Robert M. Ball - Interview #5
This is another session in the Bob Ball oral history interview. This session is taking place on May 22, 2001 at Mr. Ball's home in Alexandria, Virginia. And again, it's Larry DeWitt interviewing for SSA.
Interviewer: Bob, we were just talking before we started here about Senator Moynihan and his role in the development of Social Security in the last 20 years or so and the fact that he is now co-chairing the new Presidential Commission on Social Security. I think you wanted to tell me about some of the history of his involvement in Social Security.
Ball: Yes, I'd be glad to do that. I'm planning, or at least have the expectation, of doing a piece on him and his role in Social Security at some point, and when I do I will probably release these remarks at the same time.
Ball: On one hand, he's had a very important role in Social Security. Up until about 1977, his views were the standard ones of a Democratic liberal, with his general background of support for New Deal programs. He was Assistant Secretary of Labor in the Kennedy Administration, where I first knew him. We were both in the Administration at the same time. But he didn't pay much attention to Social Security as such; he sort of took it for granted. He knew something of its history, but he didn't have a real role in it. He was focused on the welfare side, where he did become a considerable expert.
In 1977, as I remember it, he was a member of the Conference Committee between the House and the Senate on the 1977 Amendments-by reason of his seniority and position on the Senate Finance Committee, rather than any special contribution to the legislation or even interest in it. It was after that, that he became a player in the Social Security field.
In the late 1970s and early 1980s, I would say he was the most important defender of the program in the United States Senate. He took on that role, and I worked very closely with him during those years. I would deal with him a great deal, supplying him with all kinds of material at key points in the argument against the people who were trying to undo the program.
When the Reagan Administration came in, there was a real problem in Social Security financing--it wasn't made up, the program was really in trouble in terms of short-term financing. Which is the only time this ever happened; it's always been talked about in terms of maybe there was a long-range problem. But, this was really a short-term problem of running out of funds in the near term unless the Congress took some action.
Well, the Reagan Administration, knowing that action had to be taken, in my view at least, took that opportunity to propose changes in the program that were much more fundamental and more radical than they needed to be-cutting back much more on benefits than was called for by the situation. They proposed a package of changes that really found no support on the Hill. They had one provision that was devastating and they made what I consider a serious political mistake in making this recommendation. The idea was to cut age 62 early benefits by much, much more than the actuarial reduction that had been there in the past. And it slashed the benefits with a very short lead-time. That's what drove everybody off their package entirely. Nobody would introduce it.
They still needed to find some way to meet the short-term financing problem; but clearly, they needed to go back to the drawing boards and start over on their proposals. And they needed Democratic support, so they went to Tip O'Neill and asked him to jointly sponsor a Commission on Social Security Reform, which he agreed to do. (This would come to be known informally as the "Greenspan Commission.") The arrangements were that the Speaker of the House, since it was in Democratic control, would appoint three Democrats and two Republicans; it being understood that the two Republicans would actually be selected by the Minority Leader in the House. The Senate, being in Republican control, the understanding was that the Leader in the Senate would appoint three Republicans and two Democrats; it being the understanding that the two Democrats would be appointed by the Minority Leadership; and the President, being a Republican, would appoint three Republicans and two Democrats. He appointed all five, though, since there was nobody else to select the two Democrats.
Interviewer: He did appoint some fairly conservative Democrats.
Ball: He certainly did. He appointed Joe Waggonner, who was no longer a Congressman but had been on the Ways and Means Committee. Personally, he a very affable and nice guy to work with, but had a record that was more conservative than almost all of the Republicans in the House. The other Democrat he appointed was Sandy Trowbridge, who had been a Member of the Cabinet in the Johnson Administration--Secretary of Commerce--and was then President of the National Association of Manufacturers (NAM), which is not your ordinary Democratic organization.
Interviewer: In fact, NAM is a very conservative force in Social Security politics.
Ball: Yes. He turned out to be a good member of the Commission. But basically there were 10 members who were appointed by Republicans, and five members appointed by Democrats. Tip O' Neill appointed me and he appointed a former Congresswoman as a member.
Interviewer: Martha Keys.
Ball: Yes, Martha Keys. And he appointed Congressman Claude Pepper. Those were his three. There wasn't any question but that he looked to me for expert knowledge of the Social Security program and clearly expected me to lead the Democratic side of this Commission.
On the Senate side, the two Democrats who were appointed were Lane Kirkland, President of the AFL-CIO, and Senator Moynihan.
So, having been really very close allies in defending the program, Moynihan and I were next on this Commission. He was a very good team player on that Commission, supporting really without objection, the things that I was able to work out. Up through this Commission, I would still cast him as the most influential defender of the program in the Senate. After the Commission, he continued in that role, for quite some time. For one thing, he was very enthusiastic about the Commission's recommendations, which had been passed by the Congress almost exactly as the Commission agreed, plus one other thing that the House added--extending the so-called "Normal Retirement Age." But everything the Commission had agreed on became law.
Moynihan was very enthusiastic about the results of the Commission, particularly in the middle and longer range, because the results were a build-up in the Social Security Trust Fund of considerable size. He wrote articles and made speeches saying, in effect, that we had done better than we realized--than most of the members realized--because we set up a situation in which Social Security would in effect reduce or eliminate the debt of the United States held by the public. The Social Security Trust Funds would take over what was the United States debt--it would be a debt owed to Social Security, which solved a lot of problems for the future. He was very enthusiastic about this.
I haven't got the date in my mind, but sometime in the late-80s--and it's easy enough to check--he changed his mind on this point. He called me one night at home, just before he was scheduled to go on a trip, to Africa. He frequently went on trips during the long winter recess of the Senate, and he was scheduled to be gone for a couple of weeks. He called me just before he left and said, "I'm about to do something you won't like." So I said, "Well, what's that?" And he said, "Well, I'm going to come out in favor of reducing the Social Security contribution rate." Which of course would have exactly the opposite effect from what he had been talking about. This would reduce the size of the Trust Funds. He had made up his mind. I said, "Well, don't do that! At least retain the overall rate, because Medicare is way under-funded, and we're going to need it for that." And he said, "Oh well, we can argue about that later. Right now I'm going to recommend that we cut the Social Security contribution rate."
Interviewer: He wanted to do this in order to move the program back to pay-as-you-go. That was the underlying motivation here, right?
Ball: That's the motivation, and the result, of course. So he had dropped the idea of partial pre-funding, which he more or less thought he had discovered to be the result of the Greenspan Commission.
But he changed his mind. He concluded that the government wouldn't in fact save the money in the Trust Funds and so it wouldn't really result in reducing the government's debt. In fact, he thought it would result in simply another way of financing government expenditures. Instead of raising taxes-as the desirable way to finance the government--instead they would just borrow Social Security funds and have taxes lower than they should be, with the result that the debt would not be reduced. So the government would just take the money raised for Social Security and use it for other purposes.
So, reasoning that way, it was logical-- and indeed sensible, if you believe that-- to reduce the Social Security contribution rate to pay-as-you-go. And then the problem becomes how you finance a substantially increasing cost for the long run. The rates under pay-as-you-go rise sharply as the size of the aging population increases and the size of the work force decreases. So he had to start worrying about financing. Over time he came to the conclusion that, under a pay-as-you-go system, the rates would be so high for sustaining the system that you really couldn't expect support for such high rates. Therefore, the only consistent solution with pay-as-you-go financing, was to lower the cost of the system to make sure that you could handle it with pay-as-you-go rates in the long run. This led him into proposing benefit cuts. All this led him to advocate financing the Social Security system on a pay-as-you-go basis, reducing contribution rates now, cutting benefits and raising rates in the future, but only enough to fund a smaller system. Then he added a voluntary plan with matching contributions from employers--if employees decided they wanted to participate in the voluntary plan. He hoped the voluntary plan would make up for the cuts that he had made in the compulsory part of the plan. The idea is that a combined retirement income from the standard program and the voluntary program together, wouldn't be less than the standard Social Security program had previously supplied. Particularly considering the fact that the voluntary supplement could be invested at higher rates of return--the theory went--instead of the low rates one got from investments in long-range government securities, which is what Social Security surpluses are invested in.
So this set him on a collision course with people who had traditionally been supporters of the program. It incidentally was close to, if not the same as, what Bob Myers had been recommending. And the question in my mind is, "How much influence did Bob Myers' views have on Moynihan directly from Myers outlining and pushing what I have just described. I think his influence was substantial. Once having started on this course, a lot of the detail, and arguments and so on, were produced for him by a new member of the Senate Finance Committee staff, David Podoff, who used to be a Social Security employee, and who is the new Social Security expert for Moynihan. Podoff of course reported to Moynihan as Chairman and then as Ranking Member of the Finance Committee.
One of the main points of Moynihan's solution was a very substantial reduction in the cost of living provision, not on the theory of giving people less protection, but on the basis that the Bureau of Labor Statistics (BLS) was using a flawed measure and that the cut was a correction. He sponsored an outside look by a group of economists under the direction of a previous Republican Chairman of the Council on Economic Advisors.
Interviewer: You're talking about Boskin?
Ball: Yes, Michael Boskin. Moynihan still believes in more reductions than the BLS has made.
I agreed with the series of corrections that BLS made, that did reduce the CPI a lot. Problems with the CPI measure had led Federal Reserve Chairman Alan Greenspan, for example, to be a considerable critic of the CPI as overstating inflation. But he now says that the corrections that the BLS had made are approximately all that could be expected. I still support one additional change that BLS is now engaged in that won't be reported probably until 2002. But I think Moynihan still wants to go much further even than that.
I think Boskin probably made good points, some of them were impossible points. I mean, it is impossible to design a remedy for some of his points. And so the cuts were pretty arbitrary in some aspects of it. I just don't think you should depart from what BLS says. They are the real experts. Once you start arguing that BLS doesn't have the right answer, and that you ought to follow some other formula, you'll get an argument on both sides.
Interviewer: Then it becomes a political issue and not a technical issue.
Ball: And you put a great deal of pressure on groups to start saying, "Well, you ought to have a special index just for the elderly," and things of that kind.
So anyway, that's just one argument. Many of the smaller proposals that Moynihan ends up with in his plan, I'm in agreement with. In fact, I think he took them from earlier plans of mine. They involved several relatively smaller amounts, but I'm in complete agreement with him on those.
But that's not really what I started on, in terms of what his view currently is. Note that the unraveling of his support depends entirely on the belief that you can't advance-fund for Social Security; that the government can't save. This is the key point I disagree with him on. If you accept his view on this point, the rest of his positions become quite reasonable.
But I wanted to--in addition to summarizing how I think he got to where he is in his reasoning after the Greenspan Commission--I wanted to list some of the things I think he has contributed to Social Security, that are very valuable. I did spend some time on the point that for several years he was the mainstay of the defense within the Senate and was very effective and very useful. Sometimes he would waver somewhat when he realized that the New York Times was not in agreement with the positions that he and I were taking, but he would come back to a solid position nevertheless.
But the positive things that he did include making Social Security an independent agency again, reporting directly to the President. It had been that way in the old Social Security Board, but it had been subordinated ever since--first going to the Federal Security Agency, and then being a subordinate part of the Department. He didn't initiate this idea. The first person to introduce a bill on this subject, and continue to do it for years was Frank Church--really on my instigation. This was a position taken by a lot of the supporters of Social Security. It's been somewhat of a disappointment in that it's hard to point to where so far it's made a real difference as to whether it was within a department or independent. Except that I think it's cut out some duplicating layers of operations and services, and budgeting and things of that kind, which of course is good, but not very significant. The degree of independence that was given the Commissioner of Social Security in the bill has certainly not been fully realized. You wouldn't expect the head of an independent agency to go out of his way to antagonize a President or the governing structure of any administration, but, at the same time, he was put in a very strong position by reason of a term-appointment rather than serving at the pleasure of the President, with removal only for cause. This really makes him much stronger than any Cabinet officer. So, I would have expected perhaps a stronger defense of the number of employees needed and the adequacy of administrative funds, that sort of thing.
Ball: But, this is a very powerful position and Moynihan is responsible for actually getting it passed, even though it was a follow through on what Church had started.
One contribution to Social Security, which I think is very important--I think he deserves 100 per cent credit for--maybe on the independent agency he would deserve 90 per cent of the credit--which is a lot (laughs)--but the requirement that Social Security send a Social Security Statement to everyone over the age of 25, I think is the single most important aspect of winning back confidence in the program. It'll take some time, there's been a concerted attack on the long-range aspects of Social Security for many years now, so that the polls show a lot of misinformation about Social Security's financial position, leading to the conclusion on the part of a frightening proportion of ordinary citizens to think they're not going to get their Social Security benefits. It is hard to believe in a democratic society that so many people would say that they don't believe they're going to get Social Security and yet they make these contributions nevertheless. You would expect more open revolt than there is. It makes me wonder if what they tell the pollster is what they really believe, to the extent that they say it.
Interviewer: Well, you know, the other day when the President's new Commission was named the Co-Chairman of the Commission said in his remarks that he never believed he would see a dime of Social Security benefits. So this is a view held by lots of, even very sophisticated, people.
Ball: I think that, politically, there's a small tactical advantage in saying how bad everything is before you fix it up. He may be just saying, "Well, the country is in terrible shape about Social Security. Now, we're going to fix it."
Interviewer: Let me just say this about Moynihan and the Social Security Statements. I can tell you, since I was working at SSA when this was going on, that SSA bitterly resisted this idea. There were dozens of internal memoranda that I saw during that period in which all the operational components of the agency were saying, "Oh no, woe is us, woe is us, we can't do this. The workloads! The workloads! It's overwhelming!" So, using that operational argument, SSA didn't want to do this, and fought this and resisted it. So Senator Moynihan deserves a lot of credit because he had to overcome SSA's resistance as well as navigate the idea through the legislative process.
