[Congressional Record Volume 141, Number 17 (Friday, January 27, 1995)]
[Senate]
[Pages S1690-S1695]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
BIPARTISAN COMMISSION ON ENTITLEMENTS AND TAX REFORM
Mr. KERREY. Mr. President, I rise to talk at length about the
Bipartisan Commission on Entitlements and Tax Reform, a subject that I
believe eventually this body will be compelled to address. When it
does, it will be, of necessity, a bipartisan effort. We will not get it
done if Democrats take advantage of Republicans, or vice versa. With
that in mind, I note with considerable pleasure, before talking at
length, that at a critical point during the debate on the unfunded
mandate bill, an effort was made to place an amendment on the
constitutional amendment to balance budget that would have required us
to, in the Constitution, separate Social Security from the rest of the
budget. That may make good policy sense at one level, but I was happy
to join many Republicans in opposing that effort, as I was happy to
join in an effort to oppose but not defeat the sense-of-the-Senate
resolution that followed.
It will take that kind of bipartisan effort if we are going to be
able to address this issue. I note, for the record, that when the
Republican leader earlier commented that perhaps this 10 days was a
waste of time in debating this bill, I note for Americans that we are
debating the health and safety and security of their lives. This is not
a small issue. There is no economic imperative driving this
legislation. The Government is not about to go broke if we do not pass
this bill. I was proud to vote for this bill. I think it is a good
piece of legislation. But the imperative to get it done right away is a
political imperative, not economic.
I note as well, with great interest and concern, that out of 44
amendments with rollcall votes on this particular piece of legislation,
there was only one time when a single Republican crossed the line and
voted for a Democratic amendment. That was on Senator Boxer's amendment
to exempt child pornography. Even in that case, only the Senator from
Pennsylvania, Senator Specter, could cross the line and vote for a
Democratic amendment.
I must say, Mr. President, if we continue in that kind of forum with
the Republicans, joined by some people's measurement of admirable
unity, while Democrats on almost every single amendment had to be
persuaded to vote for the Democratic sponsor of an amendment, we are
not likely to continue making successful efforts in this body. The
reason the unfunded mandate bill passed was that there was bipartisan
support for the underlying effort. It was a good effort.
I hope that the actions, at least as I witnessed them, of
unprecedented unity, as I might point out, unprecedented willingness to
basically say whatever you say, I will vote for it, do not continue as
we take up other matters.
Mr. President, the American people have heard a lot of speeches this
week about the future. I am here to add my voice to this clatter. I
want to talk about the year 2013. It is a long way off. It is in a
completely different decade, a separate century, and new millennium. I
suspect most of us would rather think about matters that are more
current. But unless we take action to the contrary, Mr. President,
something very important will happen that year.
Somewhere in America, a senior citizen will find in his or her
mailbox the first check the Treasury of the United States ever financed
out of the Social Security trust fund, a pot of money that we will,
until that day, have saved for a rainy day. By the year 2029, 16 years
later, the drizzle of that first rainy day will have deteriorated into
a downpour--that is, if adjustments are not continued to be made in
that due date. It was just 7 years ago that that year 2029 was
forecasted to be another 35 years later. In 17 years after the first
check was cut with funds from the Social Security trust fund, another
retiree will find in his or her mailbox the last check financed from
the Social Security trust fund.
Then the Social Security system and its much flaunted trust fund will
be bankrupt. Today a document will be delivered to the President of the
United States and the leadership of Congress that describes that
future--a future in which the Federal budget consumes nearly 40 percent
of the economy, and every dollar we collect in taxes will go directly
to fund entitlements and interest on the national debt. And our
Government will be paralyzed and unable to do little but operate as an
oversized ATM machine whose only function is to collect money and hand
it back out.
One of the arguments that was made, Mr. President, during the debate
about attaching a requirement that Social Security be funded as a
separate budget was that if a private sector trust fund was operated in
this fashion, the individual operating in the private sector would go
to jail. Well, Mr. President, any private sector insurance company that
operates the way we are operating two of the largest social insurance
programs in the world--Social Security and Medicare--any private sector
company that operated insurance companies in the fashion that we
operate, essentially ignore what the trustees are saying, which is what
we are doing.
In February of 1994, the trustees of the Social Security and Medicare
fund delivered to the Congress and the President a report that said we
should take action sooner and not later, because we have promises on
the table that we simply cannot expect to be able to reasonably fund.
That is the way insurance companies operate, Mr. President. That is the
way they operate.
Well, if a private sector company operated in that fashion, we would
also likely close them, shut them down.
