Soc Sec XXVII: Robert Myers and Prefunding Social Security
Who is Robert Myers? Well prior to this morning I couldn’t have told you. But here is an abbreviated job history.
Junior Actuary, Committee on Economic Security 1934-35
Various Actuarial Positions, Social Security Board 1936-46
Chief Actuary, SSA 1947-1980
Member, National Commission on Social Security 1978-81
Deputy Commissioner, SSA 1981-82
Executive Director, National Commission on Social Security Reform 1982-83
That is this guy was there before the beginning and remained through the Greenspan Commission and so is uniquely placed to tell us what was in the mind of the Commission. His Oral History is recorded here: http://www.ssa.gov/history/myersorl.html
The story of whether the Commission was solely concerned with short term vs long term or whether they thought they were prefunding is maybe not as simple as I have suggested. So I just want to give it in Myers own words and reserve my thoughts for comments. But I did bold some things for emphasis.
(BTW I have only begun to tap this resource. Myers has lots of interesting insights and I recommend reading the whole interview.)
Q: Let’s talk about some of the provisions in that final consensus package. One of the big things in there, and that eventually became a part of the ’83 amendments, was a move from pay-as-you-go financing to a partial reserve funding approach. Tell us about that.
Myers: Maybe you noticed that I winced a little as you said that, because it’s not correct. But it has often been described in that way, so I am not being critical of you.
In the ’72 amendments the system was changed to be on a pay-as-you-go basis. The ’77 amendments changed this to some extent by providing for the building up of a sizable reserve, but not in the early years unfortunately. In the mid-’80s, and particularly in the 1990s, if everything had worked out, it would have built up a very large fund. So in practice, the pay-as-you-go result would have been there for the first 5 or 10 years but the underlying financing mechanism was to build up a reserve. Now over the long run, it would have been exhausted, but it would have built a large fund in the 1990s and early 2000s. Now what was done in ’83 in essence was to continue this but to strengthen the early years so you weren’t going to have another financial crisis and it was also going to hopefully balance out over the long run, unlike the ’77 amendments. Ideally what would have happened, if the estimates had been right, the Trust Funds would build up a large fund of some $20 trillion and then at the end of the 75-year period that would have gone down to maybe 1-year’s fund.
So it was what I call temporary partial reserve financing, which is a roller-coaster in some ways. Which is not a good idea and which I didn’t think was a good idea at the time, but there wasn’t time to do anything about it. What should have been done is not to have as big a tax increase in 1990 and have tax increases in later years. The whole air of crisis in early ’83 was let’s fix this system up for the next decade. Let’s also say that we looked at the long run problem and on the average we handled it. But on average isn’t so good. I mean it’s a lot better than nothing. At least it was recognized, unlike the 1977 amendments. The thought in my mind, and I think in other peoples’ minds, was there is going to be time, let’s fix this up in the future. Let’s not have this big fund build up and then be used up. Let’s have more sensible financing. But there was also the attitude of let’s not rock the boat now. We’ve got a consensus, let’s take it and run. The consensus fixes the short-range and on the average it fixes the long-range, and that’s a pretty good step.
Unfortunately in the early 1990s when Senator Moynihan made an attempt to do this he didn’t get anywhere because of budget limitations, which I think were very artificial. But the Commission never really looked at the long range situation except wanting to be able to say we recognized it. We’ve raised the retirement age to help solve this problem and so forth. So in hindsight critics can say, “Hey, why didn’t you guys do a more thorough job?” When a house is burning down you can’t always take care of every problem. That was the situation. Obviously in an ideal world we would have done a better job. I would have done a better job, but it would have been silly for me to get up before the Commission in the closing days and say ,”Hey look guys. Sure you fixed up the short-range. Sure you recognized the long-range problem but you didn’t really thoroughly study the long-range problem.” They couldn’t be bothered with that.
Q: Do you recall who’s idea that was, who, if anybody, was pushing this financing approach?
Myers: It just developed. It wasn’t planned. Nobody said let’s do it this way. It was just the natural result of saying we’ll fix up the long-range situation in 75 years on the average. We’ll fix it up and we’ll do this in part by having a high tax rate beginning in 1990. When you have a level tax rate and increasing benefit costs, then averaging out higher benefits later you’re bound to build up a fund and you’re bound to use it up.
Q: As we look at it today, some people rationalize the financing basis by saying that it’s a way of partially having the baby boomers pay for their own retirement in advance. You’re telling me now this was not the rationale. Nobody made that argument or adopted that rationale?
Myers: That’s correct. The statement you made is widely quoted, it is widely used, but it just isn’t true. It didn’t happen that way, it was mostly happenstance that the Commission adopted this approach to financing Social Security. The way they thought about it was that in order to achieve long-range balance we have to have this high tax rate in 1990, instead of putting it in steps. We could have fixed it up with a series of steps, lower in 1990, about the same in 2010, higher in 2015, that could have fixed it up just as easily, but there wasn’t time. It was not intentional. It has the effect of baby boomers paying for their own retirement, which in a sense is good, but it wasn’t a controlling element and it was not talked about. The main thing that was talked about was how do we fix up the short-range problem. Are you sure we aren’t going to have another crisis in 2 or 4 years? And can you say that we have looked at the long-range problem and have done something about it?