Welcoming Remarks, Ed Crane, President, Cato Institute.

            The real issue in Social Security reform is ownership, not a financial crisis.  It will be up to Congress to decide what comes out of the process.

            Cato has been working for Social Security reform since 1978.

 

Keynote Address, Martin Feldstein, George F. Baker Professor of Economics, Harvard University.

            President Bush outlined an approach, not a detailed plan.  Many decisions remain to be made.

            We often hear there is no need for Social Security reform, because all we need to do is adjust taxes or benefits to close the gap.  However, the adjustments aren’t minor.

            For example, you could gradually raise the payroll taxes levied on American workers and their employers from 15.3% (Old Age & Survivor’s Insurance portion 10%) to 23% (OASI portion 16%). 

            Or cut benefits by 1/3.  This could be done if we started now, e.g., by indexing benefit accruals to the cost of living instead of wage levels.  If we wait until the Social Security Trust Funds are exhausted, however, then it would not be an option politically and tax increases would be the only answer.

            What about raising the tax max ceiling from $90,000 to $120,000?  This wouldn’t produce any taxable income.  Workers affected would negotiate higher fringes in lieu of wages to avoid higher tax rates.  Result would be to bulk up payroll taxes but shrink personal income taxes, pretty much a wash.

            In terms of the return to be expected on personal accounts, Feldstein’s benchmark is the real (after inflation) return over the last 50 years on a 60%equity/40% debt portfolio – 6.9%.  This creates an opportunity in a mixed system (which is what the President is proposing) for a substantially higher retirement income for participants than under current law.

            As for criticisms that have been offered to the President’s plan, here are some answers:

• Transition costs will create budget deficits.  True, but the deficits will not be of the malignant variety.  No overall reduction in national savings, no pressure for future tax increases.  Deficits to finance higher government spending are entirely different.

•Administrative costs.  This has been a problem elsewhere, e.g., Mexico, where participants were allowed to speculate in high cost/high risk plans with an assurance that they would get guaranteed benefits if their funds didn’t pan out.  U.S. system would be designed to avoid this problem.

•We need to preserve the current system because it is progressive.  Actually, the current system accomplishes very little in the way of income redistribution and there are plenty of ways for Congress to make personal accounts progressive.  Under the current system, the progressive aspects of the system are offset because higher income people start work later, live longer, and gain the most from the guaranteed benefits for nonworking spouses.  So we’re paying out $500 billion a year in Social Security benefits, yet 10% of our seniors are living in poverty.

 • Personal accounts are risky.  Remember that we’re talking a mixed plan, that funds would go into index funds rather than individual stocks, and that if the real return turned out to be 3.5% vs. the historical average of 6.9% participants would still do well.

 

The Social Security Crisis: Michael Tanner (Cato), Thomas Saving (Social Security Board of Trustees), Kent Smetters (Wharton School), Maya MacGuineas (New America Foundation)

            MICHAEL TANNER set the tone by pointing out that Social Security is the biggest single program of our government (or presumably any other).  Who cares whether we’re talking a “crisis” or “a big problem,” that’s just semantics.  There is a need to act, and we need to respond instead of letting the problem fester.

            But yes, there is a crisis – not in 2042, not in 2018, but with our next paychecks when taxes will be deducted for promises that cannot be kept and aren’t legally enforceable (as the U.S. Supreme Court has expressly held).

            The current Social Security system turns participants into supplicants.  This is not a system that we should be fighting to save; it is one that needs to be changed.  Ultimately, the issue boils down to this: “Do you control your own life or does someone else?”  President Bush’s plan is a good start, tempered by political reality, but we should go further in time as personal accounts catch on.

            THOMAS SAVING pointed out that there are a series of benchmarks as the Social Security system slides towards a crisis.  The first comes in 2008 (baby boomers start retiring), when excess revenues from Social Security taxes peak and start their inexorable decline.  In 2018 or thereabouts, the system runs a deficit.  In 2021, 5% of income tax revenues will be going for Social Security (as in 1983).  By 2026, 10% of income tax revenues will be going for Social Security (unprecedented).