That is the bad news. The good news is that in the same document, the
final
[[Page S1691]] report, the Bipartisan Commission on Entitlement and Tax
Reform describes a brighter and bolder future for our country, a future
in which our economy is stronger, our senior citizens more secure, and
our treasury more solvent. The difference, Mr. President, is up to us.
I am here today because I find the challenge of building a stronger
future an invigorating one, and because I see the road ahead as one
paved not with problems but with opportunities--opportunities to
modernize our retirement programs to meet the needs of a changed and
changing population, and to address some fundamental defects in our
economy.
Before getting to these changes, let me describe what necessitates
them. The American population is aging in a way that requires us to
rethink the structure of our entitlement programs,
the two largest of which, retirement and health care, were designed as
systems in which each generation of workers would pay taxes to support
the generations of retirees that preceded it. In return, each
generation expects its successor in the work force to support their
benefits.
The system succeeds, provided that each generation has enough
children to grow up and pay the taxes that support its benefits. Mine,
Mr. President, did not. Today, there are nearly five workers paying
taxes to support each retiree; when my generation retires, there will
be fewer than three. And, as life expectancies continue to expand,
Americans will collect more in lifetime benefits.
This is an unprecedented event, Mr. President. Those who caution that
I am overstating the case, who say, ``Well, we have always waited until
we reached a crisis and then we fixed the problem,'' are urging us to
ignore the unprecedented nature of the baby boom population moving into
retirement and the unprecedented nature, as well, of the changes that
are going on in the underlying economy of the United States of America.
Quite plainly, Mr. President, the arithmetic, which not only our
Commission has examined but the trustees of the Social Security and
Medicare trust funds have said themselves, the arithmetic does not
compute. We will be able to support the aging population without
immediate consequences for three decades because we have built a
massive surplus in the Social Security trust fund.
Because in 1983, for the first time, we ended a pay-as-you-go system,
imposing larger taxes than were necessary to pay-as-you-go on people
that are in the work force.
Now, one of the prevailing myths that always goes on--and we heard it
again in the debate about whether or not to keep Social Security
separate--is that Social Security is generating a surplus. I hear it
all the time from people saying, ``Just keep your hands off of my
Social Security.''
Mr. President, that money comes from people who are in the work
force. And we, in 1983, imposed and, as a consequence of using that
money, agreed to ask Americans in the work force, particularly those
who are paid by the hour, to shoulder a disproportionate share of
deficit reduction.
Our retirement entitlements, Mr. President, are in much better shape
than our health care system.
I have already described a crucial historical moment in the year 2013
and another in the year 2029. Again, it is not only likely but almost
assured that those times will be closer than 2013 and 2029. Let me
describe a few that will occur before that.
The first is in the year 2001. Mr. President, you can reach out and
touch that. That is not a long ways away, 2001. That is when the
Medicare hospital insurance trust fund, the part A trust fund, soaked
up by an aging population and escalating health care costs, goes
bankrupt.
The second is in the year 2008, when the baby boomer generation
begins to retire. In a single decade, beginning at that moment, in my
State, the overall population will go up by less than 2 percent, while
the retired population goes up by over 28 percent. That states the
problem right there. That refutes the common argument that is made,
``Well, we faced this thing in the past. We will face it in the future.
We will just do as we have done previously.''
We cannot do as we have done previously, Mr. President, because we
are facing something the likes of which we have not seen before.
In 2012, spending on entitlements and interest on the national debt
will consume every dollar we collect in taxes, leaving literally
nothing for defense, infrastructure, law enforcement, or any other
function of Government.
If those dates seem too distant to merit attention, consider a figure
that is right here and now. In Nebraska, as is true with most of the
Nation, the population for those who are retired over the age of 65 and
the population for those who are in our primary and secondary schools,
the K through 12 environment, is almost identical. There are 275,000
retirees in Nebraska, Mr. President, and another 275,000 children in
kindergarten through the 12th grade. We spend $1.3 billion of revenue,
of tax revenue--property and State sales and income taxes--about 8
percent of that comes from the Federal Government --on those kids. We
spend $4.5 billion on retirees.
Mr. President, much more ominous than that, we are going to spend $50
million more incrementally on the kids and we are going to spend $400
million more on retirees.
I pause to say, I do not intend, nor do I urge on others, to engage
in any intergenerational warfare. It is not necessary for us to
exaggerate this problem, but it is unquestionably a problem. It is a
problem that gets worse as you examine the demographics. We do not need
to look for a demon, for an enemy, for something that is causing this.
It is demographic. It is, in many ways, our own success.
The technology of health care gets more and more expensive, but the
disparity in investment is stark. In my opinion, Mr. President, we will
have dire implications for our future.
