Mr. Steve Forbes
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Thank you very much, Governor, for those very gracious remarks. Thank you, Dr. Goodman, thank you, Dr. Matthews, Congressman. You did win with the kind of majorities, Congressman Sanford, that you usually associate with the old Soviet Union, so it does show that you can win those kind of majorities when you have the right kind of issues.
It is good, fun to be here today primarily because this issue is not the third rail of American politics. As a matter of fact, it's one of the most exciting issues we can take up today. If we make the right kind of changes, right kind of reforms we not only can provide something and enable young people to have something in the next century, we can have also an infinitely stronger country as well. We can preserve the contract, strengthen the contract, and be a model for the rest of the world.
Today, as you all know, Social Security is bankrupt, bankrupt both morally and financially. It is a Ponzi scheme where the government hopes that it is able to take more money from those who are in the work force to pay off those who are not in the work force, and be able to do it after the next election. And it has been that way, that pattern, unfortunately for far, far too many years.
The fact of the matter is despite the language that only Washington could get away with, there is no real trust fund. When the money comes in it is immediately sent out to the current beneficiaries. Any money that's left over, and there are funds left over because of the demographic bulge from the baby boomers of my generation, the money is immediately spent on other government programs. It is not saved or put away in the way we think of with a real trust fund. Only Washington could play these kind of games and here is what they are doing today.
They count those Social Security surpluses as revenue, even though on paper they are borrowing the money from the trust fund. Now think of that for a moment. Imagine if you're in a private business and you take out a bank loan and count that as revenue. With the SEC, with accounting rules, you would soon go to jail for fraud. As a matter of fact, if you think about it today with the budget process, even if the way they keep their books in Washington they balance the budget, the national debt would still go up upwards of $100 billion a year. So even if they balance the budget that they're talking about, in the real world it is still highly unbalanced because of the financial shenanigans that they're playing.
So the system is broke financially and that became apparent almost 25 years ago. In the late 1970s the system clearly was running out of money, so they put in a series of fixes that we are told would solve the problem for 75 years. Well, in the early 1980s the system started to run out of money again, so they put in a series of new changes, again saying this will save the system for 75 years. Now here we are in the late 1990s and once again we're told, "Gee, if we make a change on the CPI, if we do a jiggle on the retirement age and a cut here, and a tax rise there, why we'll solve the problem for the next 75 years." The fact of the matter is the system is inherently unstable. It will go from increasingly more serious financial crisis, one crisis right after the other.
So, the treadmill that we're on today is very simple. It is raising taxes and reducing benefits. And unfortunately in this town when they talk about a bipartisan commission, that is Washington-ese for bomb shelter. How do you raise those taxes, cut those benefits and live to tell about it after the next election? It is not real reform.
And so, if we go in for the quick fixes again, if we fall for the rhetoric that if we make a few changes the system can go on forever, we're going to have a horrendous crisis in the next century. We'll only repeat the dismal pattern that we've seen for the last 25 years. As a matter of fact, as you well know, the chart here shows it, Mark knows it, everyone here knows it, if you don't make some substantive changes, real changes, real reform in the contract, the fact of the matter is they are going to have to have either a massive increase in payroll taxes in the next century, or massive cuts in benefits. If you don't raise the taxes, under current projections a typical retiree retiring in the next century will have to suffer a cut of 20 to 30 percent in their promised benefits. Somebody going into the system today will get far less out of the system than the actual dollars they put into the system. It has become, truly, a black hole.
So it is broke financially. It is broke financially. It is also bankrupt morally. As I mentioned, it is misleading and fraudulent to tell people there is a real trust fund. And it is also morally bankrupt in that it has made promises that it cannot hope to keep to younger people. Those promises are absolutely not worth the paper they're written on.
So the real question is, how then do we preserve the contract in the next century? How do we get off this deadly treadmill of ever rising taxes and ever reducing the benefits? Because the fact of the matter is we don't live in what economists call a static society. If you raise payroll taxes you will hurt the economy, you will hurt job creation, and you will have a deadly circle of ever rising taxes, lesser economic performance, lower salaries, lower standard of living. So how then, do we get off of this deadly treadmill? The answer is very simple.
It is time to phase in as quickly as possible a whole new system. America today can afford to keep the current Social Security system for those who are on it. Don't try to cut their benefits, don't try to change their formulas. You can argue whether the promises should have been made, but the promise was made, the promise should be kept. Also, people who are going to go on the system in the next few years, particularly people in their 50s, we have to make it clear, they will have the current system. They have made real life decisions based on those promises, and so those promises should not be broken. People in their 50s should be able to go on the old system. That way we can concentrate not on trying to take something away that was promised, but concentrate on what is the real reform. What is the real reform that we can do not only to save the system but to strengthen the system? And that is, it's very simple.
