Personalizing Social Security

Unplugging The Third Rail

Address By James L. Martin, President, 60 Plus Association
Delivered At A Seminar Sponsored By The 60 Plus Association On The 62Nd Anniversary Of The Signing Of The Social Security Act, Washington, D.C.

“When I came to Washington as a newspaper reporter in 1962, John F. Kennedy was in the White House, Neal Armstrong had not yet walked on the moon, Strom Thurmond was a Democrat and the problems with Social Security were perceived by few other than Barry Goldwater.

So today, August 14, 1997, on the 62nd anniversary of Social Security, the 60 Plus Association becomes the first seniors group to publicly go on record to overhaul the system, releasing a paper it commissioned by economist Richard A. Hart, entitled “Personalizing Social Security: Unplugging the Third Rail.” Why did a senior citizens group decide to tackle the issue of Social Security reform? Let me answer by citing a question I’m asked often about the program signed into law by Franklin Delano Roosevelt on August 14, 1935.

The question is always the same, “Jim, why get involved?” After all, the theory goes, even if the current system is going bankrupt, “your seniors are protected, so why bother with the uncertain future of this politically volatile issue?”

Believe me, it would be easy to take a head-in-the-sand approach as so many do, including, I’m sorry to say, other senior citizen groups. Unfortunately, this attitude leads to a false impression that seniors are “greedy old geezers,” a “gimme, gimme, gimme” mentality which I hope to dispel. Seniors who built this country, in Depression and war time, through their blood, sweat and tears, deserve better.

To help dispel that erroneous image, I harken back to some of the advice one particular senior citizen has given me, and still does — my favorite senior — my mom, my sainted mother, if you will, Mary L. Martin, who in her eighties, still works part-time! Her advice is that seniors’ most valued assets are not their social security, their retirement income or their pensions — although these are certainly near the top of their list — but in her opinion, seniors’ most valuable assets are their children, their grandchildren and their great grandchildren.

So that’s why I decided to involve 60 Plus, a seniors group responsibly trying to find a solution to the problem, for the sake of our children and our grandchildren.

To put it bluntly, Heritage Foundation economist Dan Mitchell said, or perhaps it was another often quoted economist, Americans for Tax Reform’s Peter Ferrara, who said: “Security was a Ponzi theme then. It’s a Ponzi scheme now.” But even a Ponzi scheme — borrowing from Peter to pay Paul — worked well in the beginning, not only for Carlos Ponzi but for others, just as the so-called Social Security Ponzi Scheme worked well for seniors. But there looms now a “run on the Ponzi bank” as the Baby Boomers prepare to retire.

As Mr. Hart states in his paper, “the Social Security retirement train is on a collision course with demographics. Social Security’s pay–as-you-go system, where the taxes of today’s workers are transferred to today’s retirees, leaves it particularly vulnerable to demographic trends. As Baby Boomers age, life expectancy is rising and birth rates are falling. As the Social Security train heads straight into a demographic wall.” Mr. Hart continues, “more and more Americans anticipate the oncoming wreck.” Mr. Hart is right. More and more of us recognize the looming crisis.

A recent poll said that a majority of Democrats, for the first time, acknowledged not only that there was a problem with the system, but a majority of Democrats now even favor privatization as a solution. Everybody universally agrees there’s a problem. But a solution remains elusive.

For example, President Clinton’s Social Security Advisory Council has issued its long awaited report. This 13-member panel of experts readily agreed there is a problem, but did they agree on a solution? Well, yes and no. They offered three solutions. It’s not an exaggeration to say they split three ways from Sunday, six endorsing one, five another and two yet a third. Significantly, all three directly, or indirectly, advocated privatization. In 1983, President Reagan’s Social Security Reform Commission came forth with its solution to keep the system solvent for, it said, at least another 75 years, well into the next century.

That begs the question, why another Commission so soon in the 1990s, after the 1983 Commission? The answer is that the system is in more trouble than previously thought. The problem is two-fold. One: The good news is that we seniors are living longer, due to medical advances and our own better health habits. Two: The bad news is that you younger generations have to pay.