Fixing these problems and building a better future is a challenge
because it requires those of us whose occupation teaches us to think in
2-, 4- and 6-year cycles to think, instead, in decades and generations.
Many of the benefits of entitlement reform will take hold in our
economy years after most of us leave this institution--if not this
planet--as will the consequences if we fail to act.
If our political cycle teaches us to think in terms of 6 years at the
most, the myopia of our budget cycle is worse. As families across
America evaluate their finances over decades, planning for education,
for retirement, for health care, their Government looks only 5 years
into the future and then turns its eyes away after that. The most
important recommendation of the Commission on Entitlement and Tax
Reform may be the need to expand our budget cycle to include the
consequences of our action 25 and 30 years out.
We just passed a piece of legislation that requires us to think about
the costs that we impose upon States, Mr. President. It would be
incumbent upon us, as well, to think about the costs that we impose
upon future generations, not only with our current action but with our
current neglect.
We hear time and again that entitlement reform must be done, but we
always struggle to get the job done. And one of the reasons that that
occurs, in my short and happy experience with dealing with this issue,
is entitlements are typically not only misunderstood, but are highly
charged politically. People are vested in this program and they get
very upset and concerned and in an angry mood or hardly in the mood to
listen to reason. In addition, politicians very often turn a cloudy
situation downright muddy by intentionally describing entitlement
programs inaccurately.
We hear on Social Security time and time again this quote: ``Social
Security isn't a problem. It's self-funded.'' Well, yes, it is self-
funded, but it is not self-funded by Saudi Arabia, it is not self-
funded by current beneficiaries. It is self-funded with a 12 percent
tax on every American worker. Tomorrow is a different story, Mr.
President. Tomorrow 12 percent will not get the job done.
Now what the Entitlement Commission is saying is that by the year
2013, the entitlements and interest will consume every single dollar of
available tax revenue and will nearly double, by the year 2029, payroll
taxes if action is not taken soon to change these trends.
[[Page S1692]] Further, Mr. President, we distort our health care
entitlements. I do not exaggerate, nor do I consider it particularly
funny, that I could have scored points in my recent reelection effort
if I had asked my campaign consultant who did my television ads:
I would like you to produce a 30-second ad in which I will
go face on the camera and say, ``If reelected, I promise to
keep the Government out of your Medicare. I promise there
will be no big Government takeover of your Medicare
program.''
Time and time again, I have heard Members come to this floor and say,
``I'm against national health insurance. I oppose the Clinton plan,
because the Clinton plan represents national health insurance.''
Then come back to the floor within an hour sometimes opposing any
change in the Medicare Program, causing people to believe it is
something other than what it is. Medicare is national health insurance
but only those who are 65 years of age and older are eligible. That is
what it is. It is not a program like Social Security; it is not
anywhere nearly as self-funded.
As I indicated earlier, not only is the program going to be
insolvent, part A, but over time we have required a larger and larger
amount of general fund subsidies to pay for physician services, and
increasingly, to pay for hospitalization as well.
Yet we continue to go out and pander to the audience. We do not want
to antagonize the audience. They vote in large numbers, this audience,
so we misrepresent the program. And it should not come as a surprise,
therefore, that Americans are confused about their health-care
entitlements.
While I do not accept the rhetoric of those who describe entitlement
reform as a process of pain rather than an opening of opportunities,
the fact remains it is also difficult because it requires the Senate on
occasion to utter one of the most uncomfortable words to utter in this
city--that is the word ``no.'' Particularly to those who are apt to
vote against us because we use that dreaded word.
We have, Mr. President, all the excuses we need to postpone action.
Let me give a few reasons for acting today. The first and most
important is that it is relatively easy to fix the problem today.
Tomorrow the fixes will be draconian. The Secretary of Health and Human
Services, as the Secretary is required, every 4 years, has put together
last year a 13-person Commission that is examining Social Security,
examining Medicare, examining the disability insurance trust fund,
examining on behalf of the Secretary, as required by the Social
Security law, and will make recommendations as to what action is
required.
The people who staff and work for that Commission say that unless we
put action in place in 1997, unless we change the law at the latest by
1997, to take effect in 1998, we will begin--as our Commission says as
well--we are going to begin to see the size of this thing grow so
quickly that we will look back and people will wonder, Americans will
wonder, ``Well, for gosh sakes, why did you not take action when it was
relatively easy to fix?'' The answer will be, again, well, we budget
for 5 years, Mr. and Mrs. Citizen, and we get reelected for 2, 4, and 6
years.
The second, taking action today means that we can fix the problems
with little or no impact on current retirees.
The third reason for acting today, Mr. President, is that planning
for our national future also means we can give American citizens,
particularly workers who are not currently retired, time to plan for
the changes.
