A forum for discussion of our Social Security system


Robert Ball and the Politics of Social Security
Edward D. Berkowitz

This forum
for discussion of our Social Security system is an extension of the publication of the book Robert Ball and the Politics of Social Security. There are documents, letters, links to other sources, and statements from Robert Ball and Edward D. Berkowitz. To join the debate, send an email to publicity@uwpress.wisc.edu. Your comments will be passed on to Mr. Berkowitz and may be added to this page in the future.

An open letter from Robert M. Ball | Social Security Plus |
Links to other articles | More about Robert Ball | The Current Debate | The Four Historical Misunderstandings About Social Security |
Ed Berkowitz in the media |
News Coverage about Robert Ball and the Politics of Social Security | Robert Ball on the Current Crisis |
42 to 1, 16 to 1: A note on the misleading use of accurate statistics

An open letter from Robert M. Ball, Former Commissioner of Social Security, introducing his Social Security Plus plan:

February 2005

Enclosed is Social Security Plus, my proposal for bringing Social Security in to balance over the next 75 years, and for adding to it a new system of supplemental savings accounts. I believe that my approach provides an attractive and politically attainable alternative to the President's proposal for partial privatization. The changes that I propose are desirable in themselves; I would favor them even if the system were already in balance. If they raised more money than needed for presently promised benefits, we could either improve benefits or reduce the contribution rate.

Although there is a strong case to be made for adding individual savings accounts on top of Social Security (as outlined in Part II of my plan), I think it is a very bad idea to shift from Social Security to private accounts any part of the money needed to maintain Social Security at the benefit levels in present law. Obviously such a shift would do nothing to help Social Security's financing; in fact in would make the financing challenge much harder than it needs to be.

Moreover, allowing individuals to choose their own Social Security —substitute investments would inevitably mean that while some would do better than under Social Security, others—either because of lack of skill or bad luck—would do worse. So this approach would mean moving away from Social Security's primary goals: 91) to ensure that workers who work regularly under Social Security can count on receiving basic and predictable support, paid for partly by their own contributions and those of their employers; and (2) to ensure that we will all be protected from having to support those who without Social Security would not save enough on their own. I believe we should reinforce rather than undermine these goals.


Robert M. Ball

cover of the book about Robert Ball is illustrated with a blue toned photo of Ball at his desk framed by two pillars and type in the style of currency

August 2005
LC: 2003007779 HD
476 pp. 6 x 9 23 b/w photos
ISBN-13: 978-0-299-18954-9
ISBN-10: 0-299-18954-6
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(Still available in cloth,
ISBN-10: 0-299-18950-3
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Social Security Plus
A two part plan to restore Social Security to long-term balance.

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Links to other articles and reviews

Here is the link for the Century Foundation article. www.tcf.org/Publications/RetirementSecurity/ballplan.pdf

Mark Leff in the Journal of American History: (You will have to log in at the history cooperative site to read the complete review.)

Mel Dubofsky in the American Historical Review : (You will have to log in at the history cooperative site to read the complete review.)

Brian Balogh in the Political Science Quarterly: (You will see a permissions paragraph, and then part of another review, just scroll down to reach the review of Robert Ball and the Politics of Social Security.)

Rosemary Stevens in the Bulletin of the History of Medicine. The site is www.press.jhu.edu/journals/bulletin_of_the_history_of_medicine/index.html


More about Robert Ball

The history web site of the Social Security Administration contains a wealth of information about Robert Ball, including a lengthy oral interview of Robert Ball conducted by SSA historian Larry DeWitt. http://www.ssa.gov/history/bobball.html  (if our link doesn't work, paste into your url window directly.)

Robert Ball was closely associated with three key amendments to the Social Security. The 1950 legislation expanded coverage and raised benefit levels, bringing Social Security to parity with welfare and establishing it as America's largest and most popular social welfare program. The 1972 amendments featured a twenty percent increase in benefit levels and the beginnings of benefits indexed to the rate of inflation. Ball also played a key role in the 1983 rescue legislation.

For more information:

1950 Amendments: www.ssa.gov/history/1950amend.html

1972 Amendments: www.ssa.gov/history/1972amend.html

1983 Amendments: www.ssa.gov/history/1983amend2.html


The Current Debate

The Bush White House position: www.whitehouse.gov/infocus/social-security/

President Bush's 2001 report on Social Security: www.ssa.gov/history/reports/pcsss/reports.html

The National Academy of Social Insurance, which Robert Ball helped to found, monitors and reports on the debate from a nonpartisan perspective: www.nasi.org/

The Center on Budget & Policy Priorities has tended to oppose the President's social security initiatives:: http://www.cbpp.org/pubs/socsec.htm  (if our link doesn't work, paste into your url window directly.)

Good information related to the financial status of Social Security can be found at the following places: www.ssa.gov/history/trustchart.html


The Four Historical Misunderstandings About Social Security
By Edward Berkowitz
Mr. Berkowitz is a professor of history and public policy and public administration at George Washington University. A paperback edition of his book, Robert Ball and the Politics of Social Security, was published this summer, 2005, by the University of Wisconsin Press. This article was delivered as a talk to members of Congress in mid-May, 2005. It was one of a number of talks being sponsored by the American Historical Association as part of the National History Center's Congressional Breakfast Seminar Series.

"Everyone concedes that Social Security is important. Senator Robert Dole once said that it overwhelmed all domestic priorities.

It is important in part because it is so large. It started from scratch in 1935 and grew to be a program that collected money from 154 million people and paid more than $470 billion to 47 million people in 2003.

And it is important because it comes bundled with so many features. It is a program for people of all ages because it includes survivors benefits, which started in 1939, disability benefits, which started in 1956, and it is closely tied to Medicare which started in 1965. And it has built-in protection against inflation, since benefit levels rise with the CPI. It is also an important anti-poverty program, because of these features and also because it has a benefit formula that is tilted in favor of lower-income workers.

