[Congressional Record Volume 141, Number 60 (Friday, March 31, 1995)]
[Senate]
[Pages S5018-S5020]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]


                         ADDITIONAL STATEMENTS

                                 ______


                  INDEPENDENCE DAY FOR SOCIAL SECURITY

 Mr. MOYNIHAN. Mr. President, today is a day of independence. 
Today, the Social Security Administration becomes an independent agency 
of the U.S. Government. This is an event of historic importance for 
Social Security and for the Nation.
  We have increased the stature of the Social Security Administration, 
strengthened its leadership, and established a bipartisan advisory 
board. I am proud to have sponsored the legislation, the Social 
Security Administration Reform Act of 1994, that brought about these 
changes, for they were sorely needed. Public confidence in the Social 
Security system has declined to the point where a recent survey of 18- 
to 34-year-olds revealed that 46 percent of respondents believed in 
UFO's, while only 28 percent believed their Social Security will be 
there when they retire.
  Mr. President, there is no greater authority on Social Security in 
the Nation's Capital, or indeed anywhere in the United States, than my 
distinguished friend Robert J. Myers. Bob Myers came to Washington in 
1934 and was quite literally present at the creation of Social 
Security. He served as Chief Actuary of the Social Security 
Administration from 1947 to 1970, and as Deputy Commissioner from 1981 
to 1982, after which he became Executive Director of the National 
Commission on Social Security Reform. Bob Myers is a familiar figure to 
members of the Committee on Finance, where he is a frequent witness on 
Social Security matters, and he is well known to many other Members of 
the Senate and House of Representatives. When it comes to Social 
Security, he is an institution unto himself. And so when an expert of 
Bob Myers' vast knowledge and experience speaks out on this subject, we 
had all better listen closely.
  I invoke Robert Myers on this day--Social Security independence day--
because he has just written an outstanding commentary in response to a 
recent Time magazine article entitled ``The Case for Killing Social 
Security.'' The cover of the March 20 issue of Time depicts a Social 
Security card torn into pieces. The lengthy Time article argues that in 
the next two decades, Social Security will ``be lurching into its final 
crisis.''
  Well, Mr. President, the ``case for killing Social Security'' is weak 
indeed, and Bob Myers has demonstrated this as only he can. His paper 
makes clear that, far from being close to demise, the Social Security 
system will remain solvent with only minor adjustments. Yes, 
reasonable, measured changes will need to be made in order to assure 
solvency over the long term. But Congress and various administrations 
have never shirked from this bipartisan responsibility in the past, and 
we will not do so in the future. Social Security is not at risk, and we 
need to say so--as Bob Myers has done with great clarity.
  Mr. President, I ask that the text of the commentary by Robert J. 
Myers be printed in the Record.
  The commentary follows:
   Commentary on Time Magazine's Cover Story on the Social Security 
                                Program

                          (By Robert J. Myers)