Ball: When I was Commissioner we had this idea, but we really couldn't do it. The computer capacity was not there. Up to 1973, when I retired, the computer capacity to send out this quantity of material with accurate estimates just did not exist at SSA. Although we did think of it and talked about it.
But Moynihan deserves complete credit on that; and substantial credit on the independent agency. I'm going to mention one other point--the degree of his support for the 1983 Amendments. That was an important contribution, it made a lot of difference.
Interviewer : We'll want to talk about that later.
Ball: And there are a couple other things that are very influential and are very good for Social Security that I'll get to at some point. But those were the general things I wanted to describe, and what I think is his thought process in turning from the main defender of the program to what I now think of as a major menace to the system as we have known it. He, of course, thinks he is the savior of the system, too. He's not doing this because he thinks it undermines the program. He would argue that the short-sighted defenders of the system are the problem. Just as he felt that the liberals and professional welfare workers who opposed Nixon's Family Assistance Plan undermined the chance to have a much-improved welfare program. I'm sure he feels that way about the defenders of the Social Security system now.
Interviewer: How does Moynihan get from wanting to go back to pay-as-you-go to private accounts? I can't follow all the reasoning here.
Ball: See, you've got a big benefit cut under pay-as-you-go, which is inevitable. In his mind it is inevitable to cut benefits if you're going to have a pay-as-you-go system. And a pay-as-you-go system is the only possible one. That's the reasoning.
Interviewer: Because he doesn't believe that the Trust Fund is a real form of savings?
Ball: Well, he would say "what will the Congress do with a large Trust Fund?" What the Congress will do with a big Trust Fund is to use it to support current programs . . .
Ball: It was true for awhile. Now there is a long argument about whether in fact income taxes would have been higher in the absence of Social Security, or whether the debt would have been higher.
Ball: If the debt would have been higher, then Social Security was already keeping the debt down. That's exactly the same as reducing it.
Ball: I didn't believe the Congress would have increased the income taxes. They went about as far as they were going to do on income tax rates anyhow, and what would have happened would just be a higher level of publicly-held debt. That's sort of the most fundamental argument on this business.
But when he was arguing for a pay-as-you-go, as a member of the Senate, Moynihan would use words like, "thievery," that the Congress was "stealing" the money from Social Security to do these other things. Well, that's quite a reach. And one famous little dialogue between Senator Heinz and Moynihan, went that Moynihan said there was thievery going on and Heinz objected to the term and said he thought it was embezzlement. (Laughter)
Interviewer: That's right. I remember that.
Ball: So Moynihan says to him, "Well, that's the class difference." (Laughter)
So, that's what he was arguing.
Now, having cut the benefits, he wanted to do something to be able to argue--and I think also really make it true--that people's retirement income would be as high under his plan as it would under the previous Social Security law. So having cut those benefits, he had to have a way to argue that the cut would be made up for, and that led him to the individual accounts.
Ball: Now part of the problem was he made the individual accounts voluntary, which on the surface won't do the same thing as Social Security, particularly for lower income people because they won't reduce their current income voluntarily, and even his own supporters are very skeptical of the voluntary part of it.
Interviewer: So the concern is that higher wage workers would be opting into this voluntary system and low-wage workers would not, because they couldn't afford it?
Ball: Low-wage workers would not. Whether the high-wage ones would is another question. (Laughs). You might not get it from them either, I don't know. In any event, it wouldn't do the job, and that's the weakest part of it all, even if you accept a lot of his premises, which I do not.
Interviewer: Now even if he wanted to do all of that, there's still the question about whether these private accounts would be add-ons or carve-outs?
Ball: Well, not in his case. He meets that problem because he cuts the Social Security benefits first.
That's why the opponents of individual accounts better watch their language. They can't frame this just in terms of carve-out vs. add-on, because it's a matter of sequence. If, for instance, the Bush plan first of all greatly reduces Social Security benefits, then fully finances the reduced benefits, then its private accounts are an add-on to these new low levels of benefits. So what the proponents of the present system need to say--and you'll notice in my plan I do say it this way--is that you have to fully finance the present level of benefits and then have an add-on.
Interviewer: But there's still a question of where the money comes from to finance these individual accounts. Is it coming from the payroll tax or is it coming from somewhere else?
Ball: Well . . .
Interviewer: I mean, you could leave the payroll tax rate the same and cut benefits in some way and then still have a question of . . .
Ball: Now remember, Moynihan doesn't leave the payroll tax the same. He cuts it.
Ball: He cuts it to a pay-as-you-go rate. And he makes a considerable point of the fact that he is saying that we have to fully finance the Social Security system. But he cuts back on the Social Security system before he fully finances it. And then he has a voluntary add-on, like I have a voluntary add-on. The difference is he's greatly cut the basic program. So the wording has to be watched closely.
OK, well you wanted to go to the 1983 Amendments.
Interviewer: I do want to talk about the Greenspan Commission, mostly, and the '83 Amendments. So I have a whole series of questions about that. But let me just go back and pick up one or two questions about the period before the Greenspan Commission.
I guess the first financing crisis in Social Security arose in the mid-70s, in fact, if I remember it was the 1975 Trustees Report which for the first time said that the program was out of balance in the long-range projections. And that led to the '77 Amendments, which was an attempt to address some of that. Am I right so far?
Ball: Well, more or less. I'm not sure you can say that up until '75 the program always was fully financed for the 75 years. Although it was always brought back to full financing when the Congress acted on benefits of any kind.
Interviewer: My question really is: at the time the 1977 Amendments were enacted, did you believe, did everyone believe, that this took care of the financing issues? Was it a surprise when there continued to be a financing problem and we had to come back so soon to these financing issues again?
Ball: I'll go back a little before that even. In the 1972 Amendments we thought had taken care of the financing. When I left government I made a talk to the Senate Committee on Aging, with charts and one thing and another, demonstrating beyond a doubt that everything was in great shape. That the program had gotten to a place where you didn't need to constantly make benefit increases and you didn't need to worry about the financing, it was pretty well set. Well, it didn't take very long after that for it to become un-set. But in 1972 amendments we thought that we put things in good shape.
What happened was that the automatics introduced as part of the '72 legislation removed the cushion we had always had from basing the estimates on the assumption that wages and prices would not change.
Interviewer: Right. Which we talked a lot about last time.
Ball: Right. The way the automatic provisions had been structured, rapid inflation resulted in higher benefits than the Congress intended. So that between the effective date of the 1972 Amendments and the next action of the Congress, inflation drove the replacement rates higher than made any sense. That meant, on the one hand, that in the long-run benefits would out-pace what people were earning, and, on the other hand, the financing was inadequate to pay for such benefits. Nobody should have taken those long-range estimates of the benefit pay-outs seriously, because of course they were going to be corrected. But the actuaries go by what's in the law, and the law produced some amazing deficit-like six per cent of payroll. Nothing anywhere near this big a deficit had every been predicted before or since.
So that had to be fixed. The main way of fixing it was by "decoupling." We had to make the indexing of wages entirely separate from the indexing of prices. If not, then under some circumstances the two factors would compound in such a way that you got an impossible long-range situation. So that was fixed by the 1977 Amendments.
Now when the 1977 Amendments are under consideration I'm not in the government and the Carter Administration is in office. In all modesty, however, I was very influential in the counsels of the Carter Administration. On Social Security, I was just as influential, if not more so, than if I had continued to be Commissioner. I urged the Administration to support the view that the '77 Amendments be adequate for the full 75 years, which was the traditional standard. But the President and his advisors thought that would require too much in the way of contribution rate increases or cuts in benefits-and I certainly didn't favor cuts in benefits. They settled for a 50-year estimating period balance. So the 1977 Amendments were intended to restore the long-range balance for only 50 years.
Interviewer: So had we looked out beyond that 50- year horizon the program would not have been in long-range balance, in the traditional measure of 75 years?
Ball: That's right. So the 1977 Amendments ended up still with a long-range deficit.
Interviewer: That was implicit, in effect . . .
Ball: Well, they showed it in the Trustees' reports.
Interviewer: So you knew you had a long-range problem, but you didn't know at that time that you had a short-range problem, did you?
Ball: No, not at all. No short-range problem at all. We thought that was fixed. But it wasn't fixed so that it would support a program which was now very sensitive to the movement of wages and prices.
Interviewer: Because we had this "stagflation" phenomenon in which we had both high unemployment and high inflation at the same time.
Interviewer: Wages were depressed while benefit costs were increasing.
Ball: Right. So it was inevitable that unless something happened, the system would run out of short-term money. Now, what wasn't understood, or sufficiently understood, was the obvious point that the problem would cure itself by 1990. What you had was a problem for the '80s and the thing was, as I said earlier, when the Reagan Administration came in they had a short-term problem but they used it to try to reduce the size and the cost of the program for the long-run as well.
There's one other thing I ought to call to your attention. If you really want a good explanation of the whole situation between 1972 and 1977--what went wrong with the '72 Amendments and how the '77 Amendments corrected it--I recommend several pages on that from my 1978 book-Social Security Today and Tomorrow.
Editor's Note: The following passages are from Mr. Ball's book:
When the amendments of 1972 were passed, the best information then available was used to project the costs of the new program, and financing to fully cover the estimated cost was included in the legislation. The 1973 reports of the Board of Trustees, issued shortly after the 1972 amendments, showed a small imbalance, over the 75 years for which estimates are made. The imbalance was about one-third of 1 percent of covered social security payroll. (What is meant by this is that an increase of one-sixth of 1 percent in the contribution rate for the employee and a like amount for the employer would have brought the system into exact balance.) Revised estimates made in the fall of 1973 showed an increase in the imbalance--to over three-fourths of 1 percent. In the 1973 amendments, the Congress not only speeded up the cost-of-living benefit increase--in essence moving the effective date from January 1975 to June 1974--but also made changes that brought the long-range actuarial imbalance down to a level of about one-half of 1 percent of covered payroll. This was an imbalance of about 5 percent of the estimated cost of the whole program over the 75-year period. This relatively minor degree of imbalance was considered acceptable by the Congress, considering the major uncertainties attached to such long-range estimates.
The estimates made in the trustees' reports from 1974 through 1977 showed the system to be substantially out of balance, both over the short run and the long run. The estimated short-run imbalance was primarily the result of a recession and slow economic recovery in which we had the unusual situation of high unemployment rates and at the same time high rates of inflation. In 1977 it was estimated that during the five-year period 1977-81, the income to the program would be $499 billion and the outgo $540 billion. This was a projected deficit of $41 billion for the five years, which, in the absence of additional financing, would have just about exhausted the trust funds by the end of the period. Yet; if it hadn't been for the recession, and if one could have assumed for these years a rate of unemployment of 5 percent and a 4 percent increase in prices, the program estimates would have shown a net increase in the trust funds of $33 billion, resulting in a figure of $77 billion in the trust funds at the end of 1981.
Ordinarily, funds to cover the cost of the automatic benefit increases resulting from inflation would be provided without changes in the social security contribution rates--i.e., by applying social security contribution rates to the rising payrolls that usually accompany price increases. However, by 1974, and each year since, the Social Security Administration's actuaries were estimating that, because of unemployment, payrolls would not increase sufficiently to cover the cost of the large benefit increases resulting from the high inflation rates. Now, if this had meant only a few years of deficits, there would not have been cause for concern. The whole purpose in having contingency reserves is so that they may be drawn on during a recession. And during a recession it is helpful to the economy to maintain purchasing power by having benefit payments exceed the social security contributions that workers and employers make. The problem was that the year-by-year deficits were expected to continue. The rapid rate of inflation in 1974-77, with the accompanying automatic increase in benefits, not only raised general benefit levels but also formed a higher base on which all future automatic increases build. Thus, future benefit costs will be higher than anticipated in previous cost estimates, and future increases in income based on bigger payrolls would not have fully made up for past benefit increases. Also, the depleted reserves would have produced less interest than previously estimated. Recent adverse experience in disability also has had an effect. It is now assumed that a higher proportion of covered workers will get disability benefits in the future than in the past, and this, of course, adds to costs. To meet this changed situation, the Congress acted in 1977 to strengthen both the short- and the long-range financing of the program.
Interviewer: I had one other question about the '72 Amendments, and then we really are going to get to Greenspan.
We talked last time about what happened with the '72 Amendments, the sequence was roughly that Mills put together a package that had the 20 per cent benefit increase and the automatics in it and got it through the House, even though he didn't personally want the automatics to be in there. Then it went to the Senate and got bogged down over welfare reform in the Senate Finance Committee. Eventually the way it got out was Senator Church introduced what you called the Church Amendment and he introduced it as a rider to the Debt Extension Bill, which was a "must pass" piece of legislation, and that's how the package finally got passed in '72. You briefly talked about this in our last session, but I wonder if you could go into it in a little more detail.
Ball: (Laughs) Mills by that time was in favor of the automatics. It wouldn't have been in the House bill if he hadn't changed his view. I think we went through this.
Interviewer: You told the story of Byrnes recommitting the bill.
Ball: Yes. And then my suggestion about HR 1 for the next year, and so on.
Interviewer: Right. You gave Mills the suggestion for how he could live with it.
