[Congressional Record Volume 140, Number 43 (Tuesday, April 19, 1994)]
[Extensions of Remarks]
[Page E]
From the Congressional Record Online through the Government Printing Office [www.gpo.gov]


[Congressional Record: April 19, 1994]
From the Congressional Record Online via GPO Access [wais.access.gpo.gov]

 
                E X T E N S I O N   O F   R E M A R K S


      THE SOCIAL SECURITY TRUST FUND WILL BE THERE WHEN YOU RETIRE

                                 ______


                         HON. DAN ROSTENKOWSKI

                              of illinois

                    in the house of representatives

                        Tuesday, April 19, 1994

  Mr. ROSTENKOWSKI. Mr. Speaker, in surveys, editorials, books and 
demonstrations, baby boomers and baby busters repeatedly express their 
fear and conviction that Social Security won't be around for them when 
they reach retirement age. Some of the people in this group believe 
Social Security will be significantly cut back by the time they are 
ready to collect benefits. Others think Social Security will no longer 
be in existence when they reach retirement age--or that it will have 
been reduced to a means-tested program paying subsistence benefits.
  At the same time, today's retirees are concerned that their benefits 
are threatened. They fear a cut in their benefits as part of an effort 
to reduce the Federal deficit or to reduce entitlement spending which 
is proclaimed to be out of control. Their fears, as well as those of 
younger workers, are bolstered by dramatic claims based in part on fact 
and in part on wild and unrealistic speculation about the future.
  Let's look at the facts and the unrealistic conclusions that are 
drawn from those facts. The Social Security trust fund is not currently 
in long-range [75-year] financial balance; that is, the system is 
expected to have insufficient funding to pay for promised benefits 
beginning about 35-40 years from today. This fact has been known for 
some time and is published in annual, public reports on the Social 
Security trust fund. Some opponents of Social Security use this 
information to scare people into believing that Social Security will 
simply cease to exist at some point in the future. Others suggest that 
the projected growth in Social Security as the baby-boom generation 
ages proves that Social Security is wildly out of control and that 
strong measures are required to rein it in, such as severely cutting 
back on benefits to everyone. Still others claim that an enormously 
high and unaffordable level of payroll taxation will be necessary to 
fund the system as currently structured--as much as a 50 percent 
payroll tax.
  I am today introducing a bill which responds to these concerns in a 
responsible way. It is meant to bring reasonableness back into the 
debate, replacing exaggeration and overblown rhetoric with facts and 
responsible conclusions. Furthermore, it is intended to encourage 
debate about Social Security in the context of the long-range health of 
the Social Security program, not in the context of some overly-broad, 
ill-defined concept such as entitlement reform.
  This legislation addresses the concerns of younger workers by showing 
just exactly what it takes to bring the Social Security program into 
long-range balance and to assure steady and predictable payment of 
benefits to all contributors. It responds to the concerns of retirees 
who fear significant reductions in current benefits by requiring only a 
modest contribution to preserving the stability of the system, with the 
larger contributions being required only by those who are most able to 
afford it.
  This legislation is proof that reasonable and modest changes are all 
that is required to make the system solvent permanently into the 
future. Moreover, my bill is true to the essential principles of Social 
Security--that everyone contributes to the system and everyone receives 
a benefit based on the level of his or her contributions.
  My bill is not intended as the only way to assure the long-range 
solvency of the Social Security program. Instead, it is a starting 
point to encourage responsible debate and to show that reasonable, 
affordable changes can be made which would sustain the program nearly 
indefinitely. It is intended to move the debate away from rhetoric and 
toward a reasonable solution. Let me emphasize that I am not 
recommending any one of these provisions standing by itself. Rather, I 
am suggesting all of them as an outline for responsible change.
  This legislation would bring the Social Security system into balance 
through a combination of provisions--almost half through benefit 
changes and coverage improvements and the rest through payroll tax 
changes. Current workers would make the largest contribution to 
bringing the trust fund back into balance, but current retirees would 
