1998: Should the government provide citizens investment accounts?

AUDIENCE MEMBER: This is John Vaughan (PH) from Detroit, Michigan.

Nebraska’s Senator Kerrey has proposed private investment accounts for up to two percentage points of the current payroll tax. His words were, and I quote, “People want more than just a transfer payment. They want wealth.”

Do you approve this proposal? And if you do, would you recommend passive investing, i.e. index, or if you recommend active investing, would you and Charlie want to give it a shot? (Laughter)

WARREN BUFFETT: Well, I talked with Bob Kerrey about that, and Bob does like the idea of giving everybody some piece of the American economy and an interest in it. As you know, he’s proposed, really, sort of small grants to the 3 1/2 million or so children born every year, and then some buildup of that account. Senator Moynihan has come up with something recently in conjunction with Kerry.

I personally would not like to see any major amount of Social Security — and Moynihan was talking about 2 percent. And actually, I suggested the idea that maybe 2 percent out of the 12 and a fraction percent, at the option of the beneficiary — Social Security participant — could be devoted to some other system, but then they would only get 5/6ths of the basic Social Security benefit.

I don’t think you could drop it below that, because you wouldn’t want people turning 65 — or maybe a more advanced age in the future, 70 — and not having the safety net of Social Security. So I wouldn’t want to drop it below about 5/6ths of the present benefits.

I don’t — I think it’s a perfectly reasonable topic to discuss whether you want to take that 2 percent, then, and let people build up an account, perhaps tax-free, perhaps an IRA-type account, so they would have both wealth and the safety net. But I wouldn’t want to drop the safety net very far.

And I think that I would not want to turn an army of salespeople loose on the American public with a mandatory 2 percent going in some direction. I don’t think that would be particularly healthy.

Charlie?

CHARLIE MUNGER: I am much less enthusiastic than you are. (Laughter)

In other words, your negative, or conservative, attitude is way more affirmative than mine.

I think the idea of getting the government into promoting the value of equities — in Japan we have a taste of that now. The Japanese government has been using the postal savings system to buy equities massively year after year after year. I don’t think we need to get the government into the equity market. (Applause)