Ball: Yes. So what we had in the House bill was what we all thought was just right, and very good, and well-financed in all respects. We didn't want to change it at all. In the Senate Finance Committee, I'd say principally because of the staff, they financed the automatic provisions in a way that would have been devastating if it had been allowed. Each time a cost of living increase was to be provided by the automatic provisions, the Finance Committee version required not only an increase in the maximum earnings base but an increase in the contribution rate sufficient to bear half the cost of the increase. In the House version the cost of living was an automatic provision, automatically financed by rising wages and the base without the need for any legislative change in financing. The Senate Finance Committee stripped the House bill of the provisions that made the financing automatic, and substituted this other idea. I'm not sure what their motivation was, but it was not friendly, and it was going to be necessary to go around the Senate Finance Committee. It wasn't just that they were unable to report a bill, but if they would have reported a bill, it would have been a bad bill. They delayed reporting it, as you suggested. So I went to Church with the argument that if he took what amounted to the House bill as an amendment on the floor to the debt bill, then the result would be a wonderful improvement in the program. And that's what he did as Chairman of the Senate Committee on Aging, which had no legislative jurisdiction. The Committee on Aging was just a study committee.
Interviewer: He was really seriously bypassing the Finance Committee.
Ball: Oh, yes. Deliberately.
Interviewer: And you put him up to that.
Ball: Yes. (Laughs) Yes, I did. And Long took it very easily - that's why I said I think it was mostly staff. He didn't seem, personally, particularly committed to that financing change which was such a problem. He wasn't happy about the idea that an important bill, instead of coming out of his Committee, was amended on the floor, but he didn't really fight it.
I have another Church story. And that is, I went to him one more time, and he saved the retirement test . . .
Interviewer: We did talk about that last time so that's in the last interview. You mentioned that shortly after Reagan took office they made a Social Security proposal that, among other things, was going to cut early retirement benefits. And that set off a real firestorm of protest. I think the Senate passed a Sense of the Senate resolution rejecting that idea 96 to 0, which was a big political embarrassment for the Administration. That set the Administration scrambling behind the scenes for some way to deal with this Social Security financing crisis, which everybody knew had to be dealt with.
Ball: Yes. We borrowed money from the Hospital Insurance Fund. That was the only thing that had happened. That postponed the evil day for awhile.
Interviewer: OK. Now at the same time, the Congressional Democrats, behind the scenes, are sort of strategizing for what to do, and I think you even were consulting with them and doing some briefings for them and I think that you did a chart presentation to the House Democratic Policy Committee and you had some chats with the Speaker and his staff, and so on. What was going on in that period of early '81, before the Commission was appointed and announced, behind the scenes on the Hill? What was your involvement?
Ball: I might have to check the exact dates later, but I remember the general situation. There was an argument within the Democratic party over the right approach. Tip O' Neill did not want to have benefits reduced. His views were really the same as mine. His staff people working on this were Jack Lew and Ari Weiss. (Lew later was head of the Office of Management and Budget under the last part of the Clinton Administration.) Ari Weiss was perhaps a little bit above Jack Lew in the hierarchy, but both of them worked very closely together with the Speaker on all domestic issues. They were very much involved at that time in the Social Security issue. I worked very closely with them, and with the Chairman of the House Rules Committee, Richard Bolling. (Bolling wrote a book called Order in the House.) The Speaker also relied on an advisory group called the Democratic Policy Committee, which still exists. That group was representative of different views within the House. A very important player in all this was Claude Pepper, who more than anyone else, represented the interests of the elderly. He made his reputation in later years as a big defender of Social Security. Pepper at that time was Chairman of the Committee on Aging in the House.
Now the Democratic Policy Committee was a policy group made up of lots more than members of the Ways and Means Committee. But it was the Ways and Means Committee that jurisdiction over Social Security and could actually do something. When it came to Social Security legislation, it was only the Ways and Means Committee who had any real authority. But this Policy Committee advised the speaker and helped make the Democratic Caucus' views coherent.
On the Ways and Means Committee the Chairman of the Subcommittee on Social Security was Jake Pickle from Austin, Texas. He took the seat that Lyndon Johnson originally had, and was thought of as a Johnson person. Pickle's view was that benefits needed to be cut to bring the system into balance. He's basically quite a conservative Democrat, not a right-winger by any means, but certainly a centrist, not a liberal. Throughout this whole period, when there was an imbalance in the system, Pickle proposed various forms of benefit cutbacks which would help bring the system into balance. They were usually plans that had both aspects, more new money and benefit cuts. O'Neill didn't want to do the cuts and I didn't want to do the cuts.
Ball: There were two people on the Ways and Means Committee who took on the role of representing the Speaker's views. One of them was Dick Gephardt, who was then a young upcoming Democrat, probably in the middle range on the Committee in seniority, and Jim Shannon of Massachusetts, who had lower ranking in seniority. Shannon and Gephardt were on the Social Security Subcommittee with Pickle as Chair, and they were fighting to prevent benefit cuts. Shannon later became Attorney General of the State of Massachusetts after he left the Congress, and he was the leader of the floor fight in the House in '83 when the recommendations of the Greenspan Commission came up. He was the floor manager fighting the Ways and Means Committee leadership in 1983. The leadership on the Ways and Means Committee was proposing to increase the so-called "normal" retirement age. Shannon was the leader of the opposition to that.
But at this earlier time we are talking about, Shannon and Gephardt were the Speaker's people on the Committee, and I worked very closely with them. I remember one year driving from my summer place in New Hampshire and just making it within minutes of an appointment I had with the two of them, at the beginning of the Congressional session.
At one point, Pickle and I were asked to appear before the Democratic Caucus to debate the Social Security issues.
So there was division within the Democrats. The more conservative group wanting to move right away to help correct the long-range imbalance in the system, and were perfectly willing to cut benefits to do it, and then there was a faction led by the Speaker that didn't want to do this. And, as a result, Pickle and I, taking the two different views, appeared before the whole Democratic Caucus and argued this issue. The Speaker had me come up and present what the situation was. I had a big chart to explain the long-range and the short-range, and I had some solutions. I also had some proposals to make.
That's what was going on, leading up to when Reagan was elected. And then you picked up from there up to the point where Reagan is forced to set up some kind of Commission as the only way out, since they've politically messed up their original proposals.
A footnote on that might be interesting, that Bob Myers in the new Reagan Administration became Deputy Commissioner of Social Security.
Interviewer: That's right.
Ball: And much to his chagrin, Myers found out that was not a terribly powerful position. Social Security policy in the Reagan Administration was really being made in the Office of Management and Budget-not even in the Department. And that this package of 10--I think there were 10--benefit cuts had been developed with relatively little input from him. He was very much opposed to the one provision that was the big political mistake. But I don't think he had a lot to do with the whole thing, I think it was put together at OMB. He supported all the others; I mean he was perfectly willing to cut back on Social Security. His only objection was that on his set of principles, which he always defended consistently, you wouldn't change people's benefits . . .
Interviewer: Just a few months before they were going to retire?
Ball: Yes. He knew much better than that.
So he was there and opposed to it. And Myers didn't last too long in that job because he found it just wasn't a very powerful place to be.
Interviewer: Now, I just want to know - was there any consensus at all among the Democratic Caucus about solutions, about any particular proposals that they were willing to embrace--before the Greenspan Commission?
Ball: No, not really. Pickle had a plan, and he had some supporters. I had a plan, but the Speaker wasn't really trying to get everybody to rally behind it.
I think this is an important point to recognize, because it's relevant to today. You're not actually required--to be a good opposition--to have everybody agree to your substitute. You can be against what somebody else is proposing, as long as you have a plausible position, which may not be supported by enough people to pass. It has to be clear I think to the press and others that there is an alternative, or maybe a couple of alternatives. Or three or four alternatives. So you're not opposing the only possible solution, but you don't have to get an agreement on just one alternative. If somebody else is proposing something, people from somewhat different points of view can agree to oppose it, even though they can't agree on exactly what should be done. So although O'Neill was very sympathetic to the positions that I was espousing, he didn't feel it necessary to get the Caucus to have this as a position-he wasn't trying to pass it. Pickle was trying to pass his.
Interviewer: OK. Now, you enumerated for us before the membership of the Commission, and that you were one of the Speaker's selections. Can you tell me how you got to be one of the Speaker's selections? Did you lobby for the job?
Ball: Oh, no, no.
Interviewer: Did it come out of the blue? Did you know you were going to do this? Tell me what the circumstances were.
Ball: None of that, really. The way that happened was, as a result of all this work I had been doing with the Speaker, and particularly his staff, Ari Weiss and Jack Lew, I was the person they were returning to all the time for the arguments within the Democratic party and against the Republicans. I met with Jack and Ari a lot. And at that time some other people were involved as well, on the Ways and Means Committee staff, Wendell Primus, primarily. Wendell was very active in this. He was a member of the staff of the Ways and Means Committee. He was very responsive of course to the Speaker. So he met frequently with Ari and Jack and me, and sometimes with a representative of the Joint Committee on Taxation.
Interviewer: So you are saying that you were the obvious choice?
Ball: Yes, from a standpoint of an expert for the Democrats. I'm sure that Ari and Jack would have pushed my name to the Speaker as the obvious person. But there wouldn't have been a lot of rivalry. I mean, I don't know whether someone was trying to get the job instead of me.
Interviewer: No, I don't, either. And I agree that you were the obvious, logical choice, but that isn't always what happens.
Ball: I didn't try to get it, if that's what you mean.
Interviewer: I want to know about Bob Myers, because I know that Bob Myers wanted to be a member of the Commission. He told me that he wanted to be a member of the Commission and he was deeply disappointed when he didn't get selected to be a member. So he was actively hoping.
Ball: Well, I think he was lobbying. He does do that for a job every once in awhile.
Interviewer: But you didn't have to do that?
Ball: No, I wasn't trying to get on it.
Ball: I don't think I would have tried.
Interviewer: Well all right, let me ask you this.
Ball: I don't ever remember lobbying for any job!
Interviewer: Just to close this out, it was clear, wasn't it, that this was where the action was going to be? I mean, that's what Myers said to me, for example. Myers said to me, "I left SSA because it was clear to me that the Commission was where the action was going to be, and I wanted to be able to be in a position to be a member of the Commission." That's the way he put it.
Ball: Gee, that's really thinking ahead! There is quite a step from his resigning as Deputy Commissioner and being a member of the Commission.
Interviewer: That's what he said to me. And then he was very disappointed when that didn't happen. Did you have a sense that this is where the action was going to be and you were hoping that you would be a member? If it hadn't been the case that they knocked on your door, would that have been a disappointment to you?
Ball: I don't really think so. I hadn't been thinking in those terms. I was openly fighting the Reagan Administration proposals-with labor and aging groups--on the outside. I hadn't really been thinking in terms of being a member or not being a member of the Commission. Wherever I was, I was going to be an opponent of what was going on.
Interviewer: You described how the members were selected, but another very key part of any commission is the staff that are selected. You had a meeting with Greenspan after he was the Chairman where he came to you and suggested that Bob Myers would be his suggestion for the Staff Director, and you basically agreed with that. Can you tell me if that's correct?
Ball: Yes, that's correct, and I enthusiastically agreed. Bob and I had our differences about what recommendations were the right recommendations. He's extremely knowledgeable. And I thought what would happen was just exactly what did happen--that he would conscientiously serve in the position of Staff Director and not try to act as a member. I didn't have any concern about differences of opinion with him. I thought as a member of the Commission I would be able to handle whatever it was he would be trying to do.
I thought that it's always a question of "as compared to what?" I knew I wasn't going to get a Staff Director on a Greenspan Commission appointed by President Reagan that was my idea of the right Staff Director, and so I was pleased to get somebody as knowledgeable as Bob Myers, who I thought would be reasonably objective about facts. Differences of opinion are one thing, but if you can't get agreement on the facts, it's very hard to move. So I was pleased to support him.
It's kind of a strange thing about that Commission. The five people appointed by the Democrats exercised very good discipline throughout. All five of us always met before every meeting, and sometimes in between. They very quickly--without having a vote or without making an issue of it--all five of them kind of simultaneously recognized that I ought to act like a staff director and also as the chairman of the group.
Ball: I was leaning over backwards not to be presumptuous in that regard. For example, we met fairly often in Claude Pepper's office, and I would always act as if I expected him to chair the meeting, and he would immediately say, "No, you chair it." So I chaired all the caucuses and I ran all the staff, and people expected that of me.
The two people appointed by the Senate Democrats were Kirkland and Moynihan, and they were not necessarily allied, just because they were appointed by the same people. The three people appointed by the Speaker included Pepper, who knew what he wanted and what he was for, but he wasn't going to try to act like he was the Staff Director. Pepper's staff was concerned that I was running everything, and that he didn't have his own person on the staff. So they insisted that Pepper have someone on the staff who was really appointed by and responsive to him. And that was Eric Kingson. That's how I got to know Eric.
Interviewer: That was a good choice, too.
Ball: Oh, absolutely no problem whatsoever. (Laughs) He was very happy to follow my lead! So that from the very beginning--and I mean the beginning before anything happened-I played this role. Why was I the one that went to have breakfast with Greenspan, to set this thing up? Why me? Well, partly because Moynihan being appointed from the Senate --the Senate was in Republican hands-- was, if anything, responsible back to Robert Byrd, who theoretically made the appointment. But they didn't particularly get along, and Moynihan assumed that he knew 10 times as much as Byrd. Byrd didn't know much. (Laughs) But Moynihan was not speaking through the Senate, that was clear. The Leader of the Senate wasn't the guy who appointed him, and he wasn't going to be reporting to the Republican side. He didn't go back to the Senate for guidance much at all, he just kept his own counsel and acted. Moynihan couldn't have exercised a chairmanship or a staff role from that weak position. Lane Kirkland knew a lot. He used to be on the Social Security staff under Nelson Cruikshank. He was a very knowledgeable participant. But the President of the AFL-CIO is not going to operate like a Chairman or a Staff Director. So it fell to me, quite naturally, really by nobody else being where they could do that.