also be asked to make a contribution. Some of the provisions would 
apply to beneficiaries across-the-board. Others would affect only those 
who have higher earnings, thus helping to preserve an essential feature 
of the Social Security system: its progressivity.
  Two of the legislation's provisions affect the benefit levels of 
future beneficiaries. The most significant of these is a revision in 
the benefit formula itself. This revision will gradually reduce 
benefits for new groups of beneficiaries over a 50-year phasein period. 
This change leaves the benefits of low earners completely unaffected. 
At the end of the 50-year phasein, when the 4-year-olds of today reach 
retirement, the benefits of average earners would be reduced by 8.4 
percent and the benefits of high earners would be reduced by just over 
20 percent from their levels under current law.
  It might be helpful to contrast this proposed change with another 
proposal being advanced to reduce benefits paid to high earners. This 
proposal, part of the Concord Coalition's plan to reduce the Federal 
deficit, would cut the benefits of anyone with non-Social Security 
income of more than $40,000 a year. Under this plan, benefits would be 
reduced by as much as 85 percent for those with high incomes. The 
Concord Coalition plan would also have a strong disincentive effect on 
savings and other private preparations for retirement, since the more 
an individual saved and invested for retirement, the less he or she 
would receive from Social Security. Changing the benefit formula as 
proposed in my legislation would have no such savings disincentive 
effect.
  The second provision affecting benefits would shorten the phasein 
period set under current law for the increase in the so-called ``normal 
retirement age.'' This is the age at which a new retiree may collect 
full benefits, unreduced for early retirement. For current retirees, 
the normal retirement age is 65, but is scheduled to rise gradually to 
age 67. Under my bill, the increase in the retirement age begins with 
those reaching age 65 in 2003, as it does under current law, but the 
phasein to age 67 would be accomplished in a shorter period of time. 
While other proposals have suggested raising the normal retirement age 
to age 68 or age 70, my bill does not raise it beyond age 67.
  The legislation also asks current beneficiaries to make a 
contribution toward preserving the Social Security system for future 
generations. There would be a small, one-time reduction of one-half of 
1 percentage point in the cost-of-living adjustment [COLA] in 1995. The 
1995 COLA is projected to be about 3 percent. For the average 
beneficiary, this reduction would amount to only $3 per month. In 
addition, the bill would require beneficiaries who pay income tax on 
their benefits but include less than 85 percent of their benefits in 
taxable income--about 13 percent of beneficiaries--to include a larger 
percentage of their benefits in taxable income. This change would apply 
only to better-off beneficiaries, those with incomes above $34,000 for 
married couples and $25,000 for singles. It should be emphasized that 
these provisions are part of a broad package of changes intended to 
preserve the program for future generations and are not intended to 
stand alone.
  My bill also takes the final step toward universal Social Security 
coverage by bringing into the system the largest remaining category of 
workers not covered by Social Security: State and local government 
employees. This would be done gradually and would affect only newly-
hired workers. Once the proposal was fully phased in, employees of 
State and local governments would be provided the same security in 
retirement enjoyed by almost every other worker in our economy.
  Together, the provisions described above would bring the Social 
Security system almost half-way to long-range balance. The remaining 
deficit would be closed by phasing in an increase in the payroll tax 
for employees and employers each of 1.15 percentage points. beginning 
in the year 2020, and by phasing in an additional 0.8 percentage 
points, beginning in the year 2055.
  In my view, these changes represent a reasonable and balanced way to 
preserve the Social Security system for future generations. My bill 
shows that bringing Social Security into long-range financial balance 
is possible and requires only reasonable, moderate changes in the 
program. It assures future beneficiaries that Social Security will be 
there for them; it assures young workers that payroll taxes do not have 
to rise to extreme levels in order to fund the Nation's basic 
retirement program; and it assures today's beneficiaries that Congress 
will not be forced to make draconian cuts in their Social Security 
benefits.
  A summary of the bill follows:


