Speeches, Public Comments and Analyses

Dick Cheney, Vice President
Fox News Interview with Chris Wallace
February 6, 2005

This interview is, in our minds, one of the more revealing pieces in this section, because the Vice Presdeint acknowledged both the costs of privatization and the fact that privatization really has no relationship to fixing Social Security's "problem."

WALLACE: Welcome back to "FOX News Sunday" and our exclusive interview with Vice President Dick Cheney.

Mr. Vice President, let's talk about some domestic issues, and maybe we'll even get into a little politics.

CHENEY: OK.

WALLACE: The president got the debate over Social Security going strong this week, and my guess is people have a lot of questions. And I want to ask you some of the questions that we're hearing from people.

First of all, the cost of this program of putting in personal accounts: The White House says, for the next 10 years, the cost of starting the personal accounts, the transition costs, would be $754 billion, which is a little less than a lot of people had thought it would be.

My question is, isn't that misleading? Because under your plan, the accounts, the program wouldn't actually start til 2009. So, if you take the first full 10 years, when people can actually invest in the program, the cost is over $1 trillion, and for the following 10 years, it's $3.5 trillion.

Isn't it a lot more expensive?

CHENEY: Well, it all depends upon how we set up the program and phase it in over time. It's not going to all start next year, 2006, for example. It's phased in both in terms of age, as well as when we actually begin to allow people to set money aside into their personal accounts. There's a cap on that would be gradually elevated over time.

It is important to manage the fiscal impact of these transitions in an intelligent fashion, and we're well aware of that. And that's one of the reasons you do phase it in.

It's one of the reasons it's so important for us to start now on addressing these issues. And we have people running around saying, "Well, it's not going to be a problem for 30 years." If we start now, it'll be cheaper in the long run. We can phase it in over time, so it's fair and equitable to everybody who's affected by it. People have time to adjust. And we get the advantage of the time value of money going forward, to the extent that people have got savings they set aside.

So, the question here, I think, with respect to the dollar figure you've got, the estimate we've given is, in fact, the right estimate, going out over the next 10 years, given the way, in fact, we want to begin the program and phase it in as we increase the amount that people will be able to set aside.

WALLACE: All right. We certainly agree it's going to be a lot of money. It's going to be expensive.

What has happened is that, while the administration is ready to talk about the problems of not fixing the system under the confusing concept of an "infinite horizon" (the claim of a $10.4 trillion shortfall), they insist on discussing the costs of fixing that problem in terms of only the first, and smallest piece (the first five years their proposed change will be in effect, becauise it won't be in effect for the first five years of the period they are discussing).

Second question, how are you going to pay for it? In the State of the Union, President Bush had this to say about that. Let's take a look.

(BEGIN VIDEO CLIP)

BUSH: Let us do what Americans have always done and build a better world for our children and our grandchildren.

(END VIDEO CLIP)

WALLACE: I want to ask you about that. The administration plans to borrow trillions of dollars to pay for these personal accounts. But wouldn't that, in effect, be saddling those children and grandchildren with the bill?

If you're so concerned about them, let's pay for it ourselves. Why not pay for it by either raising taxes or cutting benefits? Why borrow and add to the deficit?

CHENEY: It seems to me you've got to go back to the beginning and start from square one. And square one is, the program is OK today for today's retirees and for those 55 or over, who are going to be retiring in the next 10 years. They're going to get their benefits exactly as planned. There's no change proposed in any of that.

For people born before 1950, what you're going to get is exactly what you've got today. And it's important that that be out there, because the opponents are running around, like MoveOn.org, George Soros's organization, challenging that, saying we're threatening existing Social Security. Not true.

Secondly, with respect to the cost, the real cost over time is doing nothing. Because if we do nothing, then the system's going to go belly up. It's going to go broke. It won't be there for today's younger generation, so that when kids 20 years old now, starting out in the workforce, get to be 65, they know full well that Social Security won't be there for them because it is not then properly funded.

No true -- the system will be there -- just the level of benefits that will be payable will be (roughly) 80% of the level sheduled to be paid, if the system were adequately funded. But that is acttually only half of the untruth. The costs being discussed are the costs of privatization -- which does absolutly nothing to fix the shortfall per se. In other words, the $4 trillion or so estimated to make this change actually accomplishes nothing to fix the basic problem.

WALLACE: Mr. Vice President, I'm not talking about fixing Social Security. I'm talking about the personal accounts and the fact that you're talking about borrowing trillions of dollars.