For such a large, diverse, and apparently popular program, it has been the subject of a number of historical misunderstandings.

Historical Misunderstandings

In the first place, the program was not always large, popular, or the third rail of politics.

When it was created in 1935, it was not particularly popular. That is because it covered only industrial and commercial workers on regular payrolls or about half of the labor force. So if you were a congressman from rural Texas in a district with farmers and a few businessmen who owned their own fertilizer or tractor stores, then essentially no one in your district was paying into Social Security or expecting to receive benefits.

If you were a congressmen from Chicago, most of the people in your district were likely to participate in Social Security. But they faced a hard road. They were expected to pay Social Security taxes beginning in January 1937 but not to receive Social Security benefits until 1942. That meant five years of paying in without getting anything back at a time when no one had ever gotten anything back from the program, except for lump sum death benefits.

And it meant that money was being taken out of circulation in the midst of a deflationary depression to pay for Social Security taxes, helping to create the so-called Roosevelt recession in 1937.

It is not surprising then that many congressmen, Republicans and Democrats, wanted to vote against Social Security in 1935. But they didn't for two reasons. One was that Social Security was a priority item for the Roosevelt administration in 1935 and FDR was very popular and still in his first term. The other was that the bill was actually an omnibus bill that came bundled with many items, other than old-age insurance. Most of these items were federal grants that would bring money into many congressional districts. Hence, congressmen voted for the bill in order to get those other benefits.

Between 1935 and 1950, old age assistance—welfare payments to the elderly who could prove they were poor that were administered by the states with federal matching grants—reached more people and paid higher benefits than did Social Security. Congress rescinded Social Security tax increases in the forties and actually decreased the range of covered occupations.

In the second place, Social Security has not been antithetical to the development of private accounts.

In 1935 an issue arose in which Senator Clark of Missouri proposed that employers who already offered pensions to their employees which were as good as or better than Social Security could opt out of the program. His amendment passed the Senate but was removed in conference after a great deal of discussion. So unlike workers compensation an employer could not self-insure for Social Security.

But, contrary to what you might expect, private accounts actually grew after the passage of Social Security. The program provided a base for private pensions on which companies could build. Social Security made people security conscious. The passage of survivors benefits did not thwart but rather aided the life insurance business. When large pension programs started in the automobile, steel and other industries at the end of the forties, that actually provided the impetus for the expansion of Social Security in 1950 that, for the first time, brought the program to parity with welfare. And, of course, health insurance became a largely private endeavor, despite the Social Security Act and even Medicare created a market for what were called Medi-gap policies.

In the third place, the issue of Social Security surpluses has come up before in the history of Social Security.

At first, large surpluses arose in the Social Security accounts because many people were paying and almost no one was receiving benefits. Such surpluses have always been controversial, because people wonder about where their money is going. If it is spent on current items, how can it later be used to pay Social Security benefits? As journalist Mark Sullivan wrote, money collected in Social Security taxes "may be spent for any legal purpose under the sun and in practice they are now being used to help the Government's current bills." He wrote in the 1930s but could as easily be writing today.

Members of Congress reacted to large Social Security surpluses by spending them and by reducing tax rates. They spent it through starting regular benefits early and by providing family and survivors benefits. They reduced taxes by not allowing the tax increases scheduled in the law to go into effect.

Eventually, surpluses were reduced and something like a reasonable contingency reserve was established. This system operated between 1950 and 1972, the years in which Social Security enjoyed the most success. Something called the level wage hypothesis provided the dynamic for benefit increases in 1952, 1954, 1958, 1965, and 1967. The official predictions would call for wages to remain level. When in fact they rose, that provided an unexpected surplus that Congress could spend on raising benefit levels without raising taxes.

In the fourth place, Social Security has faced previous crises and surmounted them.

The first crisis was the battle with welfare that threatened to make Social Security irrelevant. Solved in 1950 with coverage extension and benefit increases.

The second crisis was that the growth of the economy in the fifties and sixties threatened to make Social Security benefits fall far below the standard of living. Solved in 1972 by changing the actuarial assumptions and indexing Social Security to the rate of inflation.

The third crisis came with the slow down of the seventies. The program was tied to employment, which determined how many people were paying in and to inflation which determined the amount of money being paid out. Stagflation thus posed a crisis. Congress reacted by raising Social Security taxes in 1977. But the second oil shock of the decade posed further problems. Congress reacted by creating the 1983 amendments.

The 1983 amendments were remarkable. In the past, Social Security policy was made by the Social Security Administration and the tax committees in Congress, with some input from organized labor and business organizations like the National Association of Manufacturers. It was a closely held enterprise, with bureaucrats in SSA designing legislation and even writing congressional reports, and legislation being formulated in the House Ways and Means Committee and debated under a closed rule.

But in the seventies that system broke down. Ways and Means began to get subcommittees, including a subcommittee on Social Security. The president became more involved as Social Security became an important national issue. SSA itself became a much less cohesive bureaucracy. Two people essentially ran SSA between 1937 and 1973. But after that Social Security commissioners came and went with rapidity.

So in 1981 there was a new exercise. President Reagan, the Speaker of the House, and the Majority Leader in the Senate all cooperated in naming people to a Social Security commission, which included powerful members of Congress and representatives of the key interest groups. These people bargained over the amount of money that was needed to keep Social Security solvent. Then the group dissolved into confidential private negotiations between White House staffers, such as James Baker, and key Democrats, such as Senator Moynihan. The Republicans agreed not to challenge the basic design of Social Security. No private accounts, in other words. The Democrats agreed to make cuts in Social Security. The two sides negotiated with a score card that showed how much money would be saved by doing a particular thing. In the end, they agreed to a six month delay in the cost of living adjustment and other changes that assured Social Security's solvency.

