[Congressional Record Volume 143, Number 157 (Sunday, November 9, 1997)]
[Senate]
[Pages S12223-S12225]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




               THE BUDGET SURPLUS AND PAYROLL TAX BURDEN

  Mr. GREGG. Mr. President, I rise to address an issue which has far-
reaching concerns for our Nation. Many of our colleagues have heard of 
the improving economy and have participated in the improving economy 
and recognize as a result of this improving economy it is likely that 
the Federal Government will incur a budget surplus in the very near 
future. This comes about because of a lot of hard work by this 
Congress, especially this Republican Congress, in controlling the rate 
of growth of the Federal Government. It is something that is unusual, 
obviously, not having occurred in the last 25 years.
  Not only will we have a budget surplus, but it is projected by OMB 
that the budget surplus will continue well into the first decade of the 
next century.
  So, I think that we need to discuss how we address this issue. This 
is an unfamiliar situation, as I mentioned, for Washington. We 
certainly do not have much experience in dealing with surpluses so 
there is naturally some perplexity as to how best to address it. To my 
mind the answer is pretty clear: The surplus should result in relief to 
the American taxpayers.
  Needless to say this is the right answer on economic grounds. If the 
Government takes in more revenue than it needs to finance its 
operation, the answer is not for the Government to spend that; rather, 
it only makes economic sense to return the extra revenues to the 
private economy that bears the burden of supporting the Government. Not 
only that, but in this particular case, the appropriateness of tax 
relief could not be more clear. Let none of us forget what has enabled 
Congress to accomplish this goal of balancing the budget. It has in 
large part been the dramatic growth of the economy.
  If the private sector in this country had not come through with a 
surge of productivity, then the budget negotiators might not have been 
able to reach the agreements necessary to accomplish a surplus to reach 
a balanced budget. It would, therefore, be ungracious of us, at the 
least, not to return that surplus to the taxpayers who have earned it.

  I rise, Mr. President, today to voice a specific hope--that this 
Congress will consider, when that time comes, when we have reached a 
surplus, including a cut in the payroll tax as the appropriate way to 
address the returning of this surplus to the American taxpayer.
  There are several reasons for this--all of them, I believe, noble. 
First of

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all, the payroll tax is the most regressive component of our tax 
burden. There are no deductions, no personal exemptions in figuring of 
the payroll tax. It's assessed directly on the first dollar of workers' 
wages, and from there it goes upward until it reaches the wage cap.
  Moreover, the payroll tax has been the fastest growing component of 
the Federal tax burden. When one includes the employer's share of this 
tax, we find that the majority of Americans pay more in payroll taxes 
than they do in income taxes. The payroll tax has grown dramatically 
from a level of approximately 1 percent for each employee and employer 
a little more than a generation ago, to today where it is approximately 
15.3 percent. So while Federal revenues have stayed roughly constant as 
a percentage of the National economy, an ever-larger proportion of the 
burden of taxes has been carried by the wage earner in the form of 
payroll taxes.
  But an equally important point is that these payroll taxes were never 
intended to finance the general operations of Government, as it is 
doing today. Quite the contrary. The payroll taxes are supposed to 
finance the operations of the Social Security system and the Medicare 
system.
  I know my colleagues do not need to be reminded of the enormous 
unfunded liability that exists with respect to the long-term 
obligations of the Social Security and Medicare systems. These enormous 
payroll tax burdens, I regret to say, are not being used to reduce that 
long-term liability. Surplus payroll taxes today are used to buy 
Government securities, which must be redeemed by the Federal Government 
in the future to pay back Social Security programs. That money will, of 
necessity, come from taxation again, to create the general revenues 
necessary to redeem the bonds.
  A review of the figures is startling. Right now, Social Security's 
total income is $451.3 billion and total outflow is $370.8 billion. 
This leaves a surplus in the Social Security funneled of $80 billion. 
Of that total, $43.6 billion is in the form of interest payments by the 
Federal Government to itself, and the other $36.9 billion represents 
the annual operating surplus in the Social Security trust fund.
  So each year, we run an annual operating surplus in Social Security 
that is slightly more than 1 percent of the national payroll. That 
surplus is combined with interest payments to increase the size of the 
Social Security trust fund. That trust fund is projected by the 
trustees to grow each year until it reaches a peak value of $2.89 
trillion in the year 2019.
  I ask my colleagues to think about what that $2.89 trillion means. 
That $2.89 trillion is not only assets owned by Social Security; more 
importantly, it is a debt owed by the Federal Government to Social 
Security. In order to pay the benefits to future beneficiaries, the 
Federal Government will need to tax the American public, through 
general tax revenues, to come up with this $2.89 trillion.
  Every year that we collect these surplus payroll taxes, we create 
several significant events. We add to the trust funds, and thus we add 
to the debt owed by the Federal Government. We take payroll taxes from 
hard-working Americans today and, instead of really saving them, we 
convert them into a tax burden on the Americans of tomorrow. This 
certainly is no way to run a government, a country--or a railroad, for 
that matter.
  In order to fully understand the bizarre situation in which we are 
placing ourselves, I ask my colleagues to consider the trustees' 
projections for the period 2012 through 2019. In the year 2012, we will 
see the first year of operating deficits within the Social Security 
trust fund. That means that, in that year, annual Social Security 
revenues will amount to less than promised benefits.
  In other words, it will require cash from the general Treasury in 
that year just to meet the current benefit payments to Social Security 
recipients.
  Yet, in that same year, interest compiled by the Social Security 
trust fund will be an enormous $140 billion. So we will need to take $9 
billion of that interest payment from the general fund and use it to 
pay beneficiaries immediately. The other $131 billion will be credited 
to the Social Security trust fund, so that the trust fund will grow, 
theoretically at least, from $2.2 to $2.4 trillion in that year, even 
as the program is running annual operating deficits. This obviously 
doesn't work.
  Think about what will be happening at the same time. We will need 
money from the general Treasury just to pay current beneficiaries, and 
billions in assets will be added to the Social Security trust fund--but 
that doesn't exist--and the trust fund, continuing to grow, will earn 
even more interest in the next year, to be paid from the general 
Treasury.