Chris Wallace nails it....The administration hasn't described what it would do to actually fix the shortfall, but the Presidential commission has made one suggestion -- by indexing the initial benefits to inflation, rather than wage growth, it would cut benefits at an ever increasing rate (those just entering the workforce in 2009 would see their benefits cut by almost half).

And my question is, why borrow it? Isn't that, in fact, hurting future generations? Why not pay for it now?

CHENEY: No, I don't -- because you'd get a tax increase now that would in fact do serious damage to the economy.

WALLACE: Or a benefit cut?

CHENEY: Well, but at some point there are going to have to be other fixes to the economy.

There are two pieces to the program here. One is the personal retirement accounts, which we think are very important to go forward with, partly because it's a better deal for the younger generation, partly because they'll own it, partly because they'll be able to earn a higher rate of return off funds put into a personal retirement account than they will off of what they would get through traditional Social Security. And there's this element of ownership that we think is very important.

WALLACE: But you don't think borrowing trillions of dollars more -- you talk about the economy -- increasing an already huge deficit, you don't think that's bad for the economy?

CHENEY: Well, but, again, remember how much we're going to borrow. We're going to borrow $758 million (sic) over the next 10 years to set up the personal retirement accounts. We think that's a manageable amount.

WALLACE: But trillions more after.

CHENEY: That's right. Trillions more after that.

But the personal accounts will themselves provide a significant return for those who hold them, so that they'll get a better deal, if you will, out of money put into that system than they would if they paid it into Social Security.

Actually, while the personal accounts will provide a better return (since they are savings and not pay as you go), there is risk involved. The administration projects handling costs of .3% of assets and will reduce benefits from the traditional (non-privatized) portion by 3% over inflation so, to break even, one must earn 3.3% after inflation just to break even. Since the 3% is keyed to the return on risk-free investment, the private account holder (worker) is taking all the risk for what the adminiistration is optimistically predicting will be something on the level of a 3.1% return after deducting the costs and "clawback".

Now, there are other questions that have to be raised here. I mean, you've got the basic Social Security system itself that, by about 2018, will be paying out more money than it takes in.

We started with a system, back in the '30s, where a majority of Americans didn't live long enough to draw benefits. Now life expectancy's much greater.

We started with some 40 workers paying into the system for every one taking out. Now we've got about three.

We also started when the country was in a lingering depression and even those who had work had a far lower standard of living than today's workers.

The basic fundamental structure of Social Security, separate apart from the personal accounts, has to be changed. It's got to be reformed, or it will go belly-up in 2040-something.

There may be a bit of hyperbole there -- we don't need to change the "fundamental structure" of Social Security at all. But we do have to make some changes to keep the benefits projected consistent with the benefits we will have the funds to cover. And Vice President Cheney is absolutely correct. Fixing Social Security to solve that problem is entirely separate and apart from privatization, which does nothing to solve that problem.

WALLACE: I...

CHENEY: And that piece of the debate has to occur too. And there what the president did was say, "Look, there are a lot of alternatives out there that we want to talk about. I'm wide open to anybody who's got an idea. And we're going to begin and have that debate as well."

We think part of the reform ought to be these retirement accounts.

WALLACE: I want to ask you about that part of the debate. You say that the president said he's wide open. Well, he's wide open except for one thing. He said the only thing he won't do is raise payroll taxes.

CHENEY: Right.

WALLACE: But the White House refuses to rule out raising the taxes on that part of your income that is subject to the payroll tax.

So my question really is: If the cap, now, the income cap, is now $90,000, and if you're willing to raise that, you raise it, let's say, to $200,000, for people who are fortunate enough to make that kind of money, isn't that a big tax increase?

CHENEY: Well, you're getting down now to trying to critique individual parts of the program that nobody's signed up to yet.

What the president has said is we want to have a -- we want to fix Social Security. We want to do it once and for all. We feel we've got an obligation. We've got an opportunity now. And now's the time to act on it. And that involves some tough decisions, as well as the effort to set up personal retirement accounts.

We talked the other night not only about the question, for example, of indexing, going from wage-indexing to price-indexing, we've talked about raising the retirement age. We've talked about other proposals that have been offered over the years by Democrats and Republicans alike.

And we think everything ought to be on the table, and we ought to be able to look at all those options and come up with a package that will make Social Security financially sound going forward and, at the same time, allow this basic transformation where, in fact, the younger generation has an opportunity to have personal retirement accounts, something they will own, something they can pass on to their kids and grandkids, something that will give them a greater return than what does straight Social Security.