The Present Controversy

If that happened in 1983, what has caused the present problem? It is not the retirement of the baby boom. We have known about that for a long time and it has already been factored in. Instead, the problem has to do with actuarial assumptions related to real wage rates in the future and disability rates in the future. There is an irony here because the 1983 amendments had helped to create a large surplus in the program, so people are talking about a long-run deficit at a time when there was a short-term surplus.

So far, we have not seen a repeat of 1982, with people calmly taking out score cards and making political bargains over how to restore long-term solvency to the program.

In part, the program has suffered from its success. Sold as an insurance program, people now point to the low returns that generation x and yers will get on their Social Security taxes. The trust fund makes the long-term deficit visible. No one is talking about a long-term deficit in the education programs for example. So, as part of an ambitious second term agenda, President Bush has decided to take on what David Stockman has called the fortress of the welfare state. He would like to convert the program into one that deflects a portion of Social Security taxes into private accounts.

There are two parts to this campaign. One is to convince America that Social Security is going bankrupt. If that is the case, then its chief beneficial attribute—defined benefits—are not going to be worth much. Two is to say that, if that is the case, then the only way out of the dilemma is to let workers invest in private accounts which because of their high rates of interest will make up the shortfall.

But of course that represents a fundamental change in Social Security.

There are problems associated with it. Second term initiatives often fail, as in the court packing plan in 1936.

It is a costly proposal, because the president has already said that people who are older than 55 will keep their benefits. So there has to be enough money in the system to take care of them and also to allow people to start investing in private accounts. So it will be a more expensive proposition than simply fixing the system we already have in the style of 1983.

On the other hand, private pensions have changed. What were once plans to pay guaranteed benefits to people have now become defined contribution plans. This reflects a world in which people change jobs frequently and in essence carry their retirement plan around with them. The president's Social Security reform would make Social Security more compatible with this sort of arrangement.

I don't know what will happen. But I do know as a historian that presidential social welfare initiatives almost always have consequences. President Nixon tried to pass major welfare reform and failed but we did come away with a major new welfare program, in the form of Supplemental Security Income. President Clinton tried to pass national health insurance and failed but we did come away with major expansions in Medicaid and major reforms of Medicare. So, in a similar sense, I know that the president's proposals will have consequences. I think it is fair to say that history teaches me that, just as it does that Senator Dole was right when he said that Social Security overwhelms all domestic priorities."

Ed Berkowitz in the media

Ed Berkowitz on the Kojo Nnamdi Show www.wamu.org/programs/kn/04/08/17.php (Scroll down to Tuesday, 13:32, History of Socal Security. You can choose to listen to this interview.)

Ed Berkowitz on Fresh Air with Terry Gross www.npr.org/templates/story/story.php?storyId=4517872 (You can choose to listen to this interview.)

Edward Berkowitz: Proposed Major Overhauls of Social Programs Usually Fail, in the San Jose Mercury News (3-13-05)

[Mr. Berkowitz teaches history and public policy at George Washington University. A paperback edition of his biography of former Social Security Commissioner Robert Ball was published in the summer of 2005 by the University of Wisconsin Press.]

"Though they sometimes have led to more modest reforms, high-profile domestic initiatives have not fared well in the past 35 years. President Nixon failed at welfare reform, and Congress rejected President Clinton's ambitious national health insurance program.

Nor is the record of politicians who have proposed major changes in Social Security particularly encouraging to Bush.

Alfred Landon, the Republican candidate in 1936, lost in a landslide, in part because he called Social Security ``unjust, unworkable, stupidly drafted and wastefully financed.''

Barry Goldwater, who raised the possibility of making Social Security a voluntary program for workers and employers in the 1964 election, suffered a similarly humiliating defeat.

When President Reagan learned of the possibility of reducing early retirement benefits, he endorsed the idea, saying, ``I've been warning since 1964 that Social Security was heading toward bankruptcy.'' The Republican-controlled Senate promptly passed a unanimous resolution condemning the proposal.

In the initial going, Bush is finding that Democrats and Republicans alike appear reluctant to make changes in a 70-year-old program that in 2003 collected money from 154 million people and paid more than $470 billion to 47 million. It is a program with many attractive features, such as a benefits formula under which poorer people get a higher rate of return on their contributions than richer people, yet it also ensures that people who contribute more receive more from the program.

Such features as survivors' benefits that go to the dependents of workers who die before retirement, and disability benefits for certain people forced to drop out of the labor force, reinforce this blend of adequacy and equity.

Given the program's widespread support, Bush understands that changing it is politically delicate. Yet, in fact, Social Security has been widely debated in the past. Looking back, we can see its history has three distinct eras.

From 1935 to 1950, the program covered only about half of the people in the labor force. In 1950, more than twice as many people were on the state welfare rolls as were receiving retirement benefits from the federal government under Social Security. The average monthly welfare benefit was $42 in 1949; the average Social Security benefit was $25.

Between 1950 and 1972, the program enjoyed considerable success. Rising wages and low unemployment meant that more money flowed into the Social Security coffers, so Congress could raise benefits without substantial increases in the payroll tax rates. As an adviser to President Johnson noted, economic growth produced the "miracle'' that made it possible to expand the system without raising the tax rate or ``impairing the actuarial soundness of the system.''

But in 1972 Congress changed this congenial system. In a sweeping action, it raised Social Security benefits by a whopping 20 percent and introduced a feature that would raise future benefit levels by the rate of inflation, a feature known as the COLA, or cost of living adjustment. In 1973 Congress passed one more traditional benefit increase, and then the COLAs took over.

As it happened, the introduction of this new system coincided with major economic disruptions—high unemployment, galloping inflation and rising disability rates. That meant fewer people were paying into the program, yet the amount being paid out was increasing because of the COLAs and the rise in the disability rolls. In June 1974 the Social Security Administration announced a "long-range actuarial imbalance.'' The Social Security financing issue had arrived.

