Sununu Defends Bush Social Security Plan
WASHINGTON, Feb. 2 -Sen. John Sununu (R-N.H.) on Thursday defended President Bush’s plan to revamp Social Security by creating personal retirement accounts.
Sununu spoke during a panel discussion held at the National Press Club. The panel, which also included Paul Krugman, the New York Times economic columnist; Sen. Jon Corzine (D-N.J.); and Stephen Moore, a senior fellow at the Cato Institute, met to debate the president’s proposals put forth in Wednesday’s State of the Union address.
“There’s already an enormous debt burden out there, and it comes in the shortfall of Social Security today,” Sununu said. The Social Security Administration estimates the program’s shortfall to be approximately $10 trillion, he added.
“That’s the liability, the shortfall that faces our children and grandchildren today, and that’s the whole reason we should be having this discussion,” he said.
“The problem is inherent in the way the system is designed,” Sununu said, adding that Social Security’s founders did not foresee the shift in demographics over the past 75 years, including increased life expectancy.
Last session, Sununu, along with Rep. Paul Ryan (R-Wis.), introduced a bill that would have changed the current system, in which workers pay taxes to support current retirees, to one that allows workers in enhance their Social Security benefits by investing a portion of their payroll taxes in personal retirement accounts. This plan, Sununu argued, would provide a rate of return of 6 percent to 8 percent.
Krugman disagreed with Sununu’s prediction of generous rates of return. “The same things that drive those concerns about Social Security also drive the lower growth rate,” Krugman said. “Which makes it quite hard to understand, even if that was the story, how stocks are to earn the same rate of return they did over the past 75 years.”
He also argued that the projected rates of return are unrealistic given the higher costs of stocks and bonds, which resulted from increased investment in the stock market since the 1970s.
“Stock ownership has broadened,” he said. “As a result, stocks are more expensive then they used to be.” Because investors now pay more to buy shares, rates of return in the future will be “substantially lower,” he said.
Much of the panel’s debate centered on how to secure against stock market losses.
“Under the Sununu-Ryan plan, under the president’s plan, under almost every one of these investment plans that I’ve seen there is a guaranteed minimum benefit,” Moore said. “So the idea that senior citizens are going to be thrown out on the street and that grandma is going to have to eat cat food and so on, it just isn’t true.”
But Corzine said that “there is a sharp difference [between] what those minimums are to be and what Social Security benefits are today, and one can argue about whether that minimum benefit is actually realistic. Better hope that personal accounts make up that difference or we’re going to end up with sharply rising poverty levels among our seniors.”
Sununu acknowledged that he and the president differ in some ways on personal retirement accounts.
Under the president’s proposal workers would be allowed to divert up to 4 percent of their pay into their personal accounts up to a $1,000 maximum per year, with a $100 increase in that ceiling every year, according to the Associated Press.
“One modest suggestion I would have for the president is to allow a bump, an early bump, of say 10 percent of the first $10,000 you earn and then 4 percent after that, so those earning say $20,000 a year can really take advantage of this approach,” Sununu said. “I think it would make it especially fair to the low- and middle-income purchasers.”
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