Understanding the problem, what do we need to do to fix it? There are
several options outlined in the report of our Commission. I would be
remiss if I did not salute those who had the courage to submit their
own ideas along with the distinguished Senator from Wyoming, Senator
Simpson, who submitted a plan. I hope to be able to work to develop a
piece of legislation that will give Americans an opportunity to say we
support this specific piece of legislation. Most of the people who are
on this Commission had much to lose, particularly those who were
elected and holding office had very little to gain, given the political
climate, by doing so.
I want to describe today some of the ideas that were laid out in this
document by former Senator Jack Danforth and myself. Now I want to
alert people, this is a proposal in motion. We hope to be able to make
some changes in it. I will go through this thing so that citizens
understand that when we talk about entitlement reform, at some point it
gets tough. And it gets tough in a hurry. It stops getting tough after
we deal with congressional retirement, which is one of the first things
on my list. After that it goes downhill in a hurry. There are no easy
choices. There are no choices that we can make where somebody is not
finding themselves, saying ``Oh, my gosh, this will require a change in
my life.''
Mr. President, we try to say we should lead by example. We tried to
say we need to have it fair and balanced and everyone participating. I
believe, in fact, that generalized efforts to reduce discretionary
spending will be good news, as well. It should lay the groundwork to
make entitlement reform easier, but it will not make entitlement reform
in the end an easy piece of business.
We began with the premise that Congress must lead before asking the
American people to accept entitlement reform. For that reason, the
Kerry-Danforth proposal would cut in half the rate at which Members of
Congress accrue pension benefits beginning in the year 1996. Also in
this spirit, we would bring retirement programs for Federal workers
more in line with private pensions. Other proposals offered in the
spirit of putting the Government's house in order include raising the
Federal retirement age to 62.
This proposal would gradually phase out eligibility for unreduced
benefits for Federal workers before age 60. Beginning in 2000, for
workers with at least 5 or fewer than 20 years of service, the
retirement age for unreduced benefits for CSRS and FERS is increased by
4 months each year until age 62 in the year 2020. We have additional
details with this proposal, Mr. President.
The second thing we do is adjust the CSRS to high-5 pay.
Third, reduce the rate which military retirement benefits accrue.
The next thing we do, Mr. President, is to adjust the Consumer Price
Index calculation to better reflect inflation. I will spend a bit of
time with this, Mr. President, because it is a very key provision that
has gotten a great deal of attention in the news lately.
A number of Federal programs are adjusted annually, based on annual
increases in inflation as measured by the CPI. The CPI is based on a
marketbasket of goods and services purchased by a representative urban
worker. Adjusted every 10 years, the current marketbasket was last
revised in 1987 using data for the period 1982 to 1984. As a result,
the CPI does not capture dynamic annual changes in the pattern of
consumer preferences.
In addition, the CPI may not adequately measure the consumer benefit
derived from improvement and quality of existing goods or the
introduction of new goods. A number of economists have supported this
change. Most individuals who have looked at it say it is a reasonable,
fair change. It is also one of the easier changes that we have to deal
with.
The next large category is an effort not just to preserve and
strengthen Social Security, Mr. President, but to begin to consider the
other sources of retirement income that very often are neglected. There
are three major sources of income that Americans look to for their
retirement years. The first is Social Security. Twelve percent of
payroll tax, 12 percent of payroll is collected. We all know how it
works. Comes into the Social Security trust. The trust is required to
invest only in Treasury bonds. The average rate of return is somewhere
between 1 and 2 percent in real terms inflation adjusted. That is
source No. 1. Unfortunately, for many years, it is their only source of
retirement, creating a real serious problem for individuals who are on
fixed income, and that is their only source of retirement.
But the second large source of retirement, Mr. President, is private
pensions. Unfortunately, it appears that in the 1980's we took action
in tax and in regulation that may have had a counterproductive effect,
because we see a decline in private pensions being offered to
employees, particularly in small businesses, Mr. President. And
[[Page S1693]] though the Kerry-Danforth proposal did not make a
recommendation in that regard, I, myself, am particularly interested in
the context of reforming our retirement programs to better suit the
changed and changing needs of our work force, to consider changing our
tax and regulatory laws as they relate to private pensions.
The third source of retirement is individual savings. It has been
noted, and I will note it later, there has been a decline of savings in
the United States of America. There is a disproportionate amount of
savings in certain sectors of the economy. Obviously, it is true that
if you make some $130,000 a year, as 535 Members of Congress do, that
you are apt to be able to save a lot more money than if you make
$12,000 to $15,000 a year, as an awful lot of Americans do, or $8,000 a
year as an American living on the generous $4.25 minimum wage we
provide as a minimum standard for wages.