                1. reduce generosity of benefit formula

  Several steps are involved in determining the amount of a worker's 
Social Security benefit. First, his or her earnings from past years are 
updated to current dollars, then averaged together to determine the 
worker's Average Indexed Monthly Earnings [AIME]. Next, a three-bracket 
formula is applied to the AIME to determine the benefit amount. For a 
worker reaching age 62 in 1994, the benefit is equal to 90 percent of 
the first $422 of AIME, plus 32 percent of AIME over $422 through 
$2,545, plus 15 percent of any AIME over $2,545. The dollar amounts in 
this formula--called ``bendpoints''--are updated each year by wage 
growth in the economy. The amount produced by this formula is called 
the Primary Insurance Amount [PIA].
  The bill would modify the benefit formula beginning in the year 2003 
and gradually reduce--over a 50-year period--the benefits paid to 
workers with average and above-average earnings. Specifically, the bill 
would add a third bendpoint above the current top bendpoint and a new 
bracket of 10 percent which would apply to AIME in excess of this third 
bendpoint. Over 50 years, the current bendpoints would move gradually 
downward until the new bendpoint would be equivalent to the current-law 
top bendpoint.


  2. eliminate age-66 plateau in increase in the normal retirement age

  The ``normal retirement age'' is the age at which a worker may retire 
with full benefits. Workers who collect benefits before reaching this 
age have a permanent actuarial reduction applied to their benefits. The 
normal retirement age is currently age 65. Beginning with persons 
reaching age 62 in the year 2000, the normal retirement age will begin 
to rise gradually by 2 months per year for each group of persons 
reaching age 62 in successive years until it reaches age 66. It will 
remain at age 66 for 12 years, then begin to rise again by 
2-month increments until it reaches age 67 for those who 
attain age 62 in 2022.

  The bill would eliminate the 12-year plateau in the increase in the 
normal retirement age, and instead continue to raise the age by 2-month 
increments until it reaches age 67 for those attaining age 62 in the 
year 2011. The ultimate normal retirement age--age 67--and the early 
retirement age--age 62--would not be changed by the bill.


              3. reduce cost-of-living adjustment for 1995

  The bill would reduce the 1995 cost-of-living adjustment [COLA] by 
0.5 percentage points. Because the 1995 COLA is projected to be 3.0 
percent, the proposal would result in a COLA of 2.5 percent. 
Supplemental Security recipients would not be affected by this change.


  4. reduce income thresholds at which 85 percent of social security 
                benefits are subject to income taxation

  Beneficiaries with income above certain thresholds are required to 
include a portion of their Social Security benefits in their taxable 
income. Beneficiaries with incomes of more than $25,000 if single and 
$32,000 if married must include up to 50 percent of their benefits in 
taxable income. Beneficiaries with incomes of more than $34,000 if 
single and $44,000 if married must include up to 85 percent of their 
benefits in their taxable income.
  The bill would lower the thresholds at which up to 85 percent of 
benefits must be included in taxable income to $25,000 if single and 
$32,000 if married, effective for tax years beginning after December 
31, 1994.


   5. cover all newly hired employees of state and local governments

  Generally, employees of State and local governments are not 
mandatorily covered by the Social Security system, unlike workers in 
virtually all private-sector jobs, and therefore do not pay Social 
Security taxes on their wages. The majority of these workers are 
nevertheless covered by Social Security, either through agreements 
entered into between their State and the Federal Government, or because 
they are not eligible to participate in a public retirement plan and 
thus are mandatorily covered as a result of the Omnibus Budget 
Reconciliation Act of 1990. An estimated one-third of State or local 
government employees are not covered by Social Security through either 
of these means.
  The bill would extend Social Security coverage, on a mandatory basis, 
to all State and local government employees who are hired on or after 
January 1, 1995. Thus, they would begin to pay Social Security taxes on 
their wages and would earn credit toward eventual receipt of Social 
Security benefits. Employees hired before 1995 would not be affected by 
this change.


 6. increase social security payroll tax in the year 2020 and the year 
                                  2055

  The OASDI tax rate imposed on wages up to the taxable maximum--
$60,600 in 1994--is 6.20 percent for employees and employers each. 
Another 1.45 percent is imposed on all wages and is deposited in the 
hospital insurance Medicare part A trust fund.
  The bill would increase this rate by a total of 1.15 percentage 
points over a 5-year phase-in period beginning in the year 2020. By 
2024, the rate would thus reach 7.35 percent for employers and 
employees each. The tax rate would increase by an additional 0.8 
percentage points over a 4-year phase-in period beginning in the year 
2055. It would reach a rate of 8.15 percent for employees and employers 
each by 2058 and would remain at that level thereafter.

                          ____________________