Sen. Bill Cassidy, R-La, is leaving the United States Senate at the close of his term in January, but he is not leaving the fight for a permanent solution to Social Security funding reform. In an exclusive interview with SavingAdvice.com, he vowed to continue pushing for a two-pronged Social Security fix laid out in legislation he has proposed: the Promise Act and the Big Idea.
The Big Idea: Long-Term Social Security Fix
Cassidy and co-sponsor Sen. Tim Kaine, D-Va, have proposed a bill that Cassidy says could “evergreen” Social Security.
“I can tell you with the Big Idea, with just a few tweaks here and there, you have a chance to evergreen the Social Security trust fund,” said Cassidy. “Think about that. To never again have to worry about solvency, and with the Big Idea we call it different things with the Big Idea creating this investment fund, we make Social Security evergreen.”
The plan would use $1.5 trillion in seed money to invest in stocks, bonds, and other equities, letting the interest compound over 75 years. At the end of that term, the original $1.5 trillion may multiply many times over, producing a fund that would pay Social Security shortfalls and continue to grow.
Revived and Revised Plan
The idea is not completely new. However, one important part of it is. The Big Idea would not be funded with money from the Social Security Trust Fund.
“So let’s unpack that a little bit. Bill Clinton also proposed this, and he proposed using trust fund dollars to put into the equity market and other things,” noted Cassidy. “If we had done it right then, we would not have a problem with the shortfall. George Bush proposed individual accounts for those who are younger.”
Those measures failed, Cassidy believes, because they would have used trust fund money.
“But coming from the Social Security payroll tax, we learn politically it’s very difficult to touch the trust fund. So our proposal sets up an investment fund separate from the trust fund, and no Social Security payroll tax dollars go into it,” explains Cassidy. “The dollars would come from elsewhere, and there’s different options of where the money would come from, but it would not come from the Social Security payroll tax. So that’s number one.”
Along with using money from outside the Social Security Trust Fund, the Big Idea employs the time value or compounding effect of money.
Time Value of Money
“Number two, if you look at the stock market since 1929, through its ups and downs, its average rate of return is over 10%. And so, you’re right, at any given day, the market may be down, but year over year, over year, particularly over a course of 70 years, because in our proposal, we just let the money build up for 60 to 70 years, you’re going to win,” says Cassidy.
“I mean, you can just look at our stock market. . . the stock market has continued to rise over 10% on average since 1929. And yes, there’s a great financial crisis that everything goes south, and then within six months you’re back up, and six years later it’s like it never happened. So we think that the issue is not timing but time. It’s not gambling. It’s betting on as much of a sure thing as you can bet on when it comes to finances. Which is, by the way, the reason that people have 401ks for their retirement or when people who have a fixed pension from their employer, the employer is investing in the stock market in order to pay the future benefit. So this is sound actuarial practice in order to pay future obligations.”
Proof of The Plan
Skeptics might argue that what works in the private sector would not work in a government-run program. However, Cassidy draws on several examples to counter that argument.
“Well, by the way, to show that this can work on a government level, when George W. was president, the federal railroad retirement system was going insolvent. Fewer workers, more retirees. Sounds familiar, doesn’t it?” says Cassidy. “And in that case, they did exactly what we’re describing, except they actually used the trust fund to do it. But now they’re firmly in the black, because the rate of growth of the stock market has been greater than the growth of the obligations to pay.”
Even large governmental entities have done similar programs, according to Cassidy.
“The Canadians were having the same sort of problem. And so the Canadians, each of the provinces, kind of broke up, did their own. They have done so well they’re beginning to decrease the payroll taxes that people pay in for future retirement. Wisconsin’s teachers fund. You can go down the list of state, national, or provincial governments that have done this. It works. It’s not something out of the blue. It is something which is good financial practice.”
Risk Refuted
Still, there are those who consider investing in equities to fund retirement too risky. Cassidy calls them out.
“The people who are going to bash it will say that, and I promise you their 401k is in the stock market,” says Cassidy. “And the unions have their pension plans in the stock market, and the businesses have their fund to address expected future obligations in the stock market, and so this is all good financial planning. So the people who are trying to scare others. They’re being irresponsible. They’re being irresponsible by creating fear when they themselves (have) their 401k almost certainly in the stock market.”
While the Big Idea addresses long-term Social Security funding needs, it does not provide a solution for the short term. However, Cassidy has a separate proposal to do that.
The Promise Act: Short-Term Social Security Fix
The Social Security Trust Fund has projected that it will run short of funds by 2032. That will trigger an automatic 22% cut in benefits for all beneficiaries from then on.
The Promise Act does not endorse any one plan for keeping Social Security solvent. It would establish a Social Security Advisory Board to research various plans and make a recommendation to Congress. From there, the recommendations would go to House and Senate committees and from those committees to votes by both legislative bodies.
Prompts For Quick Action
Two provisions in the bill are designed to push Congress to act quickly and offer a long-term solution. The board must aim to keep Social Security solvent for 50 years, and a vote by Congress must come by mid-November.
With no action taken so far and mid-term elections fast approaching, there is little chance the Promise Act will be addressed in this Congress. Cassidy acknowledges that. In addition, with him and co-sponsor Sen. Dick Durbin, D-Il, both leaving Congress in January, the proposal may fade into obscurity.
“I don’t know if it (the Promise Act) can be done,” Cassidy told SavingAdvice. “I really don’t. But I’m not asking people to vote on a particular proposal. All I’m asking them is to agree to look at the proposals that have been made.
“And by the way, any senator who wished could offer their own proposal . . . to substitute for the one proposed by this working group. It is the bare minimum to ask of Congress to at least consider the things that have already been proposed. I don’t know if we get it done, but that’s a condemnation of Congress if we can’t.”
Cassidy thinks it might take more than Congress itself to get something done.
Citizen Action
“You know, what is the role of the people who are reading your article?” he asks. “They need to call their congressman or their senator wherever they live and say, ‘We need to fix this, and we need to fix it now.’ They’re always going to be told, ‘Oh, we’re going to get to it.’ Oh, ‘I’m actually interested in it.’ No. Tell them to vote, if they’re a senator, for the Cassidy-Durban resolution to start working on it now. Tell them to fix it now. The longer we wait, the more harmful it is either to our country or harmful it is to the social security benefits of the individual. Just tell them (readers) to be active. We need their help.”
What to Read Next
22% Benefit Cut Looming: What the New Social Security Warning Means for the 4.5 Million Retirees in Florida
3 Social Security Changes Senators Are Debating — And Which Could Happen First
Social Security Faces a 2032 Funding Deadline — 6 Proposals That Could Change What Retirees Receive
Read the full article here