Those are the three sources of income that people have to consider.
I mention this lower income American, Mr. President, for a very
specific reason. We tried to make our proposals as progressive as
possible. I am open to suggestions as to how we can make them more
progressive. They need to be. One of the blessings of living in the
great State of Nebraska is that I have had the opportunity to acquire a
friendship with a man by the name of Warren Buffett, a local
businessman that has done pretty well in life. And Warren Buffett once
said to me one of the problems you have in dealing with these kind of
issues and others like it where you are concerned about what is going
on in the work force is that at any point in time if you have 120
million people in the work force, which is approximately what we have
today, 60 million will be above average, and 60 million will be below.
When you have a market, as we do today, that is international, and
when you have technology ripping through the workplace increasing
productivity but reducing the number of people who need to work, what
happens is the market is bidding down large numbers of people and the
services that they deliver into that market.
It is a reality. There are very few workplace environments, Mr.
President--Congress may be the exception--where workers are protected
from the forces of the market. What happens, therefore, is that we have
a lot of people in this country who are in the work force who cannot
afford health care, who are in the work force and even if we change our
tax and regulatory policies simply are not going to have the resources
to be able to save. It does not mean that tax change and regulatory
change is not needed. It just means that those of us who get $135,000 a
year in an environment where we are protected from the economic
marketplace need to be sensitive to the dilemma faced by lower-income
individuals.
The chief goal of the Kerrey-Danforth proposal is fulfilling our
promises to today's retirees while ensuring the long-term health of
Social Security. I have already described the challenges that face the
system. Our proposal for redressing these problems is among the most
exciting in our entire plan.
We propose to make changes in the Social Security Program that enable
us to reduce the employee payroll tax by 1.5 percent in exchange for a
revised long-term contract. It shifts more responsibility and control
to the individual, provides opportunity for higher returns on
investment, and allows us to return Social Security to its intended
purpose, as a supplement to personal retirement savings.
Let me be clear, Mr. President--although there will be allegations to
the contrary--no reductions in Social Security benefits affect anyone
over the age of 50, and no Social Security reductions are used to
reduce the deficit. The savings we propose to Social Security would go
back into the trust funds and strengthen the program. We would require
these younger workers to invest in the savings payroll tax cut in a
mandatory IRA-type personal savings account.
Mr. President, I believe this simple and single change would alter
the culture of savings in America. Every young worker, when their first
job is taken, whether they are 16, 17, 18, would have to come home to
Mom or to Dad and say, ``I have a 1\1/2\ percent decision to make.''
We were attacked by many when we put this proposal out. One of the
things you will hear later is we proposed to move the normal retirement
age to 70 while keeping the reduced benefit age at 62. We were attacked
by the Washington, DC, Chapter of the NAACP as almost being racist
because black Americans have a shorter lifespan than white Americans
do.
We were attacked by many people in organized labor who said this is
going to be bad for American workers. But I urge Senators and Members
of Congress and Americans, in particular, before you buy that rhetoric,
to examine what 1\1/2\ percent over the course of a working life in a
safe individual retirement account would do. It not only provides a
higher rate, but it provides the kind of flexibility that I think
Americans want in their retirement program.
Mr. President, this proposal has a number of important economic
benefits. Companies can save and invest more, grow faster, and have
more rapid improvements in the standards of living of their citizens.
Private savings in the United States of America have fallen from more
than 8 percent of the economy in the sixties to 5 percent today, and
the trend line is down; it is not at a plateau, it continues to
decline, perhaps because of tax and regulatory changes. But for
whatever the reason, the savings rate continues to decline. The Kerrey-
Danforth proposal takes an important first step towards reversing this
trend.
More exciting, though, is the fact that this proposal gives workers
more control over planning for their own retirements by transferring
authority for these investments from the Government to the individual.
The return on these savings provides workers the potential for far more
lifetime benefits than they can expect from the Social Security system
if it continues on its current course. Thus, those who attacked our
proposals need to compare the current system as most reasonable people
would expect is going to happen to it--and that is significant
adjustments made out in the future--they need to compare the current
system with the one that Senator Danforth and I are proposing.
Mr. President, this is a middle-class tax cut with both a purpose and
a payoff. We also propose over a period of 30 years to raise the
eligibility for full benefits from age 67 to 70, while still allowing
partial benefits at age 62. This option accelerates the phasein to age
67 that is already in current law. The age for full eligibility will
reach 70 for those under age 28 today.
So for one who is thinking of going out this evening and interviewing
somebody and finding out, what do you think about this adjustment that
Senators Kerrey and Danforth are proposing, please do not go out and
interview somebody over the age of 50; it does not affect them. Go
interview somebody under the age of 28. That is who this thing affects,
and they are going to be affected mostly if no action is taken at all.