Conservatives took aim. As Treasury Secretary William Simon told President Ford at the end of 1975, Social Security had come under ``persistent attack in the news media for its inequities, its financial uncertainties and its complexities.'' Suddenly features that had been extolled in the golden period from 1950 to 1972 came to be viewed more critically. Did the program treat women fairly? Did the program's problems stem from the way it mixed welfare and insurance elements?

Although President Carter did his best to shore things up in 1977, problems reappeared as the economy once again disintegrated. During Ronald Reagan's first year in office, in 1981, the possibility existed that the program would be unable to pay full benefits by the middle of 1983. That situation spawned a crisis that, despite efforts by both sides to exploit the situation for political benefit, forced Congress to act.

The result was 1983 legislation in which both sides made sacrifices in the interest of saving and strengthening the program. Democrats agreed to a six-month delay in the cost of living adjustments. Republicans agreed to let Social Security's basic structure remain in place and to stop harping on the program's long-term insolvency.

The 1983 amendments, enthusiastically signed by President Reagan, converted him from a critic to a supporter of Social Security. In a sense, he now owned a piece of it. For a time, Social Security financing was taken off the table.

A little more than a decade later, however, government officials reported that, once again, the program faced a long-term deficit. The deficit did not stem from the costs that would be imposed by the retirement of most of the baby boom generation from 2015 to 2022; that had already been figured into the calculations in 1983. Instead, more complicated factors, such as assumptions about lower real wages and higher disability rates in the future, produced the projected deficit.

Amid a general sense that the program could never be fixed, new discussions began. The roaring stock market of the 1990s legitimized the notion of increasing the returns on Social Security taxes by investing some of the money in the stock market, perhaps through private accounts.

Bush, one of the proponents of those private accounts, faces a situation much different from what Reagan faced in 1983. For Reagan the problem was immediate; there was little time to re-examine Social Security's philosophical foundations and make substantial changes. Bush does not have the same time constraints, and he seeks nothing less than a fundamental change in Social Security.

In fact, Bush wants to convince younger Americans that Social Security will not be there for them when they retire....
Editor's Note Mr. Berkowitz ends his piece by noting that even when major overhauls of social programs fail, some changes are usually made. After Clinton's health care plan failed, Medicaid was substantially expanded to help the poor gain greater access to medical care. "

News Coverage about Robert Ball and the Politics of Social Security

Robert Ball, Social Security Warrior, Readies for New Battle, Dec. 14 (Bloomberg)

"Robert Ball remembers when, as U.S. commissioner of Social Security, he became so alarmed at a political deal involving health-care legislation that he went to the White House to warn President John F. Kennedy.

``I said, `If this passes, it will be chaotic,''' Ball recalls of that 1963 meeting. ``Kennedy leaned over and patted me on the knee, and said, `Bob, let's have a little chaos.'''

For more than half a century, Ball has been at the center of every major battle over Social Security. Now, President George W. Bush and Republicans in Congress are planning the most radical changes in the program's 69-year history, proposing to allow younger workers to divert some of their taxes into private savings accounts. And Ball, at age 90, is strapping on the armor once again to defend the program he began working for 65 years ago.

Ball contends that Bush and his allies are overstating the extent of Social Security's fiscal problems in order to justify changes that will unravel a safety net that has kept millions of elderly people out of poverty and that will explode the federal budget deficit. He argues that Social Security, which its trustees said in March faces a $3.7 trillion funding gap over the next 75 years, can be shored up with relatively minor tax increases and benefit cuts.

"There's nothing about the present situation that is any more dangerous than it was'' when the program was thought to be in jeopardy in years past, Ball says. ``There are lots of ways to fix it other than privatization.''

Hidden Agenda?

Says Alan Blinder, a former vice chairman of the Federal Reserve and critic of private accounts: ``The true agenda here, I think, is to put a very big camel's nose under the tent. You start with partial privatization, and in a generation's time you have no Social Security system. The agenda is to go back to the 1920s.''

Ball, who was Social Security commissioner from 1962 to 1973, has a unique perspective on the issue, says Edward Berkowitz, a George Washington University professor who wrote the 2003 book Robert Ball and the Politics of Social Security.

Ball joined the Social Security Administration in 1939, only four years after President Franklin D. Roosevelt created it. He was the staff director of the advisory panel that recommended changes that saved the program in 1950 by extending benefits to farm workers and other groups not covered, Berkowitz says.

In 1956, Ball helped encourage Congress to create Social Security disability insurance over the opposition of President Dwight Eisenhower. That health-care bill he fretted over with Kennedy became, two years later, Medicare, the health-insurance program for the elderly that fell under Social Security's jurisdiction until 1977.

Looming Bankruptcy

He has worked with Republicans as well as Democrats. In 1972, as commissioner under President Richard Nixon, he brokered a deal with Republicans to index Social Security benefits to the rate of inflation; in 1983, he sat on a commission along with Alan Greenspan, among others, that was set up by President Ronald Reagan to recommend ways to close a funding gap.
Today's Republicans, including Bush and allies such as Senator Lindsey Graham, a South Carolina Republican, argue that the current crisis is far graver. Without major changes, they say, Social Security—which last year doled out $470 billion in benefits to one in six Americans—will go broke, because it can't handle the impending retirement of the U.S. ``Baby Boom'' generation, the 76 million Americans born between 1946 and 1964.

`Have to Be Alarmed'

The system uses payroll tax dollars from current workers to fund benefits for current retirees. In 1937, there were 40 workers for every retiree; by 2030, that ratio will drop to 2.1 workers per beneficiary. Spending on Social Security, now at about 4.4 percent of gross domestic product, will increase to more than 6 percent by 2030, according to the Congressional Budget Office, Congress's nonpartisan research arm.

Graham, a sponsor of one private-account bill in the Senate, argues that preserving the current program is not an option. ``You have to be alarmed,'' Graham says. While the number of beneficiaries will surge by 65 percent from 2011 to 2030, the number of workers paying into the system will grow by 8 percent, he says. "It's going to go bankrupt.''

