New Mexico's Representative for District 2, Republican Congressman Steve Pearce, recently initiated a state-wide "listening tour" to gauge interest in his chosen stance in favor of President Bush's controversial initiative to privatize Social Security. Critics of the privatization argue that it is a dangerous proposal which will leave many citizens without a safety net when they retire, while proponents of the privatization idea suggest it is a way to alleviate fiscal problems looming on the horizon for the program. Correspondent S.L. Harrington caught up with Congressman Pearce recently for a phone interview, where they discussed energy policy.

S. L. Harrington:

I went to the event last night here in Socorro and listened to your aides give the presentation. Is the current listening tour to get feedback from your constituents or have you already made up your mind on where you stand on the privatization (of social security)?

Congressman Pearce:

I’m probably still working a little bit on that. I’m leaning pretty hard, but the idea is that we really do need to discuss first of all how big a problem it is and get a consensus among us as a nation but in my case for the 2nd district - what’s the consensus on the severity of the problem. So I really do want to hear what people are saying that their perceptions are and why. So, a lot of the discussion is aimed in that direction. As far as the personal accounts, that is one suggestion in a list of 8 or 9 that people are kind of pitching up, and we get different suggestions. As we go around, we always count on getting 10, 15, 20 new suggestions and 1 or 2 of those will be pretty unique and dramatic. And so that’s the reason we do it.

S. L. Harrington:

I know it’s early in your tour, but what are your initial feelings, what are the voters saying, what kind of feedback are you getting as far as how they feel about the proposed privatization?

Congressman Pearce:

There’s a lot of questions, a lot of concerns. The first thing, you have 2 different groups. Seniors who are retired now and just want to know that they have security and that their plans are not going to be interrupted or threatened. And so that’s a reasurrance I’m here to give. I’m well set on opposition in that, that anything that we do should keep in mind that our seniors generally can’t go back to work. My parents are on social security and can’t go back to work, they’re in their 80's. So we need to protect that group of people, to start with. But then we have to acknowledge that many of the younger workers don’t believe that they have a stake in social security. And that’s not a good situation when people believe that, because eventually they just aren’t going to be paying. They’ll try to opt out of it and not pay, and so we need to provide an incentive and a stake for the younger workers while taking care of the older workers.

S. L. Harrington:

Is there a specific proposal on the table or is it still at the conceptual level?

Congressman Pearce:

Everything is very general and it’s conceptual. And the president says that all options, all pieces of the suggestions are on the table with the exception of tax increases. He says he’s not going to sign that. And, frankly, this year we’ll be so evenly split they’ll be no chance to override a veto, so when he says he wont sign then we have to understand as a congress that we need to pass something he will sign.

S. L. Harrington:

And when president Bush says that tax increases are off the table, do you interpret that to mean that increasing the FICA cap from $90,000 is off the table? (editor's note: in the current system, an individual pays social security taxes only on the first $90,000 of income earned and anything over $90,000 is free of social security tax - this is what is meant by the term "FICA cap.")

Congressman Pearce:

No, he specifically said that’s not off the table. It’s just increasing the tax rates are off the table, so we can take that one restriction - but everythng else he says is still on the table.

S. L. Harrington:

I understand you’re still in the thinking process, but what is your feeling on raising the FICA cap?

Congressman Pearce:

Generally, I want to try to figure it out and I haven’t delved deeply into the actuarial tables to see what happens for different circumstances. I would generallly think number one that we don't get much benefit from raising the cap because at $90,000 you’re already well above the range of most paychecks and there’s not enough people working at $150,000 or $200,000. In other words, it’s large numbers but such a small quantity that you don’t get much impact from that, so I think that the benefit is very limited. So that’s my initial thought, but I’ll go in and look at the tables as they get closer to suggestions.

S. L. Harrington:

You had a social security representative that gave a short presentation last night. I spoke with him briefly and he seemed to indicate that from what he knew of the analysis, if we raised the cap it would provide a short term boost, because it would immediately increase revenues, but down the line as those high income earners began to retire, if we didn’t also cap their benefits somehow, that it would actually drain the system more than it would help the system. So if raising the cap is considered would you also consider capping what the high earners could draw out?

Congressman Pearce:

Again, I’m kind of like the president, we’ll take a look at almost everything. We’ll begin to do some indexing over in the medicare bill and I want to be very cautious with it, but we have to consider it on the table.

S. L. Harrington:

I read somewhere, I don’t recall where I read the article, but apparently in the current system state and local government employees don’t have to contribute to social security. A lot of them work part of their lives in state/local government, then later leave state/local government for the private sector and eventually draw social security, and a portion of their lives they didn't pay into social security. Some people have suggested that perhaps we should look at requiring state/local government employees to contribute even when they’re working for the state. What are your feelings on that?