Mr. President, let me address a great misunderstanding about the
previous two proposals. The term we use to describe the age at which
Americans are eligible for full benefits, the term ``retirement age''
is very misleading. Americans do not want to retire at age 70. If
anything, they want to retire early. They cannot do so, Mr. President.
They cannot mathematically do so without a substantial pool of private
savings.
The previous two proposals, therefore, are designed to increase an
individual's control over when they retire. Make no mistake, the age at
which Americans retire is set by genetics, economics, and personal
preference, not by statute. A low statutory retirement age means
nothing for those who lack the savings to enjoy, and that is true for
the individual and it is also true for this Nation.
Our other proposal to restore solvency to the Social Security System
is including State and local workers in the Social Security Program;
indexing the Social security bend points for CPI instead of average
wage growth; reducing growth of benefits to mid- and upper-wage workers
using a third bend point; and adjusting the CPI formula to better
reflect inflation.
Mr. President, I have run through four or five things here to change
our
[[Page S1694]] Social Security system. None of these are easy. All of
them require us to think, first of all, in the context of an entire
retirement program: of Social Security, of private pension, and of
individual savings.
We need to make adjustments in all three, and it requires us, most
importantly, to be able to look out 25 or 30 years to connect our
action with our words. Rarely is there one of us who does not get up
and give a speech and talk about our kids and grandchildren. If we do
not take the trustees' advice and take action to restore the strength
of this program, in particular, then those who hear our words will
wonder why it is not accurate to describe us as hypocrites.
In the area of health care and other entitlements, there are many
critics who oppose reform of Medicare and they point out correctly the
fact that much of the increases in this program are due to escalating
health care costs.
This concern is true enough, but it also ignores, at great peril, in
my judgment, the fact that in addition to higher health care costs, our
health care entitlements are growing because more Americans are
retiring and taking advantage of them.
Again, there is no enemy. I am not pointing at seniors and saying:
You are the problem. We have a big demographic change that is
occurring, and the simple way of saying it is our generation did not
have as many children as our parents thought we were going to have.
(Mr. FRIST assumed the chair.)
Mr. KERREY. Mr. President, the fact is that Medicare spending will
continue to skyrocket due to an aging population, even in the
miraculous event that Federal health care costs were held to the rate
of inflation--highly unlikely. Any time anybody gets close to looking
at that, I note with some disappointment, some considerable
disappointment the President saying no Medicare reductions can be used
for deficit reduction. But any time you get close to making changes
that would keep Medicare, the Federal costs going at the rate of
inflation, we get providers coming in--the distinguished occupant of
the chair, I am sure, has heard his cohorts talk about what happens
when we reduce reimbursements under Medicare. We get hospitals coming
in here. We get all sorts of people coming in here telling us about the
terrible things that happen. Even if it miraculously occurred that the
growth of the Federal program stayed at the rate of inflation, it would
still be a substantial increase in the program merely because, as I
said, of the tremendous demographic change.
The Kerrey-Danforth proposal tries to fairly and evenly control the
growth of entitlement programs. We allow Medicare beneficiaries to buy
into risk-adjusted pools. We try to apportion the increase, the wedge
that we see coming, between adjustments in what is paid to providers,
adjustments in what the beneficiaries themselves pay in, and we say the
general fund can pick up approximately a third of it, as well. We try
to apportion the changes that are required between all three of those
sources.
In the area of other entitlements, Mr. President, we use, as I
indicated earlier, an adjustment in the CPI, a different CPI to better
reflect inflation. This proposal would apply to all other entitlements
including veteran's compensation. We take a rather difficult but I
think correct action of means testing Medicare, veterans compensation,
and unemployment insurance. It is phased in. It is difficult, I know,
but I believe if Americans examine the details of this proposal, they
will see that we are not taking away a benefit that is offered. A
person like myself that was service-connected disabled, that was
wounded and injured in the war in Vietnam, you do not take away my
benefit. You merely say that if my income comes up, the size of the
benefit, I think most appropriately, would be reduced.
In the third area, Mr. President, the area of tax expenditures, we
make some recommended changes, as well. I note with some amusement and
concern, every time we talk about entitlements, tax expenditures are a
real favorite target. But when the rubber meets the road and it comes
time to put them on the list, it is awfully difficult to find much
enthusiasm for doing it because they do unquestionably have a historic
impact upon people.
