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President George W. Bush
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For Immediate Release
Office of the Vice President
March 21, 2005
Vice President and Chairman Thomas' Remarks at a Town Hall Meeting on Social Security
California State University
10:52 A.M. PST
CHAIRMAN THOMAS: Ladies and gentlemen, I want you to meet Gracie. (Applause.) The Vice President's granddaughter, and she'll be five next week. You can all be seated.
I'm going to take just a couple of minutes, and then I'm going to formally introduce the Vice President, and he's going to take a couple of minutes, and then we'll obviously open it up to questions so that we can get to those concerns that you have.
Many of you know that the Vice President and I came into Congress together in the 96th Congress, and he was still in Congress the last time we addressed some changes in the Social Security system. I was on the Ways and Means Committee at that time, a junior member, but I was also on the Social Security subcommittee. And what bothered me the most at that time in terms of the steps that we took, which were needed because we were in a true crisis situation at that time, literally months away from running out of money, was that we increased payroll taxes far more than was necessary to try to front-load the system.
Started out originally at 2 percent of payroll -- we're now up to over 12 percent of the payroll tax. But in addition to that, we, in essence, cut benefits by extending the years that people would have to work before they received the benefits. And then worst of all, because we were in such a fiscal crisis, we had to delay the cost of living increase.
Now, that occurred in 1983 because Congress was not prudent in addressing the fundamental problem. And I believe it's fair to state that the decisions that Congress made looked too much like all previous decisions. They weren't the kind of bold, necessary changes to deal with the changes that occurred in the society.
If you'll join me for just a minute and look at yesterday, this is what's called a demographic profile. It's a classic profile where it's a triangle shape. You have people who were born. They go through life, and over time you have fewer and fewer seniors. This is a classic pattern. If you look down below, there's a kind of a narrow base. What happens to us is with us through the entire time that people are alive. And that lower group is zero to nine years old. It's smaller than the rest of the bottom of the triangle. And of course, if this is the population in 1940, what happened between 1930 and 1940 was the Depression. Fewer people got married, fewer babies were born. That stays with us through their entire lifetime.
Now, neither the Vice President or I am represented on this chart. We were born in 1941. But one of the concerns we have in dealing with Social Security is what happened in 1946. The war ended in 1945. Millions of G.I.s came home. They resumed the families if they were married. They got married and began having kids. And, of course, those people who were born in 1946 and later are now called the baby boomers.
And one of my concerns as Chairman of the Ways and Means Committee dealing with Social Security is that people keep throwing around dates, some of which mean more than others. The one that probably means the most to me is to say that if you were born in 1946 and Social Security allows you to retire at 62, now, I know it's called early retirement at 62, but today, a majority of seniors who are eligible to retire, do so at 62 -- a majority. So if you take 1946 and you add 62 to it, what year do you get? I know you didn't expect this to be a math quiz. (Laughter.) 2008. And that's why I'm so pleased that President Bush both in his 2000 election campaign, but especially for reelection, committed himself to do something about the problem. Because as soon as baby boomers start to retire, if we haven't addressed the problem, they become part of the problem instead of part of the solution.
And the President has focused his concerns so that we can be here today not to talk about yesterday -- because yesterday this system could go on forever. It's a pay-as-you-go system. Younger people working paid portion of their payroll to take care of the very few seniors that were left in the system. Pay as you go worked then. Take a quick look at tomorrow before I turn it over to the Vice President.
Now, the Vice President and I expect to be part of that upper portion. We'll be over a hundred then. (Laughter.) But you laugh -- how many here -- and it's hard to see, but how many here have a relative or know someone who reached a hundred years of age, family or relative? Yes, it's amazing the number of hands that are up. And we totally expect to do so. But that's the problem. It is the problem for those of us who get to live to be a hundred. But when you look at that system, that system cannot be sustained under the old-fashioned, pay as you go. There aren't enough young people working under the old system to pay for the support and the cost of the seniors.
So the President rightly has said we need to engage. We need to look for solutions in an aging society. And I'm privileged to be Chairman of the Ways and Means Committee in which we will not only take a look at Social Security and solving the problem, but frankly, the whole question of aging -- health care, long-term care, the question of retirement, people don't work at jobs for 20 or 30 years any more. They have a series of jobs. We need to change the kind of structure that the society offers to make seniors comfortable in those longer lasting senior years.
And so it's a real pleasure to be here with my friend and former colleague, and I'm so pleased to say, Vice President of the United States, working with President Bush to talk about the ideas that this administration is willing to take on, even though we're not in a crisis situation. Anyone looking at this profile and that profile knows we have a problem. The sooner you address the problem, the easier it is to come up with a solution.
So it's my pleasure to present to Kern County, greater Bakersfield, the Vice President of the United States, my friend Dick Cheney.