Younger people should be able to have that money, the bulk of that payroll tax go to their own individual savings or retirement account. Take it out of the hands of Washington, take it out of the hands of the political culture.
How much of the payroll tax? Right now, as you know, the payroll tax for Social Security is roughly 12.4 percent, half from the employer, half from the employee. Nine or 10 percent of that 12.4 should go into your own individual retirement account. The rest will go to help pay off the current obligations to those who are on the system and those who are going to go on the system.
This way, within bounds, you would be in charge of those investments. You couldn't buy race horses, you couldn't speculate in swamp land in Asia or Central America, or some place like that. It would be, probably, a choice of mutual funds, bank CDs and the like. Not a wild range but a genuine range, the kind of choices you would want to have for your retirement plan.
You would get monthly statements, or quarterly statements. You couldn't touch the money until a certain age, say 59 or 60, but the account would belong to you, your property.
It would be good for everyone if we did this kind of new system. Younger people would get far more in their retirement than they can possibly get under the current system we have today. Many of you have seen projections that if you assume historic investment returns that we've had for 70 years, a person in their 20s today making $20,000-$25,000 a year, $15,000-$20,000 a year, if those monies were deposited into their own retirement account, by the time they reached 65, 70, they would be virtually close to being millionaires. So they will have far more in their retirement than the current system can possibly provide today.
America would also be stronger. The surpluses we see today would not go to subsidizing the national debt, for the financial games they play here in Washington, so America would be stronger. Younger people would have more, our country would be stronger, and this is the wonderful thing. Younger people could make their own choice on when they wish to retire in the next century. The government wouldn't tell you when you have to take those benefits or when you couldn't take those benefits.
If you wanted to retire at age 60, you could make provisions to do so. If you wanted to work till you're 85, you could do so. If you wanted to save the money and pass it on, you could, to your children or your grandchildren, or your favorite cause, or your favorite pet, whatever you wanted to do. It's your choice. Your capital, your money, your choice.
Also, too, there would be provisions to provide life insurance. Part of the money that would go into your IRA would pay for life insurance, also disability insurance, so if a spouse dies at a fairly young age his or her family is not going to be left in the lurch and it will be a far stronger kind of backdrop, backing up, kind of safety net than we have with the current system today.
So also, in addition to these obvious virtues, you'll have more in your retirement, you'll have a stronger country, you'll be able to make fundamental choices, also too people will learn more at a younger age about what makes America work financially and politically. When you realize that those tax dollars that are deducted from your check each week, or each month, or every two weeks is your money, you're going to have less and less tolerance, at a far younger age, less and less tolerance at a far younger age for the kind of financial shenanigans they play here in Washington. Younger people will ask questions that they never would have thought of asking before, so it will be good in terms of learning more about the economy, about the financial system. People will learn more and they will get better public policy as a result.
Also too, this kind of change would play into the dynamics of this new era that we're entering into, that is changing the way we live and the way we work. As you know, this new era is symbolized by the microchip, which is extending the reach of the human brain the way machines extended the reach of human muscle during the industrial era. Just as, for example you learned to drive a tractor, you can do more physical labor in a day than 100 Herculean plowmen could have done in a month, in days of old, so too in this new era all of us are going to be brighter, smarter, and have more opportunities and see more of the world than we could have possibly dreamt of in the past. Just look at one of the early fruits of this new era.
Take something like the calculator. Think about it. Even if you were a dunce in math or arithmetic in school, but the calculator today, which almost is cheaper than the packaging itself, easy to learn to use, you can do in a matter of seconds or minutes the kind of mathematical computations it would have taken math whizzes hours or days to do just 40 or 50 years ago. And we think it's the most natural thing in the world.
The dynamic of this new age is the opposite of the machine age. The machine age meant bigness, big companies, big cities, big unions, big government. The dynamic of this new era is almost Jeffersonian in its concept, Jeffersonian, back to "We the People" from "They the center," anti-hierarchical, anti-authoritarian, more pro-individual, more choices, more control over your own lives. That's the American way.
The reason that this kind of reform is going to be opposed is primarily because the political center does not want to give up the power. That's why they oppose tax simplification, it's a loss of power. That's why they're going to oppose this kind of change, it's a loss of power.
