Do As I Say, Not As I Do…
On Monday, September 22, four U.S. senators squared off in an organized debate on the Senate floor about the looming Social Security crisis and personal retirement accounts. Sens. Rick Santorum (R-Penn.) and John Sununu (R-N.H.) represented the Republicans, while Sens. Dick Durbin (D-Ill.) and Jon Corzine (D-N.J.) represented the Democrats. The full text of the debate is available in the Congressional Record.
All four senators agreed that something needs to be done if we are to ensure that Americans will be able to enjoy dignified retirements now and in the future. Sens. Santorum and Sununu made strong arguments in favor of giving workers the option of owning a portion of the money the government already takes in Social Security taxes. These tax dollars, which we currently have no legal right to, would be put into personal retirement accounts, which we would legally own. Instead of relying on the spurious promises of politicians for our retirement, we would rely on personal accounts that were filled over our lifetime with money we would have paid in taxes anyway.
Sens. Durbin and Corzine both thought this was a bad idea. Among other concerns, they said it too risky to invest retirement money in the stock market. An odd argument for two men who put so much of their own money into the stock market. Senator Corzine’s 2000 U.S. Senate Public Financial Disclosure Report reveals that the multi-millionaire Wall Street financier was not only heavily invested in stocks, but also that he has put a large portion of his son’s trust fund into the stock market. Does he really care more about the financial well being of the American people than his sons—or is Sen. Corzine playing party politics? Corzine’s 2002 report
reveals that he’s also invested in Argentina! The US stock market is too risky for Americans, but Argentina is safe enough for Jon Corzine?
Sen. Dick Durbin is also invested in stocks, according to his 2002 Public Financial Disclosure Report. If it’s too risky for the American people, why is it OK for him?
The well-informed comments of Sens. Sununu and Santorum are worth reading in their entirety here. Further statements by Senators Corzine and Durbin are commented on below.
Sen. Corzine: “Privatization, in our view, is not about choice.
Here, Corzine tries to use the word “privatize” to scare voters away from personal retirement accounts. No one is proposing handing Social Security over to private companies. The plans for personal retirement accounts all continue to take over 12 percent of our incomes in payroll tax, but instead of the government owning all of it and us none of it, we would own a portion of it and be allowed to invest it, and pass it on to our children. As for choice, personal retirement accounts would be voluntary. Those who wanted them could choose them, those who did not could stay with the government system. How does Sen. Corzine see forcing everyone into the current government run system as a choice? Owners of personal retirement accounts would also be able to choose from a range of portfolios, from those with a high percent in stocks and a low percent in bonds to those heavy in bonds but light in stocks.
Sen. Corzine: “After all, today’s Social Security guaranteed benefits are simply an average of $900 a month, or less than $11,000 a year…I think that is pretty tough to live on.”
He’s right; that is not enough, which is why we need personal retirement accounts that would offer much more. If he knows Social Security does not offer enough, why does he want to force everyone to continue with this system? Stock-owning Corzine may have slipped here.
Sen. Durbin: “Social Security has never been Uncle Charlie’s red hot investment tip, that stock that just could not lose…The critics want to dismantle Social Security for a flashy, dazzling money maker that just cannot lose.”
Here, Durbin increases the level of nonsense coming from the anti-personal retirement accounts team, the anti-ownership team, the pro-government control team. He sets up a straw man to attack. No one is suggesting personal retirement accounts be invested in a single stock. Like the plans used in almost every country in South America and several countries in Europe, and like the plans Corzine and Durbin put their extra money in, workers would put their money in well-diversified funds made up of many different stocks and bonds.
Sen. Durbin: “They want to cut the current Social Security monthly benefit and add higher administrative costs at the expense of your parents’ retirement and your own.”
Durbin slides further down the slippery slope of those lacking a good argument and makes the lame sort of statement that puts so many people off politics. He knows full well his opponents want neither to decrease monthly benefits nor add higher administrative costs. All plans allowing for private accounts explicitly state that benefits to current and near retirees would not be cut.
Sen. Durbin: “They might suggest we raise payroll taxes to make up the difference, but who needs an increased payroll tax with this lame economy? They could tell you honestly that we can raise the retirement age under Social Security and make up for the $2 trillion shortfall in privatization. But is that something you want the government to mandate?”
Again, the anti-personal account team makes strange, inconsistent, and unsupportable arguments. Durbin comes out against all three possible solutions to the irrefutable problems facing social security: raising taxes, cutting benefits, or allowing personal accounts. The Republicans made it clear early on that they prefer personal accounts to the other two options. Only later do the Democrats make it clear that they would prefer to raise taxes. And Democratic presidential candidates have already said they would consider raising the retirement age.