Employees and employers each currently pay a payroll tax of 6.2 percent of the first $87,900 earned, while the self-employed pay 12.4 percent. Graham's proposal would allow workers to divert 4 percentage points of their taxes to private accounts. According to both Graham's plan and one advanced by a 2001 commission appointed by Bush, workers age 55 and younger would be allowed to participate; in return, they'd have their government-guaranteed benefits reduced.

Transition Cost

Since current retirees depend on the same tax dollars that would flow to private accounts, the government would have to fill the gap during the transition—a cost that the Congressional Budget Office puts at $1 trillion to $2 trillion over 10 years.

Graham said in a Dec. 8 interview that a payroll tax increase might be needed for high-income earners, in order to win support from Democrats and allay their concerns about the transition costs. Bush, though, rejected the idea of a tax increase on Dec. 9, leaving benefit cuts, government borrowing and possibly raising the ceiling on the amount of income subject to Social Security payroll tax as the only ways to make up the shortfall.

Peter Diamond, an economist at the Massachusetts Institute of Technology in Cambridge, Massachusetts, who devised a plan to shore up Social Security without private accounts, said the transition costs will swell the national debt and destabilize Social Security.

`Economic Summit'

``You can't talk about transferring general revenue when you've got debt as far as the eye can see,'' Diamond said. ``You can't pretend that borrowing several trillion is harmless.''

While Bush hasn't yet revealed specifics of his own plan, it is likely to resemble Graham's in important respects; even without a formal proposal on the table, the president will use the "economic summit'' he is convening at the White House tomorrow and Thursday to begin building political support for changing the system.

Opponents are mobilizing too, including AARP, based in Washington, which with more than 35 million members is the largest lobbying group for retirees, and Democrats such as Representative Robert Matsui of California, a member of the House Ways and Means Committee.

And then there's Bob Ball. From his home in a retirement community in Washington's Maryland suburbs, working out of a small office littered with paper piles and plastered with black-and-white photos of himself with Presidents Kennedy, Lyndon Johnson and Jimmy Carter, he is advising Democratic lawmakers and preparing articles arguing against the Republican plans.

`Bad for Society'

``A system in which part of the benefits depend upon investment return is a bad idea,'' he says. "It's bad for the individual involved and it's bad for society.'' Democrats are more likely to support Bush's proposal if the private accounts are offered in addition to Social Security, instead of diverting current tax dollars, he says.

Ball argues that Social Security could remain solvent for the next 75 years through a combination of steps that don't involve taking money out of the system.

For instance, he says, Social Security recipients now receive cost-of-living increases tied to an index that measures changes in the price of a basket of consumer goods and services without taking into account the effect of buyers substituting one product for another when prices increase. Ball advocates tying benefit increases to an index that takes into account such substitutions, thus producing lower benefit increases.

Raising the Ceiling

He also advocates raising the ceiling on the amount of income subject to the payroll tax. The current ceiling covers 85 percent of all taxable income; he proposes raising the ceiling so it covers 90 percent.

And he wants to retain the federal estate tax; currently, legislation passed in 2001 calls for the law to be phased out until 2010, when it disappears entirely for a year. The tax is supposed to return in 2011, but Bush is pushing to make the repeal permanent. Ball says the tax should be kept where it will be at the 2009 level, as laid out in the 2001 legislation.

Leanne Abdnor, a member of Bush's 2001 commission and now president of For Our Grandchildren, an Alexandria, Virginia-based advocacy group that supports voluntary personal retirement accounts, disputes Ball's conclusions.

Private accounts would decrease the risk of seniors slipping into poverty, she says. She cites one commission proposal that would guarantee low-wage workers receive benefits keeping them at least 20 percent above the poverty line. That would lift 700,000 Americans out of impoverishment if enacted today, Abdnor said.

Broken Firewall

Ball also fails to consider that the government will have to spend $5 trillion over the next seven decades to pay off the bonds that form the Social Security trust fund, which Congress has tapped to finance other programs, Abdnor says.

"That's going to have to be paid by income taxes so that the firewall between income taxes and Social Security is broken,'' Abdnor said. ``We're just waiting to flip the switch.''

While others joust over such issues in public, Ball, as he has in the past, is likely to do most of his work behind the scenes, author Berkowitz says. "This administration will come up with its own plan, and then the question is, who will the Democrats listen to?'' Berkowitz says. ``He'll be the point man.''

Even at 90, Ball says, he is up to the task. ``I keep thinking of retiring,'' he says. "And then somebody thinks of a gimmick I have to defend the program against.''

To contact the reporter on this story: Heidi Przybyla in Washington at hprzybyla@bloomberg.net.

Peter Grier: Why Reforming Social Security in 2005 Is Harder than It Was in 1983
Peter Grier, in the Christian Science Monitor (3-11-05)

Congress begins formal debate on the retirement system, but a 1983-style deal looks hard to reach.

On the unseasonably cold morning of April 20, 1983, a coatless Ronald Reagan sat down on the South Lawn and signed a bill intended to rescue Social Security from imminent doom.

Neither Republicans nor Demo-crats were thrilled by everything in the legislation. But by agreeing to raise both payroll taxes aand the retirement age they refreshed the government retirement program with a river of new cash. The compromise, President Reagan said, "is a clear and dramatic demonstration that our system can still work when men and women of good will join together to make it work."

Fast forward 22 years. Once again Social Security and its finances are Washington's Topic A. A 1983-style signing ceremony seems a distant dream, however. What did that era have that 2005 hasn't got?

Politics was different then, for one thing. Powerful figures on both sides of the aisle wanted a deal.

But the biggest change may be the acuteness of the problem. In 1983, Social Security was set to hit a fiscal wall within months. Today, the estimated time of arrival of the program's cash crunch is measured in decades - meaning the urgency needed to overcome political obstacles may be difficult to summon.