I don't even know how Greenspan knew enough to ask me to breakfast to discuss this, rather than somebody else among the Democrats. But before there ever had been a meeting of the Commission, Greenspan knew he was dealing with me, and that went on the whole time. We would meet separately from the Commission. He didn't meet with other people separately. He said later that he always assumed that I was speaking for the Speaker.
Interviewer: And you were?
Ball: Without checking with him, for the most part. But I was really his representative.
Interviewer: Well, let me just ask you a couple of questions about some of the other staff selections. How about Merton Bernstein? I understand that you recommended Merton Bernstein for a particular reason.
Ball: Yes, he was available, first. That's one of the main qualifications. And he viewed the whole Social Security situation the same way I did. He would want the same provisions and he was an expert and he had written on the subject, and I knew him well.
Interviewer: OK. Well, in fact, here's the list of the staff if you want to look at it and you want to comment on any of the other staff selections.
Ball: Betty Duskin was my selection. She was an employee at the time of the National Council of Senior Citizens. She worked with them, and I knew her well. I selected people who I knew had a position the same as mine and who in addition to that, would look to me for direction. They were there because we wanted some people on the staff who would do what we told them, not just what Bob Meyers told them. Kingson came on, as I said, because of the staff of Claude Pepper. I don't know if Claude himself ever felt that way.
Interviewer: Did you and Greenspan jointly pick this staff? Did you discuss it? Did he ask you for recommendations?
Interviewer: How did it work?
Ball: He agreed that we should have staff members that we selected. He exercised no second guessing or approval of anything. One thing he insisted on, which was okay with me, is that they should technically be responsible to Bob Meyers, the Executive Director. He didn't want a two-headed staff, and that was okay. Bob understood and he understood they worked for me.
Virginia Reno. She was an employee of Social Security, and of course, I've known her very well since then. Bob Myers really selected all the rest, as far as I know. He selected Coates, DiPentima, Tim Kelly . . .
Interviewer: Tim Kelly is a SSA employee still. He works in Legislation.
Ball: He's a benefit expert. Bruce Schobel was very close to Bob. He was like the second guy.
Interviewer: Bruce Schobel has been kind of Bob's understudy, as an actuary.
Ball: He was very close to Bob. Carolyn Weaver was there because of the insistence of Bob Dole. She was staff to Bob Dole throughout all this stuff. Always to the right of Dole. I don't know why he wanted a staff person who had views that were much more extreme than his. But she believed the same thing then that she believed on the '94 - '96 Council. She was a competent staff person. She understood a lot of stuff. I don't think Bob had any trouble accepting her. But all the rest are . . .
Interviewer: Can you tell me what the role of the staff was during the course of the Commission's work? I mean, how did that work out? Does anything stand out about that? I know they prepared lots of memoranda and background papers. I see a list of about 60 of them here in the report.
Ball: I didn't pay a lot of attention to the functioning of the staff.
The first year of that Commission was a very useful educational period. There was really no attempt, until after the election in November of that year, to try to accomplish anything in the way of agreements or settling differences.
Interviewer: So the Commission met for over a year . . .
Ball: Really not aiming at anything other than an understanding. Bob Myers conducted a pretty good course in the existing Social Security program, and we had hearings in which I was allowed to select witnesses and they selected witnesses.
Some important decisions were made, not about what we should recommend, but about scope and one thing and another. I remember Michael Boskin testifying. Boskin presented an alternative program in his testimony. He and a couple of other economists had always been working on a substantive Social Security plan - get rid of the Social Security system and have another type of system. Well, it was a useful thing because it was Joe Waggonner who, after Boskin testified, said to him and to all of us, "Well, that's very interesting, but that's not our job. Our job is to fix up the present system." So we didn't have any more of that stuff of should we throw this out and have a means-tested program, or an individual accounts program, or one thing and another. But, other than that . . .
Interviewer: There was one other scope issue I think, and that was Bob Beck made some suggestion that you might also take on Medicare. I guess you managed to rebuff that?
Ball: Yes. Greenspan supported me on that. It was just too much. Beck proposed it-- I attribute to him this motivation, he never said it--that is, that if you had to supply the money in our recommendations for Medicare as well, we would have had a much harder time to avoid benefit cuts. The more expensive everything was made to look the better off he would have liked it. Because of course from the very beginning, everybody knew that we were going to make recommendations to bring this thing into balance, and the most important agreement was on how much that would have to be, which we did not make until toward the end of that first year.
But what I started to say was from the very beginning it was clear that those appointed by the Republicans were going to want the solution to be primarily benefit cuts; those appointed by the Democrats were going to want the solution to be primarily tax increases, or some other way to get more money-- increase the money, don't cut the benefits. So there was going to be a negotiation between those two approaches. Well, we went through a year of people learning about the program with Bob his staff producing all these background materials. At the meetings we would discuss them and people would learn. Bob and I would argue quite a bit about nuances and possible ways of going, but we didn't disagree a lot on the facts.
Interviewer: You mentioned that one of the first big things that the Commission did agree on was the size of the problem. You put a number on it and that became your target.
Ball: Yes. That was very useful. But that was later in the process. All the early meetings were the way I've just described them. Except for one very early meeting in which Moynihan and Claude Pepper really blew up. We had just gotten started, like maybe the second meeting, and the Senate was considering legislation that would have handicapped us greatly on what we could recommend, because in their budget resolution they were going to assume that we would recommend benefit cuts-$40 billion as I remember it.
Interviewer: I think I know what this was. In May of 1982, Senator Domenici, who was Chairman of the Senate Budget Committee, announced that the Administration in its budget was assuming $40 billion in savings to come out of the Greenspan Commission.
Ball: Yes, savings.
Interviewer: And that's what set this off?
Ball: Yes, because savings meant benefit cuts. Not income. So we in effect said, "We can't continue with this. If you guys in the Senate are already decided that this is going to be done through savings, then what the hell are we doing here?" So Moynihan and Pepper were willing to walk out . . .
Interviewer: They made a big public protest?
Ball: Yes, and the Republicans backed off and Domenici withdrew the budget proposal.
Interviewer: What was Greenspan's reaction, do you recall?
Ball: Neutral. He was a good Chairman. He wasn't pushing anything at that time. Bob Dole was good too, because he's a real wit. And Moynihan was arguing at the top of his lungs against Senator Armstrong. And Dole turns to the public audience and says "Don't take all this too seriously. We argue like this all the time in the Senate." (Laughs).
Interviewer: Which kind of diffused it a little bit?
Ball: Yes, right. And, so that was . . .
Interviewer: But the Commission refused to accept this idea that they had a prior commitment of $40 billion. The Commission said, "No, we don't accept that."
Ball: Absolutely, and they withdrew it.
Interviewer: So that was a major victory over what could have been a real obstacle.
You asked me how did we arrive at a target number--which you say was $168 billion -- to get the program through until 1990. We needed to find this much in financing to solve the short-term problem. This probably didn't happen until October or November. But it was a major, major accomplishment. It happened because I surprised the Republicans very much, by a quick agreement on a large number. They thought that the major supporters of the program, the Democrats who didn't want benefit cuts, would try to keep the number low.
Interviewer: So that you would have a smaller problem to solve?
Ball: Yes, that's what they thought. They assumed that we would rather shoot at a small number than at a big number. I, on the other hand, wanted the number to be big enough so they couldn't solve it solely by benefit cuts. I wanted a big number-- a realistic number--but I was glad to have it big. Because then they would have to divide it. It just wasn't plausible that you could have benefit cuts of the size that would be needed. That would have been too much, even for them. So it guaranteed that we would get some tax increases if we had a big number. So they found that I wasn't resistant to their proposals for a big number. And when Bob Myers made the estimate, we quickly accepted it. So they, with their mouths open, went along.
Interviewer: So you kind of out-maneuvered them there, Bob.
Ball: Well, I think so! I think it was very important to have that big number there. And also, of course, I didn't want a solution that was going to come unraveled five years later.
Interviewer: You also had to objectively solve the problem?
Ball: Yes, I wanted to do that. I wanted to over-solve it, if anything. Greenspan strongly wanted to over-solve it too. He was never absolutely sure that $168 billion would be enough.
Interviewer: Well, I think the truth is that you agreed that it was a range of $150 billion to $200 billion. And then what happened is your consensus package saved $168, that's where I got that number.
Ball: That's good, yes. I'm sure that's what all these tables show that we were doing. I was just making the point that Greenspan wanted, as much as I did, to be sure we had really solved the problem. To get to 1990, that's how we solved the problem. And he filled my office--it wasn't a big office--but he filled my office with machine runs of alternative assumptions running out to 1990.
Interviewer: Paper print-outs, you mean?
Ball: Paper print-outs, that he'd gotten the Commerce Department to do on every conceivable kind of possibility, using our proposals and all sorts of economic variables. And he finally concluded, "Well gee, I guess it works!" So, that's how we were able to go ahead with it.
Interviewer: Now, one other very important thing that you agreed upon, and I don't know when this happened, whether it was early or whether it was late, but it was one of your unanimous agreements. You had a few unanimous things that the whole Commission agreed on, and then you had the consensus package that most of the Commission agreed on. One of the unanimous agreements was: "The members of the National Commission believe that the Congress in its deliberations on financing proposals, should not alter the fundamental structure of the Social Security program or undermine its fundamental principles." So you got them to agree to support the basic financing principles of the program. That seems to me to be a very substantial issue, too.
Ball: Yes, that has a history of continuity, shall we say. Throughout the legislative consideration of Social Security I used to work into what the legislative draftsmen called the "guff parts" of Committee Reports--meaning that it had no standing in law-similar statements whenever I could. I would have the Ways and Means Committee Reports and the Senate Finance Committee Reports make statements in which the Committees would join in supporting the fundamental principles of the program. And you'll find statements like that in these Committee Reports going back for years.
Interviewer: Not only that, Bob, but in the Advisory Council Reports you did the same thing. Right?
Ball: Right. I think it's probably correct to say that I wrote most of those remarks.
Interviewer: I'm not surprised.
Ball: (Laughs). They may show up all over the place.
Interviewer: And that was true all the way up until the '94 -'96 Advisory Council, which is the first one not to do this.
Ball: Well, in the '94 - '96 Council reports, there was a section of agreement, not on that, but there is a section given to our agreements.
Interviewer: Yes, but not on the fundamental principles of the program, which was the real breakdown. We're going to talk about that one of these days, down the road.
Ball: That language was really to say, in their terms, that this Council isn't about the business of whether there's a better substitute for the Social Security system. This is a follow-up on Waggonner's point - brushing off Boskin. That's what made it possible to do that. Now, Bob Myers would agree to that statement of philosophy too.
Interviewer: Yes, I agree that he would.
Ball: So Bob Myers and I would both like to have that in. We did it without much consideration. It wasn't as if the Council had carefully discussed individual accounts, or some other approach.
Ball: They just said that's not the business now. Bob may actually have written those words, or he and I wrote them together. But, that's how that would be.
Ball: We actually tried to get an agreed-upon position on how to solve this toward the end of this first year. We Democrats came to the meeting here in Alexandria--that Alexandria hotel meeting--which was toward the end of the time, with a proposal that we had caucused on. There was always a group of five of us. We'd agreed on a position and we'd agreed on what concessions we'd be willing to make. We actually had agreed on a benefit cut. I think it was five per cent.
I was sitting next to Bob Dole, and at the meeting, sometime or other when there was a lull, I asked him if he would be interested in discussing, not only the plan that we had already submitted, which didn't have any concessions to them at all in it, but one like this with a five per cent benefit cut, and so on. He said he certainly would. So we left the meeting and we got Greenspan and Greenspan called the White House and got Jim Baker on the phone, and the five of us went to a room in the hotel and called Tip O'Neill. We were trying to find out whether Tip would agree with a modified plan that we thought we'd try to sell them, and Greenspan was trying to get Baker to agree on behalf of the President. But Baker said, in effect, that they hadn't come to Social Security yet in considering the budget, and that they weren't ready to agree to anything.
Interviewer: That seems strange to me. I mean, it seems like a real missed opportunity, wouldn't you say?
Ball: Yes, I think they would have done better than what they got later! But, I think he was unsure of himself and of the President. See they really did have to bring the President along on this. The idea that Reagan didn't pay attention to things isn't quite right, at least in terms of this issue. Even in the final negotiations, they kept running across the street to the White House to see if he'd take this or take that. So that they just weren't ready to bargain. But that was fairly close, in the sense that everybody was engaged and willing to make a deal. But the Republicans never made a proposal, because they couldn't agree among themselves. Those ten people, I mean.
Interviewer: I have here a note that you made an early suggestion to solve the short-range problem by borrowing -- by letting the Trust Fund borrow from general revenues--and then, after the '90s came and the Trust Fund had monies again, they would pay the loan back. So that it was only a loan.
Ball: Well, that was just one thing.
Interviewer: That was not what we're talking about with this five per cent cut; that was before this serious proposal?
Ball: Yes, they weren't going to let it go with just that. But that was a very logical proposal, as long as you know that the '90s is going to be fine, and you've just got a problem in the '80s.
Interviewer: But you didn't get any bites on that, either, they weren't interested in dealing with that, either?
Ball: Bob Myers may have had some influence here. He never seemed to have any influence when we all met together, but he was so opposed to using general revenue in any conceivable way, he would have reinforced any reluctance they had.
Interviewer: Well, that's why I ask about this. In some traditional perspectives the use of general revenues is a philosophical anathema.
Also during that period when the Commission was meeting, you were kind of the spokesman to the media for the liberal group, if we can call it that. So you had a lot of media interviews and newspaper interviews and so on during this time.
Ball: Are you talking about before the agreements?
