Pappas Provides Rebuttal for Durbin and Corzine's Debate

September 30, 2003

Citizens for a Sound Economy Social Security analyst Max Pappas highlights the weaknesses of Sens. Dick Durbin (D-IL) and Jon Corzine's (D-NJ) criticisms of options for personal retirement accounts. Senators Rick Santorum (R-Pa.) and John Sununu (R-NH) cited successes of private investment systems Monday, September 22, as the four U.S. senators brought the Social Security debate to the Senate floor. Sens. Corzine and Durbin's comments are followed by Pappas' refutations:

Sen. Corzine: "Privatization, in our view, is not about choice."

Pappas: "Personal retirement accounts would be voluntary. Those who wanted them could choose them; those who did not could stay with the government system. How does Sen. Corzine see forcing everyone into the current government run system as a choice? Owners of personal retirement accounts would also be able to choose from a range of portfolios, from those with a high percent in stocks and a low percent in bonds to those heavy in bonds but light in stocks."

Sen. Durbin: The critics want to dismantle Social Security for a flashy, dazzling money maker that just cannot lose.

Pappas: No one is suggesting personal retirement accounts be invested in a single stock. Like the plans used in almost every country in South America and several countries in Europe, and like the plans Corzine and Durbin put their extra money in, workers would put their money in well-diversified funds made up of many different stocks and bonds.

Sen. Durbin: They might suggest we raise payroll taxes to make up the difference, but who needs an increased payroll tax with this lame economy? They could tell you honestly that we can raise the retirement age under Social Security and make up for the $2 trillion shortfall in privatization. But is that something you want the government to mandate?

Pappas: Durbin comes out against all three possible solutions to the irrefutable problems facing social security: raising taxes, cutting benefits, or allowing personal accounts. The [Sununu and Santorum] made it clear early on that they prefer personal accounts to the other two options. Only later do the [Corzine and Durbin] make it clear that they would prefer to raise taxes. Democratic presidential candidates have already said they would consider raising the retirement age.

Sen. Corzine: We wanted to build up that Social Security trust fund so there would be income from it.

Pappas: The Social Security Administration is required by law to turn over the extra money to the U.S. Treasury in exchange for IOUs. These IOUs are nothing more than promises to collect taxes in the future.

Sen. Durbin: "Taking money and putting it in the stock market is an option every American should have. But to use the Social Security funds of an individual for that purpose raises a risk that is too great for some people.

Pappas: In Chile, where a voluntary personal account system has existed for over 20 years, nearly 95 percent have voluntarily opted for personal retirement accounts. As more years have passed, more Chileans have realized how much better off they can be with personal retirement accounts. As a result, the average Chilean has more money in savings than the average American—even though the average American earns considerably more than the average Chilean.

Sen. Durbin: I support what Al Gore supported, as do most Democrats, Social Security Plus. That allows people to invest in the Social Security over and above their Social Security.

Pappas: Social Security Plus is where workers would pay their Social Security tax and put money into a retirement account. This already exists in the form of IRAs and 401(k)s. The problem with this is that many Americans, after paying 12.4 percent of their income to payroll/Social Security tax, and a total of about 40 percent of their income in taxes, just don't have any money left for the "Plus" portion of retirement. Those who do are already taking advantage of the IRAs and 401(k)s.

Sen. Corzine: [Argues that markets are too risky] I think if one looked from 1929 to 1949, you would find a 20-year period where returns were at best flat, if not diminished."

Pappas: Corzine picks 1929-1949, a 20-year stretch that includes the stock market crash of 1929, the Great Depression, and World War II. But he's wrong. Even after subtracting out inflation, the stock market had a positive rate of return of 3.36 percent during this period—much better than the usual 1 percent to 2 percent Social Security offers.

The full text of the September 22 debate is available on the Thomas legislative information website.

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