"Today they don't have that deadline. They're not playing in sudden death overtime,' says Edward Berkowitz, a professor of history and public policy at George Washington University. . . .

Prior to settling down to negotiations, Sen. Daniel P. Moynihan (D) of New York accused Republicans of "terrorizing older people" with their proposals. GOP Sen. William Armstrong of Colorado struck back, charging Democrats with "demagoguery."

"It wasn't as easy [to reach a deal] as people remember it," says Eric Patashnik, a University of Virginia political scientist.

The root cause of Social Security's problem was the same then as today: a declining number of tax-paying workers per retiree, thanks to a growing number of older Americans. But the added twist of the time was that this problem was turbocharged by stagflation. Fast-rising prices were making the cost of Social Security soar, while a stagnant economy meant revenue remained relatively flat.

The Reagan administration was relatively eager to address the problem. However, a presidential trial balloon proposing deep cuts in benefits for early retirees proved highly unpopular—so much so that it was repudiated by the GOP-controlled Senate by a vote of 96-0.

Burned, the Reagan team handed Social Security off to a 15-member presidential commission headed by economist Alan Greenspan, who is today the chairman of the Federal Reserve.

The commission itself remained deadlocked through much of 1982. But eventually an inner group of negotiators, meeting in secrecy under White House auspices, helped craft a deal. Previously scheduled payroll-tax increases would be rolled forward, among other things. The age for full retirement benefits would be pushed back from 65 to 67.

One lesson here, say historians, is that a few people of will and knowledge can overcome a larger atmosphere of partisanship and mistrust. The commission included such prominent Republicans as Senate Finance Committee chairman and presidential aspirant Sen. Bob Dole of Kansas, and Democrats such as Robert Ball, a longtime commissioner of Social Security. A core group from both parties knew they had little choice but to hammer out a compromise—and they did.

"It was a high point of almost all of these peoples' careers," says Dr. Berkowitz of George Washington University.

But this statesmanship was powered by panic, in a sense. Both sides concluded that without action by early 1983 Social Security would have started to run a slight deficit by midsummer. Back then, the system had not piled up a large trust fund surplus - meaning there was a possibility that payments to seniors would be disrupted.

From this may come a second lesson: You need a consensus about what's broken before you can argue about the repairs. Today Republicans generally describe the situation as a crisis requiring urgent action. Democrats say it's not that bad, and add that personal accounts are irrelevant to the issue of program solvency, anyway. "In 1983 there was a bipartisan agreement on the problem. Right now we don't see that," says Dr. Patashnik of the University of Virginia...."

The Los Angeles Times reports on Robert Ball and the politics of social security. (This link requires you to register with The Los Angeles Times, registration is free.) http://www.latimes.com/news/printedition/la-na-bobball30may30,1,4270501,full.story?ctrack=1&cset=true

Robert Ball on the Current Crisisphoto of Robert M. Ball

How to fix Social Security? It doesn't have to be hard.
By Robert M. Ball

"Federal Reserve Board Chairman Alan Greenspan's call for a reduction in Social Security benefits came as Aging Today was working on the "Forum" essay that follows with Robert M. Ball, who was Commissioner of Social Security under Presidents Kennedy, Johnson and Nixon. Ball, the founding chair of the National Academy of Social Insurance in Washington, D.C., challenges many of the notions underlying arguments for major Social Security reforms. His latest book is Insuring the Essentials: Bob Ball on Social Security (New York City: Century Foundation Press, 2000). Now age 90, he is the subject of a new biography, Robert Ball and the Politics of Social Security, by Edward D. Berkowitz (Madison: University of Wisconsin Press, 2004).

Millions wrongly believe Social Security needs a radical overhaul.

In this commentary, Ball explains that the program's projected long-term shortfall partly stems from the unexpectedly rapid rise in earnings by upper-income Americans compared with lower-income workers. He also recommends adjustments in the Consumer Price Index and dedication of a revised estate tax to Social Security. Perhaps most surprising, Ball calls for a flexible new approach to Social Security's customary 75-year projections, which would avoid "bogus crises" that erupt from time to time when the Social Security trustees report shortfalls in the program's long-range balance.

Things were relatively quiet on the Social Security front in 2003, largely because lawmakers were busy with Medicare. The Administration, however, has made clear its intention to include Social Security reform-meaning partial privatization-in the 2004 presidential campaign, and now Alan Greenspan, chairman of the Federal Reserve Board, is calling for benefit reductions. The program will remain vulnerable to such calls for "reform" and benefit reductions as long as it is said to be facing a major long-term deficit for which there appears to be no politically viable solution. So it's urgent for Social Security defenders to come up with a plan to meet the program obligations-a plan capable of attracting broad public support. What is not widely understood is that major changes are unnecessary. A few sensible steps, desirable in themselves, will do the job.

The Social Security Trustees Report for 2003 shows a 75-year deficit equal to less than 2% (1.92%) of the payrolls covered by the program. In other words, to bring income and outgo into balance over 75 years would require either additional income or benefit cuts equivalent to about a 1 percentage point increase each in the payroll tax rate for employers and employees. Although the 1 percentage point increase each in the contribution rate makes the size of the deficit clear, there are much better ways to accomplish the goal of long-range balance.

Instead of raising the payroll tax rate, I propose that Social Security go back to covering 90% of all earnings from workers included in the system. This was the level of coverage Congress set the last time it considered the matter in 1983. However, today only about 85% of earnings—not 90%—are taxed and credited to workers' accounts for benefit purposes. Consequently, 15% of earnings, not 10%, are escaping Social Security taxation. This result is not due to a policy decision—it is solely because over the last two decades, earnings at higher levels have increased at a faster rate than earnings at lower levels.