            What about the Social Security Trust Fund?  That’s just an authorization to pay benefits if Congress can find the money to do so, not a store of value that can be drawn on.  By the way, the CBO concludes that the Fund will run dry in 2052 (vs. 2042 per the Social Security Trustee’s assumptions) by assuming a higher rate of return on money that we don’t have (the Fund).  So forget the Fund, because the transfer of general revenues to Social Security will swamp the budget long before 2042.

            What does reform buy us?  Generational equity, don’t leave the entire bill for future generations.  Larger capital stock for our economy.  Avoid some of the adverse economic effects of raising payroll taxes.

Q-What about Paul Krugman’s statements in the New York Times that there is no problem in 2019, because Social Security will still be earning interest income in the Trust Fund?  A- Mr. Krugman is not getting his information from us; he is selecting what he wants to report.  I offered to debate him on national radio, and he at first accepted and then chickened out.

            KENT SMETTERS praised President Bush for acknowledging that personal accounts are not enough.  He pointed out that Bush has not controlled discretionary spending thus far.  Now he will have to fix Social Security and Medicare to make up for it and get the country’s finances back under control.

            The AARP is waging an all out disinformation campaign.  They will be tough to beat.  All that Bush et al. have going for them is the facts.

            Do we want to solve the Social Security problem or do we want another fix like the one in 1983 that will break down in another 20 years?

            Today, 50% of U.S. households have no access to equity markets.  Personal accounts could be their entrée.  The “ownership society” label is not just a slogan.

            Q-What about administrative costs on personal accounts?  A – The Government’s Thrift Saving Plan currently operates with an annual fund management charge of 0.1% of principal.  Wall Street will not get rich with the President’s plan.

            MAYA McGUINEAS used to work for Cato, and she commented that being at this conference was like coming home.  She is grateful to Cato and Michael Tanner for getting Social Security reform on the national agenda.

            “I can’t tell you how many reporters have called up and asked ‘Is there a crisis?’  That’s just silly.”

            Most students of government say its goal is to create “a public good.”  Fine, but our government today hardly fits this description.

            There are strong incentives for politicians to focus on the political cycle, not the generational cycle.  By over-promising, they leave the government with very little flexibility to deal with unanticipated problems.

            Here is my idea of Social Security reform.

• What – choices need to be made, even though they are relatively unpleasant.

•When – pressure to make changes in the distant future, but we must not give in or generational equity will suffer.  Also, reform now can help to address the U.S. problem of an inadequate national saving rate.

•Where to put the money – My greatest fear is that we would make start building up (and spending through the back door) the Trust Fund, as was done in 1983.  Hard to see how this result can be avoided without making personal retirement accounts part of the solution.

 

How to Evaluate Plans for Reform: Stephen Goss (Chief Actuary, Social Security Administration), Douglas Holtz-Eakin (Congressional Budget Office), Andrew Biggs (Associate Commissioner, Social Security Administration), Robert Bixby (Concord Coalition).

            STEPHEN GOSS – The real issues are (a) what is the goal of reform, and (b) what are the risks (and our tolerance thereof).

            Estimates of the unfunded future liability of the current system are much higher if you look at an indefinite time horizon than if you concentrate on the next 75 years.  Which view is right?  Perhaps the best answer is that we need to look at the problem as it will unfold, that is year by year.  Goss presented a Trust Fund solvency graph that showed steadily increasing deficits after 2018.

            As for personal account yields, the flaw with the Feldstein analysis is that the returns on his assumed portfolio will be highly volatile.  If the present system is compared to risk-adjusted returns, the advantage of personal accounts will be seen as much smaller.

            We as actuaries don’t make decisions, we take the assumptions prescribed by the Social Security Trustees and run the numbers.

            DOUG HOLTZ-EAKIN – What do we mean by Social Security reform?  If you look at the problem as keeping the Trust Fund solvent it will be easer to fix (1-2 percentage point increase in payroll taxes) than if you focus on covering deficits on a year-by-year basis (3-4 percentage point increase in payroll taxes).