Of course, that’s the way the system has always worked. But before there were more than 20 workers, not three paying into the system for each beneficiary. One other fact that bears noting is that when first enacted, according to the actuarial tables, seniors died at about age 64, or as Mr. Hart so delicately phrases it, most workers were conveniently dead and buried before they could collect their benefits at age 65. As 60 Plus Honorary Chairman, former Congressman Roger Zion puts it, at a vigorous and robust 75, he has been statistically dead for 11 years. Now that seniors are living longer, that places further financial strains on the system. Clearly, a day of reckoning has come. The old fix of just raising taxes, some 51 times in 62 years, cannot continue. There’s a limit.

There have been half-hearted attempts in the past to address the problem, half-hearted because not many politicians want to be accused of touching the so-called third rail. You know the old song — Social Security is the third rail of politics, touch it and you die.

Politicians have gotten away with this third rail scare tactic for too long, scaring seniors for political gain. Some of us recall the 1964 Barry Goldwater — Lyndon Johnson Presidential campaign when there was a TV commercial showing a giant pair of scissors cutting a Social Security card with a voice-over solemnly intoning that this would be the result if you voted for Goldwater. Another 1964 commercial also stated that a vote for Goldwater could result in U.S. soldiers being sent to fight and die in southeast Asia. Well as one political wag put it, he “voted for Barry and sure enough, U.S. soldiers were soon sent to fight and die in Vietnam.”

So, I would like to put politicians, regardless of party, on notice that seniors are tired of falsely being told their Social Security is going to be taken away. It’s more likely that a meteorite will fall on the Social Security Administration Building in Baltimore before a politician, of either party, would propose taking away Social Security.

Let me point out how 60 Plus became engaged on this issue. A few years ago the Third Millenium, Generation X’ers in the 18-34 age group, announced the startling news that most X’ers believed in UFOs (unidentified flying objects) than that the system would be around when they retired. I responded on a radio talk show that seniors are also aware that the system is headed for bankruptcy. Then I added, somewhat flippantly, perhaps, that seniors believe more in the second coming (has it been twenty years this week?) of Elvis Presley than in the system’s future solvency and that seniors might also prefer changes. After a few call-ins and further discussion of UFO’s and Elvis, I decided to poll senior citizens. Our poll to approximately 100,000 seniors found that, by a surprising 3-to-1 margin, seniors preferred a privatized system. We then commissioned a survey by pollster Frank Luntz, an excerpt of which is in the study we’ve released. The Luntz poll confirmed our 3-to-1 ratio.

We were called by Insight Magazine, and we debated, in print, our counterpart at the American Association of Retired Persons, Horace Deets, in dueling 2000-word essays. If I could sum up each essay in one word, it would be: AARP — taxation, 60 Plus — privatization. AARP favors the same old solution, tax increases, while 60 Plus looks for new solutions.

Will privatization work? The privatization model is the Chilean system. During the 1983 Social Security Study, when Chile was mentioned as a solution, the status quo seekers dismissed their system as a new and unproven experiment. But fast forward 15 years later and Chile now has an amazing track record of success. Now the status quo seekers try to demonize the word “private,” implying that you have to be stock market expert or the big boys on Wall Street will fleece you. Nothing could be further from the truth. There are a lot of workers in Chile who can’t play the stock market but who proudly walk around with a passport-sized book with their name on it, keeping track of their investments. That is one of the reasons we use the word “personalize,” because the system would allow each and every individual to take control of his or her own financial destiny.

