Dear Governor Bush:
We do not understand how you are going to keep your promise not to cut Social Security benefits for those at or near retirement while diverting substantial payroll tax revenues into private accounts. You recently released a budget showing your proposed allocation of general revenues. You did not include any general revenues to replace the money that is drained by your individual account proposal. Is Social Security too small a detail to include in your detailed budget?
The arithmetic is simple. If you allow workers to establish individual accounts with 2 percent of payroll, that will drain nearly one-sixth of the revenue that currently goes to Social Security—revenue that is needed to pay for benefits today and to build up a trust fund to pay benefits for the retiring baby boom generation.
Over the next decade, these individual accounts will cost the trust fund, at least, $1 trillion. The question is, where will that $1 trillion come from? And where does it appear in the budget plan you released this week?
There are only four possible answers:
—First, you could cut Social Security benefits for today’s retirees;
—Second, you could take it from the on-budget surplus. But your surplus spending plan does not show a penny for this transfer—let alone a trillion dollars;
—Third, you could take it from the Social Security trust fund, although that would speed the insolvency of Social Security;
—Fourth, you could bring back the days of deficits and debt, by borrowing the $1 trillion.
So, Governor Bush, which one will it be? Or will it be some combination of these options? And when will you tell the American people where you stand?
At times, you have suggested that you would make transfers out of general revenues to ensure that the Social Security trust fund was not depleted. Most of the Congressional plans that you frequently cite as models for your proposal include general revenue transfers. The Wall Street Journal reported that you would make general revenue transfers (see attached). But your latest budget proposal spends the entire non-Social Security, non-Medicare surplus without allocating any money for Social Security—not a penny. So, have you changed your mind—or are you just trying to hide this $1 trillion transfer?
One of your advisors, Martin Feldstein, has suggested a combination of transfers and almost $3 trillion in borrowing. Do you support that approach?
We believe that the question is simple and direct: Where will the $1 trillion come from to protect Social Security benefits, when you take that sum needed to pay benefits, and shift it to private accounts? We think that you need to answer that question as soon as possible.
Director, Center for Retirement Research and Peter F. Drucker Professor of Management Sciences - Boston College
Deputy Director of the Office of Surveillance and Epidemiology - U.S. Food and Drug Administration
This is a matter of utmost importance to all Americans—both currently retired seniors who count on their monthly Social Security checks and younger Americans planning for their future. If you are making a proposal of this magnitude, you owe it to the American people to explain how you will pay for your proposal and how it will impact Americans.
Co-Author, Countdown to Reform
Social Security Commissioner, 1962-73
Peter F. Drucker Professor at Boston College School of Management
Bob Ball. Social Security Commission from 1962 to 1973, under Presidents Kennedy, Johnson, and Nixon. Author of “Worked at Social Security from 1939 to 1973.” Member of the Greenspan Commission that reformed Social Security in 1982. Founding Chairman of the National Academy of Social Science. Member of the Social Security Advisory Council, 1994-96.
Alicia Munnell. Peter F. Drucker Professor at Boston College School of Management. Author of The Economics of Private Pensions, Pensions for Public Employees and The Future of Social Security. Former Assistant Secretary of the Treasury, 1993-95 and member of the President’s Council of Economic Advisers, 1995-1997.