Here is how the system works and why payroll taxes don't apply to 100% of income covered by Social Security: A benefit credit is established for every dollar on which a worker must make a contribution, but there is a cutoff point each year ($87,000 in 2003) beyond which a worker is not required to contribute and for which no benefit credits are established. This cutoff amount, which rises each year in accordance with the growth in average wage levels, was established because most people would find it inappropriate in a social insurance system to pay the very high benefits that would result from crediting million-dollar-plus salaries for benefit purposes. At the same time, it would seem unfair—and fundamentally change the nature of Social Security—to require contributions without granting benefit credits. A major part of the Social Security shortfall is due to the fact that a higher and higher proportion of earnings is escaping Social Security taxation.

To return to the 90% rule of thumb, I propose that when the cutoff point (usually referred to as the maximum taxable and benefit base or the maximum earnings base) rises each year to reflect the growth in average earnings, it be increased slightly—by 2% more than it would have been under current calculations. For example, the increase in earnings subject to Social Security taxes from 2002 to 2003 was $2,100; thus, the 2% proposal would have raised the maximum earnings base another $1,800 (after rounding required by law).

By adding a 2% increment back each year, Social Security would be restored to collecting contributions based on 90% of covered earnings by 2036. This change would increase the contributions of the 6% of earners who are paid more than the cutoff amount. These higher-paid earners would receive benefit credits for their increased contributions, but under Social Security's weighted benefit formula, additional credits at the higher wage levels would leave a net gain for the system.

This proposal is not a new policy, but an old one restored. Although certain to be attacked as a tax increase by those favoring privatization, it would probably have broad support as the best way to bolster long-range Social Security financing.

My second proposal is to change the Consumer Price Index (CPI) Social Security uses in determining the amount of the Cost of Living Adjustment (cola) added each year to maintain the purchasing power of Social Security benefits.

The CPI currently used by Social Security measures changes in theprice of a standard market basket of goods and services. The Bureau of Labor Statistics has developed a more accurate CPI that measures not only price changes for the market basket, but also the effect of switching one type of purchase for another as price changes cause people to make substitutions. Adoption of this improved index would produce slightly lower cola increases and, thus, somewhat reduce Social Security costs. Improving the accuracy of the cola is a change that defenders of Social Security should support on principle, and it is also a change supported by Alan Greenspan and some other critics of the present law. There is every reason to move rapidly ahead on this change.
colas have proved vitally important in maintaining the buying power of Social Security benefits, but they are not intended to do more than that. colas should be as accurate as possible-in part so that policymakers can address the question of benefit levels directly rather than letting inaccuracies in the CPI substitute for policy decisions. I am opposed to benefit reductions that go beyond this CPI correction. Social Security benefits are not too high; they are barely adequate as they are.

These two steps—updating the cutoff maximum for Social Security contributions and adopting the new CPI—would cut the anticipated long-range deficit in half-from about 2% of payroll to about 1%. If enacted within the next year or two, these changes would extend the date when the savings in the Social Security trust funds would be exhausted from 2042—as is now projected—to 2055. At that point, under present law, Social Security benefits would be supported only by money being paid in contributions at that time by current workers and their employers. This amount would be enough to pay about 70% of the benefits scheduled under present law. The bottom line, however, is that the two changes described would keep the program on track for the next half-century-a reassuring accomplishment in itself.

The Social Security deficit, under the middle-range assumptions, would be more than halved again-to only 0.4%-by dedicating a reformed federal estate tax to Social Security. This change could be accomplished by an estate tax exempting estates up to $3.5 million, as would be the case in 2009 under present law. At that level, only one-half of one percent of U.S. estates will be subject to any estate taxes. By closing the projected deficit to within a half percent, this plan would restore Social Security financing to well within what the trustees call close actuarial balance over the customary 75-year period used to measure the program's long-range solvency. (See "A Proposal for Progressive Financing" on this page.)

One could argue for financing this cost through general federal revenues instead of an estate tax. But there are no longer any general revenues available. All of the many proposals that purport to solve Social Security's financial problems through schemes making vague reference to future general revenues don't really solve anything. The only source of income that should count as part of a financial solution is a dedicated source not otherwise available to the federal treasury. Restoration of the estate tax and its dedication to Social Security is ideal for this purpose.

Should Social Security go beyond close actuarial balance and move to exact balance? In other words, what-if anything-should be done about the 0.4% of payroll deficit shown remaining after taking the three steps I've described? Keep in mind that the 0.4% deficit shows up under only one of the three official scenarios made by the Social Security trustees, the middle-range estimates. Each year, the trustees also develop low-cost and high-cost assumptions-considered possible but unlikely scenarios-to show the range within which actual experience can be expected to fall.

Robert M. Ball, center, was US Commissioner of Social Security when Medicare was enacted in 1965. He is shown above holding one of the first Medicare cards, along with Rep. Cecil King, left, and Sen. Clinton Anderson, right, chief sponsors of the legislation. Robert M. Ball, center, was US Commissioner of Social Security when Medicare was enacted in 1965. He is shown above holding one of the first Medicare cards, along with Rep. Cecil King, left, and Sen. Clinton Anderson, right, chief sponsors of the legislation.

Under the low-cost scenario, there is no deficit at all over the next 75 years, even without the changes I am suggesting; under the high-cost estimates, the proposed changes are not enough to bring the program into close balance. The one certainty is the uncertainty of any 75-year forecast. Consider, for instance, how estimates in 1929 would have looked without any allowances for the results of the Great Depression and World War II—events that would have made estimates based on otherwise quite reasonable assumptions wildly inaccurate.

Our planning needs to recognize that no proposal can guarantee balance over a 75-year period. To avoid seriously underfunding the system and putting benefits at risk, or overfinancing it and thereby shortchanging millions of contributing workers and employers through needlessly high contribution rates, the approach should be to adjust the financing of Social Security as cost and revenue estimates change.