              Whatever the answer is, it doesn’t lie in “financial engineering.”  Returns should obviously be looked at on a risk-adjusted basis.  That’s how the market sets prices, so that stocks with a high yield and Treasury bonds with a lower yield sell at the same price today.

            Ultimately, the question is “How big a government do we want, and what should it look like?”  You guys at Cato should study the matter.

            ANDREW BIGGS – You have to explain Social Security reform, so keep the proposal simple and explain it in “plain English.”  The declining ratio of beneficiaries to workers, for example, is something that everyone can understand.

            The longer we wait for reform, the bigger the problem.  For skeptics, don’t shoot the messenger.  You need to learn to deal.

            If Social Security accruals were indexed to the cost of living instead of wages, the replacement of pre-retirement income would go down – currently about 42%.  So what, this ratio isn’t sacred – we’ve been higher but we’ve also been lower over the past 75 years.

            When should Social Security cost be paid?  We currently have “pay-as-you-go” or “paygo,” the alternatives are to pre-fund (Cato proposal) or have a mixed system (the President’s proposal).

            BOB BIXBY – What’s wrong with Social Security?  The system as it exists today is not sustainable.  What’s more, the problem cannot be fixed by tinkering because the Government’s has a lot of fiscal problems.  We  must also solve the Medicare problem, Medicaid problem, etc.

            The issue of when the Trust Fund runs dry is moot because the overall Government will go bankrupt a lot sooner.

            The first question about a reform proposal is whether it will close the funding gap.  We can’t keep raising taxes, so benefits must be cut.  The prime options: change the benefit formula, means test, and/or raise the retirement age.

            Are we doing something to raise the national savings rate?

            Are we contributing to intergenerational equity?  Not easy with paygo, that’s one of the attractions of personal accounts.

            The idea of a trust fund fix is irrelevant.  Congress could fix that problem by raising the interest rate on bonds in the Trust Fund, but that wouldn’t help the Social Security problem one iota in terms of the choices that need to be made.

            Personal accounts should be mandatory, not optional.  In the context of a mandatory program to protect people against the bad choices that they may have made, allowing for choice is unimportant.

           

Luncheon Address, Al  Hubbard, Assistant to the President for Economic Policy and Director, National Economic Council.          

            I started in this job a month ago, and so far I’ve learned three things.  (1) Location of the men’s room, (2)  its not “George,” it’s “Mr. President,” and (3) there is no money in the Social Security Trust Fund.

            You’ve got to give President Bush credit to stepping up to the plate on Social Security reform.  It’s not a new problem, Pete DuPont was talking about the need to do something when he entered the presidential primaries in 1988, but it’s still a long-term problem rather than one that simply has to be dealt with before the next election.

            There are a number of myths about the President’s proposal that I’d like to dispel.

There is no problem to fix.  In 2004, the average Social Security recipient got $14,200.  Imagine that this is being paid for by 16 workers, then by 3 workers, and then by 2 workers.  Makes a big difference in the burden on each active worker.

This is a risky proposal.  It’s a better deal for younger workers than the status quo.  We’re not talking about investing in individual stocks, etc.

There would be a windfall for Wall Street.  We’re talking about 30 basis points to administer the program, the majority of which would be spent by the Social Security Administration.

Personal accounts won’t fix the problems of Social Security.  That depends on how you define the problem, but we do acknowledge that personal accounts won’t fix things without some adjustment to Social Security benefits over time.

There will be a “claw back” for the Federal Government of benefits from personal accounts.  This absolutely, positively isn’t going to happen.  [Query:  Will benefits from personal accounts be subject to income tax, as Social Security benefits currently are?]

• Transition costs will be $3 trillion.  No, they will be $754 billion through 2015.

 

Women, Minorities and the Poor: Leanne Abdnor (Women for Social Security Choice), Jesse Brown (Krystal Investments), Robert de Posada (Latino Coalition).