THE VICE PRESIDENT: Thank you, Bill. (Applause.) It's good to be back in Bakersfield. I've been here on a number of occasions in the past, campaigning with Bill, as a matter of fact. And we did start together in the Congress some 27 years ago. And now I'm Vice President. He's got real influence. He's Chairman of the Ways and Means Committee. (Laughter.) I'm envious.
But I'm delighted to be here today because this is an extraordinarily important subject. And one of the things we're doing, of course, both the President and I are traveling the country, talking to people, trying to elevate the dialogue about Social Security because we think it's an extraordinarily important problem that we need to address, and that it's our responsibility, having just gotten reelected, to work on big issues. And this obviously is a big issue.
The President often says that he didn't run for President and go to Washington to play small ball. He likes living in Texas better than he does Washington, and he hopes to return to Texas. But he doesn't want to do it until we've had an opportunity to address a really important problem, and that's the Social Security issue.
I start from the proposition that Social Security has been a great program for millions of Americans. It was enacted in the 1930s, I think virtually everybody here has got family members -- if they haven't themselves -- who have been recipients of those benefits over the years. And, of course, everybody who's working -- nearly everybody who's working with few exceptions have been paying into the Social Security system now for some considerable period of time.
And we all have a stake in it. My five-year-old granddaughter, Grace, has got a stake in it. But the thing we're concerned about: while Social Security is sound for today's retirees and for those who will retire in the relatively near future -- that is over the next 10 years or so, if you look down the road, it's clear that we've promised a level of benefits that we've never funded. And there's that shortfall out there. So for example, you take the proposition that today's law shouldn't be changed, as some politicians have said, that we shouldn't do anything about it, there's no problem here, then you look at the demographics that Bill was talking about, and the fact is if you're 30 years old today and you're looking at retirement down the road at the point you reach retirement age, you can anticipate under current law a 27-percent cut in benefits. That's what's baked into the cake today if we don't do anything.
And there's a good reason why my kids and others in their 20s and 30s look at that proposition and, as have often been said, believe they're more likely to see an unidentified flying object than they are to receive Social Security benefits because there are serious doubts in their minds about whether or not those resources will be there.
Another way to think about it, to elaborate a little bit on Bill's point on the changing demographics -- and this is driven by demographics. Those are iron facts out there. You can't change them. We know how many people are alive today. We know how old they are. We know when they're going to retire. We know what the level of benefits are that have been promised. If you think about it, today we've got about 40 million retirees in the country drawing benefits, and in about 25 years that number will nearly double. We'll be up to about 73 million or 74 million. That's the impact of that baby boom generation hitting retirement age. And as Bill said, a majority of retirees now when they hit age 62, do, in fact, then take advantage of that to take early retirement.
Another way to think about it is what it means from the perspective of the tax burden of individual workers paying into the system. If you go back -- and there's a chart back up here, you'll see behind that shows the effects of what each worker pays into the system and how it has changed over time.
And if you go back to 1950, we had 16 people working for every one retired. So we had a very low tax rate. That was able to generate enough revenue to be able to pay the benefits that were owed at that point. Today, we're at a point where we've got about three workers for every retiree. And that means the tax burden on today's average wage earner is about $4,700 a year. But if you look down the road, in the future here, we're in a situation where we're going to have only two people working for every one retired instead of 16 as we had back in 1950. And the average tax burden at that point will be $7,100 a year per worker paying into Social Security to be able to keep the commitments they're required to fund those benefits.
So what's the answer? What should we do about it? Well, there are a lot of ideas kicking around out there, obviously. One of the things that I think has been heartwarming is the extent to which I believe the American people now -- the vast majority as we look at the polls -- understand we do have a problem. This is not something somebody cooked up. It's not something politicians dreamed up that they need to worry about. The normal instinct for many of our public officials they'll say is to let somebody else worry about it. It's not imminent. It's not going to happen next week or next year. It's a longer term problem, and therefore, we'll let whoever is in power then worry about it. We don't want to operate that way.
We do have, in addition, to the growing understanding there's a problem out there, we've also got I think more and more proposals being laid on the table by various people that are trying to contribute to the debate and dialogue. Some of them have been put forward in the past. Pat Moynihan, of course, who passed away last couple of years but chaired a commission a few years ago on this subject, he had a set of ideas that he advanced and put forward. Senator Chuck Hagel from Nebraska put in a plan within the last week or so. Lindsey Graham from South Carolina has a proposal. Tim Penny, a former Democratic colleague of Bill's and mine from Minnesota has got a proposition he's put forward. There's a gentleman named Robert Pozen recently put out a proposal that has to do with changing the indexing and so forth. So a lot of ideas beginning to surface. And as the President has said, we want everything on the table. We're not here to try to take advantage of somebody who comes forward with an idea by beating up on them because they had the courage to jump in to the arena. We want them in the arena. We want them to participate.