       The cover of Time, the Weekly Newsmagazine, for March 20 
     was captioned ``The Case for Killing Social Security.'' The 
     contents featured a nine-page article going into detail as to 
     why the program should be drastically changed, even 
     eliminated, by moving to an entirely different system based 
     on individual savings accounts. Unfortunately, the article 
     involves many half truths, errors, and omissions of pertinent 
     facts and is not well balanced.
       The general thrust of this article is well shown by its 
     introductory sentence--``You know a government program is in 
     trouble when it's less credible than a flying saucer.'' The 
     basis of this remark is from the results of an opinion survey 
     of persons aged 18-34 made by the Third Millennium. This 
     showed that 46% of the respondents believed that UFO's exist, 
     while only 28% thought that Social Security will still exist 
     by the time that they retire.
       A very knowledgeable senator has made the comment about 
     this so-called analysis of the financial sovlevency of the 
     Social Security program that those who believe in the 
     existence of UFO's are ``dopey''. Accordingly, their views on 
     such a complex matter as the long-range viability of the 
     Social Security program cannot be taken too seriously. Or 
     their views as to UFO's may be considered as an attempt to be 
     funny--under the theory ``ask a silly question, expect a 
     silly answer.''
       The article then states that, in about 20 years, Social 
     Security ``will be lurching into its final crisis'' and will 
     ``collapse altogether''. It immediately contradicts this 
     ``certainty'' by saying that this can be avoided by benefit 
     reductions or tax increases, although asserting that these 
     would have to be ``stunning'' and ``huge''. The article fails 
     to recognize that the program is not--and has not, in the 
     past, been--unchangeable. Further, such changes (which, 
     admittedly, are very likely needed) do not involve great 
     [[Page S5019]] shifts at one time, but rather deferred and 
     gradual small ones. The Social Security program is not--and 
     was never intended to be--one that is of an unchangeable, 
     contractual nature. Rather, it can be--and has been--adjusted 
     from time to time to reflect changing demographic, economic, 
     and social conditions.
       Next, the article asserts that, beginning now, some 
     retirees are getting a ``bad deal'', because the value of 
     their benefits (taking into account interest) will be less 
     than ``the sum of their lifetime contributions, plus 
     interest.'' And, further, it is stated that this deplorable 
     situation will get much worse as time goes by.
       Unfairly, it is not pointed out that by ``contributions'' 
     is meant both the employer and employee contributions. 
     Economists will generally say that employees really pay the 
     employer contribution, because it is part of total 
     remuneration. I assert that, while this may be true in the 
     aggregate, it is not necessarily the case on an individual-
     by-individual basis. Many private employee benefit plans 
     (such as defined-benefit pension plans and health benefits 
     plans) do not give each employee benefit protection financed 
     by the employer that has a cost as a percentage of salary 
     which is the same for all employees. For example, health 
     benefits plans have a higher value relative to salary for low 
     earners than for high earners, because for persons of a given 
     age and family composition, the value of the benefits in the 
     dollars is the same.
       Even more importantly, Social Security is not--and never 
     was intended to be--a system involving complete individual 
     equity, under which each participant would get exactly his or 
     her money's-worth in benefit protection, no more and no less. 
     Rather, it is intended to contain elements of both social 
     adequacy and individual equity.
       Under the social adequacy principle, relatively large 
     benefits in relation to contributions are paid to several 
     categories: participants who were beyond the normal entry age 
     into the labor market when they were first covered (a common 
     practice in private pension plans); lower-paid workers; and 
     workers with dependents. The individual-equity principle is 
     present in that, for a particular category of workers, the 
     larger the earnings on which contributions are paid, the 
     larger will be the benefit amount, even though not 
     proportionately so.
       The money's-worth situation under Social Security is far 
     less extreme than is the situation for school taxes. Such 
     taxes are paid, directly or indirectly, without regard to 
     whether the payer has children currently, or has had 
     children, or will have children. Moreover, the amount of the 
     taxes bears no relationship to the possible ``benefit'' 
     protection.
       Following this incomplete, even inaccurate, money's-worth 
     discussion, the article goes on to state that, ``almost 
     unanimously'', scholars and policy analysts believe that the 
     Social Security program is doomed and is
      ``ripe for retirement'' now. This unsupported statement is 
     outrageous! Scores of scholars and policy analysts 
     (including those persons who have a good knowledge of the 
     structure and history of the Social Security program) do 
     not hold this view, and only a handful of persons who are 
     qualified by their knowledge and experience would support 
     it. I am confident that, if a survey on this matter were 
