[Congressional Bills 105th Congress]
[From the U.S. Government Publishing Office]
[S. 1792 Introduced in Senate (IS)]







105th CONGRESS
  2d Session
                                S. 1792

    To reduce social security payroll taxes, and for other purposes.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                             March 18, 1998

  Mr. Moynihan (for himself and Mr. Kerrey) introduced the following 
  bill; which was read twice and referred to the Committee on Finance

_______________________________________________________________________

                                 A BILL


 
    To reduce social security payroll taxes, and for other purposes.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. SHORT TITLE; TABLE OF CONTENTS.

    (a) Short Title.--This Act may be cited as the ``Social Security 
Solvency Act of 1998''.
    (b) Table of Contents.--The table of contents of this Act is as 
follows:

Sec. 1. Short title; table of contents.
Sec. 2. Modification of FICA rates to provide pay-as-you-go financing 
                            of social security.
Sec. 3. Voluntary investment of payroll tax cut by employees.
Sec. 4. Increase of social security wage base.
Sec. 5. Cost-of-living adjustments.
Sec. 6. Tax treatment of social security payments.
Sec. 7. Coverage of newly hired State and local employees.
Sec. 8. Increase in length of computation period from 35 to 38 years.
Sec. 9. Phased in increase in social security retirement age.
Sec. 10. Elimination of earnings test for individuals who have attained 
                            early retirement age.

SEC. 2. MODIFICATION OF FICA RATES TO PROVIDE PAY-AS-YOU-GO FINANCING 
              OF SOCIAL SECURITY.

    (a) In General.--
            (1) Tax on employees.--Section 3101(a) of the Internal 
        Revenue Code of 1986 (relating to tax on employees) is amended 
        to read as follows:
    ``(a) Old-Age, Survivors, and Disability Insurance.--
            ``(1) In general.--In addition to other taxes, there is 
        hereby imposed on the income of every individual a tax equal to 
        the applicable percentage of the wages (as defined in section 
        3121(a)) received by him with respect to employment (as defined 
        in section 3121(b)).
            ``(2) Applicable percentage.--For purposes of paragraph 
        (1), the applicable percentage shall be the percentage set 
        forth in the following table:

      ``In the case wages
                                              The applicable percentage
            received during:
                                                              shall be:
                  1999 through 2024..................              5.2 
                  2025 through 2029..................              5.7 
                  2030 through 2044..................              6.2 
                  2045 through 2054..................             6.35 
                  2055 through 2059..................              6.5 
                  2060 or thereafter.................           6.7 .''
            (2) Tax on employers.--Section 3111(a) of such Code 
        (relating to tax on employers) is amended to read as follows:
    ``(a) Old-Age, Survivors, and Disability Insurance.--
            ``(1) In general.--In addition to other taxes, there is 
        hereby imposed on every employer an excise tax, with respect to 
        having individuals in his employ, equal to the applicable 
        percentage of the wages (as defined in section 3121(a)) paid by 
        him with respect to employment (as defined in section 3121(b)).
            ``(2) Applicable percentage.--For purposes of paragraph 
        (1), the applicable percentage shall be the percentage set 
        forth in the following table:

      ``In the case wages
                                              The applicable percentage
            paid during:
                                                              shall be:
                  1999 and 2000......................              6.2 
                  2001 through 2024..................              5.2 
                  2025 through 2029..................              5.7 
                  2030 through 2044..................              6.2 
                  2045 through 2054..................             6.35 
                  2055 through 2059..................              6.5 
                  2060 or thereafter.................           6.7 .''
            (3) Self-employment tax.--Section 1401(a) of such Code 
        (relating to tax on self-employment income) is amended to read 
        as follows:
    ``(a) Old-Age, Survivors, and Disability Insurance.--
            ``(1) In general.--In addition to other taxes, there is 
        hereby imposed for each taxable year, on the self-employment 
        income of every individual, a tax equal to the applicable 
        percentage of the amount of the self-employment income for such 
        taxable year.
            ``(2) Applicable percentage.--For purposes of paragraph 
        (1), the applicable percentage shall be the percentage set 
        forth in the following table:

      

                                                                        
                     ``In the case of a taxable year                    
                                                                        
                                                         The applicable 
                   Beginning after:     And before:      percentage is: 
                                                                        
                  December 31, 1998  January 1, 2001..  11.4            
                  December 31, 2000  January 1, 2025..  10.4            
                  December 31, 2024  January 1, 2030..  11.4            
                  December 31, 2029  January 1, 2045..  12.4            
                  December 31, 2044  January 1, 2055..  12.7            
                  December 31, 2054  January 1, 2060..  13.0            
                  December 31, 2059  .................  13.4.''         
                                                                        