One of the things we believe and that the President and I campaigned on both in 2000 and 2004 is that part of the solution should be what we call personal retirement accounts. And let me take just a minute this morning and explain what it is we mean when we talk about personal retirement accounts and why we think they would be a valuable part of the overall solution here.
The notion is that on a voluntary basis -- nobody would be required to do it, and on the basis of affecting only those born after 1950 -- because everybody who was born before 1950, that means everybody who is already retired, drawing benefits, or anybody who will be old enough to retire some time in the next seven years -- they're 55 today and moving towards retirement, there would be no change in the system for them. They'd continue with the program as it's out there today with the same level of benefits and so forth.
But for that younger generation, the ones who have to worry because of the financial train wreck, if you will, that's up ahead if we don't act, that they'd be given another option, another opportunity. And if they wished, they'd be allowed to take a portion of their payroll tax. And instead of sending it into the Social Security system, they'd be able to put it in what's called a personal retirement account.
Now, those personal retirement accounts would be governed by a fairly strict set of standards. They would be invested in one of four or five options that would be available -- some more conservative than others. They would be actually owned by the individual. That is to say you'd create a real live, honest to goodness asset, just as though you had an IRA or a 401(k). But it would be funded in part by a portion of your payroll tax.
You'd have the benefit of having that in the personal retirement account so it would grow over time at a compound rate of interest. And you will earn a greater return off that kind of arrangement than you will if you just send it to Social Security. If you just send it to Social Security, the internal rate of return today works out to a little over 1 percent. But if you put in a personal retirement account, obviously, the opportunity exists to earn more than that.
Now, a lot of people say, well, invest it what, in the stock market, isn't that a little shaky? Well, there are some models out there you can look at to get some idea of how this would work. One is the model that's available for federal employees and members of Congress called the Thrift Savings Plan. And they have the opportunity to invest in one of five different accounts, some are more conservative than others, a combination of stocks and bonds or even government instrument securities. And if you look over the last 10 years at the way the program has performed, so this is the overall result for over a 10-year-period of time through good times and bad, as well, with respect to the market, the smallest return has been about 4 percent a year; biggest, almost 11 percent a year with considerable security and confidence. But again, it's on a voluntary basis.
But the point is the individual would get a higher rate of return than if they just send their money to Social Security. Now, there are a lot of complications that go with this, complicated questions which we'll be happy to talk about today. I don't want to dwell too long on it so that we can get to Q&A. But the point is that it would allow a higher rate of return for the individual. And that means over time, we'd come closer to reaching that level of benefits that has been promised out there, but not yet funded. And it would also have the advantage, as I say, of giving individuals their own personal asset -- something government can never take away, something that's with them as long as they're living. If something happens to them, they can pass it on to their kids or grandkids. You can't do that today with your Social Security payments, obviously, investments, other than what your wife or spouse would get after you die.
Today if you work and are single, for example, you may pay into the system your whole career, but if you die at a relatively young age, that's it. There's no asset there to go to anybody else, or to a family member. And of course, the circumstances with this kind of an account would be that that's a real live asset, your asset to be committed to your own personal retirement.
We think it makes good sense. We think it ought to be part of any solution that we ultimately come up with here with respect to Social Security. We believe having campaigned on it both in 2000 and 2004, that there's considerable support out there for it around the country, and that it definitely ought to be part of the debate and dialogue. So we're here this morning to discuss that, and anything else that's on your mind.
We've got some folks in the audience wearing these attractive orange jerseys with numbers on them. (Laughter.) They have microphones with them. And if you've got a question or a comment to direct either to Bill or myself, just get their attention. And we'll call on as many folks as we can before we finish up. But again, let me thank all of you for being here this morning, for allowing me to come join Bill in Bakersfield to talk about what we think is one of the most important subjects that we face as a nation.
CHAIRMAN THOMAS: Thank you very much, Mr. Vice President. (Applause.) Now, you need to know this is normally a very shy group. (Laughter.)
THE VICE PRESIDENT: Okay, if you want to -- got a question or a comment. We got anybody back here? Number seven back here.
CHAIRMAN THOMAS: Just move a microphone to somebody. Okay, number seven.
Q Yes, my son is turning 40 next month. And I talked to him last night and I asked him what he thought of the privatization plan, and he said he thought it was great. He thinks it'll be good for the stock market and good for the economy. His concern is he wanted to know how much control he would have over the funds, and where they would be put.