The Kerrey-Danforth plan suggested that we limit itemized deductions
to 27 percent. The adjusted CPI that I described earlier would apply to
income taxes, standard deductions and personal exemptions. We cap the
employer-paid health insurance deduction, a proposal that is consistent
with our belief that we ought to move in a direction where individuals
are taking more responsibility for making price and quality decisions
in the health care market as opposed to having the Government make
those decisions for them.
Mr. President, these are the long and the short--a bit long--of the
proposals that the Kerrey-Danforth solution has. They were extremely
controversial at the time. They were greeted with almost unanimous
opposition from most of the interest groups that were affected. We were
described in not altogether complimentary terms by most of these
organizations, many of which I think are doing an awfully good job and
are trying to protect their programs. I say to them with great
sincerity that I want to protect these programs as well. Inaction does
not protect them. Our proposal is not a proposal that destroys Social
Security. It strengthens Social Security. We are responding to the
challenge of the trustees.
Now, there may be Members who want to come down here and raise taxes.
Maybe that is the solution you want to propose. Well, propose the
solution. You can come at this problem and solve it whether you are a
liberal or a moderate or a conservative. Any ideology can solve this
problem. You cannot solve the problem, though, if you are afraid of the
consequences of proposing a solution.
So I say let the debate begin. But let us not stop the debate merely
because there was strong and vocal opposition at the first proposal out
of the box to solve it, Mr. President. I say again with great sincerity
that if we delay on this and wait, we are going to be alarmed by the
consequences.
Mr. President, I would also like to show--I will use one of the rare
charts that I put up in the Chamber--the future as described by current
law, which is what this chart over here is. And I do this for the
purpose of saying to Americans who wonder what is in this for me, what
is going to happen, we are proposing to make changes in retirement and
health care, what happens in the future.
Mr. President, this is the future of current law. This the future of
Kerrey-Danforth were it enacted just as it is. I do not hold any
illusions it is going to be enacted just as it is. I have already had
some suggestions made to me that I think are altogether good and
reasonable, and I have indicated you can solve this with a liberal,
moderate, or conservative ideology. And I suspect that those ideologies
will be expressed when and if--and I hope it is soon--this floor and
the House as well begin to engage in what ought to be done.
What it shows is that this future of current law becomes this future.
This is very important, Mr. President. These bar charts are not just
bar charts. They are our economy. This green line here represents the
historical rate of taxation in America.
One of the few things that has remained constant in Washington, DC,
is the approximate rate of taxation. Measured as a percent of our
entire economy, it has stayed at about 19 percent. It has gone up to
over 20 percent during World War II, spikes up a little bit during the
war in Vietnam, but all the rest of the time it has stayed at about 19
percent.
Now, again, maybe someone comes down here and says, gee, I think the
rate of taxation ought to be 25 percent. Let them argue that. That is
fine. Let them argue. But let the majority decide what we think is the
rate of taxation. And it appears that the majority, going from liberal
to conservative Congresses--and we have been all over the place on
this--it appears that the majority of Americans have kind of settled
in, perhaps without intent, but they have settled in at about a 19
percent rate of taxation.
Here is where we are today, Mr. President, 1995, with a deficit of
about 3 percent. The red line is entitlements; the blue line is net
interest. And what
[[Page S1695]] you can see is the red and the blue line together begin
to move up.
This is where I was saying earlier that in the year 2013,
entitlements and net interest consume everything that is available.
Again, maybe in 2013 we are going to have a Congress saying we were
elected on a promise to raise taxes. Maybe it will happen. I doubt it,
but maybe it will happen. Maybe in 15 years Americans will say: They
kept our taxes down 18 years; now we are really ready to raise them up
again. Let's jack them up 5 percent of GDP and suck up these new
entitlements out here and add a bunch of discretionary programs on top.
I think it is unlikely, Mr. President. What that means is you could
eliminate all the discretionary spending, which we may end up doing.
The discretionary spending went down last year. It is going to go down
again, while entitlements are going to go up $50 billion and health
care and retirement is almost the entire piece of that. We are going to
whack the discretionary spending one more time, and that is going to
continue until and unless we face it.
Under our proposal, this levels out, as I point out to Members and to
citizens, if we do not even balance the budget. You still have to do
more if that is what you want, to balance the budget. But we get within
striking distance. You can do it with discretionary spending after
that. It is not a discretionary spending commission. We did not address
the problem of discretionary spending. The purpose of this commission
was not to make recommendations to balance the budget but to get the
two large insurance programs, the retirement and the health care
programs, in balance so that we could say to the trustees that we in
the Congress have taken action to bring these accounts into long-term
balance.
This rather confusing chart shows what happens just with the Social
Security trust funds. Again, this is the most controversial one of all.