Since 60 Plus is nonpartisan, we credit legislators from both parties for coming up with innovative ideas. One is Democratic Sen. Bob Kerrey of Nebraska from whom we borrowed the word “personalize.” Another is suggestion, by one of the Generation X’ers, is to “modernize” the system. Many others on Capitol Hill deserve credit, including Republican Congressman Jim Kolbe of Arizona and Democratic Congressman Charlie Stenholm of Texas, co-chairs of a public pension reform caucus which now numbers more than 70 members of Congress, equally represented by both parties. Michigan Congressman Nick Smith has introduced legislation to address the problem as have Reps. Mark Sanford of South Carolina, David McIntosh of Indiana, Mark Neumann of Wisconsin and John Porter of Illinois. Others safeguarding Social Security include House Ways and Means Committee Chairman Bill Archer of Texas and Subcommittee Chairman, Reps. Bill Thomas of California, Dennis Hastert of Illinois and Jim Bunning of Kentucky. Surely, the latter, Jim Bunning, the big, burly Hall of Fame baseball pitcher — known as a fierce competitor in his playing days and now the father of nine and grandfather of 31 (at last count) — would be a formidable opponent for those who try to demagogue Social Security as they did in the 1980s when some members of Congress courageously talked about reform in order to save it.

More than two dozen countries in South America, Europe and Asia have adopted, or are in the process of adopting, a Chilean-style system. Even socialist Sweden is going that route. And here, workers in three Texas counties, before a loophole in the law was closed, opted for privatization and their rate of return in making a lot of serious discussion as they prepare for retirement. Moreover, a resolution recently passed both the House and Senate in Oregon asking the state to opt out of the Social Security System and create a separate retirement system for state workers.

So the slight spark across the sky of the Chilean experiment has become a bright con-stellation. It’s a success story that I believe, with all my heart and soul, can be a guide for our own troubled system.

Incidentally, in the old days, the father of the Chilean plan, Dr. Jose Pinera, literally visited Washington in the dead of night because his untested plan was so controversial. But a few years ago, the Cato Institute gave a dinner in his honor and a number of Members of Congress allowed their names to be placed on the host committee. What a change in attitude. Of course, it was not lost on them that this former minister of labor was elected to office himself, with a major plan in his platform, his plan to privatize social security.

Having read an article by Ed Crane, President of the Cato Institute, about the social security problem, we started searching for solutions. We kept being referred back to the Cato Institute itself, which has taken a pioneering road ion this issue for more than a dozen years. One name kept coming up, time and time again. That name was Michael Tanner, Cato’s Director of Health and Welfare Studies and the author of several books on health and welfare reform. Mr. Tanner has worked on the Social Security issue extensively, to say the least. Spoken on it. Written on it. Debated on it, around the world often with Dr. Pinera at his side. That’s why 60 Plus, particularly Roger Zion and I, are so pleased that Mr. Tanner has not only eloquently embraced this new plan Mr. Hart proposes, but has joined us at today’s official release of the proposal, along with an equally strong endorsement by today’s other featured speaker, Fund for a New Generation’s Adam Dubitsky.

Richard A. Hart takes up the challenge to find a solution in an insightful paper showing how Personal Retirement Accounts (PRAs) can assure both dignity and comfort for future generations of senior citizens. This paper, a variation on a theme advanced by others should continue the dialogue on a system which urgently needs reform.

To those who fear Social Security’s ruin, wise seniors know that there is no Social Security Trust Fund. 60 Plus calls it the Social Security Bust Fund as surpluses are used for other government programs. As Democratic Senator Ernest Hollings of South Carolina has said, “There is not trust. There is no fund.” We need to alert people to keep at arm’s length those politicians who spread fear among seniors, as we stand at a crossroads to which direction Social Security reform should go.

In the 60 Plus Association’s opinion, some form of “personalization” remains the best and most feasible option. We must guarantee present retirees their benefits as part of a government promise to them, but we must also safeguard current generations paying in to the system so that the benefits will be there when they retire.

August 14, 1935, President Roosevelt signed into law the Social Security Act. On May 2, 1997, the FDR Memorial was opened here in Washington, D.C. The Social Security act helped seniors escape poverty, but we now know there are major problems facing future generations. What more lasting commemoration to FDR can we embrace than the adoption of a system which will save it for a new age, a new era, and a new population.

60 Plus Association (703) 807-2070
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