THE VICE PRESIDENT: Well, if he follows, for example, the model of the Thrift Savings Plan, and that's probably the closest that anybody has developed at this point, say, there'd be probably four or five options. And he'd be able to choose among those, pick one of those options -- probably be once a year when he'd have an opportunity to re-calibrate and move the funds that he wished to some other locale. But he'd be able to choose between, say, a very conservative proposition, for example, investment in government securities over to a fund that was more heavily geared to the stock market.
But the way the Thrift Savings Plan has worked for federal employees, as I say, is that it's definitely produced solid benefits, the kind of returns that people can count on and rely on. It's basically geared to the overall U.S. economy. Think about it, what you're investing is the basic U.S. economy itself. And we think it's -- would be -- would give him choices he doesn't have today.
Today of course, you got no choice at all. You pay it to Uncle Sam. It goes into the so-called Social Security trust fund. And the return you get on it is not going to be anything close to what we could do if we do personal accounts.
CHAIRMAN THOMAS: Speaking as Chairman of the Committee that has responsibility over the tax code, there are a lot of younger people and seniors today who do a lot of investing. And there are various instruments, as the Vice President, talked about -- the so-called personal retirement account, or the 401(kk), or individual retirement account. The discussions that we've had and the hearings that we've held and will continue to hold will make this difference between typical investment structures and a personal account under Social Security.
You can pay a penalty today in your investment account and withdraw money. We envision a Social Security account in which you cannot withdraw the money. It's there as part of Social Security, just as today, you can't borrow your payroll taxes back. So in the sense that you're going to be putting money into an account that's going to accumulate for your retirement, it definitely will not be available to you until you retire.
Secondly, the really important point that those who are not interested in trying to resolve the problems sooner, try to argue that it's like gambling, that it's very risky. If you'll take a look at what's evolving in the private sector, mutual funds, for example, you don't have to check up on them every week, every month, or even every year. We envision a structure which could be adjusted for younger people a bit more aggressive, as you get older a bit more in securities more similar to typical Social Security so you run no risks as you get closer to retirement.
There are a lot of ways to make sure that people have a comfort level that their money is growing faster than old-fashioned Social Security, but without the risk that some of the opponents are arguing will be there.
Our job is not to make it riskier for seniors. Our job is to create an opportunity so that the promises that we've made to seniors can actually be met. That's the real difference.
Take a look at this other chart up here. What we're looking at is currently we're in the black. But if we don't start making changes, those red lines will happen, which means people who are in their 30s and in their 40s, won't get the promised benefits. What we're trying to do is minimize risk, maximize opportunity on a voluntary basis for those people who feel comfortable doing that.
THE VICE PRESIDENT: We got somebody over here, number six.
Q Thank you. One proposal put forward to reform Social Security is to raise or remove the cap on wages subject to the Social Security tax. The Heritage Foundation estimates that removing this cap would result in the largest tax increase in U.S. history. What is the President's position, and does Representative Thomas believe raising the wage ceiling would be included in any proposal for reform? And if this is the proposal, I believe it is clearly unfair because 9 percent of the wage earners are going to be responsible for 45 percent of the deficit.
THE VICE PRESIDENT: The proposal has been suggested -- I think it was part of the Lindsey Graham proposal in the Senate.
CHAIRMAN THOMAS: There have been several models that include it.
THE VICE PRESIDENT: Talk about raising the cap. Right now when you pay your payroll tax today, you pay that 6.2 percent up to $90,000 of income. And that's indexed and goes up every year, that cap does. It has gradually moved up over time. The idea is if you took off the cap, that then you'd to pay that full 6.2 percent on whatever you earned above the $90,000. And it's a proposal that's put out there. The President has not endorsed it. He has said generally he believes we can't tax our way out of this problem, that we've got to find other ways to address the issue, that you've got to be very careful what you do with tax policy, including payroll taxes in terms of its overall impact on the economy -- sort of the foundation of everything we do is a strong, robust, healthy economy. And if we were to try to solve that huge deficit you see back there on the chart, strictly through tax policy by raising taxes, we'd do serious damage to our overall prospects for growth. We'd adversely affect unemployment, et cetera. So the President has made it clear that he doesn't want to rely just on taxes as a way to solve this problem.
CHAIRMAN THOMAS: If this were 1940, and you had this large younger population being taxed through the payroll tax to support the smaller senior population, it makes all the sense in the world. In fact, back then it was 2 percent of payroll, and it was spread broadly among a lot of people.
What's happened is that the Congress in trying to respond to the changing demographics, to the aging population raised the payroll tax more than 20 times now. We're currently paying 12.4 percent.
Yes, as the Vice President said, 6.2 percent for the worker and 6.2 for the employers, but the employer is looking at a 12.5 percent cost to hire a new employee. And under the world that we know is coming, you still can't make it at that level.
