Remarks in a Roundtable Discussion on Social Security and Medicare

The President. Thank you, and good morning. The Vice President and I are delighted to welcome you here. We have an unusually large delegation from the United States Congress here today, and I believe I have all their names, and I would like to acknowledge Senator Thomas and Representatives Becerra, Bliley, Borski, Cardin, Hill, Nadler, Pickering, Portman, Pomeroy, Markey, Smith, and Tauscher. I think I have got them all. And give them a hand. [Applause] I think that's amazing that they're here.

I would like to thank Secretary Shalala, Social Security Commissioner Apfel, and Gene Sperling for their work on this meeting today. I'd like to thank our panelists, Laura Tyson, Uwe Reinhardt, Martha McSteen, Hans Riemer, and Stuart Altman, for their presence. And they will be introduced in a few moments.

In my State of the Union Address last week, I challenged Congress and the American people to meet the long-term challenges our country faces for the 21st century. Today you all know we are here to talk about perhaps the largest of those, the aging of America.

The number of elderly Americans will double by 2030. Thanks to medical advances, by the middle of the next century, the average American will live to be 82, 6 years longer than today. These extra years of life are a great gift, but they do present a problem for Social Security, for Medicare, for how we will manage the whole nature of our society.

As I have said repeatedly, this is a high-class problem, and the older I get the better it looks. [Laughter] But it is one, nonetheless, that we have to face. Fortunately, we are in a strong position to act because of our prosperity and our budget surplus.

It is well to remember that the current prosperity of this country was created not by rash actions in Washington but by facing boldly the challenge forced by the budget deficits, by getting the deficit down, getting into balance, bringing the interest rates down, and bringing the economy back. We also should face the challenge of the aging of America in the same way.

In the State of the Union, I laid out a threepart plan and asked Congress to consider it, to invest our surplus in ways that will both strengthen our economy today and in the future and meet the needs of the aging of America. First, I proposed that we devote 62 percent of the surplus for the next 15 years to saving Social Security, investing a small portion in the private sector, as private, State, and local government pensions do. The average position of the retirement fund in the stock market, of Social Security, would be under 2 percent of the market for the next 15 years, under 3 percent for the next 20 years, and always under 4 for the next 50 years.

Over the course of the last week, I have been gratified to see discussions of this proposal and, obviously, differences about the whole market investment issue, but substantial agreement in the idea of dedicating a large portion of the surplus to saving Social Security across partisan lines. And for that I am very grateful.

I think we should build on this to extend the life of the Social Security Trust Fund further. If we do what I suggested, it will add 55—take us to 2055. I think we should have a 75-year life for the Social Security Trust Fund. We should also make some changes to reduce the poverty rate among elderly women, who have a poverty rate at twice, almost twice the general poverty rate among seniors in our country. And I believe we should eliminate the limits on what seniors on Social Security can earn.

To make the changes necessary to go to 75 years on the Trust Fund and deal with these other challenges, we will simply have to have a bipartisan process. There is no way to avoid it. But I'm confident that the changes, while somewhat difficult, are fully achievable. And if we work together, we can make them.

To prepare America for the senior boom will require more than saving Social Security. We also have to deal with the challenge to Medicare and our obligation to make sure that our seniors have access to quality health care. I want to say very clearly that we need to set aside enough of the surplus for Medicare and Social Security before we address new initiatives like tax cuts. That's why the second part of our proposal calls for devoting 15 percent of the surplus for 15 years to the Medicare Trust Fund. If we do this and nothing else, we can secure the Trust Fund until after the year 2020.

But I want to make something else clear. I believe that—some have suggested that by dedicating the surplus to Medicare, we won't need to make any decisions to reform the program. I disagree with that. Medicare needs revenues to increase its solvency, but it also needs reform to make sure that it is modern and competitive and to gain additional savings to help finance a long overdue prescription drug benefit. So, for me, reforming Medicare and committing the surplus go hand in hand.

I'd also like to say that, for me, there can be no better use of our surplus than assuring a secure retirement and health care to older Americans. And I believe that it is good not only for older Americans but for their children and grandchildren as well, and for the larger economy.

Why is that? Well, first of all, if we dedicate this portion of the surplus to Social Security and Medicare over the next 15 years, obviously, in most of those years that money will not be needed. In all those years we will, in effect, be buying back the national debt. As we do that, we will bring the percent of our debt— I mean, our publicly held debt as a percentage of our economy—down to its lowest point since 1917, since before World War I. What will that do? That will drive interest rates down, and it will free private capital up to invest in the United States, to create jobs, to raise incomes. So I think that it's very important.