Congressman Pearce:

Again, I think that that has to be considered also. We ran into a situation where, i forgot exactly what it was about the Texas teachers - but it may be that Texas was the last state where they didn’t have to participate. But what was happening was they would retire and they would work one day for someone, paying into a system - it generally was still with the school system, but maybe they would scoot out into one of the branches that actually paid into social security. And with one day then they would have access to a lifetime of benefits. and we went in and closed that loophole, so I think that the congress is pretty familiar and pretty disciplined that, you know, you can’t game the system anymore. We’ve all taken small advantages of this rule and that rule, but I think we’re going to shut off any of the games that are getting played like that.

S. L. Harrington:

Now, it wasn’t clear from the presentation last night - and maybe it’s just not clear because there isn’t a specific proposal yet on the table - but it sounds like the initial suggestion is to take a portion of the social security tax that could be directed into a personal or private account. The numbers mentioned last night in the presentation were 4 percent of the 12 percent overall FICA tax. And so the remainder, the other 8 percent, would continue to get paid into the traditional social security system?

Congressman Pearce:

Yes, and the 4 percent would be only on the employee piece. Your employer pays 6.2 percent for you and you pay 6.2 percent, so you’ve got 12.4 aggregate. And of your 6.2 you could opt for up to 4 percent - you could opt for less, but you could opt for up to 4 percent. But the rest, the 8.4 percent continues to go into traditional social security and you would get a partial social security, and then you’d also have your private personal account.

S. L. Harrington:

From the language President Bush is using, he seems to be referring to this as something that’s probably going to be optional - is that your understanding?

Congressman Pearce:

Yes, it’s optional - only the 4 percent is optional. In other words, you can't choose to be in or out of social security, you can only choose to be in or out of the 4 percent personal.

S. L. Harrington:

It’s not clear to me how participation or not - well, it’s not clear to me how this 4 percent that could be directed to personal accounts ultimately solves the projected problems in 2018 or 2042 with social security. (editor's note: social security is projected to start paying out more than it takes in in 2017 or 2018, at which point it will have to dip into its trust fund bonds to make up the difference, and to have exhausted its trust fund bonds in 2041 or 2042. After 2041 or 2042, social security will only be able to pay out 73 or 74 percent of current benefits without running a deficit. This is according to the social security trust fund board of trustees annual report.)

Congressman Pearce:

The calculations of insolvency are based generally on 75 year windows and what happens depending on who opts in - but let’s say for a 20 year old then basically you’re going to have 42 years in the work force. 62 is the retirement age, so 42 years later that person will draw significantly fewer benefits than someone who is in the system fully. It’s the reduction of future benefits that begins to bring us toward a capability to pay.

S. L. Harrington:

And, hypothetically, I suspect that this is not a likely scenario, but just hypothetically, if the system is voluntary, what would the situation be if every person opted to continue with the traditional system, would we not then still have the same problem?

Congressman Pearce:

We’d still have the same problem we face today, and it would still need a cure of some sort. You’re speaking hypothetically, and it’s always problematic to do that because people are going to opt out (i.e. opt for private accounts) and as they see friends benefitting, they’re going to opt out at a faster and faster rate because of the rates of return. That would begin to bring solvency to the system - 1.3 to 1.7-1.8 percent range is the rate of return over the life of social security and even the most modest, safest bond funds that are out there are in the 4 to 5 to 6 percent range occasionaly if it’s got a few very safe stocks in, And the difference between 1.8 and 4 or 5 percent is huge when you begin to compound it over 30-40 years.

S. L. Harrington:

And would someone who opted out - opted out meaning elected the personal accounts - would they still have the benefits from social security for things like, if they die will their children have some benefit or their surviving spouse?

Congressman Pearce:

That almost has to be one of the givens, that survivor benefits or widow’s benefits would almost certainly have to be included as one of the fundamental bases of the program.

S. L. Harrington:

And do you envision that those who had opted for the personal account in the event that they had died would their survivors benefits be reduced accordingly?

Congressman Pearce:

I can’t speak for the whole congress, but I don’t ever see a mood either among republicans or democrats to not provide for those who just are in need, and generally when a spouse dies leaving young children the widow or the widower has significant difficulties. And I just don’t see a mood on either side to penalize them or withhold benefits of any kind. Again, I can’t speak for the whole congress, but I can tell you that the mood seems to be that way.

S. L. Harrington:

So in your opinion, or at least for yourself, do you think that the level of those survivors benefits would be comparable whether a person opted in or opted out of the personal accounts?

Congressman Pearce:

I would think so, I just can't visualize that we would try to fine tune it, those are actually very small percentages of expenditures for survivor benefits.

S. L. Harrington:

Similar question for disability benefits - do you think opting in or opting out of the private accounts would affect disability benefits, or probably not?

Congressman Pearce:

Probably not, again that’s me speaking as 1 of 435, so...

Editor's note: this concludes the questions we asked Congressman Steve Pearce on social security. The second half of the interview, discussing energy policy, will be posted in a separate report.