Sen. Corzine: “We wanted to build up that Social Security trust fun so there would be income from it.”
Corzine continues the anti-personal account tradition of referring to the mythical “trust fund.” Americans are wiser than he thinks, and know that there is nothing in the so-called trust fund, no matter how many locks Al Gore put on the box. The Social Security Administration is required by law to turn over the extra money to the U.S. Treasury in exchange for IOUs. But both the Social Security Administration and U.S. Treasury are branches of the same government, so this is like your left hand giving your right hand an IOU. These IOUs are nothing more than promises to collect taxes in the future.
Sen. Durbin: “Taking money and putting it in the stock market is an option every American should have. But to use the Social Security funds of an individual for that purpose raises a risk that is too great for some people.
This is in no way an argument against simply allowing personal retirement accounts. Personal retirement accounts would be voluntary, allowing those averse to risk to stay with the government-run program, or even allow them to put all their savings into government bonds. In Chile, where a voluntary personal account system has existed for over 20 years, nearly 95 percent have voluntarily opted for personal retirement accounts. As more years have passed, more Chileans have realized how much better off they can be with personal retirement accounts. As a result, the average Chilean has more money in savings than the average American—even though the average American earns considerably more than the average Chilean.
Sen. Durbin: “I support what Al Gore supported, as do most Democrats, Social Security Plus. That allows people to invest in the Social Security over and above their Social Security.”
Social Security Plus is where workers would pay their Social Security tax and put money into a retirement account. This already exists in the form of IRAs and 401(k)s. The problem with this is that many Americans, after paying 12.4 percent of their income to payroll/Social Security tax, and a total of about 40 percent of their income in taxes, just don’t have any money left for the “Plus” portion of retirement. Those who do are already taking advantage of the IRAs and 401(k)s.
The reality of tight personal finances is lost on Sen. Durbin who made over $200,000 last year, and Sen. Corzine, who spent over $61,000,000 of his own money running for Senate in 2000.
Sen. Corzine: “You can ask whether one wants to talk about capital gains, tax dividend exclusion, inheritance tax, as I suggested as means to fill some of this gap.”
Here, Corzine lets the cat out of the bag. He would raise taxes to solve the Social Security crisis. This should surprise no one. Politicians have raised taxes over 20 times to “solve” past Social Security crises. It’s a tired old trick. So is cutting benefits, which were cut significantly in 1977 and 1983, which shows how weak this so-called government guarantee is. Corzine does offer a new twist in that he proposes raising non-Social Security taxes to deal with the crisis. To date, funds for Social Security have always come exclusively from Social Security taxes.
Sen. Durbin: [After Sen. Santorum points out that in Britain, where personal retirement accounts are allowed, Labour/Democrat Prime Minister Tony Blair wants to expand the system to create more opportunities] “[T]hey certainly have a much grander view when it comes to government responsibility on health care. If we were to guarantee the same type of health care protection to Americans as the British, not only for retirees but for the people…”
Wow. Durbin likes socialized health care. He fell on that sword in order to get out of the way of the bullet Sen. Santorum shot his way regarding personal retirement accounts. Santorum asked Durbin, “If it’s good enough for the rest of the world, why isn’t it good enough for us?
Sen. Corzine: [Trying to argue that markets are too risky] “I think if one looked from 1929 to 1949, you would find a 20-year period where returns were at best flat, if not diminished.
Corzine picks 1929-1949, a 20-year stretch that includes the stock market crash of 1929, the Great Depression, and World War II. But he’s wrong. Even after subtracting out inflation, the stock market had a positive rate of return of 3.36 percent during this period—much better than the usual 1 percent to 2 percent Social Security offers.
Sen. Corzine: “[People] work and retire at a certain point in time. And if the market is not performing at that point in time, when that account they own comes up, they don’t have those guaranteed benefits.”
Corzine is wrong again. He creates a false image of someone’s account “coming up” and being out of luck if the market is down that day, as if we’re at the deli and our number comes up right as they run out of cheese. There is a certain day when people retire, but we are retired for years, decades if we are lucky. We would not take all of our money out to spend it on the day we retire, we would take it out slowly over the course of our retirement, as we need it, making the short term ups and down of the market irrelevant.
Sens. Durbin and Corzine’s debate points read like a Frequently Asked Question list from 1994. In the 10 years since then, voters have become much more informed on this issue. Let’s hope the senators will do the same and help Americans get what they want in Social Security—Personal Retirement Accounts.