If you look around the world today at the troubles these countries are facing, when their budget deficits get out of hand, when their interest rates go through the roof and they can't get any money from anywhere, when we worry constantly about our trading partners, trying to keep them in good shape and help them to not only preserve our economic markets, to preserve partners for peace and democracy and freedom—if we in the United States could actually be doing something to pay down our debt while saving Social Security and Medicare, we would keep these interest rates down. And it would be an enormous hedge against whatever unforeseen future volatility occurs in the global economy.

So this is a strategy that will actually grow the American economy while preparing for the future. Of course, in an even more direct way it's good for the rest of America because when the baby boomers retire, as I said in the State of the Union, none of us want our children to be burdened with the costs of our retirement, nor do we want our grandchildren's childhoods to be lessened because our kids are having to pay so much for our retirement or our medical care. So, from my point of view, this is a very good thing for Americans of all ages, without regard to their political party, their income, their section of the country. I think this will benefit the country and help to bring us together and strengthen us over the next several decades.

Let me just say very briefly that the third part of our proposal is to dedicate $500 billion of the surplus to give tax relief to working families through USA accounts, Universal Savings Accounts. Under my plan, working Americans would receive a tax credit to contribute to their own savings account and an additional tax credit to match a portion of their savings, with the choice theirs about how to invest the funds, and more help for those who are working harder on lower incomes and therefore would have a harder time saving. This new tax credit would make it easier for Americans to save for their own retirement and long-term care needs. And obviously, this would be further helped by something that is already in our balanced budget, which is the $1,000 long-term care tax credit.

So these are the things that I think together would not only help us to manage and deal with in a very good way the aging of America, I think it would help us to secure the longterm economic prosperity of the country and help to keep families together across the generations without seeing unbearable strains put on those families as so many of the baby boomers live longer and inevitably have more medical costs.

So I hope that we will have a good debate in Congress. There will be others with their own ideas. I welcome them. I look forward to it. Today we're going to focus on the programs that I mentioned at the beginning of my talk. And I'd like the Vice President, who has worked very hard on this with me, now to make a few remarks and to introduce our panelists so we can get on with the morning.

Thank you very much.

[At this point, Vice President Al Gore made brief remarks and introduced the panelists.]

The President. Well, I would like to begin by asking a question of Laura Tyson, who is, as has been said, on this bipartisan Medicare Commission. One of the things that I have seen—and I alluded to this in my remarks— one of the things that I've seen said in the press in the aftermath of the State of the Union is that by proposing to allocate 15 percent of the surplus for 15 years to the Medicare Trust Fund, I basically was killing any chance to reform the program because we can keep it just like it is until 2020.

I didn't see it that way, for the reasons I said. First of all, I think there are some substantive changes that ought to be made that would enrich the program, like the prescription drug program, and secondly, because I think the demographics and the costs are going to require reform anyway. I mean, if my numbers are right, I think that the Medicare spending would have to grow at like half the rate of economic growth for the next decade just to extend it for another 5 or 6 years.

So what I'd like for you to talk about is— what do you think—it's a good thing to dedicate some of the surplus to Medicare, and whether you think it can be used as an excuse not to make any further changes in the program, or whether it would actually facilitate changes?

I think we need to get this out. And I really don't know what she's going to say, but I've been very concerned about that because when I made this suggestion, I did not intend to say that, whoop-de-do, now we don't have to make any changes in the program. What I was trying to do was to make it possible for us to change the program without pricing it out of the reach of Americans, millions of Americans.

So, Laura, you want to talk about that?

[Laura D'Andrea Tyson, member, Commission on Medicare, noted Medicare's complexity and said that despite efforts to improve it, additional funding would be required. She indicated the President's plan to dedicate a portion of the budget surplus to Medicare would secure the program. Vice President Gore asked Dr. Uwe Reinhardt, commissioner, Kaiser Commission on Medicaid and the Uninsured, for his analysis, and Dr. Reinhardt strongly supported the President's proposal. Vice President Gore then commented that Dr. Reinhardt had characterized those who disagreed as uncivilized sinners, and Dr. Reinhardt concurred.]