Now, the payroll tax is called a regressive tax because everyone pays it up to a particular point. Estimates are that you would have to raise the payroll tax to about 16.5 percent, and that still won't meet the long-term problem. One of the things I really like about the President's stand on Social Security is that he's basically said we ought not to kick the can on down the road as every previous Congress has. We're now having a problem because we didn't address fundamentals. You cannot solve the problem by continuing to increase the payroll tax. One, it doesn't give you enough money. But, two, since it's a regressive tax and it costs the employer that much more to hire someone, if you're going to use the payroll tax, you're killing the job stimulation that you need to raise the money to help pay for the seniors through the payroll tax itself.
So we've pretty much ridden that horse about as far as we can. One of the things that I find exciting is that people are beginning to talk about alternate ways of dealing with the issue.
It is possible that there could be modest adjustment to create a -- we call it more progressive tax on the payroll tax, where people who are low-income are adjusted in a modest way. But clearly, the payroll tax side is not the way to solve the problem. There are other, smarter ways for the society to address seniors' needs than to create a depressed job market because you want to hang on to the concept of using payroll taxes, which made sense in 1940, doesn't make sense today, and certainly won't make sense in 2045.
THE VICE PRESIDENT: And to elaborate, just to touch on Bill's point, if you're self-employed, and you go down this road, remember an increase is -- self-employed because they have to pay both sides of the tax, both the employee and the employer tax, gets hit with a 12.4 percent increase on that income above the cap. And a lot of small businesses that's a major hit, and they are, in fact, the backbone of our economy. That's where most of the new jobs in the country come from. So what you do with tax policy, obviously, has to be looked at very, very carefully.
CHAIRMAN THOMAS: Mr. Vice President, I know some of these people are on TV, but they want to ask a question, too. Number three have you got a question over there.
Q My question is -- if I may, as I came in this morning, I see the senior citizens AARP out here protesting any change. They took out a full-page ad I noticed this morning. It said, if you had a leaky faucet in your house, you don't rebuild the whole house. That's paraphrased. How do you deal with people like this who don't want any changes? They can't be dumb enough to not know that this is better for the younger generation. You got to do something. But if they can't figure it out, how do you deal politically with those folks? (Laughter and applause.)
CHAIRMAN THOMAS: I've had several meetings with AARP. Actually, it's a sink that's in the ad. But they've also run a serious of other ads. It just makes it that much more difficult because when you meet with them behind closed doors, they actually agree that there are some problems.
I don't fully comprehend the desire to create a very negative environment for trying to make needed changed. But I've run into that before as we tried to solve some other problems that are going to be facing seniors like Medicare and long-term care. I believe that if we come up with a sound plan, notwithstanding both people who are elected and organizations, who I think are more motivated by self-interest than they are by societal needs, I think the plan will speak for itself, and more and more people will come together.
Our goal is to not be detracted by people who would prefer that nothing happen because the Vice President and I are galvanized by the condition we found ourselves in, in 1983. And we promised never again should we be forced to make harsh, quick decisions over such a fundamental program, and that in the end, I believe, AARP has to soften its position because the President being out front affords us the best opportunity in the almost 30 years I've been in Congress to really address the problem.
My hope is that any organization and any member of Congress in the House or the Senate really wants to be part of the solution, rather than part of the problem. And if you're denying that there is a problem, then you really part of the problem.
THE VICE PRESIDENT: I'm trying to remember what the qualifications are for AARP membership. I think you have to be 50.
CHAIRMAN THOMAS: Fifty.
THE VICE PRESIDENT: You and I qualify. But remember what we're proposing here with respect to personal retirement accounts, which is that they wouldn't affect anybody 55 or older. The program is not going to change for them.
What we want to be able to do for the younger generation where there really is a problem as you look at the chart up there, we want to be able to take advantage of time, and the time value of money and compound interest so that they're able to grow that benefit, that asset if you will, that real life asset we want to create with a personal retirement account. And I think there's overwhelming support for that concept the more you talk about that younger generation.
And I would say to AARP members -- and we've worked with the organization in the past; sometimes we agree, sometimes we don't -- but what I would say to them is, this isn't about you, this is about your kids and your grandkids. And the decision we need to make today is for Grace. She's five years old. Well, what's the system going to look like -- it's hard to think of Grace ever retiring. (Laughter.) But the focus I think in this debate needs to be on this younger generation because they're the ones whose benefits are at risk. They're the ones who over time are going to pay the taxes that are going to be required to support and sustain Social Security. They're the ones we've got an obligation to, to address these public policy issues early on, early enough so that we can make the necessary adjustment so that, in fact, that Social Security program that's been there for generations of Americans, that's been the basic fundamental bedrock of our retirement system in this country is still there 30, 40, and 50 years from now.
