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2005: Is social security a government-sponsored Ponzi scheme for retirees?
AUDIENCE MEMBER: Good afternoon, gentlemen. My name is Glen Strong (PH). I’m from Canton, Ohio. I want to extend a warm thank you to Warren’s daughter, Susan, for the fine introduction that she provided for this gathering.
WARREN BUFFETT: Thank you. (Applause)
AUDIENCE MEMBER: Also, a special thank you to your wife, Susan. I thank her for the contributions that she made to the company and for the outstanding example that she obviously set for her husband and the many people that she must have come into contact with. (Applause)
Today, I’m asking for your opinion on Social Security. Shall we call it the government-sponsored Ponzi scheme for retirees?
I am interested in your views on private accounts, age adjustments for retirees, and tax adjustments for the employees. What would you promote if you were in the Oval Office? Thank you.
WARREN BUFFETT: Yeah, the Social Security was introduced in the, what, ’36 or ’37. My grandfather used to have Charlie bring two pennies to work at the Buffett & Son Grocery Store on Saturday in order to pay his share of Social Security.
Didn’t want Charlie getting any false ideas that there was a free lunch in this world. And he gave him a half-hour lecture on the evils of socialism. So, we’ve had a lot of exposure to Social Security, the various arguments on it.
It was proposed, of course, as insurance, because basically that was the only way [President Franklin] Roosevelt could get it passed. The idea of transfer payments did not — would not have washed in the ’30s, certainly.
You know, and I think the first woman that received a Social Security check paid in a total of $22 or something and got 2,400. So, it wasn’t insurance. It wasn’t insurance at all.
And the transfer payment by the people who are in their productive years to the people who are past their productive years — and we’ll get into definitial require — terms as to whether it’s 65 or 67 now, you’re past productive years — but essentially it’s a transfer payment.
I basically believe that anything that would take Social Security payments below their present guaranteed level is a mistake.
I think that in this country — extraordinarily rich country — that the people in their productive years can take care of those outside in both areas, even though the ratio of productive to non-productive has changed and is changing.
But we take care of our young. And a rich country takes care of its young and it takes care of its old.
And incidentally, taking care of its young, when we educate five children in the family, we don’t expect that family to pay, you know, five times the tax or something like that.
We recognize that in taking care of the young, that it should not be based on a per capita basis or based on the size of the family. We provide good school — we try to provide good schools — and health and everything for the young overall as part of our overall responsibility.
I believe that a rich country should be doing the same for the older people. There are — you know, Charlie and I came into this world wired in a way that enables us to get very, very, very rich — rich far beyond any possible needs that we could have. And not everybody’s wired the same way.
Now if you come into this world wired with an I.Q. of 85 or something of the sort, or disabled or whatever it may be, you know, you are not going to do as well in a market economy, remotely as well, as we do.
But you still provide much of what makes Charlie and I very rich. And, you know, and when it comes to fighting in Iraq or something of the sort, you know, then that becomes an equal opportunity type thing. But when it comes to making a lot of money, it’s not equal opportunity in this country.
So I believe that a rich country like ours should not give lower benefits than what takes place now. And I certainly don’t think that — and we’ve got all kinds of mechanisms for saving that are extremely good.
We have 401(k)s in the country. We have taxes on dividends and capital gains at 15 percent, so the money I earn gets taxed at a lower rate than the money that a receptionist in our office may earn.
And I would not be doing so well if I were stuck over in Bangladesh or someplace. So this society is providing huge benefits to me that other societies would not.
And I think that the obligation for the people who do well in this society is to provide a reasonable level of sustenance for those beyond their productive years.
We’ve got the capability to do it. You know, right now we quit taxing for Social Security at $90,000. But — and that means that everybody in my office is paying — or most of them — are paying 12.4 — 12.2 or 12.4 percent, counting what the company contributes, toward this.
People talk about double taxation of dividends; they’re getting taxed for Social Security and they’re getting taxed for income on their income. And they’re paying a higher rate, or an equal rate overall, in many cases, to the same rate — compared to the rate that I pay. And I think that’s sort of nonsense in this society.
So, I don’t want to do anything — anything — that hurts the level of the bottom 20 or 30 percent, in terms of their income.
I see people living with fear about health care or living with fear about running out of money in their old age. And I think a society should try to minimize the fear that their inhabitants experience.
And that doesn’t mean just fear of getting mugged or something. It means fear that the last 25 years of their life, they’re not going to have much income.
So, I would — and the degree to which the administration or other people are worrying about the deficit in Social Security 25 years out, when they have a $500 billion deficit excluding the Social Security surplus now, I mean, just strikes me as nonsense. (Applause)
Here we are deploring something that’s going to happen in 20 years that’s a fraction of what is happening right now while they’re cheering, you know, basically, and talking about further favoritism in the tax laws.
So, I have great trouble with people that say, you know, that this system can’t sustain — right now, 4 and a fraction percent of our GDP goes to Social Security.
Fifty years from now, 6 percent — no, 6 and a fraction percent — well, believe me, our GDP will be far larger 50 years from now. And going from 4 percent to 6 percent does not strike me as a terrible prospect.
If you ask me what I would do to change it now, I would means test it. I would lift the $90,000 way up. In fact, I might apply it, you know, on all income. Then you’d really get people’s attention.
But — and I would gradually — and we’re in the process of doing this — but I would certainly increase the retirement age. I mean, the world in 2005 is much different than the world in 1937, in terms of longevity prospects and the ability to function productively.
Charlie, what do you say?
CHARLIE MUNGER: Well, that’s the view from Berkshire’s Democratic chairman. (Laughter and applause)
And the odd part of Berkshire on this issue is that the right-wing Republican who is speaking feels more strongly than Warren that the Republicans are out of their cotton-picking minds to be — (applause) — taking on this issue right now.
I do not — If the country is going to get richer at 1 or 2 percent per annum for a long time ahead, and it’s going to have more old people who are living longer and spending money on medical care, the idea that eventually a higher share of GDP would be going through Social Security to retirees and so on than we now have is not anathema to me.
It’s exactly — it’s an exactly logical way to be spending money under different circumstances.
And if the government runs out a little short of money as it gets more Social Security obligations, I see nothing wrong with having some consumption taxes or whatever to pay in a reasonable way for what is a very reasonable expenditure.
Social Security is very successful. Apart from the disability element, which is relatively small, there’s practically no fraud. It’s hard to fake being dead. (Laughter)
And furthermore, it’s a reward for work. All kinds of people are working in this country because they want to eventually qualify for Social Security, just as many people are doing dangerous military service because they want the pension that will come eventually.
So, Social Security is a very capitalistic institution with profoundly good effects. It’s one of the most successful things the government has ever done in terms of efficiency and good effects.
And a Republican administration that may shortly have to do something really unpleasant, like face down North Korea or Iran over atom bombs, is wasting its good will over some twaddle that a bunch of economists that haven’t thought it through properly devoutly believe? It’s a very sad occurrence. (Applause)