The President. Let me just say for the record, as someone who knows a little about such characterizations, I wouldn't do that, myself. [Laughter]

I'd like to ask Stuart Altman a question. Stuart has worked for Republican and for Democratic administrations. He's been through all the various generations of reforms we've had, trying to manage these health programs that we fund. And he's now also on the Medicare Commission. I'd like to just ask him to give us some idea from his point of view about—maybe be a little more specific, and I'm sure the Members of Congress here would like this—what are the type of structural reforms you think we should adopt to improve and modernize Medicare, even as we extend the life of the Trust Fund?

[Stuart Altman praised the Health Care Finance Administration's work in an increasingly complex situation and said Congress had hindered the agency's ability to contract with providers and bill more efficiently. He advocated restructuring the system to allow competition with the private sector and altering the benefit package to include prescription drugs.]

The President. I don't want to interrupt the flow of the program; I think they're doing so well. But I just want to comment on one thing that Stuart said, because I think we ought to drive it home. Many of us have actually met people who choose between food and medicine. Nobody made a deeper impression on me when—in 1992 than this elderly couple I met in the Arel Senior Center in Nashua, New Hampshire, when they described this choice they made on a weekly basis.

But the point I want to make is, you know when we have partisan fights in Washington, they always get a lot of publicity. And when we do something together, almost nobody notices. But one of the things that I'd like to compliment all the Members of Congress here for is that there has been an enormous amount of bipartisan consensus to dramatically increase investment in medical research. And the NIH budget, for example, has grown exponentially as a result of that.

Now, what are we trying to do? Among other things, we're trying to find cures for everything from cancer to arthritis to Parkinson's to you name it. And we're also trying to develop preventions. A lot of those cures and preventions will be in the form of medicine, and a lot of what lengthens people's lives is in the form of medicine. We will be spending more and more and more money every year that we don't have to spend on hospital care and doctor care if we don't provide a prescription drug benefit.

And from the point of view of the Congress, I would ask you to think, if we were all serious about all this money we have put into the NIH, then we have to be equally serious about getting the benefits of that investment to all the American people, to the health care system in general, and to the economy in general. And I think it's very important because the problem Stuart mentioned is going to accelerate because of the breakthroughs that will occur as a result of the medical research that all of you have funded.

Go ahead.

[Vice President Gore asked Martha McSteen, president, National Committee To Preserve Social Security and Medicare, about the need to deal with Social Security and Medicare together and the projected doubling of eligible seniors in the year 2030. Ms. McSteen noted the two programs were viewed as entwined, particularly with regard to the baby boomers for whom health care advances meant increased longevity and the opportunity for greater post-retirement productivity.]

The President. I'd like to close this section of the panel with Hans Riemer and ask him sort of what this looks like from his perspective. Let me remind you that the people that are now on Social Security don't have to worry about what we're talking about. The people that are now on Medicare, by and large, don't have to worry about what we're talking about, although, there's a more immediate time problem there. What we're trying to do for Social Security is to take it out to the time when it would even cover Hans' retirement, which it ought to as a retirement system that big, and also to try to at least have a framework which will enable us to not only secure Medicare for 2020 but make some changes that will enable us to manage the program far beyond that.

So I'd like for Hans to talk a little about his work and how he sees this and what advice he has.

[Mr. Riemer, 26-year-old founder and director, 2030 Center, advocated maintaining fiscal discipline by using the budget surplus for the Medicare and Social Security Trust Funds. He stated that because his generation would be living longer, it would need budget flexibility derived from paying down the debt, but should also address potential pension and health care problems.]

The President. You know, I doubt, given the global economy, at least in the foreseeable— and I mean probably the next 10 to 20 years— it will ever be possible for a country that wants to have a great economy to run permanent deficits again. Now, we all know, if there's a recession happens and you've got fewer taxpayers paying in and more money going out for unemployed people—and we know there will be good times and bad times; that's part of human nature. But the elimination of the structural deficit, I think, is pretty much going to be a requirement for every country that wants to run an advanced economy and have long-term stable conditions, because the control of the—the people that can decide where the money goes, and why, are going to pretty much demand it. And I think that that's something that we have to be quite careful about, and we need to be very prudent in projecting this.

And everybody understands when we say we're going to have surpluses over 25 years, that they will vary in size depending on the condition of the economy. What we mean by that is that we have a structural surplus and that the projections are pretty good. And I think that we have to—my sense is that that's where Congress is, in both parties. There will be people who think that we ought to have a tax cut now instead of the retirement tax cut, so that it ought to be fungible now. There will be arguments about that. But my sense is, there's almost no one willing to do anything that would in any way run the risk of returning to a structural deficit. And I think that's a big step forward for our country.