            The presenters painted a picture of private accounts as curing many inequities in the present system.

            One issue is single mothers who raise their kids and then die before they retire.  All the Social Security taxes they ever paid are lost, a miserable return on their investment.  Granted that other women live to a ripe old age, or benefit because of a high earning husband, but the effects of the system seem arbitrary even though there is no intent to discriminate against women overall.

            For minorities, individual accounts could represent an opportunity to “make it” that disadvantaged people don’t presently have.  Remember that three-legged stool that the AARP is so fond of talking about, where Social Security is the safety net and a retiree also has a pension and private savings.  But what if all you have is Social Security, how can you expect to get a shot at investing in the stock market?  Also, what about people who aren’t married – if they die under the present system, what do they have to leave to their children?

 

The Tough Issues: Transition, Risk, Administration: William Shipman (Carriage Oaks), Jagadeesh Gokhale (Cato), David John (Heritage Foundation).

            DAVID JOHN - We can throw out all sorts of numbers, but remember that it gets down to people in the end.  Will personal accounts offer them better value?  Will they       understand that this is so?

            Is my daughter going to pay 100% of her payroll taxes over the years and get 70% of the associated benefits?

            In terms of the assets in personal accounts, we don’t want to give people a lot of choices that they don’t fully understand.  Most people don’t know how to rebalance their portfolio over time, but they do know their age.  So let’s give them a “life span account” where the account is automatically invested more heavily in bonds and less heavily in equities as the individual nears retirement.

            When all is said and done, no one can promise zero risk.  But the AARP line is a scare tactic.  The issue is not whether seniors will continue to get the Social Security benefits they have been promised, the issue is what we propose to do for their children and grandchildren.

            JAGADEESH GOKHALE – People in the know agree that there is a serious problem with Social Security.  The only issue is what to do about it.

            The “standard assumption” about funding the transition (it’s misleading to talk about transition costs, which sounds like a bad thing, so it would be better to call it transition investment) is that the early outlays will be borrowed.  All that’s involved is swapping explicit debt for implicit debt, borrowing the funds and putting them back into investments.  Such an arrangement does not divert private resources, it is essentially revenue neutral.  If the government cuts spending other expenditures as part of the package, the overall result will be positive.

            Now, let’s say nothing is done about the Social Security problem.  How will the financial markets react?  Quite possibly, investors will assume that the government’s inaction now spells sharply higher taxes down the road and demand higher interest rates.

WILLIAM SHIPMAN – Let’s say that you invested $1 in T-bills in 1926.  Today you would have $18.  Had you invested $1 in small cap stocks, on the other hand, you would have thousands of dollars today.  And there are plenty of blended rates in between these two extremes.

To offer the potential of equity returns to younger workers who opt for private accounts, we need to keep things simple.  As long as investments aren’t managed and there isn’t a lot of education involved for participants, the cost of the investment platform will be very cheap.  Higher earning workers who wanted to invest in managed funds might be allowed to do so if they could show that they wouldn’t be impoverished if their investments didn’t work out, for which privilege they would have to pay higher fees, but this would be on an exception basis.

Governments around the world have typically gone through three phases when their Social Security systems developed fiscal problems:

•Phase one – Raise taxes until the government hits a political wall)

•Phase two – Cut benefits (many euphemisms for this, but the effect is the same no matter what you call it).

•Private accounts.

            The Administration’s proposal to discount payroll taxes paid into a personal account at 3% for purposes of evaluating whether the realized return needs to be supplemented will create winners and losers because rates of returns to Social Security participants vary widely under current law.  Also, since the current system is not sustainable, it can hardly be considered as risk-free.

 

On the Hill: Proposals for Individual Accounts – Sen. Lindsey Graham (R-SC); Rep. Paul Ryan (R-WI); Rep. Sam Johnson (R-TX); Rep. Jim Kolbe (R-AZ); Sen. Jim DeMint (R-SC); Rep. Clay Shaw (R-FL).