CHAIRMAN THOMAS: I can't let him get away with all this talk about Gracie. I have a grandson. (Laughter.) And I came home this weekend, and I was down playing with him on the floor. And as you know, after about 10 minutes down on the floor, it's a little hard to get up. And so it took me a little more effort than I normally expend, and Sebastian said, what's the matter, Grandpa? I said, well, I'm getting old. He said, I'm new. (Laughter.)
The people who are old don't have to worry about this. And as Vice President said, 50 and above are AARP. It's the new people that we want to make sure have as much of an opportunity for a retirement as today's retirees have.
THE VICE PRESIDENT: There are different proposals out there right now from putting in 1 percent or 2 percent out of the 6.2 percent that you pay as an employee, up to 6 percent -- that's virtually your entire contribution into the personal retirement account. What we've recommended is 4 percent as the number we've looked at, and phased in over time.
The reason you phase it in over time is in part because you want to make certain the markets can absorb it up front with respect to its impact on the government's cash flow. And some proposals are that there would be a limit the first year of, say, maybe a thousand dollars. And again, that would be phased up over time.
And some people anticipate that you'll see once the accounts are established and people get used to them and like them, future Congresses may want to adjust that when they get to a point where people -- where, we see it works; it does provide the kind of return that everybody believes it will, who is an advocate of it, and that the American people will demand the right to have all of their contributions put there.
Other possibilities are that you're already allowed, obviously, with a personal IRA -- individual retirement account, or if you're involved, enrolled in a 401(k) someplace to make contributions to those systems. But what we're talking about here, specifically there would be limits. There would be a specific amount authorized. There would be a timetable for when they would be phased in.
Nobody has made final judgments on that, obviously. That'll be part of the legislative process to fine tune the package. But as I say, what we're recommending, what the President is focused on is 4 percent initially. It's what we think is about the right amount in terms of managing both the government's fiscal policy, but getting started with a program big enough to provide a decent return.
CHAIRMAN THOMAS: Number eight.
Q Thank you. To me privatization certainly makes sense for those who choose to get involved in it. I'm wondering what happens to the other half of the equation when the money that's being put into the program by those who are participating in the privatization end of it is not going into the funds to the folks that are not part of the privatization, isn't there going to be shrinkage there? That part of the problem we're looking at now that will still be with us.
THE VICE PRESIDENT: Well, we still have the obligations to pay to those folks that, say, already retired or soon to retire. That obligation is there no matter what we do on personal retirement accounts. In effect, one way to think about is we have an unfunded liability in Social Security out over the next 75 years of about $3.7 trillion. It's a huge number. That's money we already owe. We've already promised those payments. It doesn't show up on the books today. It's off-budget if you will in terms of the federal government. But one way to think about what we're talking about here would be to pull forward some of those obligations to fund today's retirement accounts -- personal retirement accounts as we set them up, the net impact on the total debt that the government owes doesn't change. You're just prepaying if you will those benefits for those people who get into personal retirement accounts to establish that nest egg, that asset that's going to be invested over time. And eventually, you'd have to pay it anyway in the form of higher benefits.
When they contribute less to the Social Security -- traditional Social Security system at some point down the road, obviously, their Social Security base would be offset by what's put into the personal retirement account, but they've got the benefits of the personal retirement account to more than make up for what they're not going to get out of regular Social Security.
So from the standpoint of managing the federal government and the total debt and obligations of the federal government, there's no net increase in federal debt as a result of establishing these personal retirement accounts because, in fact, we already owe the money. We're just going to prepay it in a sense to put it into the personal accounts so they can begin to earn a rate of return on it.
CHAIRMAN THOMAS: And one of the reasons Congress tends not to want to get into trying to solve the problem is because there aren't that many options. As you're looking at the problem that we face, you can raise taxes. That was a question earlier. It has been done over and over again. But that well is about dry.
You can also look at the promises that have been made, especially when the promises are based upon what people are going to be making in their 40s when you're in retirement versus how much it costs for you to live in retirement. And that's the old argument between wages and prices increases. And that would be an adjustment in benefits.
Now, we've done it before. As I said initially in 1983, when we extended the age, because people do live longer, that means you have to live longer to get your benefits. That is in essence a benefit reduction. I think there ought to be, and there will be, a public dialogue. And we'll do it in the Way Means Committee. And various packages have been offered which are modest adjustments on taxes, modest adjustments on benefits.
The Vice President is absolutely right. And when you get into these discussions, it's so easy, as we say, to demagogue. If we owe that money, the longer you wait, the more it costs. If you begin organizing it in a way that you're paying for it sooner, rather than later, it costs you less. Everybody has got a mortgage. And you know if you pay your monthly payment, you have a fixed period in which you're going to have to pay. But if you can double up, if you're fortunate enough to pay for it, you can finish it sooner. The whole concept here is to not wait until you have to pay more than you should, or you're not planning for that unfunded obligation.