Well, I thank all of you. We have here, in addition to Members of Congress, we've got a lot of health care providers and people who represent other folks. We've got a little time. I wonder if any Member of Congress who is here would like to ask a question of any member of our panel. This is not prepared. This is all— [laughter].

Mr. Nadler? Mr. Pomeroy?

[Representative Jerrold Nadler noted that the assumptions used by Social Security actuaries were extremely conservative and asked why projections were being made on such conservative estimates of economic growth.]

The President. Ken, you want to answer that? [Laughter] He's just greedy and wants all the money he can get; that's all.

[Kenneth S. Apfel, Commissioner, Social Security Administration, stated that Office of Management and Budget had made prudent assumptions based on a smaller work force in the future and, therefore, slower economic growth. He said more optimistic assumptions would create a bigger problem if the economy did not grow as much as anticipated.]

The President. Let me say—I'm with you. I think they're wrong, but I don't think we can take the risk. But let me tell you why it looks like they're right. The reason it looks like they're right is that the number of people taking early retirement, for example, taking the early Social Security option, is going up still—people checking out at 62. And then they—if they're living to 82, then that's—and by the way, even today people who live to be 62 have a life expectancy of nearly 80; a 76 average life expectancy is from birth. So somebody who lives to be 62 years old, unless they have some critical condition, their chances of living to be 80 or more are pretty good. So the assumptions are based on two things. Number one is the slowing of the growth of the work force, and number two is people drawing for a lot longer time.

Now, I'll make you a prediction—that's one of the reasons that I think it's imperative that we make this bipartisan agreement this year. The reason I—we can make it wrong—because I think you have to consider one thing. Number one, there's a record number of kids in school today. Now, they say they've factored that in, but that means you're going to have more workers in a few years. Number two, we've still got a fairly generous immigration policy, which I think, on balance, has served us well. But the third and the most important thing is, after you get a certain percentage of people who retire at 62 and they're going to live until 82 or 85 or whatever, if we take the earnings limit off you will have more and more people working.

The computer and the Internet are changing the nature of work. When I became President, there were only 3 million people making a living out of their homes. When I ran for reelection, the number was 12 million. I think, today, the number is almost 20 million. So I think what you are going to have is a dramatic change in the nature of work in the next 20 years and more people doing work in different places and different ways, especially older people.

So my guess is, they are low. But if you look at people drawing Social Security for a longer period of time and the sheer demographics and you were in charge of keeping the thing stable, you'd probably make the same call they did.

[Ms. Tyson concurred that caution in long-term projections was good because it was important to assure the public that predicted surpluses were realistic. Vice President Gore pointed out that in 1992, the transition team used the most conservative economic assumptions. He noted that the world economy was growing at a slower rate than the actuarial projection.]

The President. Mr. Pomeroy, Mr. Smith, and Mr. Cardin. Go ahead.

[Representative Earl Pomeroy said the President's plan would significantly advance the prospect of achieving Social Security reform. He also supported the President's debt reduction plan to ensure flexibility when facing future problems. Ms. Tyson noted the 30-year decline in the domestic savings rate and said the President's plan would reduce debt and increase savings.]

The President. Janet Yellen, our Chair of the Council of Economic Advisers, nodded yes when she said it will add 2 points to the savings rates. That's good.

[Representative Nick Smith asked Ms. Tyson what was being done to ensure the country was on the cutting edge of productivity and competitiveness. Ms. Tyson pointed to the President's strategy of investment in education and technology, and trade liberalization.]

The Vice President. Well, the new Governor of California, Gray Davis, points out that if every retiree 30 years from now is going to have two workers financing his retirement, he says, "I don't want my two to have a C average and inadequate schools today." [Laughter] A pretty good way to put it.

The President. You talk about our long-term productivity. Let me just mention one thing that was a part of my State of the Union Address that didn't get a lot of attention, but I hope that it will get more, and I hope that there will be a real bipartisan effort here. And that is that I think we still have a lot of capacity for growth and productivity within the borders of the United States.

When you've got hundreds of thousands of high-tech computer jobs going begging and when you've got neighborhoods in this country where the unemployment rate is still in double digits, mostly in inner cities and rural areas, our trick in the next 10 years—if you want to think about how we can continue to grow this economy with no inflation—will be to try to find the right mix of incentives for private sector investment and then removing the barriers to employment investment in a lot of places, whether it's education and training or whatever else.

