In the wake of Wednesday's State of the Union address, which focused heavily on President Bush's proposed Social Security reforms, economics professor and Rockefeller Center Director Andrew Samwick expressed support of plans to partially privatize Social Security, the most controversial piece of the President's proposed overhaul.
Samwick, who recently returned to the College from an advisory position as chief economist on the staff of the Council of Economic Advisors to the President in Washington, concurs with many of Bush's proposals but is concerned about the lack of implementation details.
Although Samwick disagrees with Bush's State of the Union characterization of Social Security as "headed towards bankruptcy," he said he believes the system is in trouble. The number of retirees collecting benefits will rise relative to the number of people working as the Baby Boomer generation retires in upcoming decades.
Though the system is running surpluses now and supposedly adding them to the Social Security trust fund, Samwick asserted that the government spends the surpluses on other government expenditures. Eventually, the system will run deficits and it will have to dip into the trust fund. By 2042, that trust fund is projected to run out and costs will exceed taxes, according to the Social Security Administration.
Samwick said he approves of the controversial idea of raising the age at which people can receive full benefits.
"[It is important] because it directly addresses the reason why there are going to be more beneficiaries than there are workers," Samwick said.
Samwick also favors making the traditional benefits more progressive. In other words, those who work lower-income jobs would receive higher benefits.
"These two first proposals work in combination. If you're going to raise the retirement age, given that people who earn more tend to live longer, you'd want to make the benefits more progressive," Samwick said.
Samwick also supports Bush's plan to privatize the system through the creation of personal accounts, which would allow workers a greater degree of choice in their retirement fund and possibly result in greater financial return. Personal accounts remove the money from government control, which prevents the government from spending it on something else, Samwick said.
The costs of transitioning to private accounts, which some estimate would require an additional $2 trillion over the next decade, are misunderstood, according to Samwick. While the cost of implementing this change is immense, he argued that the creation of personal accounts would allow the government to reduce traditional Social Security benefits in the future without reducing actual benefits to retirees because they would receive payments from their personal accounts.
Though personal investment accounts have come under fire from many, including Democratic Senate Minority Leader Harry Reid, who referred to the reforms as "Social Security roulette," Samwick believes that personal accounts can be safe. Only diversified accounts would be allowed, which reduces the chance that market fluctuations could bankrupt retirees. Also, a more progressive system would provide more benefits to low-income retirees, reducing their financial risk.
Although Samwick thinks Social Security needs an overhaul and he supports some of the President's ideas, he wants more details about what exactly Bush is proposing.
"What's the plan? He didn't give us a plan," Samwick said. "He talked about some changes that could be made, some of which are good ideas."