There are a lot of ways to do it. We're going to explore everybody opportunity. The thing we can't do is to say there isn't a problem and put it off.
MODERATOR: Ladies and gentlemen, we have time for one more question.
CHAIRMAN THOMAS: Lucky number seven. I've got to go with lucky number seven.
Q Thank you. In the early '80s, I was attending college right here. I lived in the campus here, and I was one of those people who under President Ronald Reagan participated in 401(k)s and IRAs. And the principles of personal responsibility, would you say that the personal accounts in particular could be seen as an extension of that very principle, of looking to ourselves to deal with our own futures, rather than government as the ultimate answer to everything? And I have a second part of that which is, will there be a limit on the personal accounts in what can be withdrawn upon retirement so that you don't end up with somebody who squanders all of it and comes back to government?
CHAIRMAN THOMAS: Well, really one of the interesting dialogues is to listen to younger people versus more seniors about risk, willingness to participate in the marketplace. I think more and more Americans -- including some seniors -- but certainly younger Americans are investors. They see themselves as investors. I mentioned just briefly the whole question of retirement that we used to have defined benefits where you worked for a company for 20 or 30 years, and they gave you a retirement. Today, people see themselves working in three, four, five, six or seven different jobs. They get a defined contribution. They get cash they then put it in a retirement account, 401(k). It makes all kinds of sense to them.
We think that getting people to see their name on a personal account which is also Social Security gives them a comfort that there's actually going to be something there for them. And as the Vice President said, many young people don't believe there is. But beyond that, if structured properly and safely, you can get a better return on that portion.
It's going to be part of the political process, as I say, as to how much it's going to be -- 2 percent, 4 percent, 6 percent. But the one thing that people should not be concerned about is that in creating personal accounts, you are going to exercise any significant risk. It will be structured in a way that you could get the benefit without a serious risk of losing some money.
And I know statements that we make, for example, over any 20-year period, anyone who invests in the market has not lost money, there are ways to structure this that on a voluntary basis, if people are willing to bet on themselves, that the society can win.
Underscoring your comment about government, if we simply have the normal returns that the Social Security system has received and we anticipate receiving, that is not the kind of dynamic that we ought to settle for, and that I anticipate a number of young people will voluntarily cooperate, wind up with a better set-up. And as the Vice President said at the beginning, you not only get slightly greater rate of return on your money, but it's yours.
THE VICE PRESIDENT: I might follow up on the second part of your question when you talked about will there be some limits in terms of how you take it out and so forth. One of the proposals that's kicking around -- nobody has made any decisions, obviously, on this yet because all of this is going to be negotiated during the course of the bill drafting, the legislation process, but it's the idea, for example, that you might establish a standard that says that you're required at retirement when you take conventional Social Security which you'll still get some portion of. It'll be reduced, obviously, by the extent to which you pay into payroll taxes into your personal retirement account, instead of conventional Social Security, but you'll get getting something there -- a floor from regular Social Security, that that plus whatever is required to get you up to poverty level needs to be committed, perhaps through an annuity to guarantee a minimal level of income during your retirement years. And then whatever is in your personal retirement account over and above that is required to achieve that standard is yours free and fair to do with as you wish at retirement. That's one idea that's kicking around as a way to guarantee that nobody falls below a certain standard, not able to take it all out and play it on the ponies or something at age 65 and have a great weekend. But that would be the end of it.
CHAIRMAN THOMAS: All right, all right. Thank you. Thank you. Thank you.
CHAIRMAN THOMAS: Thank you.
CHAIRMAN THOMAS: Thank you. Now, as you can see, someone wants to make a spectacle of themselves and they are successfully doing that. (Applause.) One of the things --
THE VICE PRESIDENT: Treat him with kindness. Treat him with kindness.
CHAIRMAN THOMAS: There you go.
CHAIRMAN THOMAS: Notice that they want to make sure they're impolite enough to be asked to leave.
CHAIRMAN THOMAS: In case you didn't hear some of his comment, he was commenting on other systems in other parts of the world who are beginning to look at this. And Great Britain and others have begun looking at it.
I've found that if you don't look at what other people are doing, you don't get a full appreciation of options that are available to you. Once again, if this were 1940, we wouldn't be here. It isn't 1940.
I know, Mr. Vice President, some disembodied voice said that was the last question. But given the kind of folk we are here, I was wondering where lucky number six was. I never got --
THE VICE PRESIDENT: We've got number five over here. We haven't heard from yet. Somebody yet.
CHAIRMAN THOMAS: Number five.