            SEN GRAHAM – “I’m from the Federal government, and I’m here to help you.  If we can’t get bipartisan support, this is just an academic exercise, because the last time I checked there were a lot of Democrats in Congress.”

            There are a lot of different proposals, but everyone’s plan has the government still involved.  No one is proposing to do away with Social Security.

            We need to come up with the money.  Try spending more than you make at home, and you will go to jail.  Some people think we can do it here and call it “good government,” but they’re wrong.

            Every member of Congress is in the Government thrift plan.  What can’t 20-year-old workers have the same benefit?

            But we’ve got to stop borrowing money for every problem that comes to town.  I’d like to raise the cap for payroll taxes and income benefit accruals to the CPI for higher income workers.

            It’s time for demagoguery to give way to reality.

REP. KOLBE – Once Americans embrace the idea that the Social Security problem has to be fixed, we can debate the details.  I am sponsoring a bill with Rep. Alan Boyd (Dem.-FL) To get it passed, we would need “a significant handful of people from the other side.”

            Personal accounts wouldn’t really fix the Social Security fiscal problem, so why do we need them?  I see them as link to the next generation, representing something that we can offer them.

            Under Kolbe’s bill, an enhanced defined benefit would be offered for lower income workers.  The amount of payroll taxes diverted into personal accounts would be about 2% on average.  The COLA adjustment for retirement benefits would be adjusted down by about 2/10 of a percentage point (Alan Greenspan proposal).  The retirement age increase to 67 would be accelerated to 2012.  The payroll tax cap would be raised to 90% of all wages, i.e., currently about $150K vs. the $90K cap in effect.

            REP. JOHNSON – You saw the State of the Union address and heard what the President said.  My bill is the Cato plan (“6.2 Percent Solution).  If all of you get behind it, my bill will pass.  Otherwise, forget it.

            Do we need Social Security reform?  You bet – yesterday, not in 2042. 

            Workers who opted for private accounts would share their payroll taxes 50/50 with the government (actually with other participants, people on disability, etc.), banking the payroll taxes they pay and giving up all claim to the payroll taxes paid by their employers.  Sounds fair to me, “let’s share.”

            REP. RYAN – Mr. Ryan and John Sununu are backing a bill based on Peter Ferrara’s “progressive proposal” (supported by the Alliance for Retirement Prosperity).  Under this proposal, workers opting for personal accounts could invest 10 percentage points of their payroll taxes up to a certain level, and 5 percentage points after that, blended average of 6.4 percentage points for all participants.

            To finance the transition outlays: (1) Stop using Social Security tax revenues for other purposes – cold turkey.  (2) Cap growth in other government spending programs at 3.6% vs. 4.6% currently, which would still be faster than under Clinton. (3) Anticipate and take credit for a surge in corporate tax revenues from additional investment funneled in from personal accounts.  (4) Borrow the rest, estimated to be less than $1 trillion over a period of years.  And after 2024, we can look forward to steadily growing surpluses.

            In 15 years, workers will have over $10 trillion in personal accounts.  What a great way to make everyone a capitalist!

            Sounds great, so do some of the other bills, but the truth is that none of them will be enacted as is.  Here’s the real question: Are we going to meet this moment in time or will we go down the tinkering path and make a botch of things?

            Q. Have you talked to any Democrats in “red states”?  A. Yes, and they say “our leadership will break our backs if we support your bill.”  I don’t think it’s going to be possible to negotiate with Democrats on an individual basis.

            Q.  What do you think of the USA Today poll that Americans want to solve the Social Security problem by taking the money from the rich?  A.  We don’t have enough rich people.

            SEN DeMINT – Cato reminds me of the dog that has been chasing the car for years and has finally caught it.  Now what do we have to do? Simple.  “We’ve got to sell this product, and someone has to buy it.  What’s more, the target audience – on average – is not a bunch of conservative Republicans.

            President Bush has been good at saying that we’ve got an opportunity as well as a problem.  But let’s forget about paying for the transition out of surplus, as we might have been able to do four years ago, because it’s not going to happen.