Interviewer: While the Commission is working, but before you start the secret negotiations, when you're in the public part of the hearings and nobody is going anywhere. I think you did speeches or met with some of the interest groups, AARP and some of the other groups.
Ball: Well, this whole operation of meeting to get support, both public relations support by meeting with the press and the media and support from organized groups, was greatly intensified during the negotiations in early January that finally resulted in an agreement. But before that, while the Commission was going as a Commission, I did quite a bit of it. Claude Pepper started to call me the "Habib to Capitol Hill"- Habib was the Ambassador who was running from one country to another-and I was running from one group to another. I had a lot of people I had to keep happy!
There were the Democrats on the Ways and Means Committee, who had decided not to have anything to do with the Commission. They didn't want to be stuck with the Commission's recommendations. So Rostenkowski really wouldn't let any of his members be on the Commission; the only people we had from the Ways and Means Committee were Republicans. Rostenkowski didn't have much use for un-elected people, anyhow. He made a big distinction between whether you were there because you were elected, or you were there because you were something else -a lobbyist, or an advisor, or something. So I had to keep him and the Ways and Means Committee staff informed, or we would have had a report disowned by them and it wouldn't have been of much help to anybody.
With the AARP I was never successful. AARP took the position that they were the defenders of the elderly and they would make no concessions on anything. They didn't want an agreement, and they blocked every single move that I could make, to the extent that they could. They turned out to be a real nuisance.
I had to meet with all the groups who would be affected. At the Speaker's urging, I met with the representatives of the Federal employees, who turned out to be the group that almost put a spoke in the wheel, because they, like the AARP, would never concede anything. They were just absolutely adamant, no matter what was proposed.
Interviewer: This was about coverage of federal employees, bringing them into the system? This ended up being one of the Commission's recommendations.
Ball: That was one of the things that we agreed on early, incidentally. It was agreed before the negotiations, on the Commission as a whole, to cover newly hired Federal employees, except for Lane Kirkland.
This consulting got very intense during the final negotiations, because I needed to check out the acceptability of various plans as they were being developed.
Even as late as the afternoon after we'd all come to tentative agreements, I was on the phone to Claude Pepper. He and Lane Kirkland had agreed that neither one would approve of anything until the other also agreed. So I got Lane Kirkland - he was coming back on a train from New York to Washington-- and I got his agreement, and then was able to tell Pepper that Lane had agreed to these changes. Pepper was extremely reluctant to go along with any kind of a cut in Social Security benefits, the cut that we had was moving the date of the COLA back. Which is a significant cut, although it doesn't appear significant. Pepper accepted that and later on, after it was public and everybody had agreed, and so on, the AARP stirred him up about whether he really knew what he had been doing. And I had to go back and I had to work hard to get Pepper not to try to upset the whole thing.
Interviewer: That is a good story and I want you to tell me that. But let's hold it until we get there in the sequence.
This five percent cut that your group proposed, was that in the form of this COLA delay, or was it something else?
Ball: It was a direct, complete, five percent benefit cut.
Interviewer: OK. Now, at some point in this process Trowbridge finally comes forward with a set of proposals. You said earlier that the Republican side didn't make any proposals, because they couldn't agree. But, Trowbridge comes forward with . . .
Ball: These are not Republican proposals, though. These are his personal proposals.
Interviewer: Oh. But didn't it turn out that there was apparently some White House involvement in helping him with those proposals?
Interviewer: Well, what's the story with the Trowbridge proposals?
Ball: Well, after the Commission itself had tried a couple of times to make some kind of progress, and had more or less given up. . . .
Interviewer: Oh, I'm sorry. Before you do Trowbridge, let me just ask you one question I'd forgotten about. Do you think it's the case that either the members on the Commission or anyone else in this process was intentionally waiting until after the November elections before moving forward? Do you think people were holding back, saying, "Let's wait and see what happens in the November elections before we show our hand?" Was that a factor in this?
Ball: Yes. I don't think Greenspan and I really tried to see if he could get an agreement from his side until after the election.
Interviewer: Everybody was hoping the election would improve their position?
Ball: Well, I think they realized that the members weren't ready to set up targets before the election. They didn't know who would be damaged by a proposal, and that it was just not practical to try. So Pepper worked very hard on the elections to help increase the Democratic Members of the House by campaigning for a lot of borderline people who then thought they owed him a lot.
Interviewer: On the issue of Social Security?
Ball: Oh, yes, Social Security. That was the issue. So that, theoretically, our hand was somewhat strengthened by the November elections. But people forget: President was really at a low point in the polls right around then. He needed a victory. Reagan was so popular afterwards that they forget his start was kind of rocky, and that's what the group within the White House, led by Baker and Darman, were arguing - that they wanted to have this Commission a success. It may have been originally proposed as a way of getting beyond the elections, without a problem. Just to have it studied, with no real action expected. But they came to the conclusion that they really wanted an answer, and there was a much better chance in the Commission than to try to fight it in the Congress. On the other hand, the Chairman of the Council of Economic Advisors Martin Feldstein, I am told, wanted to fight it out: to have the President go on television and radio and just attack the Social Security system, and make it an issue. But the so-called "pragmatists" won out.
Interviewer: So, just to close-out the subject of the Trowbridge proposals . . .
Ball: Trowbridge started to circulate proposals --they would be on a single sheet of paper, something like the Social Security Plus papers that I have been circulating lately. They were just a series of items that would add up to a solution. These were mostly cuts in benefits, and sometimes a little bit on the other side, with increases in income, and so on. He didn't get any real takers, anywhere. I went to see him a couple of times and talked with him about some modifications to see if it was possible to get a real negotiation started through him as a way into the Republicans, since he was appointed by the Republicans. He never met with our caucus, we didn't ask him. We didn't consider him on our side, we considered him on their side.
Interviewer: Even though he was a nominal Democrat?
Ball: Yes. I think he would have been glad to be trying to persuade us from the inside, but he wasn't asked. He said these things from the outside, from our point of view. I talked with him about them, and he wouldn't make enough concessions that I thought we could even start to negotiate through him.
But one thing that got the process back to the negotiating stage--there are really two different tracks to it-one was Darman calling me. Do you know that story?
Interviewer: No, I want you to tell me that story, please.
Ball: All right. Dick Darman called me and said that he'd like to come over and see me; would I agree to "a meeting that would never have taken place?"
Interviewer: This had to be completely off the record, so to speak?
Ball: Completely off the record. I had known Darman quite well in the Nixon Administration when Elliot Richardson was Secretary of HEW. Darman was an Assistant to him--a high-level assistant. He did various things representing Richardson directly. Among others, what I'd worked with Darman on, was an attempt by Nixon through Chuck Colson, to get a political stuffer put it in all of the Social Security checks just prior to the 1972 Presidential election.
Interviewer: We did talk about the check stuffer story.
Ball: That's where I got to know Darman.
Interviewer: Darman was your middle man between you and the White House, trying to get them to back off of the check stuffer?
Ball: So, we had a fairly close relationship. So he called, and I said, "Why sure, come on over." He had with him, I think it was Number 7, of Trowbridge's various plans, which he brought with the understanding that we had more or less agreed to it. That was a complete misunderstanding. I don't know how it happened. But there were many things in that plan that we couldn't possibly accept. Well, he was somewhat chagrined, because he showed it to me and said, "These are the President's marks on this." And the President was trying to move it even further in their direction.
Interviewer: He's moving it even more to the right?
Ball: Yes. I never would have agreed to Trowbridge's plan in the first place, but the President was making it worse, so we couldn't possibly agree. So we just put that to one side and talked about . . .
Interviewer: But that tells us some interesting information. It tells us that Reagan was involved in the Trowbridge Plan, and it tells you he was involved-behind the scenes- in developing proposals.
Ball: Yes. It just is not true, in this instance anyway, that Reagan was leaving it to subordinates. When it got near enough to maybe be a plan, at least, he was looking at it.
Ball: So, we talked about the whole situation. Darman was probably there for a couple of hours.
And the question really was whether we could do anything that was worth continuing. Darman said there was a group in the White House that really did want to come to an agreement, and a group that didn't. But that he and Baker and and Duberstein and Stockman--those were the four by far that were the most influential-- thought we could possibly work something out. He didn't know whether we could. We seemed to be pretty far apart, but Darman said that he would go back and try and see if he could move it in my direction at all. So we left everything pretty much up in the air, but with the encouragement for the first time of involvement by the White House itself. I had thought for a long time that it was absolutely essential that the White House get involved, or it wouldn't happen.
That's one track that led to this direct negotiation with the White House. And the other track was Bob Dole, writing an op-ed in the New York Times, which Moynihan picked up and talked to him about on the floor of the Senate. Moynihan told Dole, "If you really meant what you wrote, that it should be possible to work out an agreement, then we ought to make one more try at it." That triggered it right at that time, and they called me and I met with the two of them.
Interviewer: Dole and Moynihan?
Ball: Yes, Dole and Moynihan. They wanted to know did I think that there was enough possibility of an agreement to be worth making another effort? I said I did. They evidently had this set-up beforehand, I mean they were waiting for me to say yes or no, because then we moved very fast. The reason I think there must have been prior consultation was that Greenspan quickly became a part of it too. And it was clear that Baker had been involved because we were immediately all invited out to his house.
We needed somebody from the House as well, so Barber Conable was added to the group. So there was Dole and Moynihan and me, and then we added Greenspan and Conable. So that was the initial five from the Commission - all self appointed. Dole may have talked to his colleagues in the Senate, but they were very supportive of him in any case. And the White House people were the four I previously named. And that's what started two weeks of real negotiation-- really between the Speaker and the President of the United States. We were the proxies for negotiations that reversed the usual Advisory Council process. We were trying to come to an agreement first with the two principals, and then getting the Council to endorse what had already been decided.
Interviewer: What about the role of some of the people who were not in this negotiation? There was a group of conservative members--Armstrong, Archer and Waggonner-- who were kind of the antithesis of the liberal group. In fact, they didn't even vote for the final consensus package. They opposed it, so it was 12 to 3 in favor.
Ball: Armstrong started to come to the negotiating meetings toward the very end. These were all very secret meetings, kept from the press and everybody. But Armstrong was a member of the Commission and certainly couldn't be barred from these meetings. He had every right to be there, as much as we did. He started showing up toward the end. I can't remember how many meetings he was at, but he never said a word. He just listened. One time in an intermission he and I were sitting there alone. He turned to me and said, "I disagree with everything you're doing, but I admire the way you're doing it." (Laughs).
Interviewer: Now, there's a story about how you had to sneak out the back door of your house to go one of these meetings at Baker's house. I think the press has staked out your house, out in the front here. Tell us that story.
Ball: Well, the press had been misled, not on purpose, but there was a report, now I've forgotten where the report was. . .
Interviewer: The Washington Post.
Ball: Was it in The Washington Post? There was a report that said that the group was going to meet at a member's house outside of Washington. Well, if they were going to meet outside of Washington, my house was the only place. So, very early, 6 or 7 o'clock in the morning, the first car arrived out in front of the house, and then they kept accumulating during the morning. I didn't want to get them following me to the meeting, so instead of going out the front door, I went out back door. There was snow on the ground at that time; we're talking January.
Ball: And I went down a steep bank to the Parkway. I had called the White House and a car picked me up at a turnaround down just off the Parkway, and so the newspapers and television were all out front, and my wife Doris was trying to persuade them that the meeting wasn't going to be here. So dressed in a sweat-suit she went out front, thinking the reporters would take the hint and recognize that she wouldn't be dressed like that if there were going to be a meeting of importance taking place. But they didn't believe her and they just stayed on.
(Editor's note. Mr. Ball's home in Alexandria, Virginia is on a hill overlooking the George Washington Parkway. There is about 200 yards of wooded area down a steep slope right outside the back door of the house. Ordinarily, nobody would be expected to try to climb down to the Parkway out the back door.)
Interviewer: So the meetings were confidential from the media, certainly. And the rest of the members of the Commission were excluded from those meetings, sort of by default, I guess.
Ball: Yes. They weren't asked, and they didn't come, except, as I said, Armstrong toward the end. The very last day, Claude Pepper came for the whole day. But he didn't try to be part of it. Neither did Armstrong try to be part of the discussions at all. And surprisingly enough in contrast to the way he behaves in public, Moynihan just sat there and hardly said a word. He and I and the Republicans from the White House and those that were from the Commission, met together many times during that week.
The Republicans would go off to one side. That would leave just Moynihan and me. That's all the Democrats there were in this group. And we talked together, but in the discussions and negotiations he really left it to me. We didn't have much to talk about in relation to the negotiations because we had pretty much agreed right along where we were going. We talked about the architecture of Washington buildings, in which he has a tremendous interest and is an expert. He knows a lot about Blair House, where we met for example. We talked mostly of things of that kind.
Interviewer: Were the other members of your larger liberal coalition up to speed on the details of the issues, or did they defer to you on issues of substance?
Ball: Well, I think they wanted to be part of the decision-making in arriving at the plans. Our caucuses were very substantive. We went over everything that was going to be in our proposals carefully so that all were fully informed. They accepted the fact that I was the expert and I was very careful to do the best I could in making them aware of alternatives and objections to what I was proposing as well as the advantages, so there wouldn't be surprises. It sort of worked that way.
Now, as I said, Lane Kirkland was a real expert from the past - he really understood the system as a staff member under Nelson Cruikshank and the AFL-CIO's own Social Security Department. That was his job for years. Martha Keys was a good and faithful member of our group and supported everything we wanted to do. She's responsible for the addition of four or five proposals that had a special impact on women that she was originally going to put on in a supplementary statement, but I said, "Why do that? We'll all agree to it. Make it part of our proposals." So we did. They're not of major importance, but they were good additions to the report. So she had a unique role in that. There was nothing particular in the way of substantive ideas from the others, but Pepper had veto power.