We've had some success with the empowerment zones. I proposed some new initiatives in my State of the Union. But for the last 2 years—Reverend Jackson is here—I've gone to this unusual meeting with Jesse Jackson, Jack Kemp, and Wall Street to talk about how we can get Wall Street to try to invest more in our inner cities and our isolated rural areas. And I think that's something we should not dismiss the potential of.

If you think about it, if you go into a place where there is complete underinvestment and, therefore, underpurchasing of American goods and services, if it works when we invest in Central America or whatever, it would certainly work here. And I'd like to see some more careful attention given to that.

Mr. Cardin, and Mr. Markey.

[Representative Benjamin L. Cardin said he was intrigued by the savings incentives USA accounts would offer to young people and low wage workers. He asked Mr. Riemer how young people might be encouraged to save for retirement. Mr. Riemer stated that young people were receptive to the message and suggested a campaign to stir up excitement about the accounts.]

The President. Mr. Markey.

[Representative Edward J. Markey praised the President's recommendations but noted a concern about Government investment in and interference with the stock market. Ms. Tyson cited State and local retirement plans and the Federal Retirement Investment Board as models, listed elements necessary for success, and stated that investment decisions must be made on the basis of fiduciary responsibility and not political influence or concerns. Vice President Gore added that some investment opportunities could add an additional layer of insulation from political influences and pointed out that returns on equities were significantly higher than other alternatives.]

The President. I want to call on Mr. Portman, but Gene Sperling, did you want to say anything about the question here?

[National Economic Council Director Gene Sperling emphasized the importance of competitive bidding to ensure that the actual investments would take place by private managers using broad-based passive indexes. He said that such a system would be insulated from political interference and should get the highest return due to lower administrative costs.]

The President. Mr. Portman.

[Representative Rob Portman commended the President for raising this issue in the State of the Union Address and encouraged him to keep the notion of private savings accounts on the table during the discussions with the Congress rather than relying solely on investment in the stock market. Ms. Tyson responded that having private savings accounts as a replacement for Social Security would undermine its social insurance value but that the USA accounts would function as a complement to Social Security.]

The President. We are getting down to the real details of this debate that will unfold. I wanted to make two points, if I might.

There are some proposals for savings accounts, private savings accounts, that say that they could ensure a floor, which would be a return no less than Social Security would otherwise give. That will all be part of this debate, and I'm looking forward to it. And I appreciate it.

Let me say one other thing to Mr. Portman, if you were to set aside this much money for Social Security and Medicare, then most of the Republican caucus would believe that there is not enough money left for a tax cut of the size you believe should flow. And then we would argue about the form of the tax cut. If you look at that negative savings rate, I think that's partly because people have great confidence— you know, the stock market went up again, and also interest rates are down, home mortgage payments are lower, and a lot of people may feel like they're more comfortable spending more money.

But one of the challenges that we have to face in this coming Congress is not only what the size but what the nature of the tax cut should be. And should it be in the nature of helping people develop a greater private savings plan, or should it just be a tax cut that people can dispose of?

The argument for the latter, frankly, which doesn't have all that much appeal to the young or to the old but might have a lot of appeal to the parents in the middle is, "Hey, I'm maxed out on my credit cards, and I need some help. You know, there's a negative savings rate, that means I can't go charge anything else."

But the argument for the long term of the country, it seems to me to be the stronger argument because that is one way we can have an increase in personal savings, as opposed to the aggregate savings rate. When we buy in the debt—which we'll do if we save this money, we'll be buying back the debt—that will increase the national savings rate, and it will free up private money, and it will be invested privately. But if you want to increase the personal savings rate, it seems to me we need to really think about not only what the size but what the nature of the tax cut should be.

We've already gone 40 minutes over—that's a good sign—but I'll give Mr. Hill the last word, because he had his hand up, and then we'll go. Go ahead.

[Representative Rick Hill stated that public institutions investing privately produced substantially lower rates of return than private institutions investing in the market and asked if reasons for that had been identified.]

The President. Gene? [Laughter]

They're more risk-averse, I imagine, is one reason.

[Mr. Sperling concurred that public investors tend to be more risk-averse, but pointed out that investment in the market over a long period of time would provide a higher return than the Government bonds in which Social Security currently invested. He reiterated that using broadbased indexes would help ensure the highest possible return.]

The President. Thank you very much. This was terrific. And thank the participants, thank you.