     made among actuaries (who are the ``social engineers'' in 
     the general pension area), no such ``dooms-day view'' 
     would be overwhelmingly held, or even supported by many.
       These ``experts'' whom the article has found proclaim that 
     the present Social Security program should be replaced by a 
     two-tier system--a public-assistance needs-tested safety net 
     under a mandatory private savings plan involving complete 
     individual equity. Ignored in this proposal are several 
     important matters. One is the huge general-revenues cost of 
     the safety net, whose costs would have to be met indirectly 
     by the higher-paid persons, who would think only that they 
     are getting their money's-worth from the mandatory savings 
     plan. Further, there would be great disincentives for saving 
     by lower-income (and even middle-income) persons, because 
     they would get little more by doing so than they would by 
     utilizing the safety net only. And, still further, fraud and 
     abuse would abound as persons would be tempted to hide income 
     or transfer assets to their children and receive the income 
     back ``under the table.''
       Moreover, the proposed ``simple solution'' fails to 
     recognize the problem of providing adequate disability and 
     survivor benefits for persons who have such an event occur at 
     the young or middle ages. In such cases, the mandatory 
     savings will not have built up to a high level and thus will 
     not ``purchase'' adequate benefits.
       Next, the article proclaims that the Social Security trust 
     fund (another display of ignorance because there are two 
     trust funds--one for retirement and survivor benefits and the 
     other for disability benefits) is an ``empty cookie jar,'' 
     because ``the Treasury has already raided it for hundreds of 
     billions.'' This is patently false! The bonds and notes held 
     by the trust funds are just as valid as any government 
     securities held by banks, insurance companies, mutual funds, 
     you, and me. They pay an equitable rate of interest and are 
     part of the recorded National Debt. Certainly, the money that 
     went for them (the excess of income over outgo of the trust 
     funds) was spent. But the same thing is done by the Treasury 
     with the proceeds of any bonds which it sells to
      the public--or, for that matter the same as a corporation 
     does when it sells its bonds, or a savings bank does with 
     your deposit (it ``spends'' the money by lending it to 
     somebody else).
       The article then bemoans the problem, some 20-25 years 
     hence, when under present law, the bonds will begin to have 
     to be redeemed in mass. To do so, such action as raising 
     income taxes or floating new loans from the public will be 
     necessary. But this is no different than what has to be done 
     when government obligations held by the general public come 
     due. And it is most important to note that, if the trust 
     funds had not had the money to purchase the bonds in the 
     beginning, the general public would have had to have done so, 
     and there would still be the same problem of redeeming the 
     bonds at some time.
       Further, if changes in the Social Security program are made 
     in the next few years--as I believe that they should be--this 
     situation of a dismantling of huge trust-fund balances would 
     not occur. In fact, if Senator Moynihan's proposal, made 
     about five years ago, to slightly lower contribution rates 
     now and slightly raise ones many years hence--thus returning 
     to pay-as-you-go financing--were adopted, this problem would 
     not occur. And further, the true magnitude of our horrendous 
     general-budget deficits would be apparent.
       A minor error, and yet one that clearly displays the 
     ineptitude of the article, is the statement that maximum 
     Social Security payroll taxes ``have already multiplied 10 
     times since 1950.'' Such tax in 1950 was $90 (3% of $3,000) 
     and is $7,588.80 in 1995 (12.4% of $61,200). The correct 
     ``multiplying factor'' is thus 84.3, not a mere 10!
       The next cry of ``doom and gloom'' in the article is that, 
     some 35 years from now, if nothing is done in the meanwhile, 
     the trust funds will be exhausted, and the Social Security 
     tax rate will have to be increased to 17%. This is reasonably 
     correct (although I would have said 16% initially and 17% 
     some years later) under the conditions stated. However, such 
     conditions are most unreasonable! Congress, which almost 
     always acts reasonably and responsibly (although not always 
     promptly enough!), will undoubtedly act well in advance of 
     such a cataclysmic event. True, an increase of about 4% in 
     the combined employer-employee tax rate in a single year 
     might ``devastate the economy'', as the article claims.
       But what should be done--and likely will be done--is to 
     transition in some benefit cost reductions (like an increase 
     in the Normal Retirement Age, so as to recognize increased 
     longevity) and some contribution
      rate increases (like 1% each on employers and employees, in 
     steps over a period of years). This would have little, if 
     any, adverse effect on the economy.
       Next, the writers of the article had the temerity to wander 
     into the actuarial field by quoting figures as to the 
     probability of a new-born baby reaching age 65 (better would 
     have been the higher probability for a person entering the 
     labor force at age 20) and the expectation of life at age 65, 
     for both 1940 and 1990. Not surprisingly, most of their 
     figures are in error, as shown below:

------------------------------------------------------------------------
                                   Percent surviving    Expectation of  
                                       to age 65        life at age 65  
                                 --------------------       (years)     
          Sex and year                               -------------------
                                    Time     Correct    Time     Correct
                                   figure     value    figure     value 
------------------------------------------------------------------------
Male, 1940......................        54      55.8        13      12.1
Female, 1940....................        61      65.5        15      13.6
Male, 1990......................        72      74.1        15      15.1
Female, 1990....................        84      85.1        20      18.9
------------------------------------------------------------------------

       Out of eight figures, the article had only one which was 
     even nearly correct.
       Then, the article re-writes history by asserting that, in 
     the early years of the Social Security program, Congress 
     could increase benefits easily every few years (and thus 
     garner votes), because there were few beneficiaries relative 
     to the number of contributors. Not so! Most of the benefit 
     increases were made to reflect changes in the cost of living, 
     and they were financed by the accompanying increases in the 
     level of wages that were taxes. At all times, Congress was 
     very conscientious about the cost implications of the 
     changes, not merely as to the next year or two, but also as 
     to the long range (75 years).
       Further, the article asserts that the 1983 Amendments were 
     based on ``rather minor cutbacks in benefits and very major 
     increases in taxes, the last of which took effect only in 
     1990.'' In the first place, the 1983 Amendments did not 
     increase the tax rate in 1990 over what it was in previous 
     law. Further, reductions in benefits played a major role in 
     saving the program by the 1983 Amendments. If the income 
     taxation of benefits is considered as a ``benefit cut'' 
     (because, in effect, the money remained in the trust funds), 
     then 48% of the solution in the short range (10 years) was 
     due to tax increases and 52% to benefit cuts, while for the 
     solution over the long (75 years) only 23% was due to tax 
     increases, with 77% due to benefit cuts. On the other
      hand, if the income taxation of benefits is considered as a 
     ``tax increase'' item, then 70% of the solution in the 
     short range was due to tax increases and 30% to benefit 
     cuts, while for the long range, 54% was due to tax 
     increases and 46% to benefit cuts. In any event, the 
     benefit cuts were by no means ``minor''.
       The article next describes several ways to modify the 
     Social Security program without ``killing'' it. Just before 
     this, the article 
     [[Page S5020]] quite properly (and in contrast to the slogan 
     on Time's cover) points out the disastrous weakness of the 
     Heritage Foundation's proposal to let people opt out at will; 
     this would set up a vicious circle of actuarial anti-
     selection, because the low-cost persons (young and high-paid) 
     would drop out, and the high-cost ones would remain in, with 
     resultant financial collapse.
       The proposals for change include the following:
       (1) Raise the Normal Retirement Age (which solution is my 
     choice).
       (2) Raise the Early Retirement Age (which may be desirable, 
     but does not lower overall costs, because the reductions are 
     on an ``actuarial'' basis).
       (3) Reduce Cost-of-Living Adjustments, presumably by giving 
     less than the CPI increase (which is undesirable, because it 
     most adversely affects the oldest beneficiaries, who are 
     least able to do anything about their situation--because of 
     the compounding effect).
       (4) Means-test the benefits (which is a bad idea, because 
     it would discourage low- and middle-income persons from 
     saving, and it would encourage fraud and abuse by 
     beneficiaries).
       Next, the article seems to look favorably at a proposal by 
     Senators Danforth and Kerrey to reduce the employee Social 
     Security tax rate (but not the employer rate) from 6.2% to 
     4.7% and then require that the 1.5% reduction be put into a 
     private investment fund, with future Social Security benefits 
     being ``reduced to reflect the drop in taxes.'' Certainly, 
     IRAs and so-called 401(k) plans are very desirable and should 
     be encouraged, but they should be kept separate and built on 
     top of a uniformly applicable Social Security program. The 
     actual mechanics of the foregoing proposal, however, are 
     faulty (and really cannot be perfected). It would work out 
     reasonably well administratively for high-paid workers, but 
     would be a disaster for low-paid, intermittently-employed 
     workers. The proceeds from a 1.5% contribution, coming in 