            (4) Effective dates.--
                    (A) Employees and employers.--The amendments made 
                by paragraphs (1) and (2) apply to remuneration paid 
                after December 31, 1998.
                    (B) Self-employed individuals.--The amendment made 
                by paragraph (3) applies to taxable years beginning 
                after December 31, 1998.
    (b) Reallocation of Employment Taxes.--
            (1) Reallocation of tax on employees and employers.--
        Section 201(b)(1) of the Social Security Act (42 U.S.C. 
        401(b)(1)) is amended by striking ``(Q) 1.70 per centum of the 
wages (as so defined) paid after December 31, 1996, and before January 
1, 2000, and so reported, and (R) 1.80 per centum of the wages (as so 
defined) paid after December 31, 1999, and so reported'' and inserting 
``(Q) 1.70 per centum of the wages (as so defined) paid after December 
31, 1996, and before January 1, 1999, and so reported, (R) 1.80 per 
centum of the wages (as so defined) paid after December 31, 1998, and 
before January 1, 2015, and so reported, (S) 2.00 per centum of the 
wages (as so defined) paid after December 31, 2014, and before January 
1, 2025, and so reported, (T) 2.30 per centum of the wages (as so 
defined) paid after December 31, 2024, and before January 1, 2030, and 
so reported, (U) 2.20 per centum of the wages (as so defined) paid 
after December 31, 2029, and before January 1, 2035, and so reported, 
(V) 2.30 per centum of the wages (as so defined) paid after December 
31, 2034, and before January 1, 2040, and so reported, (W) 2.40 per 
centum of the wages (as so defined) paid after December 31, 2039, and 
before January 1, 2045, and so reported, (X) 2.80 per centum of the 
wages (as so defined) paid after December 31, 2044, and before January 
1, 2055, and so reported, and (Y) 2.90 per centum of the wages (as so 
defined) paid after December 31, 2054, and so reported''.
            (2) Reallocation of tax on self-employment income.--Section 
        201(b)(2) of such Act (42 U.S.C. 401(b)(2)) is amended by 
        striking ``(Q) 1.70 per centum of self-employment income (as so 
        defined) so reported for any taxable year beginning after 
        December 31, 1996, and before January 1, 2000, and (R) 1.80 per 
        centum of self-employment income (as so defined) so reported 
        for any taxable year beginning after December 31, 1999'' and 
        inserting ``(Q) 1.70 per centum of self-employment income (as 
        so defined) so reported for any taxable year beginning after 
        December 31, 1996, and before January 1, 1999, (R) 1.80 per 
        centum of self-employment income (as so defined) so reported 
        for any taxable year beginning after December 31, 1998, and 
        before January 1, 2015, (S) 2.00 per centum of self-employment 
        income (as so defined) so reported for any taxable year 
        beginning after December 31, 2014, and before January 1, 2025, 
        (T) 2.30 per centum of self-employment income (as so defined) 
        so reported for any taxable year beginning after December 31, 
        2024, and before January 1, 2030, (U) 2.20 per centum of self-
        employment income (as so defined) so reported for any taxable 
        year beginning after December 31, 2029, and before January 1, 
        2035, (V) 2.30 per centum of self-employment income (as so 
        defined) so reported for any taxable year beginning after 
        December 31, 2034, and before January 1, 2040, (W) 2.40 per 
        centum of self-employment income (as so defined) so reported 
        for any taxable year beginning after December 31, 2039, and 
        before January 1, 2045, (X) 2.80 per centum of self-employment 
        income (as so defined) so reported for any taxable year 
        beginning after December 31, 2044, and before January 1, 2055, 
        and (Y) 2.90 per centum of self-employment income (as so 
        defined) so reported for any taxable year beginning after 
        December 31, 2054''.
    (c) Future Rates and Allocation Between Trust Funds Proposed by 
Board of Trustees for Legislative Action.--
            (1) In general.--Section 201(c) of the Social Security Act 
        (42 U.S.C. 401(c)) is amended in the matter following paragraph 
        (5) by striking ``(as defined by the Board of Trustees).'' and 
        inserting ``(as defined by the Board of Trustees. If such 
        finding shows that the combined Trust Funds are not in close 
        actuarial balance (as so defined), then such report (beginning 
        in April 2000) shall include a legislative recommendation by 
        the Board of Trustees specifying new rates of tax under 
        sections 3101(a), 3111(a), and 1401(a) of the Internal Revenue 
        Code of 1986, and the allocation of those rates between the 
        Trust Funds necessary in order to restore the combined Trust 
        Funds and each Trust Fund to actuarial balance. If such finding 
        shows that the combined Trust Funds are in close actuarial 
        balance (as so defined), but that 1 of the Trust Funds is not 
        in close actuarial balance, then such report (beginning in 
        April 2000) shall include a legislative recommendation by the 
        Board of Trustees specifying a new allocation of such rates of 
        tax between the Trust Funds, so that each Trust Fund is in 
        close actuarial balance. Such recommendation shall be 
        considered by Congress under procedures described in subsection 
        (n)).''.
            (2) Fast-track consideration of legislative 
        recommendations.--Section 201 of such Act (42 U.S.C. 401) is 
        amended by adding at the end the following new subsection:
    ``(n)(1) Any legislative recommendation included in the report 
provided for in subsection (c) shall--
            ``(A) not later than 3 days after the Board of Trustees 
        submits such report, be introduced (by request) in the House of 
        Representatives by the Majority Leader of the House and be 
        introduced (by request) in the Senate by the Majority Leader of 
        the Senate; and
            ``(B) be given expedited consideration under the same 
        provisions and in the same way, subject to paragraph (2), as a 
        joint resolution under section 2908 of the Defense Base Closure 
        and Realignment Act of 1990 (10 U.S.C. 2678 note).
    ``(2) For purposes of applying paragraph (1) with respect to such 
provisions, the following rules shall apply:
            ``(A) Section 2908(a) of the Defense Base Closure and 
        Realignment Act of 1990 (10 U.S.C. 2678 note) shall not apply.
            ``(B) Any reference to the resolution described in 
        subsection (a) shall be deemed to be a reference to the 
        legislative recommendation submitted under subsection (c) of 
        this Act.
            ``(C) Any reference to the Committee on National Security 
        of the House of Representatives shall be deemed to be a 
        reference to the Committee on Ways and Means of the House of 
        Representatives and any reference to the Committee on Armed 
        Services of the Senate shall be deemed to be a reference to the 
        Committee on Finance of the Senate.
            ``(D) Any reference to the date on which the President 
        transmits a report shall be deemed to be a reference to the 
        date on which the recommendation is submitted under subsection 
        (c).''.
    (d) Conforming Amendments to FERS To Protect Payroll Tax Cut.--The 
table contained in section 8422(a)(3) of title 5, United States Code, 
is amended--
            (1) by striking ``7'' the second place it appears and 
        inserting ``6'';
            (2) by striking ``7.25'' and inserting ``6.25'';
            (3) by striking ``7.4'' and inserting ``6.4'';
            (4) by striking ``7.5'' the first, third, fifth, and 
        seventh places it appears and inserting ``6.5'';
            (5) by striking ``7.75'' each place it appears and 
        inserting ``6.75'';
            (6) by striking ``7.9'' each place it appears and inserting 
        ``6.9''; and
            (7) by striking ``8'' each place it appears and inserting 
        ``7''.

SEC. 3. VOLUNTARY INVESTMENT OF PAYROLL TAX CUT BY EMPLOYEES.

    (a) Short Title.--This section may be cited as the ``Voluntary 
Investment Contribution Act (VICA)''.
    (b) Voluntary Investment of Payroll Tax Cut.--
            (1) In general.--Title II of the Social Security Act (42 
        U.S.C. 401 et seq.) is amended--
                    (A) by inserting before section 201 the following:

                    ``Part A--Insurance Benefits'';

                and
                    (B) by adding at the end the following:

                ``Part B--Voluntary Investment Accounts

  ``employee election and designation of voluntary investment account 
                      under payroll deduction plan

    ``Sec. 251. (a) In General.--An individual who is an employee of a 
covered employer may elect to participate in the employer's voluntary 
investment account payroll deduction plan either--
            ``(1) not later than 10 business days after the individual 
        becomes an employee of the employer, or
            ``(2) during any open enrollment period.
The Commissioner shall by regulation provide for at least 1 open 
enrollment period annually.
    ``(b) Period of Election.--
            ``(1) Time election takes effect.--An election under 
        subsection (a) shall take effect with respect to the first pay 
        period beginning more than 14 days after the date of the 
        election.
            ``(2) Termination.--An election under subsection (a) shall 
        terminate--
                    ``(A) upon the termination of employment of the 
                employee of the covered employer, or
                    ``(B) with respect to pay periods beginning more 
                than 14 days after the employee terminates such 
                election.
    ``(c) Designation of Voluntary Investment Account.--
            ``(1) Initial election.--An employee shall, at the time an 
        election is made under subsection (a), designate the voluntary 
        investment account to which voluntary investment account 
        contributions on behalf of the employee are to be deposited.
            ``(2) Changes.--The Commissioner shall by regulation 
        provide the time and manner by which an employee may--
                    ``(A) designate another voluntary investment 
                account to which contributions are to be deposited, and
                    ``(B) transfer amounts from one such account to 
                another.
    ``(d) Form of Elections.--Elections under this section shall be 
made--
            ``(1) on W-4 forms (or any successor forms), or
            ``(2) in such other manner as the Commissioner may 
        prescribe in order to ensure ease of administration and 
        reductions in burdens on employers.

