[Congressional Record Volume 143, Number 110 (Wednesday, July 30, 1997)]
[Extensions of Remarks]
[Pages E1560-E1561]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]


                            SOCIAL SECURITY

                                 ______
                                 

                          HON. LEE H. HAMILTON

                               of indiana

                    in the house of representatives

                        Wednesday, July 30, 1997

  Mr. HAMILTON. Mr. Speaker, I am inserting my Washington Report for 
Wednesday, July 30, 1997 into the Congressional Record:

                    The Outlook For Social Security

       The aging of America is a significant factor in the growth 
     of federal spending. Not only do we have more people in the 
     population over 65, we also have a slowdown in the growth of 
     the workforce. The proportion of the U.S. population that is 
     elderly will increase dramatically in the second and third 
     decades of the next century, as the baby boomers--those born 
     between 1946 and 1964--retire. As these population shifts 
     occur, the federal budget increases automatically because it 
     is the principal source of income support and medical care 
     for older people.
       Federal programs that serve older people--Social Security, 
     Medicare, and parts of Medicaid--have replaced national 
     defense as the dominant category of federal spending, with 
     the federal government now spending well over twice as much 
     on older Americans as we spend on national defense. Social 
     Security now constitutes the major source of income for most 
     retirees. Covering more than 95% of the labor force, Social 
     Security is an immensely popular program.
       The Social Security program is currently in good financial 
     shape, but the long-term changes in the workforce will place 
     a major strain on its ability to pay full benefits for the 
     baby boomers' retirement. So fundamental questions are being 
     asked about whether the Social Security system should be 
     sustained, reduced, or even replaced.


                          different approaches

       There are four broad approaches for bringing financial 
     balance to the future of Social Security.
       One approach is to have some combination of benefit cuts 
     and tax increases that would restore long-run financial 
     balance without changing the system in fundamental ways. 
     Benefits can be cut by lowering the amounts paid each year or 
     by raising the normal retirement age. For example, under 
     current law the normal Social Security retirement age will be 
     raised from 65 to 67 by the year 2027; some are suggesting 
     that this transition

[[Page E1561]]

     be accelerated while others suggest raising it to 70. 
     Benefits can also be cut back by reducing the size of the 
     automatic cost-of-living adjustments. Taxes can be increased 
     by increasing the payroll tax, increasing the average covered 
     wages, and broadening the tax base to include some currently 
     tax-exempt benefits. Although benefit cuts or tax increases 
     could help shore up the program, they are not politically 
     popular, and passage would be difficult.
       A second approach is to means test Social Security--
     reducing benefits to relatively well-to-do beneficiaries. For 
     example, one proposal is to make wealthier retirees 
     ineligible for Social Security cost-of-living adjustments. 
     Proponents of means testing point out that currently some 1.5 
     million Social Security recipients have annual incomes over 
     $100,000. This approach has some appeal, but it is subject to 
     the criticism that it would discourage savings because those 
     who saved during their working years would find income from 
     those savings indirectly taxed through reduced Social 
     Security benefits. It also raises difficult administrative 
     problems, encouraging potential beneficiaries to conceal 
     assets by moving them abroad, placing them in trusts, or 
     shifting them to children.
       The third approach is to privatize the existing Social 
     Security system. The main proposal is that we move to a 
     system of mandatory Individual Retirement Accounts, allowing 
     workers to invest the savings directly in higher yielding 
     assets than government securities. Most privatization 
     proposals would not be pure--the system would still protect 
     workers with low earnings and those who become disabled. The 
     Individual Retirement Accounts would be combined with a low-
     level uniform benefit and disability insurance.
       The privatization approach prompts some criticism. It 
     requires a sizable Social Security payroll tax increase over 
     a long transition period to function. These taxes are 
     necessary because it would not be good policy or politically 
     feasible to cut benefits sharply for current retirees or to 
     change the rules for those about to retire. There are also 
     concerns that a privatized program would not provide 
     sufficient support for workers with low lifetime earnings and 
     that less-skilled workers will have difficulty making 
     informed investment decisions. Privatization approaches 
     attract political support especially among high earners.
       How Social Security invests its reserves also affects the 
     program's outlook. Under current law, Social Security 
     reserves are invested in special Treasury securities that 
     yield a return of about 2-3% greater than inflation. Some 
     propose investing part of the Social Security reserves in a 
     broad index of private securities. Critics fear that Social 
     Security benefits could be threatened if the stock market 
     goes down and also worry that this approach would enable the 
     federal government to exercise inordinate control over 
     private companies as a dominant shareholder. It is possible 
     that arrangements could be established to prevent such 
     control of companies whose shares would be represented in the 
     broad portfolio.
       A fourth main approach to shoring up the Social Security 
     system recognizes the need to go beyond specific program 
     changes to consider the broader economic environment. Since 
     Social Security depends on payroll tax revenues to support 
     it, it is very sensitive to changes in the economy and 
     workforce productivity. That means we need to continue to 
     implement strong growth-oriented policies for the economy 
     that include balancing the budget and keeping it balanced.


                               Conclusion

       My view is that the existing Social Security system has 
     many advantages. The system is progressive in offering larger 
     benefits relative to lifetime earnings for lower earners than 
     for higher earners. It protects virtually all of the retired 
     population. Its administrative costs are low and its benefits 
     are indexed for inflation. Most Americans now rely on it 
     heavily, so we must be very cautious about any major changes. 
     The projected costs of Social Security in the future are 
     high, but if carefully planned and handled, these costs are 
     manageable.
       (Material taken from ``Setting National Priorities'' by the 
     Brookings Institution)

     

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