Let me just quickly hit some of the objections that people have to this kind of change. First, in essence what they say is most of the American people are too dumb to be in charge of their own money, they can't be trusted with their own money. Of course they forget, these critics, that America is a democracy. We can choose our own leaders, choose our spouse, choose where we live, choose our own careers, but somehow we're not to be trusted with our retirement money. That's absolute hogwash.
Here in Washington itself there are what, two-and-a-half million employees of the federal government. Those two-and-a-half million people make their own choices on a whole array of health care plans. They make their choices on where their thrift money goes that gets deducted from their paychecks, and that cuts across a whole broad array of Americans who work for the federal government, so people can make choices. They don't have to be an expert in certain stocks. They can pick a mutual fund or bank CD that they think meets their own needs, make their own risks. They can make those choices.
We have 40 million Americans today who own mutual funds, tens of millions of more who have their own bank accounts. So the American people can handle their own money better than the politicians can. So you can choose your own funds.
Then they say, well, it's too risky with this kind of system. The real risk my friends, the real risk is staying with the old system, which will give you less and destroy and hurt the American economy, hurt peoples' opportunity to do better as we go into the next century and the next millennium.
Even if you just put your money in bank CDs, you will be infinitely better off in the next century than you will with the current system. Even if we have a stock market that we had here in America from the mid-'60s to the early-'80s, which went nowhere, you would still be better off than what the current system is going to give you in the next century.
So then, they also say people have unequal benefits when they retire. With Social Security you have unequal benefits when you retire. It depends on your salary, the age in which you retire, it depends on the rate of inflation, so that inequality is there already. As a matter of fact, people with lower incomes can end up having far more money, a far better retirement than they can with the current system. They will be the biggest beneficiaries.
Then the critics say, "Well Wall Street might get rich if we have this kind of system," which is like saying we should ban stocks because brokers might make money. We shouldn't allow banks because bankers might make money. Again, what they really fear is a loss of power.
And finally, they say here in Washington, with its zero sum mentality, "We can't afford the transition." Only in Washington would they really believe that, because they play games here. As you know, the national debt is officially what, $5.3 trillion. Do you realize the unfunded liabilities of Social Security are about twice that, eight to $11 trillion?
Even in Washington where they pretend that that obligation is not there, that debt, that liability, that obligation is there even if they pretend that it is not there. So there is that $10 trillion liability. And if we do the transition right over a 20 to 25 year period, it will cost infinitely less than $10 trillion. And a matter of fact, if it's done right it'll cost virtually nothing at all.
Now how else can we help finance the transition? You can do it with the surpluses partially from my generation, through the year 2012. We can convert the past surpluses, which are over half a trillion dollars, turn those from worthless IOUs, into bonds over the next 10 to 15 years. More growth helps too. If we make this kind of change we'll get the very kind of change in the economy that helps pay for it, more economic growth, not to mention the kind of growth we'd get with some tax fairness and simplification.
So, if you do it, there are various ways to do the transition, and I want to emphasize it'll cost infinitely less than the $10 trillion obligation that we have today. So it is affordable to do it, and there are various good, sound ways to do it. So it can be done. It can be done. And a key thing to keep in mind is don't let the old system contaminate the new system. The quicker we can make the transition, the faster we can do it, the more the benefits will become apparent and it'll end up costing less, and less, and less to do it. In fact, as I said, it shouldn't cost anything at all.
Unfortunately, with Washington's zero sum mentality, the idea that we live in a static society, too many reform proposals keep too much of the old system. But remember, we are a rich country. We have over $50 trillion of assets. We should look upon our Social Security obligations to those that are on the system, and those that are about to go on the system, the way we would, costs, with things we've had to do in the past, like fighting wars. We take on the debt because of these emergencies. We can take on the debt to fulfill this obligation as we make the transition. And then, we can amortize those bonds when we have the new system. It is doable. The key is do we have the will to do it.
I'm an optimist. I think we will make those kind of changes. I think we can make the kind of change that will be in spirit with the Jeffersonian era that lies before us. It will not only help people who are on the system by letting them rest at night that they know their benefits are not going to be tampered with, but we'll have a >
The thing I want to emphasize in closing is too often when we talk about Social Security or Medicare they have a zero sum mentality, that if somebody gains, somebody has to lose. As I've outlined today, everyone can win if we take the dynamism of a free people where everyone has a chance to move together, that's been our whole history, we can make this change in a way where America wins, the American people win, and ultimately the world will win as well. Thank you very much.
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