         ``voluntary investment account payroll deduction plans

    ``Sec. 252. (a) In General.--Each person who is a covered employer 
for a calendar year shall have in effect a voluntary investment account 
payroll deduction plan for such calendar year for such person's 
electing employees.
    ``(b) Voluntary Investment Account Payroll Deduction Plans.--For 
purposes of this part, the term `voluntary investment account payroll 
deduction plan' means a written plan of an employer--
            ``(1) which applies only with respect to wages of any 
        employee who elects to become an electing employee in 
        accordance with section 251,
            ``(2) under which the voluntary investment account 
        contributions under section 3101(a) of the Internal Revenue 
        Code of 1986 will be deducted from an electing employee's wages 
        and, together with such contributions under section 3111(a) of 
        such Code on behalf of such employee, will be paid to the 
        Social Security Administration for deposit in 1 or more 
        voluntary investment accounts designated by such employee in 
        accordance with section 251,
            ``(3) under which the employer is required to pay the 
        amount so contributed with respect to the specified voluntary 
        investment account of the electing employee within the same 
        time period as other taxes under sections 3101 and 3111 with 
        respect to the wages of such employee,
            ``(4) under which the employer receives no compensation for 
        the cost of administering such plan, and
            ``(5) under which the employer does not make any 
        endorsement with respect to any voluntary investment account.
    ``(c) Penalties for Failure To Establish Voluntary Investment 
Account Payroll Deduction Plan.--
            ``(1) In general.--Any covered employer who fails to meet 
        the requirements of this section for any calendar year shall be 
        subject to a civil penalty of not to exceed the greater of--
                    ``(A) $2,500, or
                    ``(B) $100 for each electing employee of such 
                employer as of the beginning of such calendar year.
            ``(2) Rules for application of subsection.--
                    ``(A) Penalties assessed by commissioner.--Any 
                civil penalty assessed by this subsection shall be 
                imposed by the Commissioner of Social Security and 
                collected in a civil action.
                    ``(B) Compromises.--The Commissioner may compromise 
                the amount of any civil penalty imposed by this 
                subsection.
                    ``(C) Authority to waive penalty in certain 
                cases.--The Commissioner may waive the application of 
                this subsection with respect to any failure if the 
                Commissioner determines that such failure is due to 
                reasonable cause and not to intentional disregard of 
                rules and regulations.

              ``participation by self-employed individuals

    ``Sec. 253. An individual shall make an election to become an 
electing self-employed individual, designate a voluntary investment 
account, and have in effect a voluntary investment account payroll 
deduction plan under rules similar to the rules under sections 251 and 
252.

                    ``definitions and special rules

    ``Sec. 254. For purposes of this part--
            ``(1) Voluntary investment account.--
                    ``(A) In general.--The term `voluntary investment 
                account' means--
                            ``(i) any voluntary investment account in 
                        the Voluntary Investment Fund (established 
                        under section 255) which is administered by the 
                        Voluntary Investment Board, or
                            ``(ii) any individual retirement plan (as 
                        defined in section 7701(a)(37) of the Internal 
                        Revenue Code of 1986), other than a Roth IRA 
                        (as defined in section 408A(b) of such Code), 
                        which is designated by the electing employee as 
                        a voluntary investment account (in such manner 
                        as the Secretary of the Treasury may prescribe) 
                        and which is administered or issued by a bank 
                        or other person referred to in section 
                        408(a)(2) of such Code.
                    ``(B) Treatment of accounts.--
                            ``(i) In general.--Except as provided in 
                        clause (ii)--
                                    ``(I) any voluntary investment 
                                account described in subparagraph 
                                (A)(i) shall be treated in the same 
                                manner as an account in the 
Thrift Savings Fund under subchapter III of chapter 84 of title 5, 
United States Code, and
                                    ``(II) any voluntary investment 
                                account described in subparagraph 
                                (A)(ii) shall be treated in the same 
                                manner as an individual retirement plan 
                                (as so defined).
                            ``(ii) Exceptions.--
                                    ``(I) Contribution limit.--The 
                                aggregate amount of contributions for 
                                any taxable year to all voluntary 
                                investment accounts of an electing 
                                employee shall not exceed the aggregate 
                                amount of contributions made pursuant 
                                to sections 3101(a)(3), 3111(a)(3), and 
                                1401(a)(3) of the Internal Revenue Code 
                                of 1986 and paid pursuant to section 
                                252 or 253 on behalf of such employee.
                                    ``(II) No deduction allowed.--No 
                                deduction shall be allowed under 
                                section 219 of the Internal Revenue 
                                Code of 1986 for a contribution to a 
                                voluntary investment account described 
                                in subparagraph (A)(ii).
                                    ``(III) Rollover contributions.--No 
                                rollover contribution may be made to a 
                                voluntary investment account unless it 
                                is from another voluntary investment 
                                account. A rollover described in the 
                                preceding sentence shall not be taken 
                                into account for purposes of subclause 
                                (I).
                                    ``(IV) Distributions allowed to 
                                social security beneficiaries.--
                                Notwithstanding any other provision of 
                                law, distributions may only be made 
                                from a voluntary investment account of 
                                an electing employee on or after the 
                                earlier of the date on which the 
                                employee begins receiving benefits 
                                under this title or the date of the 
                                employee's death.
            ``(2) Covered employer.--The term `covered employer' means, 
        for any calendar year, any person on whom an excise tax is 
        imposed under section 3111 of the Internal Revenue Code of 1986 
        with respect to having an individual in the person's employ to 
        whom wages are paid by such person during such calendar year.
            ``(3) Electing employee.--The term `electing employee' 
        means an individual with respect to whom an election under 
        section 251 is in effect.
            ``(4) Electing self-employed individual.--The term 
        `electing self-employed individual' means an individual with 
        respect to whom an election under section 253 is in effect.

                      ``voluntary investment fund

    ``Sec. 255. (a) Establishment.--There is established and maintained 
in the Treasury of the United States a Voluntary Investment Fund in the 
same manner as the Thrift Savings Fund under sections 8437, 8438, and 
8439 of title 5, United States Code.
    ``(b) Voluntary Investment Fund Board.--
            ``(1) In general.--There is established and operated in the 
        Social Security Administration a Voluntary Investment Fund 
        Board in the same manner as the Federal Retirement Thrift 
        Investment Board under subchapter VII of chapter 84 of title 5, 
        United States Code.
            ``(2) Specific investment duties.--The Voluntary Investment 
        Fund shall be managed by the Voluntary Investment Fund Board in 
        the same manner as the Thrift Savings Fund is managed under 
        subchapter VIII of chapter 84 of title 5, United States 
        Code.''.
            (2) Exemption from erisa requirements.--Section 4(b) of the 
        Employee Retirement Income Security Act of 1974 (29 U.S.C. 
        1003(b)) is amended--
                    (A) in paragraph (4), by striking ``or'';
                    (B) in paragraph (5), by striking the period and 
                inserting ``; or''; and
                    (C) by inserting after paragraph (5) the following:
            ``(6) such plan is a voluntary investment account payroll 
        deduction plan established under part B of title II of the 
        Social Security Act.''.
            (3) Effective date and notice requirements.--
                    (A) Effective date.--The amendments made by this 
                subsection (and any voluntary investment account 
                payroll deduction plan required thereunder) apply with 
                respect to wages paid after December 31, 2000, for pay 
                periods beginning after such date and self-employment 
                income for taxable years beginning after such date.
                    (B) Notice requirements.--
                            (i) In general.--Not later than October 1, 
                        2000, the Commissioner of Social Security 
                        shall--
                                    (I) send to the last known address 
                                of each eligible individual a 
                                description of the program established 
                                by the amendments made by this 
                                subsection, which shall be written in 
                                the form of a pamphlet in language 
                                which may be readily understood by the 
                                average worker,
                                     (II) provide for toll-free access 
                                by telephone from all localities in the 
                                United States and access by the 
                                Internet to the Social Security 
                                Administration through which 
                                individuals may obtain information and 
                                answers to questions regarding such 
                                program, and
                                    (III) provide information to the 
                                media in all localities of the United 
                                States about such program and such 
                                toll-free access by telephone and 
                                access by Internet.
                            (ii) Eligible individual.--For purposes of 
                        this subparagraph, the term ``eligible 
                        individual'' means an individual who, as of the 
                        date of the pamphlet sent pursuant to clause 
                        (i), is indicated within the records of the 
                        Social Security Administration as being 
                        credited with 1 or more quarters of coverage 
                        under section 213 of the Social Security Act 
                        (42 U.S.C. 413).
                            (iii) Matters to be included.--The 
                        Commissioner shall include with the pamphlet 
                        sent to each eligible individual pursuant to 
                        clause (i)--
                                    (I) a statement of the number of 
                                quarters of coverage indicated in the 
                                records of the Social Security 
                                Administration as of the date of the 
                                description as credited to such 
                                individual under section 213 of such 
                                Act and the date as of which such 
                                records may be considered accurate, and
                                    (II) the number for toll-free 
                                access by telephone established by the 
                                Commissioner pursuant to clause (i).
    (c) Conforming Amendments to Payroll Tax Provisions.--
            (1) Employees voluntary investment contributions.--Section 
        3101(a) of the Internal Revenue Code of 1986 (relating to tax 
        on employees), as amended by section 2(a)(1), is amended by 
        adding at the end the following:
            ``(3) Voluntary investment account contribution.--In the 
        case of an electing employee (as defined in section 254(3) of 
        the Social Security Act), in addition to other taxes, there is 
        hereby imposed on the income of such employee a voluntary 
        investment account contribution equal to 1 percent of the wages 
        (as so defined) received by him with respect to employment (as 
        so defined).''.
            (2) Employers matching contributions.--Section 3111(a) of 
        such Code (relating to tax on employers), as amended by section 
        2(a)(2), is amended by adding at the end the following:
            ``(3) Matching contribution to employee voluntary 
        investment account contribution.--In the case of an employer 
        having in his employ an electing employee (as defined in 
        section 254(3) of the Social Security Act), in addition to 
        other taxes, there is hereby imposed on such employer a 
        voluntary investment account contribution equal to 1 percent of 
        the wages (as so defined) paid by him with respect to 
        employment (as so defined) of such employee.''.
            (3) Self-employment voluntary investment account 
        contributions.--Section 1401(a) of such Code (relating to tax 
        on self-employment income), as amended by section 2(a)(3), is 
        amended by adding at the end the following:
            ``(3) Voluntary investment account contribution.--In the 
        case of an electing self-employed individual (as defined in 
        section 254(4) of the Social Security Act), in addition to 
        other taxes, there is hereby imposed for each taxable year, on 
        the self-employment income of such individual, a voluntary 
        investment account contribution equal to 2 percent of the 
        amount of the self-employment income for such taxable year.''.
            (4) Effective dates.--
                    (A) Employees and employers.--The amendments made 
                by paragraphs (1) and (2) apply to remuneration paid 
                after December 31, 2000.
                    (B) Self-employed individuals.--The amendment made 
                by paragraph (3) applies to taxable years beginning 
                after December 31, 2000.