     dribbles over the year, would be ``eaten up'' by the 
     administrative expenses of handling, recording, and reporting 
     them. Mutual funds
      generally require fairly sizable deposits--not anything like 
     the roughly $20 quarterly payments (varying each time) for 
     a $5,000 worker.
       The article mentions that the estimated long-range 
     financial status of the Social Security program has worsened 
     over the years since the 1983 Amendments. However, it fails 
     to point out that the actual short-range experience has been 
     more favorable than estimated in 1983 (the current fund 
     balance being more than $100 billion higher than estimated).
       In summary, it is really outrageous that, by incomplete and 
     erroneous reporting, the article casts so much doubt on the 
     long-range financial viability of the Social Security 
     program. This is despite the fact that, by very careful 
     reading of the end of the article, it could be concluded that 
     reasonable small, gradual changes could be made--without 
     changing the basic nature of the program--that would very 
     likely ensure its viability.
       Finally, the article is supplemented by a note, ``How Chile 
     Got It Right.'' This describes the new Chilean social 
     security plan instituted in the early 1980s. It replaced a 
     traditional social insurance system that was some 60 years 
     old, but that was in great financial and administrative 
     difficulties due to inflation (which raised benefits greatly 
     and, at the same time, made the accumulated assets worthless) 
     and extensive coverage noncompliance.
       The Chilean article is quite correct that the new plan 
     reasonably well solved the problem, although this was not the 
     only way in which that could have been accomplished. However, 
     this article, too, contained many errors and omissions that 
     glossed over some of the weaknesses in the new plan and other 
     elements of it that make it not necessarily a desirable 
     course to follow for other countries, let alone the United 
     States.
       A number of factual errors occur in describing the current 
     Chilean plan. These cast doubt upon the credibility of the 
     analysis. First, the contribution rate for retirement 
     pensions is not 12%, but rather it is 10% (with an additional 
     approximately 3.5% for the build-up of disability and 
     survivor pensions).
       Second, the plan is not a ``two-tier'' one, consisting of a 
     small flat stipend funded from general revenues for only the 
     poorest pensioners and the accumulation of employee 
     contributions in private investment funds. Rather, it 
     involves the accumulation of employee contributions in such 
     funds, plus the provision of sizable prior service credits 
     financed from general revenues, plus a guarantee of a 
     relatively sizable minimum pension being produced for persons 
     with at least 20 years of coverage, financed from general 
     revenues. Such minimum pension is 85-90% of the legal minimum 
     wage, which in turn is about 30-40% of the average wage in 
     the country. Thus, the minimum pension is a quite large 
     amount, so that many people will be affected.
       Third, the article states that retirement benefits under 
     the new plan at present are 40% higher than under the old 
     one. Actually, they are about at the same level (as was 
     intended), although disability and survivor pensions are much 
     higher (because they are financed currently and are not as 
     much affected by past inflation).
       Several serious errors of omission are present, so that 
     elements are not brought out that would argue against the 
     Chilean approach being applicable in all other countries. 
     First, there are the mammoth general-revenues costs to be met 
     for prior service credits and for all time to come for the 
     large minimum pensions. Few countries--and especially the 
     United States--have large surplus amounts of general revenues 
     readily available.
       Second, the fact the employees contribute, and employers do 
     not do so any more, is not what it seems. When the new plan 
     was established, the government required all employers to 
     give a more-than-offsetting 17% pay increase to all 
     employees.
       Third, the administrative expenses of the new Chilean plan 
     are about 13% of contributions for the retirement portion--as 
     against 1% in the U.S. system.
       Fourth, coverage compliance is poor under the Chilean 
     system. Only about 80% of those who should be contributing 
     actually do so. Further, many low earners contribute on much 
     less of their wages than the actual amount, because they will 
     get the minimum pension in any event.
       Fifth, by no means is all the money piling up in the 
     investment funds being used to promote the economy. Much of 
     the money is ``laundered back'' to the government to pay the 
     huge costs of prior service credits and minimum 
     pensions.
     

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