This is one the Speaker says we are going to leave off the table; the
President says we will leave it off the table; everyone says we will
leave it off the table. We will deal with it sometime out there in the
future. Maybe in 2000, when the third millennium arrives, that is when
we are going to deal with it.
There was a lot of wailing and gnashing of teeth earlier when we had
that amendment on the balanced budget, but fortunately it was defeated.
Here is the fact. This is what is going on out there in the future. So
when you are out there talking about your kids, my kids are 20 and 18.
My kids are 20 years old and 18 years old. And this is the kind of
future they face. This is what they are looking at. It is fine for me.
I am in good shape. It is fine for me until the year 2029. And mark my
words, the trustees, in my judgment, are going to come back and say
sometime later this year it is now not 2029; it is 2024. They have been
moving this due date closer and closer since we recently fixed it.
That is the future under the Kerrey-Danforth proposal. You may have a
more liberal proposal that says no, no, no, Senator; we want to raise
taxes.
Bring it down here. Let us vote on it. Let us vote to consider some
alternative to this. I do not mind that at all. But ignore this problem
at not just your peril but our peril, and I predict that in 1997 or
1998, we are going to begin to hear some very, very serious statements
made about what is going to happen by more and more people if we do not
take action.
I hope that this entitlement commission report that we are delivering
to the President and to the leadership will be given consideration
because this kind of a future will change America as we know it today.
We will be able to say to our kids and our grandkids: Yes, Social
Security will be there for you. Yes, Medicare will be there for you.
But just as important, ask an economist, ask Alan Greenspan, if you
are on the Banking Committee or on the Joint Economic Committee, the
next time he comes before you. Ask him directly what happens if this
kind of future is enacted. What happens if the Kerrey-Danforth plan or
some modification that achieves the same effect, what happens if that
takes place? I will predict to you he is going to say that long-term
interest rates go down at least 200 basis points, or 2 percent, and
maybe as much as 4 percent.
It is this inflationary expectation that is causing the bond market
still to bid up the long-term price of money. If we could get that kind
of action taken quickly, we would continue the economic recovery. It
would enable us to keep interest rates low, employ more people, allow
us to build up our skills and our wages, and get the standard of living
rising, as most Americans want, and probably, although we have not put
a pencil to this and calculated it, probably produce the opposite of
what we have right now, which is compounding interest working against
us. We could probably get compounding interest working in our favor and
find ourselves with good news, possibly able to adjust taxes down or
make some other extension out there so that Americans would say: Gee,
this is a payoff, a good payoff, for having made the tough decisions.
I will close by saying I am very grateful for the leadership that
Senator Danforth put in on this and all the other members of this
Bipartisan Commission on Entitlements and Tax Reform. I am very much
appreciative and sensitive to the political problems surrounding this
issue.
One of the things I have learned in this is it does not do any good,
I believe, when you are discussing this, to hyperventilate and
exaggerate the impact. We have attempted to present the facts. I have
not said in any of this discussion: America is going to go bankrupt. We
will not go bankrupt. We may devalue our currency, but we are not going
to go bankrupt. We are just not going to be able to fulfill a
generational promise we made.
We are not sitting here saying Social Security is broke. It is not a
short-term crisis. We are saying we are operating a very large
insurance fund and we ought, on behalf of future beneficiaries, to make
adjustments today so they get the promises that are currently on the
table and that we ought to make long-term planning a part of our
thinking. As difficult as it might be, we ought to make that long-term
planning a part of our thinking.
We have also suggested that we make incremental reform, incremental
steps towards changing both our retirement and our health care
programs. I have been more explicit on the retirement programs than I
have on the health care programs. But as I see it, there are four large
entitlement programs in America. By ``large''--I define large to be
$200 billion plus. Three of them are Federal: That is Federal
retirement, Federal health care, and Federal tax entitlements. There is
a debate about whether or not taxes are entitlements. The fourth is K
through 12 education. You are entitled to that as well, but that is a
State and mostly local issue.
I am saying we should use this opportunity. As we solve this long-
term structural problem--as we solve the long-term actuarial problem,
as the insurance folks call it--we ought to consider making changes in
our regulation in our taxes, particularly as it relates to retirement,
so we will provide Americans with the opportunity to acquire more
private pensions and a larger pool of private savings as well.
I intend to repetitively come and try to make the point. I hope
Americans understand that there will be concerted effort in the U.S.
Senate and in the House of Representatives to try to give Americans a
legislative vehicle they can rally behind, a specific set of
recommendations that are open to amendment, open to changes, open to
any suggestions that might improve it, and change the future as we are
currently heading upon it.
Mr. President, I thank the Chair and I yield the floor.
The PRESIDING OFFICER. The Senator from Idaho.
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