SEC. 4. INCREASE OF SOCIAL SECURITY WAGE BASE.

    (a) In General.--Section 230 of the Social Security Act (42 U.S.C. 
430) is amended--
            (1) in subsection (b)--
                    (A) in paragraph (1), by striking ``$60,600'' and 
                inserting ``$97,500''; and
                    (B) in paragraph (2), by striking ``1992'' and 
                inserting ``2001''; and
            (2) in subsection (c)--
                    (A) by striking ``(1)'' and all that follows 
                through ``$29,700.'' and inserting ``the `contribution 
                and benefit base' with respect to remuneration paid 
                (and taxable years beginning)--
            ``(1) in 2001 shall be $85,000,
            ``(2) in 2002 shall be $92,000, and
            ``(3) in 2003 shall be $97,500.''; and
                    (B) by striking ``specified in clause (2) of the 
                preceding sentence'' and inserting ``specified in the 
                preceding sentence''.
    (b) Effective Date.--The amendments made by this section take 
effect on January 1, 2001.

SEC. 5. COST-OF-LIVING ADJUSTMENTS.

    (a) Cost-of-Living Board.--Title XI of the Social Security Act (42 
U.S.C. 1301 et seq.) is amended by adding at the end the following:

                  ``Part D--Cost-of-Living Adjustments

                ``determination of inflation adjustment

    ``Sec. 1180. (a) Modification of Cost-of-Living Adjustment.--
            ``(1) In general.--Notwithstanding any other provision of 
        law, any cost-of-living adjustment described in subsection (e) 
        shall be reduced by the applicable percentage point.
            ``(2) Applicable percentage point.--In this section, the 
        term `applicable percentage point' means--
                    ``(A) except as provided in subparagraph (B), 1 
                percentage point; or
                    ``(B) the applicable percentage point adopted by 
                the Cost-of-Living Board under subsection (b) for the 
                calendar year.
    ``(b) Cost-of-Living Board Determination.--
            ``(1) In general.--The Cost-of-Living Board established 
        under section 1181 shall for each calendar year after 1998 
        determine if a new applicable percentage point is necessary to 
        replace the applicable percentage point described in subsection 
        (a)(2)(A) to ensure an accurate cost-of-living adjustment which 
        shall apply to any cost-of-living adjustment taking effect 
        during such year.
            ``(2) Adoption or rejection of new applicable percentage 
        point.--
                    ``(A) Adoption.--
                            ``(i) In general.--If the Cost-of-Living 
                        Board adopts by majority vote a new applicable 
                        percentage point under paragraph (1), then, for 
                        purposes of subsection (a)(1), the new 
                        applicable percentage point shall remain in 
                        effect during the following calendar year.
                            ``(ii) Appropriate adjustments.--The Cost-
                        of-Living Board shall make appropriate 
                        adjustments to the applicable percentage point 
                        applied to any cost-of-living adjustment if--
                                    ``(I) the period during which the 
                                change in the cost-of-living is 
                                measured for such adjustment is 
                                different than the period used by the 
                                Cost-of-Living Board; or
                                    ``(II) the adjustment is based on a 
                                component of an index rather than the 
                                entire index.
                    ``(B) Rejection.--If the Cost-of-Living Board fails 
                by majority vote to adopt a new applicable percentage 
                point under paragraph (1) for any calendar year, then 
                the applicable percentage point for such calendar year 
                shall be the applicable percentage point described in 
                subsection (a)(2)(A).
    ``(c) Report.--Not later than November 1 of each calendar year, the 
Cost-of-Living Board shall submit a report to the President and 
Congress containing a detailed statement with respect to the new 
applicable percentage point (if any) agreed to by the Board under 
subsection (b).
    ``(d) Judicial Review.--Any determination by the Cost-of Living 
Board under subsection (b) shall not be subject to judicial review.
    ``(e) Cost-of-Living Adjustment Described.--A cost-of-living 
adjustment described in this subsection is any cost-of-living 
adjustment for a calendar year after 1998 determined by reference to a 
percentage change in a consumer price index or any component thereof 
(as published by the Bureau of Labor Statistics of the Department of 
Labor and determined without regard to this section) and used in any of 
the following:
            ``(1) The Internal Revenue Code of 1986.
            ``(2) Titles II, XVIII, and XIX of this Act.
            ``(3) Any other Federal program (not including programs 
        under title XVI of this Act).