Interviewer: Would it be fair to say the way that works is that you put ideas on the table and then your group caucused about them, and you explained to them the implications and the pros and cons, and then as a group you decided what you would support and what you wouldn't?
Interviewer: Why don't you just describe for us the process of going to Baker's house and starting up. Tell us the setting and sort of describe how that worked a little bit, if you would.
Ball: Well, at the very first meeting the Republicans had in mind a much lower expectation than I thought we should have. When we started out at Baker's house, it never really occurred to them that this group could come up with detailed recommendations that could be agreed upon and put to the whole group. They thought that mostly what we were aiming at was a clear statement of differences and some points of agreement rather than a total plan. They assumed we'd have to put it before the Congress and the final negotiations would be there. I took a completely different view right from the beginning and said I thought that if the whole Commission was really going to be worthwhile, we had to have a single set of recommendations that could just be adopted by the Congress. Otherwise, I didn't think it would have achieved very much.
So I urged them to at least try, let's see what we could do. Let's go over a whole lot of detailed proposals aiming at an agreement. And so we did start down the road I urged. They started from their side pretty far over. What they wanted on the cost of living adjustment was, if I remember rightly, the equivalent of a three-year suspension. And before we were through, we got that down to a six-month change in the starting date, that would be permanent. That was really the main concession that we made toward benefit cuts.
I described this earlier, but the basic negotiating structure was how to reach adjustments of somewhere between $150 billion and $200 billion by 1990. We realized that the right way to do this was to be even on the amounts that would be classified as benefits cuts and the amounts that would be classified as increased income. But that clearly wouldn't be enough, so we would have a big section that wouldn't be classified either way.
Interviewer: What would be an example of something that wasn't either a benefit cut or an income increase?
Ball: For example, we advocated that the self-employed should in the future pay a rate equivalent to what the combined employer-employee rate was. We were trying to balance a question of equity. We treated half the contribution as if it were employer contribution, which meant it could be deducted as a business expense. This didn't mean the self-employed paid twice the employee rate, as some of the commentators have reported, but they paid the employee rate plus the employer's, part minus the amount that could be charged as a business expense. We agreed that was just equitable. We didn't have to classify that one way or the other. Stuff like that.
Interviewer: All right. Now, what was the procedure during these closed negotiations? Did somebody act as the chair?
Ball: The way it developed was that Greenspan, since he was the Chairman of the whole Commission, started out sort of chairing these informal discussions--but without much of a role for the chair he didn't make an agenda or anything like that. It wasn't as if we had agreed that this session we were going to talk about these things. It was much looser than that. And gradually, since it was a negotiation in which each person was involved as a negotiator, the role of chair sort of disappeared, and the role of principal negotiator on each side emerged. So Baker more and more took over as the spokesman for the 7 Republicans, and I more or less took over speaking for the two Democrats. So a lot of it became Baker dealing with me back and forth with a major input from Darman. And so that is how the conversations went.
Interviewer: Even though the membership on this little negotiating group was seven Republicans and only two Democrats, that didn't represent the real balance of power. You really had two parts, the Democratic part and the Republican part, and they had equal weight. Is that right?
Ball: Absolutely. The way this Commission was set up, they could have voted 10 to 5 in the full group, at the first meeting. But the whole thing had been set up to see if they could work something out between the President and Tip O'Neill, the Congressional Democrats and the Republicans. It wouldn't have done them any good to bring in a 10-5 report. And they were a little embarrassed when all five of us stuck together and supported the final package, and they lost three of theirs, so it was all five Democrats and only 7 of the 10 Republicans supporting the consensus package. And they wouldn't have even had seven, except they took Beck and Mary Fuller on their side, who was following Beck closely, to see the President.
They couldn't have afforded to come out with a Commission that was just 5-5 and 5 dissenters. So it was very important to get them so that in the end there were seven Republicans and five of us. The ones we lost were two Republicans and one nominal Democrat. The Democrat was not appointed by a Democrat.
The atmosphere was all very informal, friendly. There was no audience to play to. It was all serious business, with occasional jokes. Bob Dole is a funny guy. I remember one time I couldn't come to a meeting at the time that they had wanted. So I suggested that Claude Pepper come in my place. That was something they knew I was joking about because there was no way they could have negotiated with Claude. He was absolutely adamant on all kinds of things. So they agreed to reschedule the meeting for when I could join it.
As I said, we started at Baker's house. We ended up meeting almost entirely at Blair House, right across from the White House. The final day we had an agreement around noon, I guess. The afternoon was then spent getting the agreement of our members on the full Commission. Moynihan and I stayed at Blair House and made telephone calls from there. We talked to Jim Wright, the Majority Leader, who was in Texas. We talked to the Speaker. I told earlier how I needed to get Pepper and Kirkland again, to be sure they agreed.
Then the whole thing almost fell apart in the early part of that evening when there was a complete surprise for us. The White House people, principally Darman, said that the President was insisting that there be a joint statement from the Speaker and from him jointly, an exactly worded statement. And O'Neill, in more colorful language, said, "Not in my lifetime." (Laughs) "There's not going to be any joint statement." And it was deadlocked in the evening. I had to run down Tip O'Neill, who was out on the West Coast at one of these celebrity golf tournaments with Rostenkowski, they were rooming together out there. And I got O'Neill's Chief Counsel, Kirk O'Donnell, to try to negotiate what kind of statement it could be, with the White House insisting that it had to be joint statement. So it ended up that we would get O'Neill's statement of support for the Commission's report, and they could see it and decide whether that was sufficient for the President to issue a parallel statement. What they were afraid of evidently was that having come to an agreement, and endorsing it, that Tip's might not be a whole-hearted endorsement, that it might have qualifications in it that blamed the President for the bad parts. They were afraid, of course, the Democrats would somehow maneuver it so the President would look bad, and they didn't want that.
Interviewer: That makes sense.
Ball: Then we got a statement from Tip, by way of O'Donnell, which was as strong an endorsement as you could imagine. And when they saw that, they agreed to go ahead.
Interviewer: Did the White House share the President's statement with you? Did they exchange the courtesy?
Ball: I don't know whether I even cared about that. They were ones who were hung up on this issue.
Then we had to go from where we were negotiating to a meeting now of the full Commission itself. It was getting late in the night, and we had to go over the whole report with them. And it started to snow a bit. We went around the corner from Blair House to Jackson Place, where the headquarters of the Commission were. We went over the whole report, and then Greenspan actually had to take a vote and see where we all stood. Everybody except three on the Commission supported it. And it was adopted. They called in the press and Greenspan and I and Baker raced up the stairs to the telephones on the second floor to call the President and Tip to tell them that it was done and then come back down for the press conference. At the press conference Claude Pepper took a very leading role. You'll see, in the picture I have on the wall in there of the press conference, around midnight, Claude's in the center and the rest of us are around him.
Interviewer: Okay. I want to ask you about some of the specific recommendations that are in the package, and have you comment on them.
Interviewer: I understand that one of the recommendations that you put on the table, that you suggested, was the taxation of benefits and the idea that the revenue from that would flow back into the Trust Funds. Tell me about that one. Because that's a big one. There are a couple here that are big--just politically big-- issues. And taxation of benefits is certainly one.
Ball: I've been doing several oral interviews lately. The Editor from the Wesleyan University's magazine was here and he is going to do an article in the Wesleyan Magazine; the GAO was here recently, and I forget what I've said to them as distinct from what I've said to you. If this is a detail that I went over with you before, stop me, because there's quite a history to this provision.
It goes back to the time that Stan Surry was Assistant Secretary of the Treasury dealing with legislative policy--years and years before all this happened. He and I tried to get taxation of Social Security benefits back then. I took the view that to the extent Social Security was treated just like private pensions, and just like wages, the more it would be clearly distinguished from welfare and the more it would seem legitimate to people as an unrestricted type of payment. It wasn't somebody giving something to somebody else, but it was an earned right, and taxing it was part of that. I thought Social Security ought not to be excused from taxation. Under what I thought was a mistaken Treasury ruling issued in the very early days, they took the view that Social Security was a gratuity, and gratuities aren't taxable. So the Treasury ruling exempted Social Security from taxation, not by any legislative history, but by their interpretation of the nature of the program. I thought their philosophical interpretation was bad for the program.
So, people were surprised to find the Commissioner of Social Security arguing in favor of taxing benefits, but that was what I did, along with Stan Surry, who was the theoretical, philosophical person on taxes in the Treasury Department. We got absolutely nowhere, zero, because people opposed to the taxation of benefits really misled those who might have thought themselves as being affected. Both labor and senior citizen's groups, in effect, told the older people of the country that this proposal was to tax their benefits, when the truth was that all but a relatively small group of well-off older people would be exempt from such taxation on the grounds that, even with Social Security--they didn't have enough money to meet the thresholds of taxation under the income tax law. So what affected a relatively small proportion of the elderly, the propaganda that was put out was as if we were arguing in favor of an excise tax on Social Security benefits. Of course it wasn't going to be a tax on the Social Security benefits, it was going to include Social Security income in the regular income tax, which would have exempted most people. But, we didn't get any support because they were very effective in making everybody think it was going to be a tax on their benefits.
So I learned something from that, I never lost the idea that they should be taxed and when we were in trouble in the early '80s I started to try to build support again for taxing Social Security benefits, which by now would have taxed more people, and would have made a significant difference in what was available for the program. But with, of course, the idea that the money that was gained on this basis would go into Social Security rather than to general revenues. If you just taxed it, it wouldn't do Social Security any good. The rationale isn't 100 percent perfect on why it should go back into Social Security, but it seemed to be superficially appealing to people. It's basically a way of making Social Security somewhat more progressive by moving some of the benefits of higher income people in effect into the benefits for lower income people. But, having learned from what the opposition did to us when Surry and I tried to do it together, I made it explicit that the tax would not apply to the benefits of people who were below a certain threshold.
Interviewer: So you added exclusion thresholds.
Ball: Yes. Not because it made sense, but we put in a specific exemption to make it clear that we were not taxing the benefits of lower-income people. We put in a specific exemption.
Now, I got nowhere the second time either. I talked up the idea of taxing benefits being part of the solution right along, even before the Commission, and after the Commission started, before this negotiation. I went to see people like Barber Conable, who was on the Commission on the Republican side. He in effect said after long discussions -I probably went back two or three times - that he thought it was a reasonable enough idea but that Congress would never vote for it because it would be too unpopular to tax Social Security benefits. I tried in the Senate too, without success. That's why I've never since had much faith in the statements of commentators who say that this or that will never be done. Because there was absolutely zero support for this idea when we started; and it was completely accepted at the end because it was such an important part of solving the overall problem. So I kept coming back to it and in the end we had the complete support of everyone who signed on to the Commission's report.
Interviewer: When you put this back on the table did you have to persuade your liberal coalition to get behind you, and were the Republicans surprised that you would offer this up?
Ball: I had talked about it before the Commission, and during the Commission, with very little support, but the Republicans would have been glad to accept it. They would have been glad to accept it, but they didn't think there was any point in going out on a limb for something that had no chance.
Interviewer: All right. Let's talk about some of the other big-hitters in this thing. One of the other big-hitters was to cover new federal employees.
Ball: That almost lost us the whole thing. Right up till the last minute, Federal employees were just adamant - the federal employee unions were just adamantly opposed. The unions are always the leaders of the career group within the organization. They don't even pretend to represent the interests of people who go in an out of Federal employment, or state employment for that matter. They represent the interests of people who believe they are going to stay in Federal employment. And they felt, I'm assuming sincerely, that once covered by Social Security, it would be harder for them to retain or to improve the Civil Service retirement system, which would then be a supplement to something else. So for people who were going to be in the federal civil service all their lives, they saw it as a disadvantage to be involved with Social Security. I think they would even have conceded that maybe it would be better for the people who moved in and out of Federal service, but they didn't care about them. People who were going to be there all their lives They were afraid it would weaken the bargaining power of people who were going to be there all their lives. I think they convinced their membership of that, and there was no concession.
The night when the Senate was voting on the conference report- the bill containing our recommendations had already passed the House and passed the Senate- and this is the final step before final approval of the legislation. This issue almost defeated the plan even at this late, late stage. So this is absolutely the last stage of the legislation. It finally passed somewhere between midnight and the early morning. Bob Dole was the Floor Leader, he was in charge for the Republicans. He was the Floor Leader striving to get the Conference Report passed. And the ranks of Senators have thinned out considerably because of the lateness of the hour. Incidentally Dole's wife is in the gallery watching the final triumph of the matter, and the Democrats start trying to remove the coverage of federal employees from the bill. I'm there also. Dole got hold of me and said, "This may wreck the whole thing!"
Interviewer: No kidding!
Ball: He said "a lot of my Republican support has gone home." And I knew these Democrats were doing this for the record, because they thought the bill was going to pass without them. If they had thought that the majority was slipping, then they wouldn't have tried this. But they wanted to be thought of as the friends of the Federal employees, even though it went down to defeat. So as I remember it, the available Democrat that I easily got hold of who was taking part in this move to remove the federal employee coverage, was a Michigan Senator, Donald Riegle.
Interviewer: So, let me just make sure I understand it. There's just a few Senators actually on the floor at this point.
Ball: There's not enough reliable Republicans on the floor to pass the bill, that's the problem.
Interviewer: They're going to vote on it without a quorum? Is it going to be a voice vote or something? They're not going to call for a quorum and bring everybody in?
