Robert Reynolds, CEO of Putnam Investments, outlined in comments at the National Press Club in Washington on Wednesday, a series of reforms called “The New Solvency,” which he said would help stimulate job growth, shore up Social Security, and help reduce the federal budget deficit.
A long-time advocate for retirement and Social Security reform, Reynolds (left) commented that the current lame-duck session in Congress will be “very active,” and said the New Solvency should be grounded in higher savings and investment, sustainable growth, new business formation, job creation and fiscal sustainability.
If the U.S. does not move on it’s own to a new economic model, “global markets will force an adjustment,” Reynolds warned, “first gradually, then suddenly.” And, he continued, the global markets will force change “in ways much more painful than anything the Fiscal Responsibility Commission proposed last week. If we don’t act, we will, in effect, set our course toward another financial crisis that may well make the crash of 2008 seem like the good old days.”
Reynolds delivered his comments on the same day that the Bipartisan Policy Center, co-chaired by former Senate Budget Committee Chairman Pete Domenici and former White House budget director Alice Rivlin, unveiled their plan for fixing the deficit.
Even though “the massive stimulus spending we’ve done helped to avoid another Great Depression,” Reynolds said, “the Obama Administration’s own budget forecasts show national debt on track toward more than 90% of GDP by 2020, with no end in sight.” The nation’s national debt, he continued, “is growing by about $2 million a minute.” The United States, he said, “is at a historic inflection point—between decline and renewal—and the whole world is watching us.”
In outlining his definition of the New Solvency, Reynolds said it doesn’t mean “slamming on the brakes and aiming for a balanced budget overnight, or trying to pay off the whole national debt.” Rather, the New Solvency means “moving our country onto a path that has our national economy, personal incomes and government revenues all growing faster than any debts we owe, and on a sustainable basis.”
Comprehensive retirement reform, he continued, is a cornerstone of the New Solvency, as retirement savings accounts make up the majority of all savings in the U.S., and “play a vital role in funding our capital markets.” A host of other changes in are needed as well, Reynolds said, in economic policies and “in our public mindset to provide fruitful outlets for higher savings, to make economic growth and job creation America’s top priorities, and to recognize that private employers and entrepreneurs, especially, are the primary engines that make our economy grow.”
Matching Social Security’s revenues to promised outflows for the next 70 plus years, Reynolds said, “is probably the easiest single element of America’s much larger solvency challenge,” namely medical entitlements. Social Security reform, he said, needs to meet three key criteria: First, do not alter the benefits of any current retirees or those within 10 years of full retirement age. Second, do not raise the basic payroll tax rate. “That would discourage job creation just when we need it most,” he said. Third, sustain intact all future retirement benefits for low-income Americans. All other paths to solvency, Reynolds said, “should be open to discussion, including retirement ages and benefits paid to middle class and wealthy retirees—whatever it takes.”
Erskine Bowles and Alan Simpson, co-chairs of President Obama’s Deficit Reduction Commission, essentially met all three of the criteria in their Nov. 11 draft proposal, Reynolds said. While Bowles and Simpson’s plan would require some sacrifice by middle-class and wealthy recipients, Reynolds said, “that would mostly come in the form of smaller increases in some future benefits, not absolute cuts. And the co-chairs’ plan actually did provide for increases in benefits for low-income retirees.”
Bowles and Simpson did call for raising the full Social Security retirement age to 68 by 2050, “which gives today’s twenty-somethings roughly four decades to plan ahead,” Reynolds said, “but they also suggested allowing workers whose jobs require tough physical work to keep on retiring at age 62.” In other words, he continued, “their plan was slightly more progressive, slightly more redistributive, and vastly more certain than the current system.”
Reynolds’ call for a New Solvency is reflected in the results of a survey of 1,000 Americans conducted in the past week by Putnam. Among the findings of the survey:
- Americans were nearly unanimous (95%) in saying they are concerned about the federal budget deficit, with three-quarters (72%) saying they are “very” or “extremely” concerned about the deficit.
- By a three-to-one margin, Americans prefer to balance the budget by cutting spending instead of raising taxes; nearly half (45%) said that cutting defense spending was the single best way to close the federal budget deficit, including a third (31%) of self-identified Republicans. An additional 20% preferred reducing domestic spending and 11% reducing spending for Social Security, Medicare and other entitlements.
- Balancing the federal budget is Americans’ top choice among a list of national spending priorities, chosen by one-third (36%), ahead of healthcare reform, Social Security solvency and fighting terrorism.
- Three-quarters of Americans (72%) said Social Security is a key source of retirement income for many millions of working people and must be fixed for the long term.
- Two-thirds of Americans (70%) think that a tax incentive to hire American workers would help to stimulate job growth. Nearly half of those surveyed (49%) support a 10% reduction in corporate income taxes for companies that increase their U.S. workforce by 1%.