                         ``cost-of-living board

    ``Sec. 1181. (a) Establishment of Board.--
            ``(1) Establishment.--There is established a board to be 
        known as the Cost-of-Living Board (in this section referred to 
        as the `Board').
            ``(2) Membership.--
                    ``(A) Composition.--The Board shall be composed of 
                5 members of whom--
                            ``(i) 1 shall be the Chairman of the Board 
                        of Governors of the Federal Reserve System;
                            ``(ii) 1 shall be the Chairman of the 
                        President's Council of Economic Advisers; and
                            ``(iii) 3 shall be appointed by the 
                        President, by and with the advice and consent 
                        of the Senate.
                The President shall consult with the leadership of the 
                House of Representatives and the Senate in the 
appointment of the Board members under clause (iii).
                    ``(B) Expertise.--The members of the Board 
                appointed under subparagraph (A)(iii) shall be experts 
                in the field of economics and should be familiar with 
                the issues related to the calculation of changes in the 
                cost of living. In appointing members under 
                subparagraph (A)(iii), the President shall consider 
                appointing--
                            ``(i) former members of the President's 
                        Council of Economic Advisers;
                            ``(ii) former Treasury department 
                        officials;
                            ``(iii) former members of the Board of 
                        Governors of the Federal Reserve System;
                            ``(iv) other individuals with relevant 
                        prior government experience in positions 
                        requiring appointment by the President and 
                        Senate confirmation; and
                            ``(v) academic experts in the field of 
                        price statistics.
                    ``(C) Date.--
                            ``(i) Nominations.--Not later than 30 days 
                        after the date of enactment of the Social 
                        Security Solvency Act of 1998, the President 
                        shall submit the nominations of the members of 
                        the Board described in subparagraph (A)(iii) to 
                        the Senate.
                            ``(ii) Senate action.--Not later than 60 
                        days after the Senate receives the nominations 
                        under clause (i), the Senate shall vote on 
                        confirmation of the nominations.
            ``(3) Terms and vacancies.--
                    ``(A) Terms.--A member of the Board appointed under 
                paragraph (2)(A)(iii) shall be appointed for a term of 
                5 years, except that of the members first appointed 
                under that paragraph--
                            ``(i) 1 member shall be appointed for a 
                        term of 1 year;
                            ``(ii) 1 member shall be appointed for a 
                        term of 3 years; and
                            ``(iii) 1 member shall be appointed for a 
                        term of 5 years.
                    ``(B) Vacancies.--
                            ``(i) In general.--A vacancy on the Board 
                        shall be filled in the manner in which the 
                        original appointment was made and shall be 
                        subject to any conditions which applied with 
                        respect to the original appointment.
                            ``(ii) Filling unexpired term.--An 
                        individual chosen to fill a vacancy shall be 
                        appointed for the unexpired term of the member 
                        replaced.
                    ``(C) Expiration of terms.--The term of any member 
                appointed under paragraph (2)(A)(iii) shall not expire 
                before the date on which the member's successor takes 
                office.
            ``(4) Initial meeting.--Not later than 30 days after the 
        date on which all members of the Board have been appointed, the 
        Board shall hold its first meeting. Subsequent meetings shall 
        be determined by the Board by majority vote.
            ``(5) Open meetings.--Notwithstanding section 552b of title 
        5, United States Code, or section 10 of the Federal Advisory 
        Committee Act (5 U.S.C. App.), the Board may, by majority vote, 
        close any meeting of the Board to the public otherwise required 
        to be open under that section. The Board shall make the records 
        of any such closed meeting available to the public not later 
        than 30 days of that meeting.
            ``(6) Quorum.--A majority of the members of the Board shall 
        constitute a quorum, but a lesser number of members may hold 
        hearings.
            ``(7) Chairperson and vice chairperson.--The Board shall 
        select a Chairperson and Vice Chairperson from among the 
        members appointed under paragraph (2)(A)(iii).
    ``(b) Powers of the Board.--
            ``(1) Hearings.--The Board may hold such hearings, sit and 
        act at such times and places, take such testimony, and receive 
        such evidence as the Board considers advisable to carry out the 
        purposes of this part.
            ``(2) Information from federal agencies.--The Board may 
        secure directly from any Federal department or agency such 
        information as the Board considers necessary to carry out the 
        provisions of this part, including the published and 
        unpublished data and analytical products of the Bureau of Labor 
        Statistics. Upon request of the Chairperson of the Board, the 
        head of such department or agency shall furnish such 
        information to the Board.
            ``(3) Postal services.--The Board may use the United States 
        mails in the same manner and under the same conditions as other 
departments and agencies of the Federal Government.
            ``(4) Gifts.--The Board may accept, use, and dispose of 
        gifts or donations of services or property.
    ``(c) Board Personnel Matters.--
            ``(1) Compensation of members.--Each member of the Board 
        who is not otherwise an officer or employee of the Federal 
        Government shall be compensated at a rate equal to the daily 
        equivalent of the annual rate of basic pay prescribed for level 
        III of the Executive Schedule under section 5315 of title 5, 
        United States Code, for each day (including travel time) during 
        which such member is engaged in the performance of the duties 
        of the Board. All members of the Board who otherwise are 
        officers or employees of the United States shall serve without 
        compensation in addition to that received for their services as 
        officers or employees of the United States.
            ``(2) Travel expenses.--The members of the Board shall be 
        allowed travel expenses, including per diem in lieu of 
        subsistence, at rates authorized for employees of agencies 
        under subchapter I of chapter 57 of title 5, United States 
        Code, while away from their homes or regular places of business 
        in the performance of services for the Board.
            ``(3) Staff.--
                    ``(A) In general.--The Chairperson of the Board 
                may, without regard to the civil service laws and 
                regulations, appoint and terminate an executive 
                director and such other additional personnel as may be 
                necessary to enable the Board to perform its duties. 
                The employment of an executive director shall be 
                subject to confirmation by the Board.
                    ``(B) Compensation.--The Chairperson of the Board 
                may fix the compensation of the executive director and 
                other personnel without regard to the provisions of 
                chapter 51 and subchapter III of chapter 53 of title 5, 
                United States Code, relating to classification of 
                positions and General Schedule pay rates, except that 
                the rate of pay for the executive director and other 
                personnel may not exceed the rate payable for level IV 
                of the Executive Schedule under section 5316 of such 
                title.
            ``(4) Detail of government employees.--Any Federal 
        Government employee may be detailed to the Board without 
        additional reimbursement (other than the employee's regular 
        compensation), and such detail shall be without interruption or 
        loss of civil service status or privilege.
            ``(5) Procurement of temporary and intermittent services.--
        The Chairperson of the Board may procure temporary and 
        intermittent services under section 3109(b) of title 5, United 
        States Code, at rates for individuals which do not exceed the 
        daily equivalent of the annual rate of basic pay prescribed for 
        level V of the Executive Schedule under section 5316 of such 
        title.
    ``(d) Termination.--Section 14 of the Federal Advisory Committee 
Act (5 U.S.C. App.) shall not apply to the Board.
    ``(e) Authorization of Appropriations.--There are authorized to be 
appropriated to the Board such sums as are necessary to carry out the 
purposes of this part.''.
    (c) Termination of Wage Index Adjustment.--Section 215(i)(1)(C) of 
the Social Security Act (42 U.S.C. 415(i)(1)(C)) is amended--
            (1) in clause (i)--
                    (A) by inserting ``and before 1999'' after ``after 
                1988''; and
                    (B) by inserting ``, or in any calendar year after 
                1998, the CPI increase percentage''; and
            (2) in clause (ii), by inserting ``and before 1999'' after 
        ``after 1988''.

SEC. 6. TAX TREATMENT OF SOCIAL SECURITY PAYMENTS.