            REP. SHAW – How did they get personal accounts in Chile?  A Chilean govt. official once told me once that it helped to have a dictator in place.  As Chairman of the Social Security Sub-Committee, I’m beginning to understand what he meant.

            Shaw’s bill is an add-on plan, which would stick to existing benefits but add something to them.  [Sounds like an idea the AARP floated a few years ago as a ploy to co-opt the personal account issue.]

            To sell personal accounts we need to reach out to college students, but frankly it’s hard to get them in the room.

 

Second Keynote Address, Edward Prescott, Professor of Economics, Arizona State University and Winner of 2004 Nobel Prize in Economics.

            Mr. Prescott describes the current Social Security as follows.  It provides a decent level of income for consumption in retirement, has huge deadweight costs, and is not sustainable.

            Can the results be improved with personal accounts?  No, if the labor supply is inelastic, but as it happens this is not so..  People who think otherwise may be confusing labor supply elasticity at the personal level (microeconomic theory) with aggregate labor supply (macroeconomic theory).  While individual work schedules will vary modestly with incentives, the number of employees will vary a lot.

            Ask yourself these questions: Why do Americans work 50% more than Europeans on average?  Why did Europeans used to work 50% more on average than they do now?

The answer, according to Mr. Prescott, is that many Europeans opted out of the labor market when tax rates went up.  If we raise our tax rates, the same sort of thing can be expected here.

            As for transition costs for personal costs, there is no such thing.  Recognizing and funding debt that already implicitly exists is not a “cost.”

            So yes, everyone would be better off with a rebuilt Social Security system.  The sooner we switch, the better.  There is no reason to continue building up Social Security debt and throwing away (based on a model that Mr. Prescott has run) a potential gain of 15% in overall production/consumption.

 

Luncheon Address, Rick Santorum (R., PA).

            Reforming Social Security must be a bi-partisan effort; we won’t be able to get a bill through the Senate otherwise.  What’s more, our intent is to start in the Senate rather than the House.  Quite frankly, many Republican representatives are leery about risking their seats on a Social Security bill only to find out that it has died on the Senate floor and their sacrifice was in vain.

            President Bush has been doing yeoman work in moving the ball forward. 

•He’s been talking about the problem that confronts us, when he could have ducked it. 

•  He’s offering something new, which is hope (what personal accounts are all about).  •He’s been “using the bully pulpit” that a President has to talk about his ideas for reform at every opportunity.

            Words are important.  We need to avoid the “privatization” label, for example, which implies that the proposal is to take things and give them to Wall Street.

            If the President can convince seniors and near seniors (people over 55) that they won’t be impacted by his proposal, then we can win.

            Democrats believe that “we have stepped in it.”  This is the party that hasn’t had a new idea since the 1960s.  They don’t get it that the world has changed and their ideas haven’t.

            If we pass a bill, I think we win.  Public support will grow as we make progress and shape the battlefield.

            The Democratic leadership has made this a purely political issue, and if they win the battle no one will give them much credit for it in the next election.

            As often happens, everyone is underestimating President Bush.  The political dynamics of the situation are just beginning to take shape.

            You probably noticed that Sen. Joe Lieberman was the only Democrat who stood up and clapped while the President was talking about Social Security reform in his State of the Union address.  But there are some Democrats from “red states” who don’t want to be lemmings and march into the sea.  Stay tuned!

            Did you hear the comments by Representative Bill Thomas, Chairman of the House Ways and Means Committee?  He’s half right, in that sometimes you need to enlarge a problem to solve it.  However, it would be a mistake to mix up Social Security reform with tax reform.

            The simpler something is, the harder it can be to do.  To win, we may need to create more options for the quarterback.

 

The Politics of Social Security: John Zogby (Zogby International); Richard Thau (Presentation Testing); Scott Rasmussen (Rasmussen Reports); Michael Barone (U.S. News and World Report).

            JOHN ZOGBY summarized a recent poll that his firm recently conducted for Cato on Social Security reform, the 7th or 8th poll they have conducted on the issue.

