow workers time to accommodate.
Arguing against privatization, Orszag said that "individual accounts cannot be the sole answer."
Whether carved out from the existing benefit structure, or added on top of it, individual accounts wouldn't address the long-range deficit in the Social Security system because they wouldn't necessarily reduce benefits, or significantly increase revenue or the rate of return on trust funds, he said. In the absence of these things happening, or of a transfer of funds into the system, Social Security still faces future deficits, Orszag said.
Orszag also warned that if President Bush's proposed tax cut passes, there would be little funding available to start up individual accounts. "If you are in favor of privatization, you should be the strongest opponent of the tax cut, " Orszag said.
"Do not do what we did in 1983," said Robinson, referring to recent Social Security reforms. "Do not balance the system on average and never actually fix the problem." If substantive changes are not made in the system, Robinson said, the commission would be simply pushing the problem out another 75 years.
And the timing of reform, said Schobel, is critical. "We need to reform while the economy is healthy," Schobel said. Schobel also urged that any reform be implemented incrementally to allow workers time to accommodate.
About 150 House and Senate staffers, journalists, other policy-makers, and lobbyists attended the luncheon briefing. The audience included Steve Goss, Social Security's chief actuary, and two of his predecessors, Robert J. Myers and Haeworth Robertson.
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