    (a) In General.--Section 86(a) of the Internal Revenue Code of 1986 
(relating to social security and tier 1 railroad retirement benefits) 
is amended to read as follows:
    ``(a) In General.--Notwithstanding section 207 of the Social 
Security Act, social security benefits shall be included in the gross 
income of a taxpayer for any taxable year in the manner provided under 
section 72.''.
    (b) Conforming Amendments.--Section 86 of the Internal Revenue Code 
of 1986 is amended by striking subsections (b), (c), and (e) and by 
redesignating subsections (d) and (f) as subsections (b) and (c), 
respectively.
    (c) Transfers to Trust Funds.--Paragraph (1)(A) of section 121(e) 
of the Social Security Amendments of 1983, as amended by section 
13215(c)(1) of the Omnibus Budget Reconciliation Act of 1993, is 
amended by striking ``1993.'' and inserting ``1993, plus (iii) the 
amounts equivalent to the aggregate increase in tax liabilities under 
chapter 1 of the Internal Revenue Code of 1986 which is attributable to 
the amendments to section 86 of such Code made by section 6 of the 
Social Security Solvency Act of 1998.''.
    (d) Effective Date; Application; Waiver of Penalty.--
            (1) Effective date.--The amendments made by this section 
        apply to taxable years ending after June 30, 1998.
            (2) Application of amendments to taxable year 1998.--In the 
        case of any taxable year which includes July 1, 1998, the 
        amount a taxpayer is required to include in gross income under 
        section 86 of the Internal Revenue Code of 1986 shall (in lieu 
        of the amount otherwise determined) be equal to 50 percent of 
        the sum of--
                    (A) the amount of social security benefits of the 
                taxpayer to be included in gross income for such year 
                under such section 86, determined as if the amendments 
                made by this section had not been enacted, plus
                    (B) such amount determined as if such amendments 
                had been in effect for the entire taxable year.
            (3) Waiver of certain estimated tax penalties.--No addition 
        to tax shall be imposed under section 6654 of the Internal 
        Revenue Code of 1986 (relating to failure to pay estimated 
        income tax) with respect to any underpayment of an installment 
        required to be paid with respect to a taxable year to which 
        paragraph (2) applies to the extent that such underpayment was 
        created or increased by the amendments made by this section.

SEC. 7. COVERAGE OF NEWLY HIRED STATE AND LOCAL EMPLOYEES.

    (a) Amendments to the Social Security Act.--
            (1) In general.--Paragraph (7) of section 210(a) of the 
        Social Security Act (42 U.S.C. 410(a)(7)) is amended to read as 
        follows:
            ``(7) Excluded State or local government employment (as 
        defined in subsection (s));''.
            (2) Excluded state or local government employment.--
                    (A) In general.--Section 210 of such Act (42 U.S.C. 
                410) is amended by adding at the end the following new 
                subsection:

            ``Excluded State or Local Government Employment

    ``(s)(1) In General.--The term `excluded State or local government 
employment' means any service performed in the employ of a State, of 
any political subdivision thereof, or of any instrumentality of any one 
or more of the foregoing which is wholly owned thereby, if--
            ``(A)(i) such service would be excluded from the term 
        `employment' for purposes of this title if the preceding 
        provisions of this section as in effect on December 31, 2000, 
        had remained in effect, and (ii) the requirements of paragraph 
        (2) are met with respect to such service, or
            ``(B) the requirements of paragraph (3) are met with 
        respect to such service.
    ``(2) Exception for Current Employment Which Continues.--
            ``(A) In general.--The requirements of this paragraph are 
        met with respect to service for any employer if--
                    ``(i) such service is performed by an individual--
                            ``(I) who was performing substantial and 
                        regular service for remuneration for that 
                        employer before January 1, 2001,
                            ``(II) who is a bona fide employee of that 
                        employer on December 31, 2000, and
                            ``(III) whose employment relationship with 
                        that employer was not entered into for purposes 
                        of meeting the requirements of this 
                        subparagraph, and
                    ``(ii) the employment relationship with that 
                employer has not been terminated after December 31, 
                2000.
            ``(B) Treatment of multiple agencies and 
        instrumentalities.--For purposes of subparagraph (A), under 
        regulations (consistent with regulations established under 
        section 3121(t)(2)(B) of the Internal Revenue Code of 1986)--
                    ``(i) all agencies and instrumentalities of a State 
                (as defined in section 218(b)) or of the District of 
                Columbia shall be treated as a single employer, and
                    ``(ii) all agencies and instrumentalities of a 
                political subdivision of a State (as so defined) shall 
                be treated as a single employer and shall not be 
                treated as described in clause (i).
    ``(3) Exception for Certain Services.--
            ``(A) In general.--The requirements of this paragraph are 
        met with respect to service if such service is performed--
                    ``(i) by an individual who is employed by a State 
                or political subdivision thereof to relieve such 
                individual from unemployment,
                    ``(ii) in a hospital, home, or other institution by 
                a patient or inmate thereof as an employee of a State 
                or political subdivision thereof or of the District of 
                Columbia,
                    ``(iii) by an individual, as an employee of a State 
                or political subdivision thereof or of the District of 
                Columbia, serving on a temporary basis in case of fire, 
                storm, snow, earthquake, flood, or other similar 
                emergency,
                    ``(iv) by any individual as an employee included 
                under section 5351(2) of title 5, United States Code 
                (relating to certain interns, student nurses, and other 
                student employees of hospitals of the District of 
                Columbia Government), other than as a medical or dental 
                intern or a medical or dental resident in training,
                    ``(v) by an election official or election worker if 
                the remuneration paid in a calendar year for such 
                service is less than $1,000 with respect to service 
                performed during 2001, and the adjusted amount 
                determined under subparagraph (C) for any subsequent 
                year with respect to service performed during such 
                subsequent year, except to the extent that service by 
                such election official or election worker is included 
                in employment under an agreement under section 218, or
                    ``(vi) by an employee in a position compensated 
                solely on a fee basis which is treated pursuant to 
                section 211(c)(2)(E) as a trade or business for 
                purposes of inclusion of such fees in net earnings from 
                self-employment.
            ``(B) Definitions.--As used in this paragraph, the terms 
        `State' and `political subdivision' have the meanings given 
        those terms in section 218(b).
            ``(C) Adjustments to dollar amount for election officials 
        and election workers.--For each year after 2001, the Secretary 
        shall adjust the amount referred to in subparagraph (A)(v) at 
        the same time and in the same manner as is provided under 
        section 215(a)(1)(B)(ii) with respect to the amounts referred 
        to in section 215(a)(1)(B)(i), except that--
                    ``(i) for purposes of this subparagraph, 1998 shall 
                be substituted for the calendar year referred to in 
                section 215(a)(1)(B)(ii)(II), and
                    ``(ii) such amount as so adjusted, if not a 
                multiple of $50, shall be rounded to the nearest 
                multiple of $50.
        The Commissioner of Social Security shall determine and publish 
        in the Federal Register each adjusted amount determined under 
        this subparagraph not later than November 1 preceding the year 
        for which the adjustment is made.''.
                    (B) Conforming amendments.--
                            (i) Subsection (k) of section 210 of such 
                        Act (42 U.S.C. 410(k)) (relating to covered 
                        transportation service) is repealed.
                            (ii) Section 210(p) of such Act (42 U.S.C. 
                        410(p)) is amended--
                                    (I) in paragraph (2), by striking 
                                ``service is performed'' and all that 
                                follows and inserting ``service is 
                                service described in subsection 
                                (s)(3)(A).''; and
                                    (II) in paragraph (3)(A), by 
                                inserting ``under subsection (a)(7) as 
                                in effect on December 31, 2000'' after 
                                ``section''.
                            (iii) Section 218(c)(6) of such Act (42 
                        U.S.C. 418(c)(6)) is amended--
                                    (I) by striking subparagraph (C);
                                    (II) by redesignating subparagraphs 
                                (D) and (E) as subparagraphs (C) and 
                                (D), respectively; and
                                    (III) by striking subparagraph (F) 
                                and inserting the following:
            ``(E) service which is included as employment under section 
        210(a).''
    (b) Amendments to the Internal Revenue Code of 1986.--
            (1) In general.--Paragraph (7) of section 3121(b) of the 
        Internal Revenue Code of 1986 (relating to employment) is 
        amended to read as follows:
            ``(7) excluded State or local government employment (as 
        defined in subsection (t));''.
            (2) Excluded state or local government employment.--Section 
        3121 of such Code is amended by inserting after subsection (s) 
        the following new subsection:
    ``(t) Excluded State or Local Government Employment.--
            ``(1) In general.--For purposes of this chapter, the term 
        `excluded State or local government employment' means any 
        service performed in the employ of a State, of any political 
        subdivision thereof, or of any instrumentality of any one or 
        more of the foregoing which is wholly owned thereby, if--
                    ``(A)(i) such service would be excluded from the 
                term `employment' for purposes of this chapter if the 
                provisions of subsection (b)(7) as in effect on 
                December 31, 2000, had remained in effect, and (ii) the 
                requirements of paragraph (2) are met with respect to 
                such service, or
                    ``(B) the requirements of paragraph (3) are met 
                with respect to such service.
            ``(2) Exception for current employment which continues.--
                    ``(A) In general.--The requirements of this 
                paragraph are met with respect to service for any 
                employer if--
                            ``(i) such service is performed by an 
                        individual--
                                    ``(I) who was performing 
                                substantial and regular service for 
                                remuneration for that employer before 
                                January 1, 2001,
                                    ``(II) who is a bona fide employee 
                                of that employer on December 31, 2000, 
                                and
                                    ``(III) whose employment 
                                relationship with that employer was not 
                                entered into for purposes of meeting 
                                the requirements of this subparagraph, 
                                and
                            ``(ii) the employment relationship with 
                        that employer has not been terminated after 
                        December 31, 2000.
                    ``(B) Treatment of multiple agencies and 
                instrumentalities.--For purposes of subparagraph (A), 
                under regulations--
                            ``(i) all agencies and instrumentalities of 
                        a State (as defined in section 218(b) of the 
                        Social Security Act) or of the District of 
                        Columbia shall be treated as a single employer, 
                        and
                            ``(ii) all agencies and instrumentalities 
                        of a political subdivision of a State (as so 
                        defined) shall be treated as a single employer 
                        and shall not be treated as described in clause 
                        (i).
            ``(3) Exception for certain services.--
                    ``(A) In general.--The requirements of this 
                paragraph are met with respect to service if such 
                service is performed--
                            ``(i) by an individual who is employed by a 
                        State or political subdivision thereof to 
                        relieve such individual from unemployment,
                            ``(ii) in a hospital, home, or other 
                        institution by a patient or inmate thereof as 
                        an employee of a State or political subdivision 
                        thereof or of the District of Columbia,
                            ``(iii) by an individual, as an employee of 
                        a State or political subdivision thereof or of 
                        the District of Columbia, serving on a 
                        temporary basis in case of fire, storm, snow, 
                        earthquake, flood, or other similar emergency,
                            ``(iv) by any individual as an employee 
                        included under section 5351(2) of title 5, 
                        United States Code (relating to certain 
                        interns, student nurses, and other student 
                        employees of hospitals of the District of 
                        Columbia Government), other than as a medical 
                        or dental intern or a medical or dental 
                        resident in training,
                            ``(v) by an election official or election 
                        worker if the remuneration paid in a calendar 
                        year for such service is less than $1,000 with 
                        respect to service performed during 2001, and 
                        the adjusted amount determined under section 
                        210(s)(3)(C) of the Social Security Act for any 
                        subsequent year with respect to service 
                        performed during such subsequent year, except 
                        to the extent that service by such election 
                        official or election worker is included in 
                        employment under an agreement under section 218 
                        of the Social Security Act, or
                            ``(vi) by an employee in a position 
                        compensated solely on a fee basis which is 
                        treated pursuant to section 1402(c)(2)(E) as a 
                        trade or business for purposes of inclusion of 
                        such fees in net earnings from self-employment.
                    ``(B) Definitions.--As used in this paragraph, the 
                terms `State' and `political subdivision' have the 
                meanings given those terms in section 218(b) of the 
                Social Security Act.''.
            (3) Conforming amendments.--
                    (A) Subsection (j) of section 3121 of such Code 
                (relating to covered transportation service) is 
                repealed.
                    (B) Paragraph (2) of section 3121(u) of such Code 
                (relating to application of hospital insurance tax to 
                Federal, State, and local employment) is amended--
                            (i) in subparagraph (B), by striking 
                        ``service is performed'' in clause (ii) and all 
                        that follows through the end of such 
                        subparagraph and inserting ``service is service 
                        described in subsection (t)(3)(A).''; and
                            (ii) in subparagraph (C)(i), by inserting 
                        ``under subsection (b)(7) as in effect on 
                        December 31, 2000'' after ``chapter''.
    (c) Effective Date.--Except as otherwise provided in this section, 
the amendments made by this section shall apply with respect to service 
performed after December 31, 2000.