            Their overall result: 51% in favor in personal accounts, 38% against them.  (Support levels have been higher in previous polls, albeit with differently worded questions)

            The younger the workers, the more likely they are to support personal accounts.  Most seniors are against them.

            Democrats oppose personal accounts 2/1; this ratio is roughly reversed for Republicans.

            The gut reason for support personal accounts, in Mr. Zogby’s opinion, is “It’s my money.”  He believes that the Democrats would be smarter to try to co-opt the issue instead of blindly opposing any changes.

            Whether or not they understand what was involved, 61% of respondents said they would favor COL indexing vs. wage indexing for Social Security benefit accruals.

            RICHARD THAU’s firm conducts “multi-attribute” polls.  There are three steps: (1) Describe a number of characteristics of an ideal version of a product, and get respondent to rate each of them on a 0 (irrelevant) to 10 (critically important) scale. (2) Have the respondent rate the current model (0-10 scale) on each of these characteristics.  (3) Describe a proposed model, and have the respondent rate it on each of these characteristics.

            This procedure works for cars, it works for dishwashers, and according to Mr. Thau it works for personal accounts.

            In the ideal Social Security system, according to respondents, providing basic retirement income has an importance of 7.7, having control over retirement savings rates 8.7, protecting the program from Washington politicians rates 9.6, and fixing the system so it won’t have to be fixed again rates 8.9.

            Respondents give the current system 6.6 for the first of these characteristics, but otherwise give it a low rating.  They also have qualms about the reform proposal.  But after being shown a 28-minute video about Social Security reform, they tended to rate the current system lower and the reform proposal higher. 

            Conclusion: You can change opinions by giving people information that supports your proposal.

SCOTT RASMUSSEN says President Reagan didn’t have a prayer of fundamentally changing Social Security.  Most retirees and many other people had personal memories of FDR.  Today, very few people remember FDR except as someone they have read about in books, etc.

Political spinmeisters will do their best, but attitudes toward Social Security come from popular culture, which is very hard to change.

In his day, to sell Social Security, FDR talked about contributions, trust funds, and how “not a penny will come from government.”  He wanted to impress on people that they would have a legal, moral and political right to get Social Security.  Today, people remember the lessons and say “You’re right.”

These attitudes will not change in the next year.  Also, the audience that is listening is the audience that you have to talk to.

Reform supporters will be unable to get the under 40s involved, because they have written off Social Security.  They will have to work on the seniors who are paying attention, concentrating on the message that “none of you will be affected.”  If they can make that point, senior support for reform jumps to about 50% and there will be less diehard resistance to change.

At a certain point in the process, the dynamics could shift.  Seniors would see that no one had cut their benefits and tune out.  Meanwhile, workers with decisions to make – do I want a personal account, etc. – would tune in.

MICHAEL BARONE – The previous speakers have pretty well exhausted what I have to say.  Maybe we should pass a law forcing everyone to watch that video.

Polls are fine, but also politicians need to run on issues and win.

The Democrats have one big disadvantage – they don’t have anyone real popular to wheel out in support of their position.  Ted Kennedy?  Their staunchest allies are the “old media,” who pulled out all the stops in 2004 and wound up embarrassing themselves.  Dan Rather lost his job, President Bush kept his.

If the country thinks there is a Social Security problem and the proposed solution is reasonable, it will be hard for the Democrats to hold the line by a filibuster in the Senate.  Therefore, their best bet would be to take a page out of John Kerry’s playbook and support an “add on” plan – to be for and against personal accounts at the same time.

Q.    How important (politically) is the possibility of borrowing to fund the transition?

•Barone – Deficits don’t matter, being against them is bad politics.

•Zogby – Deficits show up in top 6 or 7 issues for voters.

•Rasmussen – Voters like balanced budgets, they just care more about other things.

•Zogby – Back when there were surpluses (2001), we polled voters as to how it should be used.  The no. 1 answer was pay off debt, increase spending was second, and cut taxes was a distant third.