Q Mr. Vice President, I have a concern about the title of the special accounts. You said voluntary. It seems to me and looking at my granddaughter, who is 18 years old and doesn't care about saving at this point, she's not worried about Social Security, it seems to me like we have to concern ourselves with some sort of fee that will make it mandatory as it is now with regular payroll taxes that a certain amount goes set aside. So I would advise -- and this is mostly an advice thing, if you have any ideas, I'd like to know how to handle my granddaughter. Thank you. (Laughter.)
THE VICE PRESIDENT: All right. It's important not to misunderstand when we say voluntary, what we mean is that for that younger generation, they would have a choice. They can either stay with conventional Social Security, or they can opt to go with a personal retirement account. They can't take it out and spend it on a new Mustang, or go to the beach, or whatever else they might do with it. It's got to go to one of those two places. It's the payroll tax. They're required to pay it. It is, in a sense, a form of forced savings now. But this would give them an option for a different way to invest it. So it's voluntary up to a point.
CHAIRMAN THOMAS: And some of the other comments about what we're doing with this, I think, really don't stand the test when you examine the point the Vice President just made. If you prefer not to choose this approach this administration is suggesting, then you don't. It isn't forced on people. You have an opportunity to get a greater return on the Social Security investment.
Today's seniors and near-retirees do have enough money in the system, that's the black portion on that chart. We have enough money in the system for those folks. We're talking about all the young people who are going to be in the red, and do they want to participate in an investor-ownership structure. The choice is theirs. We will try to maintain the old system for those who want to stay with it. But the opportunities will be there for those who choose.
We got one more. Can we do one more.
THE VICE PRESIDENT: Got another one behind --
CHAIRMAN THOMAS: You're one that -- I'm staying. You're the one that's leaving. (Laughter.)
THE VICE PRESIDENT: Okay.
Q Pastor of a church of about 3,000, which group about 30 percent of them are less than 30 years old. And my question to you is, as a senior pastor, how do I advise these people to plan their future?
THE VICE PRESIDENT: Well, I think -- it's never out of fashion to emphasize the importance of hard work and providing for -- we got a responsibility to provide for our own, look after our families, care for our folks when they need help and for our children, so that the -- I think the important thing is to sort of bet on America, I guess, is the way I think about it -- both in terms of our educational system, the importance of people getting a first-rate education, telling young people go to school, get a degree, develop work habits as early as possible.
But also as you think about the future, and that's one of the reasons I'm attracted to personal retirement accounts is because, in effect, what we're saying is we want to tie your future after you retire to the overall health and function of the American economy. It has been one of the wonders of the modern age what we've been able to achieve as a nation over the last couple of hundred years and the tremendous opportunities that exist today for people that didn't exist even 50 or 60 or a hundred years ago.
And my family, like families, a lot of American families farmed for a long time. And we sold the old family farm in the late 1940s. Nobody has farmed since. Everybody is off doing other things now. We've been able to go make phenomenal achievements with respect to life span, to medical care, and to create whole new industries that nobody ever dreamed about 20 or 30 years ago. And I think the opportunities that are out there -- when I talk to young people is to make sure how enormously privileged they are to live in the United States, what great opportunities we do have, and that to a large extent, we are responsible for what we do to take advantage of that, be a part of it, to contribute to it, and also to make sure we pass it on in even better shape to our kids and grandkids.
CHAIRMAN THOMAS: And one of the interesting things for me about this whole debate is that Social Security worked. It did relieve the anxieties and stress of old age having some security as a senior. The current structure made sense for one particular kind of a society. We aren't that way any more. We're moving toward this kind of a society, an aging society.
And the point that the President has made and that I want to underscore as we end, anyone who is retired or near retirement, don't pay any attention to this discussion, unless you want to have an inter-generational discussion with your children and grandchildren. What we're talking about is having this society provide for our youngsters who are going into the workforce and are currently paying the taxes to receive benefits commensurate with what retirees are getting today. It's a different society, different structure. We're looking at ways to modify the very successful Social Security system to fit today's-moving-toward-tomorrow's society. The debate needs to go on now.
It wouldn't be going on without the President deciding that this was a subject that his administration along with the Vice President was going to bring to the society. You need to engage on an inter-generational discussion about what options seem reasonable for folk. But do not at any time think this Congress or this administration is going to damage in any way the commitment made to those who are already on Social Security, or are near retirement. This is an inter-generational discussion about tomorrow.
And I've always found that tomorrow comes very quickly, and that today is the time to talk about the society's needs for tomorrow. And I want to thank all of you for coming, especially I want to thank the Vice President and Mrs. Cheney for coming to Bakersfield. (Applause.) And I want to thank all of you for helping us out today, as well.
END 11:45 A.M. PST