SEC. 8. INCREASE IN LENGTH OF COMPUTATION PERIOD FROM 35 TO 38 YEARS.

    Section 215(b)(2)(B) of the Social Security Act (42 U.S.C. 
415(b)(2)) is amended--
            (1) in clause (ii), by striking ``and'' at the end;
            (2) in clause (iii)--
                    (A) by striking ``age 62'' and inserting ``the 
                applicable age''; and
                    (B) by striking the period at the end and inserting 
                ``; and''; and
            (3) by adding at the end the following:
            ``(iv) the term `applicable age' means with respect to 
        individuals who attain age 62--
                    ``(I) before 2001, age 62;
                    ``(II) in 2001, age 63;
                    ``(III) in 2002, age 64; and
                    ``(IV) after 2002, age 65.''.

SEC. 9. PHASED IN INCREASE IN SOCIAL SECURITY RETIREMENT AGE.

    (a) In General.--Section 216(l) of the Social Security Act (42 
U.S.C. 416(l) is amended--
            (1) in paragraph (1), by striking subparagraphs (B), (C), 
        (D), and (E) and inserting the following:
                    ``(B) with respect to an individual who attains 
                early retirement age after December 31, 1999, and 
                before January 1, 2018, 65 years of age plus \2/12\ of 
                the number of months in the period beginning with 
                January 2000 and ending with December of the year in 
                which the individual attains early retirement age;
                    ``(C) with respect to an individual who attains 
                early retirement age after December 31, 2017, and 
                before January 1, 2066, 68 years of age plus \1/24\ of 
                the number of months in the period beginning with 
                January 2018 and ending with December of the year in 
                which the individual attains early retirement age, 
                rounded down to the lowest whole month; and
                    ``(D) with respect to an individual who attains 
                early retirement age after December 31, 2065, 70 years 
                of age.''; and
            (2) by striking paragraph (3).
    (b) Conforming Reductions for Receiving Benefits Before Normal 
Retirement Age.--Section 202(q)(9)(A) of the Social Security Act (42 
U.S.C. 402(q)(9)(A)) is amended by striking ``and five-twelfths of 1 
percent for any additional months included in such periods'' and 
inserting ``five-twelfths of 1 percent for the next 24 months included 
in such periods, three-eighths of 1 percent for the next 24 months 
included in such periods, and one-third of 1 percent for any additional 
months included in such periods''.
    (c) Study of the Effect of Increasing the Retirement Age.--
            (1) Study plan.--Not later than February 15, 2000, the 
        Commissioner of Social Security shall submit to Congress a 
        detailed study plan for evaluating the effects of increases in 
        the retirement age scheduled under section 216(l) of the Social 
        Security Act on the day before the date of enactment of the 
        amendments made by subsection (a) and under such amendments. 
        The study plan shall include a description of the methodology, 
        data, and funding that will be required in order to provide to 
        Congress not later than February 15, 2005--
                    (A) an evaluation of trends in mortality and their 
                relationship to trends in health status, among 
                individuals approaching eligibility for social security 
                retirement benefits;
                    (B) an evaluation of trends in labor force 
                participation among individuals approaching eligibility 
                for social security retirement benefits and among 
                individuals receiving retirement benefits, and of the 
                factors that influence the choice between retirement 
                and participation in the labor force;
                    (C) an evaluation of changes, if any, in the social 
                security disability program that would reduce the 
                impact of increases in the retirement age on workers in 
                poor health or physically demanding occupations;
                    (D) an evaluation of the methodology used to 
                develop projections for trends in mortality, health 
                status, and labor force participation among individuals 
                approaching eligibility for social security retirement 
                benefits and among individuals receiving retirement 
                benefits; and
                    (E) an evaluation of such other matters as the 
                Commissioner deems appropriate for evaluating the 
                effects of increases in the retirement age.
            (2) Report on results of study.--Not later than February 
        15, 2005, the Commissioner of Social Security shall provide to 
        Congress an evaluation of the implications of the trends 
        studied under paragraph (1), along with recommendations, if 
        any, of the extent to which the conclusions of such evaluations 
        indicate that future scheduled increases in the retirement age 
        should be modified. Furthermore, such report should include 
        recommendations for modifying the social security disability 
        program and other income support programs that should be 
        considered in conjunction with scheduled increases in the 
        retirement age.