Ball: A voice vote probably would do for an ordinary Conference Report. But if a roll call was called for, or even a division was called for, Dole was not at all certain that he had the votes.
Ball: So, I got hold of the Democrats who were fully supportive of the bill but didn't realize that they were running this risk and they turned around so it did pass.
But, I was trying to show the persistence of the Federal employee's unions in opposition to the bill.
Interviewer: On that issue. . .
Ball: They were perfectly willing to wreck the whole thing.
Interviewer: Now, what about Kirkland? I assume you had some trouble getting Kirkland on board on this one, right?
Ball: Well, not really. What happened was that an early agreement, one of the few early agreements of the Commission was on the extension of Social Security coverage to new Federal employees. Kirkland didn't vote for it. He voted no. But for the record, he actually always favored universal coverage, since the days he worked in the Social Security Department of the AFL-CIO. But, the AFL-CIO wasn't able and they aren't still to this day, to take a position when a very large union within the AFL is opposed to it. So to back the Federal employees unions, Kirkland had to say no. But he never worked to prevent it happening.
Ball: In the House, on the House Floor, the AFL-CIO legislative representatives did work to get rid of the Federal employee provision, and they were working so hard on that provision--that's one reason I believe the provision to extend the so-called "normal retirement age" passed, because they really weren't paying attention to the thing that was important, and they let that get away from them while they were working on the federal employee issue.
Interviewer: Well, why don't you go ahead and talk about that issue then? The extension of the retirement age. That was not in the Commission's recommendations.
Ball: No, within the Commission, we focused almost entirely on getting to 1990. Nevertheless, as byproducts of the provisions we adopted to get to 1990, the long-range deficit was greatly reduced. But there was still a substantial deficit left. All of us who supported the recommendations, supported the idea that the long-range deficit should be removed. In other words, that the Congress should move to close it and fully finance the program for 75 years. But we disagreed on how to accomplish it.
Ball: The people appointed by the Republicans on the Commission recommended that to close the gap we should raise the normal retirement age. That was their proposal.
Ball: The five of us appointed by Democrats said, "We're not sure there is this deficit, actually. But if there turns out to be one when we reach 2020, when the deficit was estimated to start appearing, we would propose meeting it by an increase in the tax rate, not by increasing the retirement age." In general, we wanted to wait and see whether there really was a deficit. If there was, then we would meet it through more income rather than through benefit cuts. That's what the Commission Report said.
On the House Floor, Pickle--who all along had wanted to meet the long-range deficit, even before there was a Commission-supported raising the retirement age. He had Rostenkowski's support for that. And so, on the House Floor, you had Democrats fighting Democrats. You had powerful Ways and Means Committee Members, the Sub-Committee Chairman and the Chairman of the Whole Committee, for increasing the retirement age. You had opposing it the Floor Manager, who was Jim Shannon from Massachusetts, and Claude Pepper, who wasn't a Floor Manager but who was taking a big part in the debate, opposing raising the retirement age. They were taking the side of the Democrats on the Commission. And they lost. They just lost. Tip O'Neill really hadn't paid enough attention to defeat the move to raise the retirement age. How much he tried or cared I'm not sure. But he didn't really put his back into defeating it.
The provision that passed was a long-delayed provision that resulted in the retirement age being increased starting in the year 2000. And it was enacted way back in 1983. And that led to Claude Pepper going up to Jim Shannon, after they had been defeated on this issue, and Claude says to Shannon--Claude being at that time about 85 I guess--"Don't worry, Jim, we've got long time to fix that." (Laughs) If he'd stayed in the Congress Shannon would have had a long time, but Pepper didn't really have so long.
Interviewer: Now, the inclusion of federal employees, to go back to that one, was another thing that you were in favor of, is that not the case, for many years before this?
Ball: Oh, yes. I, among others, had been advocating it for years.
I would say that the 1983 Amendments, although primarily defensive in character--defensive in the sense that the program was in trouble and it needed these changes to fix it up, rather than being primarily for the improvement of the program-- nevertheless it was possible to take advantage of the adversity of the situation to get provisions that contributed to the solution but were actually advances that should have been done anyway. So that on the whole, I considered the '83 Amendments to be positively good.
Interviewer: What about raising the retirement age? Was that something you favored?
Ball: No. It is just a plain benefit cut, that's all it amounts to.
Interviewer: Is it that you opposed it because that was what the other side was trying to do as their sole solution, and you were interested in this balance idea again, or on its own merits, on its own terms? You saw no merit in this idea?
Ball: I don't see merit in the idea. It is a benefit cut without any redeeming features. The form it takes is really discriminatory against people in certain kinds of jobs. It doesn't hurt intellectual workers at all. You know, a college professor couldn't care less. It doesn't really damage anybody conceptually who can easily work up to the new age. But people who have a large element of physical activity in their job, or who have been somewhat disabled, although not disabled enough to meet Social Security's very strict standard, it does real damage to them. It cuts their benefits substantially, and they tend to be lower income, lower-paid workers. I never did like the idea of think-tank people and college professors explaining how to modify the program in a way that wouldn't hurt them at all-- they'd love to work, whether they get paid or not - and damage, really, the retirement years of people who have been working on a Ford assembly-line and have looked forward to their earliest possible retirement so they can have a chicken farm or something.
So I didn't like the concept and the affect is like a straight, across-the-board benefit cut. Now, since the provision did pass, I think we've got an experiment going on now up to the time age 67 becomes effective. I don't see any excuse for speeding up the effective date at this time, let's see how it works out. We've got an experiment. We'll see if the jobs are there so that people can work longer if they want to. And if employers' attitudes towards hiring and keeping older workers change. And if unions' attitudes change. And if this goes easily up to age 67. I don't have any inherent philosophical view that there's something magic about 65. If we can design a system where if the country really wants to have people work till 70, fine. But what I object to is having them continue to stop working at 62 or 63 just like they do today . . .
Interviewer: And take a big reduction in benefits?
Ball: And take a big reduction in benefits for early retirement because they're in certain types of jobs. We have an experiment going; let's see what happens.
Interviewer: Another one that's an important issue and was another big money-raiser for the Commission is this six-month delay in the COLA. You mentioned before this incident with Claude Pepper and how that almost derailed it at the last minute. So tell us that story now, if you would.
Ball: That was a concession, nothing I favored, it was just a complete concession to the other side. We had to give them something. That's what we gave them. But the AARP came in after the fact, after it was all settled and the Report had been prepared, everything was done. They persuaded Claude Pepper for a time that he'd been mislead. They persuaded him that what he thought he was agreeing to was something that had only a temporary effect. It was conceivable that he had in his mind that a six-month delay in the COLA, once done, just had an effect in the first year. In fact, it was going to happen every year and therefore it was always going to be later than it otherwise would have been and that's a permanent cut. This may not really have penetrated to Pepper. I'm not sure. Pepper was a great actor. So it's also possible that he wanted to convince the AARP people, whose champion he had been--he was for all older people, but they were the biggest organization--that he was fighting for them right up to the last. It is possible that he understood the COLA delay perfectly well and nevertheless was making the case. But he, in effect, accused me of misleading him.
Interviewer: Now, there was actually a meeting going on in his office with AARP and Claude Pepper and you got a frantic call from somebody asking you to go intervene in this meeting.
Ball: Yes. And in fact I think Claude asked me to come over so he could yell at me-in front of them. His chief staff person had clearly understood the permanent affect of the provision. There wasn't the slightest question in his mind, and he was there trying to help clarify with Claude that he really had agreed to this.
There was also the problem that an 85 year-old politician really shouldn't advertise that he didn't understood something-that somehow he had been mislead. That's what cost George Romney--he wasn't 85 years old--but what cost him a shot at the Presidency years and years ago, was that he announced to the public that he had been brain-washed by the military when he went to visit Vietnam. Politicians can't be suckers. Moreover, a very old politician has to be particularly careful not to appear confused. So, it wasn't something that his advisors thought he ought to be insisting on, that he was mislead and didn't understand what was happening.
Interviewer: So you were trying to diplomatically persuade him that, yes, he did agree to that and he should stick to it, right?
Ball: Yes. It was difficult enough though, that I didn't let it stand at that. I got hold of Wilbur Cohen on the telephone and asked him to call Dick Bolling, who had been Chairman of the Committee on Rules before Pepper-- he and Pepper were very close. Pepper had taken his place as Chairman of the Rules Committee. Bolling had retired from the Congress and had just finished teaching his first class, at Harvard--a graduate course that he had been engaged to teach. And the idea was for Bolling to call Pepper and congratulate him on what a great, wonderful thing he had accomplished on the Commission.
And that's what he did. While I was still there, Bolling's call came through, and he congratulated Claude, and told him how great it was, and Claude was saying, "Oh, you really think so? Oh, is that right?" That's how that worked. So, after the call from Bolling, he just turned them all off. I don't even remember what he said, but the general idea was he was completely backing the Commission Report.
But I've never been absolutely positive how much this was a show for the AARP people and how much it was real on his part. It could have been real, or it could have been political theater. I wasn't taking any chances, though. The last thing I needed was to have Claude Pepper call up Greenspan and say he had been mislead, that he was opposed to the whole thing and was going on television to say so.
Interviewer: OK, another big provision that had some significance was increasing the delayed retirement credit so that it became actuarially-equivalent in the future. Tell me how that got in.
Ball: Yes, I'll tell you how that got in. I think it was a mistake. It was entirely my fault. At the very end of the negotiations, when we had everything else agreed to, it had come down really to Baker and me at the end and Baker said to me, alone, not when we were in a group, but said to me alone, "I've got to have something in here for the President. I've got to show him that in some part of this agreement he has triumphed with Republican principles. Can't you figure out something that will help me do this?" Well, one of the great principles of negotiation is to understand what the guy on the other side really needs and help him get it, as long as it doesn't completely torpedo your own position. This is necessary if it's going to be a successful negotiation. Your opponent has to come away happy. So, it seemed to me we ought to be able to figure out something for the President.
We had always been talking about the retirement test. It has always a Republican principle to get rid of the retirement test. I had always resisted it. But the retirement test had already been eroded a lot by then-the exempt amount had been raised and raised. And it was the most unpopular provision in the program by far. It was always the target of attack, and people didn't understand it. It was difficult to administer and was responsible for more mistakes than all the other things Social Security did put together. So there was a case against it.
This case was not all wrong in that the provision did have the appearance--regardless of our rationale for it--it had the appearance that the government didn't quite approve of people working. It sort of said, "If you work, there's a penalty." I had some recognition that the provision wasn't a complete blessing for the program. It was somewhat mixed. But I still wanted to keep it. I knew Claude Pepper didn't like it - it bothered him very much. He thought all old people should be free to do whatever the hell they liked. And pay them more for it! (Laughs). And I needed something to keep him happy. We had the increment already-you got more if you continued to work.
Interviewer: There was a delayed retirement credit already in the law?
Ball: Yes. So what I suggested to Baker, was simply, "Well, why don't we make the reduction in benefits the actuarial equivalent? So that it doesn't matter to the program whether people take their benefit early, or whether they take it late. It'll be the same cost. So it really isn't an issue of cost, it is an issue of when people get their benefits. There's a little cost, but if you need something for the President, I won't object to this. I'm not proposing it, but I won't object." So, that's how it happened.
Now, it was clear to me at the time that this was going to make it more difficult to defend the retirement test. I'm not sure I fully realized all the implications. This all happened in very short order in a brief conversation. I'm not sure I realized the extent to which it undermined the long-range potential for keeping any kind of retirement test. Because as soon as you did that, the main argument disappeared. It wasn't going to cost anything in the long run to abolish it altogether.
Interviewer: One argument against abolishing the test had always been that there was a big cost to the Trust Fund if you did that.
Ball: Yes. I would say that was the main way it played out. You could hardly expect a Congressman to vote for continuing a provision that was this unpopular, if it cost nothing to remove it.
Interviewer: And that was a big part of your solution, too?
Ball: Yes, that was necessary. See, the other problem was to get Lane Kirkland's agreement. We couldn't have a Commission Report without Claude Pepper's agreement and without Lane Kirkland's agreement. Pepper's was even more important that Kirkland, but Pepper had sworn not to agree to anything that Kirkland didn't agree to. They were absolute twins.
We were asking Kirkland to agree to increasing the tax rate on all his members in a bill that at the same time cut back on the benefits somewhat with the COLA delay. It didn't look like it was going to be possible, until I actually thought of one of these things in the middle of the night. It came to me that the way to do this that might appeal to Kirkland would be to exempt employees for a time from any increase. Move the tax up, but actually not increase it for workers during that first year, by providing a subsidy from general revenues to offset the increase. That would be a precedent for Kirkland to use in arguing for general revenue contributions in the future. On the other hand, for people who would never accept a government contribution, the fact that it was limited to one year, might make it possible for them to go along.
So that's what we did, and it worked. I talked to Kirkland about it and he was persuaded that he could stand it on a one-year basis. Beck was able to accept it also on a one-year basis. I think that took some persuasion at the White House. That was part of the problem all down toward the end, to get agreement between people as far right as some members of the Commission and some members as far liberal as some members of the Commission. Pat Moynihan and I, for instance, met separately in Moynihan's office with Beck, to see if we could keep him on board with various kinds of concessions. Things that weren't major, but were things like - I was willing to have the Commission recommend somehow the appointment of Bob Meyers as Commissioner, or something like that, to keep Beck on board. But that didn't appeal to him particularly.
Interviewer: You couldn't make a deal?
Ball: No. But the President got him to make a deal.
Interviewer: OK, let me just make sure I understand the point about this tax offset idea that you had. So the idea was that even though you were going to move up the tax rates schedules, for the first year that took effect, employees would not be subject to the increased rate. In theory, employees would be subject to the new rate, but not really.