  So each year--from 2012 through 2019--the Federal Government will 
make larger and larger contributions to Social Security, in current 
benefit payments and interest payments. In the year 2018, for example, 
the Social Security operating deficit will be $147 billion. That means 
it will have to pay out $147 billion more than it takes in. So, of the 
$171 billion in interest payments that will be due that year from the 
Federal Government, $147 billion will be needed right away to pay 
benefits, and only the remaining $24 billion will continue to build the 
trust fund.
  It's in the year 2019, however, that the roof really starts to fall 
in. Then, even with all the interest payments from the general Treasury 
and all the current payroll taxes and benefit taxation, there will 
still not be enough money to pay the Social Security beneficiaries, and 
we will have to begin to redeem the principal on Social Security trust 
fund T-bills in order to pay the benefits.
  Every year that we continue to collect surplus payroll taxes, and 
thus swell the size of the trust fund, is a year that we add to the 
unfunded liabilities that we are piling on the heads of our children 
and their children, the American taxpayers to come.
  It is largely for this reason that I believe that payroll tax relief 
is needed. I have introduced a piece of legislation, S. 321, that would 
give 1 percent of the payroll tax back to the wage earners; in other 
words, it would be a tax cut, to be saved in an individually owned 
retirement account. This would give us a Head Start on prefunding some 
of the massive liability, by moving it off the Government ledger and 
into genuine savings, because, you see, the basic problem here is that 
the Social Security system is a pay-as-you-go system. That creates a 
huge unfunded liability. Until we start to prefund that liability, we 
are not going to get out from underneath that unfunded liability. The 
best way to prefund that liability is to take the surplus that we are 
presently running in the Social Security system, cut taxes, give wage 
earners back their money, and allow them to save it for their 
retirement so that they have a savings account, identified to them, in 
their name, which they can use to benefit them at retirement and, thus, 
turn a contingent liability into an actual savings vehicle.
  If we were to pass this bill today, S. 321, we would not solve all of 
Social Security's problems, but it would eliminate approximately 78 
percent of Social Security's projected insolvency. That is a pretty 
good chunk. We would, however, vastly reduce the burden on tomorrow's 
economy. For example, whereas, under present law, Social Security will 
absorb more than 17 percent of the national payroll tax base by the 
year 2030, under this legislation, it would absorb closer to 14 
percent. That is a major drop--3 percent--in our national economy, 
which will at that time be multiple trillions. That is part of the gain 
that comes from prefunding Social Security's liability, instead of 
simply continuing to collect and spend surplus payroll taxes, leaving 
tomorrow's obligations for another day.
  It is critical, as we debate the issue of the surplus which is 
coming, that we make a thoughtful decision on how to handle it. I think 
a thoughtful decision involves some obvious facts. What is our most 
significant, looming fiscal problem as a nation? It is the burden of 
our pension plans, which are unfunded. What is the most significant 
unfunded pension plan in America? It is the Social Security system.
  The second logical effort that should be addressed in addressing the 
surplus is, who gave us the money in the first place? Who has the best 
right to claim that money? That is clearly the taxpayers of America. We 
can address both of these issues by following the course that I have 
outlined here today--cut

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the Social Security tax, return it to the wage earner, allow the wage 
earner to start to preinvest, to presave for their retirement, with the 
taxes which are now going into a fund that is on a cash-flow basis. The 
taxes are now being used to operate the Government, the general 
Government, instead of being used and identified as the savings of the 
Social Security recipients. This is a good policy approach to what is 
looming as one of the major policy debates that we will confront as a 
Congress as we move toward the next century.
  Mr. President, I yield the floor.
  Mr. DURBIN addressed the Chair.
  The PRESIDING OFFICER. The Senator from the great State of Illinois 
is recognized.
  Mr. DURBIN. I thank the Chair for recognizing me. I thank my 
colleague for his statement on the future of Social Security. He is 
recognized in this Chamber as one who has studiously addressed himself 
to this and many other challenges.
  I hope that next year my colleague will lead a bipartisan effort to 
take a serious look at the future of Social Security and Medicare, and 
so many entitlement programs that we worry about, in terms of long-term 
solvency. I thank my colleague for his remarks. Though I may not agree 
with every particular, I certainly do respect the fact that he 
continues to stick with this issue through thick and thin, as he 
should. The Senate should address it, and, hopefully, we can do it 
together in a bipartisan fashion.
  Mr. GREGG. Mr. President, I appreciate that kind comment. The Senator 
from Illinois has certainly made a serious effort in a number of areas 
in this Chamber. I have enjoyed working with him, for example, on the 
tobacco issues. And I look forward to working with him on this. I also 
believe this must be resolved in a bipartisan manner.

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