New York Times
January 14, 2005
Overhauling Retirement Is Worth Risk, Cheney Says
By ELISABETH BUMILLER
WASHINGTON, Jan. 13 - Vice President Dick Cheney struck back on Thursday at critics of the administration's plan to overhaul Social Security, saying the cost of doing nothing was greater than the price of transforming the 70-year-old centerpiece of Franklin D. Roosevelt's New Deal.
In a speech at Catholic University, Mr. Cheney said critics of the plan to allow workers to divert part of their Social Security payroll taxes into personal investment accounts were wrong when they called it too risky.
"It's been suggested that many people would spend their retirement in poverty, because the investments they choose will be along the lines of lottery tickets, dice games and the racetracks," Mr. Cheney said. "The answer to this concern, of course, is simply to set guidelines, basic standards of safety and soundness when it comes to investment choices."
Mr. Cheney also said that critics who make a broader argument that any kind of investment in the stock market is unwise for personal retirement should look at what he called "real world" experience. He said that a 25-year-old who invested $1,000 a year over 40 years at Social Security's 2 percent rate of return would end up with a little more than $61,000. He said the same investment over the same period in the stock market at its lowest historical rate of return would amount to $160,000.
"Over time, the securities markets are the best, safest way to build substantial savings through personal savings," Mr. Cheney said.
The vice president did not address what is emerging as the central political issue of the Social Security debate: whether the creation of investment accounts would be accompanied by a substantial reduction in the guaranteed benefits paid by the government to future retirees. In recent weeks, the White House has signaled its support for changing the way the system would set the initial level of benefits for future retirees, a shift that would reduce initial benefits to levels well below what is promised by current law.
Mr. Cheney's position is not known, but the vice president, who has been central in the formulation of the administration's Social Security proposal, is said by administration officials to be in favor of larger rather than smaller investment accounts.
Republicans at this point are divided over whether to hold contributions to the proposed accounts to 2 percent of taxable income or to allow them to be as large as 6 percent. The White House is expected to offer specifics of its plan next month.
Like President Bush, who held a "Conversation on Social Security" in Washington on Tuesday, Mr. Cheney painted a dire picture of the program's future if something was not done. He said that by 2042 the program would reach "fiscal collapse," at which point the government would have no option "other than to suddenly and dramatically reduce benefit payments by over 25 percent, or to impose a massive, economically ruinous tax increase on all American workers."
Many Democrats and economists say that the administration is fear mongering and that Social Security could be fixed with modest tax increases and a cut in benefits.
But Mr. Bush and Mr. Cheney have made an overhaul of Social Security the central proposal of their "ownership society," a slogan that sums up a Republican philosophy that promises to give individuals more control over their financial lives, particularly retirement and health care. Critics say the philosophy would mean assuming far more economic risk.
Mr. Cheney also asserted in his speech that the projected shortfall in Social Security "exceeds $10 trillion," which is the amount of promised benefits that will exceed revenues. But that figure refers to a calculation of the shortfall over what economists call "an infinite time horizon," a concept that is the subject of intense debate. The standard figure for the shortfall, used by the Social Security trustees, is $3.7 trillion over 75 years.