Ball: That's the way it worked. General revenue would pay the increase for workers for the first year.
Interviewer: Then the Trust Funds would get money from general revenues to compensate for the reduced payroll tax rate on employees. Is that right?
Ball: Yes. The money was not taken from the worker's wages. He just didn't pay the new increment.
Interviewer: And that increment came from the general revenue fund, that's what you mean?
Interviewer: So it was a fairly direct subsidy from general revenues, that's why it was philosophically touchy for people.
Ball: Yes. It was only the fact that it was limited to one year that was crucial to the whole agreement. I was first concerned about getting Kirkland to agree, that's what I was having trouble with. That's where I got the middle of the night idea, letting workers out of it the first year. That was enough to get Kirkland; the problem then became how to hold Beck.
Interviewer: Also in the package was this set of provisions that you alluded to earlier that had to do with improving the equity of women, which were sponsored by Martha Keys. Was there anything more you wanted to say about that?
Ball: No, they were all completely satisfactory to us on the Democratic side, but they were important to her and they're quite small and didn't affect the financial balance.
Interviewer: Here, why don't I give you the list? I think that's the important ones, but if you want to look on that list and comment on any of the others, I'll be happy to hear any comments you have.
Ball: (Pause). Well, one that has been very controversial since -particularly among federal employees, but some state and local, too-is this elimination of the windfall benefits.
Interviewer: Ah, yes.
Ball: You know all about that.
Interviewer: Well, yes, I know about it, as a federal employee.
Ball: Yes. The columnist on Federal employee issues for the Washington Post is always raising it, among others, and there's always lots of bills in to get rid of it. For some reason, the rationale for it has never gotten through to the people involved. I don't think the Post columnist understands it. Without this, government employees would be getting a lot more for their contributions than workers who had been paying in for many more years.
Ball: But it is still a real bone of contention.
Interviewer: Yes, like taxation of benefits, it is still unpopular today.
Ball: Well, it's unpopular with the group it hits and nobody else knows anything about it or cares.
Interviewer: Right, right.
Ball: I wouldn't be a bit surprised if someday some Congressman is going to make a good reputation among federal employees by getting rid of it.
(Pause) Well, some of these are just really almost technical. And they weren't aimed at financing. When you have a chance to make changes you try to fix up things that are wrong, regardless.
The gratuitous military service wage credits, that's another thing you would never really have a chance to get to, under ordinary circumstances. We were really looking for ways to make money and there was a good case for this change, so . . .
Interviewer: So there was a rationale?
Ball: There's a good rationale for this, but it's not something the federal government would ordinarily concede.
Interviewer: The idea here is to require the Treasury to pay into the Trust Fund monies equivalent to the gratuitous wage credits that we've been providing for military service, is that right?
Ball: To pay for it at the time it is earned. Until this change, Treasury waited until the credits were used, and then reimbursed the Trust Funds only to the extent to which the credits actually increased benefits. Well everybody else pays ahead of time on wages when they are earned and regardless of their effect. So that's the idea-equal treatment.
Interviewer: I only have just a couple more questions, we're almost done here on this.
One of the things that you acknowledged was that when the Commission finished its recommendations, it had not solved the long-range problem, and it basically said that the long-range problem remains to be addressed.
Ball: Well, we did agree that it should be addressed.
Interviewer: You did agree it should be addressed. And you agreed on what the size of it was.
Interviewer: Which were significant accomplishments. The House put in increasing the retirement age in significant part in order to address some of the long-range costs.
Ball: It was wholly to address the long-range costs.
Interviewer: Okay. So at the end of the process, at the end of the '83 Amendments when they were done, was it the case that people believed that the long-range problem had been addressed?
Ball: Yes. Yes, all the players did. The President said so, the leaders in the Congress said so, I said so, everybody who had anything to do with it said so.
Interviewer: Okay, and we were fooled again--sort of like how it happened following the '77 Amendments.
Ball: Yes, but everybody's been explaining it wrong.
Interviewer: Okay, please tell me what happened.
Ball: We were fully aware at the time of the '83 Amendments about the shifting ratio between workers and retirees. We were fully aware of the oncoming onslaught of the baby-boom generation retiring. Those things were all taken into account in the long range estimates in '83 and were part of the solution. Now the newspapers all say, "Well, the difficulty is that there's going to be this huge number of baby-boom retirees making it impossible for the Social Security system to pay promised benefits. The baby boom generation, that's the problem." Well, it's the reason the costs increase, there's no doubt about that. But that increasing cost had already been accounted for in the '83 Amendments and the provisions of the '83 Amendments met that cost. The estimates as they're made today are based on just about the same ratio of workers to retirees as the ratio used in 1983, that hasn't changed.
Ball: So that's not the explanation for the deficit that has arisen since 1983. Appendix 1 to the Advisory Council Report of '94 -'96 which indicates each of the factors that has changed since '83 and have produced the current deficit. This shifting ratio of workers to retirees is not part of it at all. Surprisingly enough, about half of the deficit that's developed since '83, is a result of a different way of making the estimates and the changes in the database used by the actuaries. About half the costs, in other words, has nothing to do with the assumptions about wages, prices, population growth and so on. It has to do with methodology, and the availability of better information.
About one-fourth of the difference occurs because a 75-year estimate is a moving target. In the year 2000 the estimate of 75 years is from 2000 to 2075. But in 2001, it's from 2001 to 2076, and so on. Well, the 76th year that is added to the new estimate, is a more expensive year than the early year that has been dropped. If nothing else happens, for some time every new actuarial estimate will be about .06 percent of payroll more expensive than the year before. Well, in the period from 1983 to 2000, that .06 accumulates quite a bit, and of course it's compounded.
So that leaves about one-fourth of the new deficit. This part is attributable entirely to different assumptions about the rate of increase in real wages. The basic assumptions about the future economy of the United States are just more pessimistic in 2001 than they were in 1983. Principally, there are lower expectations about productivity. I haven't checked the numbers in awhile, but productivity used to be estimated at about a 2.3 per cent a year improvement. That kept dropping in successive Trustees Reports because the actual gain in productivity was dropping. It got down to where the productivity anticipated year by year in the future was less than 1 per cent. So the basic cost of the system was shown to be much greater than it was when wages were rising faster in real terms.
That's the major explanation. More pessimistic assumptions about the future. If you just go back to the original, more optimistic, assumptions about how the economy is going to behave in the future, the deficit disappears. Nothing in the real world happened; it's about what we think will be happening in the long-run. That's what it's all about. If you look solely at changes in the various assumptions affecting population-older people versus those of working age, fertility rates, mortality rates, immigration rates, etc.--the long-range cost of the system would have decreased since 1983.
Ball: I'm not disagreeing with it, I'm just saying that's all there is to it.
There is a small group of economists, Dean Baker is a leader among them, and an actuary, David Langer, who argue that there really isn't any deficit for the long run. That under reasonable assumptions you come out just about right. But I don't agree with that. They may be right, but I think the chances are they are not.
Interviewer: There's one other question about the work of the '83 Commission--one of the consequences of what you did. One of the consequences was to shift the program fairly dramatically from a functioning pay-as-you-go program into a partial pre-funding program. And we begin right after the '83 Amendments to see this dramatic increase in the Trust Fund reserves. So much so, that we finally get Senator Moynihan changing course and wanting to go back to pay-as-you-go. So, that was a big impact from the '83 Commission. Was that a conscious design decision that you all made at that time, that you wanted to move to partial pre-funding, or did it just somehow happen as an unintended consequence of these other changes that you made?
Ball: I would say it was more an unintended consequence. Bob Myers would say, "completely unintended."
Interviewer: That's what he said to me when I asked him the same question.
Ball: Yes, he would say, "we didn't pay any attention to that question."
Interviewer: He said you never discussed it, is what he told me.
Ball: Well, he's close to the truth. I certainly would say that he was not unaware of the fact that this would create sizable surpluses. He must have been aware of a surplus in the estimates. He's correct in saying we hadn't focused on that as an issue, but the knowledge that it would happen was there. He did estimates that showed it would happen.
But the fact that it was not explicitly discussed made it possible for Moynihan to write later that he "discovered" a consequence that they hadn't realized at the time. Which wasn't quite true, but close enough to the truth so that he wrote as if, "Gosh, we did better than we thought!" Bob Myers wants it to seem as if nobody had ever decided to go away from pay-as-you go- that it was just an accident of solutions aimed entirely at the short run.
Interviewer: But you never had a philosophical discussion saying, "We want to shift the financing basis of the program away from pay-as-you-go." That never happened?
Ball: No. On the other hand, it wasn't so clearly pay-as-you-go before. In fact, it was a little dishonest the way the deficit was treated in the past. The contribution rates were always set as if it were a partly-funded system. That is, for the long run all the increasing contribution rates, if they'd gone into effect, would have produced a sizable fund, which would have been a departure from pay-as-you-go. And it was possible to bring the system into long-range balance only because the estimates built a large fund in the future. But yet, whenever it came to putting the rates into effect, the system was treated as if it were pay-as-you-go. But the fact that it was being operated pay-as-you-go was never recognized in the contribution schedules that Bob endorsed as making the system soundly financed for the whole 75 years. If he'd been completely honest, and he thought that the system was really pay-as-you-go, he should have insisted on a schedule of tax increases in the future that was much larger than was ever put in. He could only say it was financed adequately by assuming those rates would go into effect on the dates they were set, and build a big fund, which would mean the system was not pay-as-you-go at all.
Interviewer: It would have a substantial portion of its income from interest on the large fund?
Ball: Yes. It was always partially pre-funded. So when we say it shifted from pay-as-you-go to partially-funded, that's true only if you're concentrating on what actually became effective, not on what was in the law.
Interviewer: So we should just say that the reserve grew in size dramatically after the '83 Amendments?
Ball: Well, that's certainly true. I suppose another way to look at it is that we took partial reserve financing really seriously from then on. It had always been written into the law, but never really put into effect. That makes the estimates somewhat deceptive in previous years. The estimates were always as if there was going to be a big reserve, but in fact that big reserve was never actually allowed to materialize, it was pay-as-you-go in action. So, if Bob Myers thought it was pay-as-you-go, why didn't he put rates into the law that were pay-as-you-go rates? But he was always carrying in his mind that it was really a pay-as-you-go system. But that isn't what it was in the Trustees Reports. It was never a pay-as-you-go system if you look at the Trustees Reports in terms of the way of reaching balance over 75 years. That was always possible only because the rates in the law produced big surpluses. And interest earnings on those surpluses were a big part of the income.
Interviewer: And that only materialized, in fact, after the '83 Amendments ?
Ball: Yes. This is the first time we are accumulating an earnings reserve going beyond a contingency reserve compatible with a pay-as-you-go theory. The fact that as a result of the 1983 amendments we are now actually providing for partial reserve financing is very important whether or not it was adopted with little specific discussion.
Interviewer: And then a lot of things happened as a result of that. A lot of political dynamics came into play about whether the Trust Funds were camouflaging the deficit, and whether the Trust Funds were real assets, and all sorts of philosophical and political controversy was generated by the fact that we really did grow a sizable Trust Fund for the first time.
Ball: Yes, and I think that for first time in the program's existence I think it now makes it possible for most people to see clearly that Social Security funds are savings. I don't know why Moynihan doesn't shift gears again, now that he sees that the funds are reducing the size of the debt that's held in public hands. He really, in logic, can't continue to talk about thievery and embezzlement and stuff because it's clear that the Social Security funds build-up is reducing the deficit held by the public.
Interviewer: I guess just last one or two last questions.
Anything about the signing ceremony of the '83 Amendments? I assume you went to the signing ceremony?
Ball: Yes, I did. And the most important thing about it was the great statement by President Reagan.
Interviewer: You mean the part where President Reagan said: "This bill represents for all time our Nation's iron-clad commitment to Social Security. . . We will never forget the promises made to seniors in troubled times half a century ago."?
Ball: Yes, that's it. Yes. That's quite a switch for a guy who, even in the last stages of negotiation in '83, said to Trowbridge, "Isn't there some way we can make this voluntary?" (Laughs)
That was a great statement. The signing ceremony had the whole Commission, I don't know if they all attended, but they were all invited. They certainly had the whole negotiating group. Tip O'Neill was there and other leaders who weren't on the Commission but nevertheless were leaders of Congress. I think it was a great, great show of unity about Social Security.
The President called me, and I presume at least the other members of the negotiating group. In his call to me he gave me a lot of credit for working the thing out and I was complimentary toward Baker and Greenspan and Darman, and we had a great time. I think the President was at Camp David when he called me, and he operates through the Army Signal Corps. So Doris answers the phone, and the guy on the other ends says, "This is Sergeant so-and-so. The President wants to talk to Mr. Ball. Is he there?" And Doris says, "Yes, sir!" (Laughs). When she gets off, I say, "He's only a sergeant!" (Laughs).
Interviewer: That's funny. That's good. So I guess in your eyes--at that time and probably since--the Greenspan Commission and the '83 Amendments were a great success?
Ball: Oh, I think so. There has been a few times when the program was at very crucial stages. One was the '37 - '38 Council; and the '47 - '48 Council, where a lot really hung in the balance. And then the Greenspan Commission. I hope that's not true of this current Commission.
Ball: It took awhile even then, from 1983 to 1998 to actually do it. So it took a long time for it to work out, but the more that it approached actuarial equivalence, the more it became clear you weren't going to be able to retain the retirement test.
Interviewer: One of the other things that happened was that you moved the tax rates forward in time--the tax rate schedule. You didn't change the rates, but you moved them forward in time, which had the effect of getting some front-end money into the system.
Ball: That was critical. You had to do that.