SEC. 10. ELIMINATION OF EARNINGS TEST FOR INDIVIDUALS WHO HAVE ATTAINED 
              EARLY RETIREMENT AGE.

    (a) In General.--Section 203 of the Social Security Act (42 U.S.C. 
403) is amended--
            (1) in subsection (c)(1), by striking ``the age of 
        seventy'' and inserting ``early retirement age (as defined in 
        section 216(l))'';
            (2) in paragraphs (1)(A) and (2) of subsection (d), by 
        striking ``the age of seventy'' each place it appears and 
        inserting ``early retirement age (as defined in section 
        216(l))'';
            (3) in subsection (f)(1)(B), by striking ``was age seventy 
        or over'' and inserting ``was at or above early retirement age 
        (as defined in section 216(l))'';
            (4) in subsection (f)(3)--
                    (A) by striking ``33\1/3\ percent'' and all that 
                follows through ``any other individual,'' and inserting 
                ``50 percent of such individual's earnings for such 
                year in excess of the product of the exempt amount as 
                determined under paragraph (8),''; and
                    (B) by striking ``age 70'' and inserting ``early 
                retirement age (as defined in section 216(l))'';
            (5) in subsection (h)(1)(A), by striking ``age 70'' each 
        place it appears and inserting ``early retirement age (as 
        defined in section 216(l))''; and
            (6) in subsection (j)--
                    (A) in the heading, by striking ``Age Seventy'' and 
                inserting ``Early Retirement Age''; and
                    (B) by striking ``seventy years of age'' and 
                inserting ``having attained early retirement age (as 
                defined in section 216(l))''.
    (b) Conforming Amendments Eliminating the Special Exempt Amount For 
Individuals Who Have Attained Age 62.--
            (1) Uniform exempt amount.--Section 203(f)(8)(A) of the 
        Social Security Act (42 U.S.C. 403(f)(8)(A)) is amended by 
        striking ``the new exempt amounts (separately stated for 
        individuals described in subparagraph (D) and for other 
        individuals) which are to be applicable'' and inserting ``a new 
        exempt amount which shall be applicable''.
            (2) Conforming amendments.--Section 203(f)(8)(B) of the 
        Social Security Act (42 U.S.C. 403(f)(8)(B)) is amended--
                    (A) in the matter preceding clause (i), by striking 
                ``Except'' and all that follows through ``whichever'' 
                and inserting ``The exempt amount which is applicable 
                for each month of a particular taxable year shall be 
                whichever'';
                    (B) in clauses (i) and (ii), by striking 
                ``corresponding'' each place it appears; and
                    (C) in the last sentence, by striking ``an exempt 
                amount'' and inserting ``the exempt amount''.
            (3) Repeal of basis for computation of special exempt 
        amount.--Section 203(f)(8)(D) of the Social Security Act (42 
        U.S.C. (f)(8)(D)) is repealed.
    (c) Additional Conforming Amendments.--
            (1) Elimination of redundant references to retirement 
        age.--Section 203 of the Social Security Act (42 U.S.C. 403) is 
        amended--
                    (A) in subsection (c), in the last sentence, by 
                striking ``nor shall any deduction'' and all that 
                follows and inserting ``nor shall any deduction be made 
                under this subsection from any widow's or widower's 
                insurance benefit if the widow, surviving divorced 
                wife, widower, or surviving divorced husband involved 
                became entitled to such benefit prior to attaining age 
                60.''; and
                    (B) in subsection (f)(1), by striking clause (D) 
                and inserting the following: ``(D) for which such 
                individual is entitled to widow's or widower's 
                insurance benefits if such individual became so 
                entitled prior to attaining age 60,''.
            (2) Conforming amendment to provisions for determining 
        amount of increase on account of delayed retirement.--Section 
        202(w)(2)(B)(ii) of the Social Security Act (42 U.S.C. 
        402(w)(2)(B)(ii)) is amended--
                    (A) by striking ``either''; and
                    (B) by striking ``or suffered deductions under 
                section 203(b) or 203(c) in amounts equal to the amount 
                of such benefit''.
            (3) Provisions relating to earnings taken into account in 
        determining substantial gainful activity of blind 
        individuals.--The second sentence of section 223(d)(4) of such 
        Act (42 U.S.C. 423(d)(4)) is amended by striking ``if section 
        102 of the Senior Citizens' Right to Work Act of 1996 had not 
        been enacted'' and inserting the following: ``if the amendments 
        to section 203 made by section 102 of the Senior Citizens' 
        Right to Work Act of 1996 and by the Social Security Solvency 
        Act of 1998 had not been enacted''.
    (d) Study of the Effect of Taking Earnings Into Account in 
Determining Substantial Gainful Activity of Disabled Individuals.--
            (1) In general.--Not later than February 15, 2000, the 
        Commissioner of Social Security shall conduct a study on the 
        effect that taking earnings into account in determining 
        substantial gainful activity of individuals receiving 
        disability insurance benefits has on the incentive for such 
        individuals to work and submit to Congress a report on the 
        study.
            (2) Contents of study.--The study conducted under paragraph 
        (1) shall include the evaluation of--
                    (A) the effect of the current limit on earnings on 
                the incentive for individuals receiving disability 
                insurance benefits to work;
                    (B) the effect of increasing the earnings limit or 
                changing the manner in which disability insurance 
                benefits are reduced or terminated as a result of 
                substantial gainful activity (including reducing the 
                benefits gradually when the earnings limit is exceeded) 
                on--
                            (i) the incentive to work; and
                            (ii) the financial status of the Federal 
                        Disability Insurance Trust Fund;
                    (C) the effect of extending eligibility for the 
                Medicare program to individuals during the period in 
                which disability insurance benefits of the individual 
                are gradually reduced as a result of substantial 
                gainful activity and extending such eligibility for a 
                fixed period of time after the benefits are terminated 
                on--
                            (i) the incentive to work; and
                            (ii) the financial status of the Federal 
                        Hospital Insurance Trust Fund and the Federal 
                        Supplementary Medical Insurance Trust Fund; and
                    (D) the relationship between the effect of 
                substantial gainful activity limits on blind 
                individuals receiving disability insurance benefits and 
                other individuals receiving disability insurance 
                benefits.
            (3) Consultation.--The analysis under paragraph (2)(C) 
        shall be done in consultation with the Administrator of the 
        Health Care Financing Administration.
    (e) Effective Date.--The amendments and repeals made by subsections 
(a), (b), and (c) shall apply with respect to taxable years ending 
after December 31, 2002.
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