Although over the last 20 years the projected Social Security deficit has grown with new estimates, we need to keep in mind that the risk of change is not all in one direction. For example, the middle-range estimates may prove too pessimistic. One of the key assumptions governing future costs is the rate of anticipated increases in productivity. It is not only the ratio of workers to retirees-of which we are continuously told-that affects Social Security's future costs, but also how much these workers are able to produce. As additional investments are added to the mix of labor and capital that produce our supply of goods and services, each hour of worker effort (the measure of productivity) produces more. The present middle-range assumptions concerning the rate of increase in future productivity are quite conservative in comparison with what has actually been happening to productivity recently.

Therefore, instead of adopting a final employee-and-employer contribution rate that purports to balance long-range income and outgo over the entire 75-year period exactly, I propose that Social Security provide for a rate that would be adjusted as the estimates change. This balancing rate would be based, at any one time, on the trustees' most current middle-range assumptions, but it would be clearly understood-and clearly communicated to the public-that every once in a while this rate would probably need to be adjusted, up or down. (There is an approximately equal chance of either, as long-term forecasts change.) The balancing rate would be a fail-safe provision to take effect automatically if Congress neglected to adjust revenues and costs to changes in the estimates.

I propose providing for a balancing rate to become effective in the year in which Social Security trust funds would otherwise start to decline. To illustrate: After taking into account the changes I propose in the maximum earnings base (the cutoff point to taxing income), the CPI and the dedication of the estate tax, the trust funds would continue to grow until about 2053, using the middle-range assumptions. To prevent trust-fund reduction from starting at that time and to provide for funding for a full 75-year period from now, the program would need to schedule a balancing rate increase of roughly 0.9 percentage points each on employers and employees for that year.

Alternatively, Social Security could be financed for the full 75-year period by increasing the contribution rate today by 0.2 percentage points each on employees and employers. But if the program actually were to start collecting this total increase of 0.4% of payroll, it might collect more than necessary, overcharging today's workers. My recommended approach of making prudent adjustments now and providing for a balancing rate to be scheduled many years later reduces the possibility of overfinancing while at the same time guarding against underfunding the system.

This strategy has the added benefit of avoiding periodic false crises about Social Security finances. Currently, when the Social Security trustees annually release their latest 75-year estimates, the media report them as though the middle-range numbers are exact and immutable rather than as one of three educated guesses about how the world will look three-quarters of a century from now. So what is really the trustees' tentative expectation of a possible distant shortfall becomes a crisis, prompting millions of Americans to believe, wrongly, that Social Security is on the brink of collapse and in need of a radical overhaul.
If the program is to avoid such bogus crises, it will be critical to acknowledge the impossibility of making accurate 75-year estimates-even while continuing to use long-range forecasting as a tool with which to responsibly ensure that Social Security is adequately funded for the long run. The balancing rate designed to keep the system within close actuarial balance serves this purpose.

Social Security doesn't require reforming because it hasn't failed. The system that has served so many so well for so long simply needs some timely maintenance work. Let's get started."


42 to 1, 16 to 1: A note on the misleading use of accurate statistics

"Critics of the present Social Security system often depict it as doomed by an inescapable demographic train wreck. In a typical example, New York Times columnist David Brooks recently described partial privatization of the system as the only solution to an "otherwise intractable" problem.

"The outline of the problem is clear," Brooks wrote. "When the Social Security program was created, there were 42 workers for each retiree. Now there are about three workers per retiree, and in 2030 there will be two."

Such statements, generally unaccompanied by any attempt at amplification or conext, clearly imply that a system deigned in and for another era has been overtaken by overwhelming and unforeseen changes and is therefore unsustainable in its present form.

In fact, however, the demographic changes that have been taking place throughout Social Security's history were anticipated and understood when the program was being established and have been taken into account in its funding ever since. Those who base their arguments for partial privatization on the disappearance of the 42-to-one ratio (or the 16-to-one ratio in 1950, a statistic often cited by President Bush) are contributing — deliberately or otherwise — to public confusion about the program's past, present and future.

To take this ratio-based argument to its illogical extreme, one could point out when Social Security first went into effect, in 1937, there were millions of workers per beneficiary — since, in the beginning, there were zero beneficiaries. Obviously that ratio was going to change, however, and Social Security's designers fully anticipated such changes.

Any retirement system that requires contributions and work under the system as a condition for getting benefits takes a long time to be very effective. In the early years few of the elderly will meet the eligibility requirements because they are already retired and will not work again. Thus, even by 1950, 13 years after the first contributions began to be paid into Social Security, only about 15 percent of the elderly were getting benefits. Gradually, however, ever-higher proportions of those reaching retirement age were eligible — and now just about all are.

Social Security was planned for the long run. It was not expected to do much in the early years (when there was much greater reliance on the means-tested old age assistance program) and the early ratios of workers to retirees had little relevance to the long-range cost estimates. The slow developent of Social Security toward a universal system has always been the basis for estimating its costs and determining its contribution rates. When the system was refinanced in 1983, the assumptions about the future ratios of workers to retired beneficiaries were about the same as the assumptions used today, and the cost of the future changes were fully provided for then — and are fully provided for now.

The reasons why a long range deficit has re-emerged since 1983 are related entirely to other factors — including, among other changes in the forecasting assumptions, a more pessimistic view of the future performance of the economy and a greater incidence of disability and related costs than previously estimated.

Nevertheless, Social Security's financing problem is frequently described as if it were caused entirely by the shifting ratio of workers and retirees, and commentators attempting to make this case frequently confuse the ratios related to the inherently slow start-up of a contributory system — the worker-elderly ratios of 16 to one and even 42 to one, which have nothing at all to do with the future cost of the system — with the shift from three to one now to two to one in the future, which is an important aspect of the rising cost of the system, but one entirely anticipated and provided for in the 1983 amendments.

The plain fact of the matter is that Social Security faces an eminently avoidable long-range funding shortfall, not an inevitable collapse brought about by unmanageable changes in the historic ratio of workers to beneficiaries. Those who advance that argument are using an accurate statistic to make a highly inaccurate charge.

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Robert Ball and the Politics of Social Security.

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