The University Record, April 16, 1996
News and Information Services
Three major players in the national debate over how to save Social Security for Generation X clashed politely but fervently at a U-M conference on Social Security Reform held here April 4.
Speaking from a podium in the Business School's Hale Auditorium, the debaters, all of whom serve on President Clinton's Advisory Council on Social Security, presented three variations on a fundamentally radical plan to invest some portion of the trust fund in the stock market.
The council's report, due out in May, is likely to include all three proposed plans unless the 13 members can come to a consensus.
The council is chaired by Edward M. Gramlich, dean and professor of public policy, School of Public Policy, and professor of economics. The two other debaters and advisory council members are Thomas W. Jones, president and CEO of TIAA-CREF, and Sylvester J. Schieber, vice president and director of the Wyatt Company.
Despite their differences, all three shared one conviction: The Social Security trust fund, now invested in long-term Treasury bonds that pay a safe but unimpressive 2.3 percent a year in interest, will begin to pay out more money than it takes in by 2030 if changes in how Social Security is funded are not made.
The organizer of the conference, Michigan Journalism Fellow Randolph B. Smith, noted that saving Social Security is imperative for several reasons: real wages are growing slowly at about 1 percent a year, the baby boomers are aging and living longer than prior generations, and disability expenses are rising.
"Also, Social Security makes up 80 percent of the income of the poorest 20 percent of the nation aged 65 and older," Smith emphasized.
Panel commentator Joel B. Slemrod, professor of economics and professor of business economics and public policy, reminded the audience that we should "look at the nation as an inter-generational, extended family" and fix Social Security in a way that would be acceptable to all members of a "reasonable family."
Jones, of TIAA-CREF, presented the most conservative position, arguing that about 40 percent of the Social Security trust fund should be invested very gradually in a stock portfolio overseen by leading equity managers, or in major index funds such as the Standard and Poor's 500 Index Fund, which regularly outperform most other mutual funds.
Schieber, of Wyatt Company, took the most radical approach, urging that Social Security be privatized as much as possible by setting up a Personal Security Account (PSA) for each individual employee.
Under Schieber's plan, 5 percent of the 12.4 percent payroll tax would be earmarked for the PSA and the employee could designate how it should be invested, as if it were an IRA (Individual Retirement Account) or a 401(k) account. At retirement, the employee could receive the account in either a lump sum or an annuity.
Another 5 percent tax would be allocated to a guaranteed flat minimum benefit for each employee upon retirement, and the remaining 2.4 percent, now allocated to survivors and disability insurance, would be untouched.
Gramlich presented a compromise position, which, he pointed out wryly, is currently supported by only two members of the advisory council.
Gramlich proposed that Social Security benefits be scaled back somewhat and that an additional payroll contribution of 1.6 percent be added to the existing Social Security tax.
"The additional contribution, however, would go into an individual employee's account, which each employee could invest in a variety of index funds," he said.
The new contribution shouldn't be called a tax, Gramlich emphasizes. "It is a mandatory contribution to a mandated savings plan," for each employee.
His plan would preserve the essential protections of the current Social Security system, Gramlich argued, and also in crease the nation's aggregate savings, which would enhance the economy.
Gramlich noted that he had concerns about Jones' plan because, while it "preserves the system's protections, it creates no new wealth." Shieber's proposal worried him because individual employees managing their own personal savings accounts could "lose their shirts" if their PSA investments turned sour.
Journalists Miles Benson of Newhouse News Service, Christopher George of the Wall Street Journal, Robert Rosenblatt of the Los Angeles Times and Eric Schurenberg of Money magazine also participated in the conference.
Moderator Charles R. Eisendrath, director of the Michigan Journalism Fellows, lamented that on the campaign trail, when it came to fixing Social Security, "the candidates' silence was deafening, for the most part." The journalists, however, were given great credit for covering the issue thoroughly and fairly.