[Congressional Record Volume 144, Number 25 (Wednesday, March 11, 1998)]
[Senate]
[Pages S1766-S1768]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                  A BRIGHT FUTURE FOR SOCIAL SECURITY

  Mr. ROTH. Madam President, we live in an era of great events--a 
moment when opportunity seized in a thoughtful and timely manner will 
allow us to make history. Today I want to show how conditions that have 
been created by our efforts to strengthen the economy and bring down 
the deficit can not only save Social Security in the short term, but 
begin today to strengthen it for our children and for generations yet 
to come.
  Saving Social Security is a promise we have made to Americans--both 
young and old. It's a promise that President Clinton reiterated in his 
most recent State of the Union Address. And it's a promise that we can 
keep, despite the challenging demographics and declining trend lines 
that currently point to a bleak future for a program that many would 
say is the most important contract our government has ever entered into 
with the American people.
  Social Security has saved countless men, women and children from 
poverty. It protects our elderly, our disabled, their families, and 
dependents of workers who have died. In its 63-year history--and 
despite pressing challenges--Social Security has been a success. More 
than 40 percent of our seniors are kept out of poverty because of

[[Page S1767]]

Social Security. In fact, our seniors today have the lowest rate of 
poverty among all age groups. Forty years ago, more than one of every 
three elderly Americans lived in poverty. Today it's one in ten.
  But Social Security is much more than protection in retirement. 
Because of congressional efforts to expand the program, one out of 
every six Americans--or some 44 million people--receive a monthly 
Social Security check.
  But today, Social Security faces insolvency. It is a pay-as-you-go, 
inter-generational transfer of money. Money received by Social Security 
beneficiaries is paid by taxes coming from today's workers. And the 
benefits today's workers will receive will be paid by their children. 
And this, Madam President, is the root of the problem, because those 
who are supporting the system are declining in relation to those who 
depend on Social Security. In the early days of the program, there were 
as many as 42 workers per beneficiary. Today, there are 3.2. And in 
2030, just 2 workers will support each individual receiving Social 
Security.
  Given current trends, tax revenues to the Social Security trust funds 
will no longer cover benefit payments beginning in 2012. Social 
Security will need to call upon assets that are just now accumulating 
in the trust funds and invested in U.S. Treasury bonds. Cashing in 
those bonds will put major pressure on the Federal budget--crowding out 
other important spending. Even so, by 2029 the bonds will be gone. 
Social Security will then be able to cover only 75 percent of benefit 
payments directly from revenues.
  This, Madam President, does not need to happen. We can save Social 
Security, and we can strengthen it well into the future. A part of the 
solution is as simple as it is powerful.
  Dr. Martin Feldstein, a professor of economics at Harvard University 
and the President of the prestigious National Economic Research Bureau, 
has proposed using budget surpluses to fund personal retirement 
accounts for working Americans. In November of 1997, and then again 
last month, Dr. Feldstein published two op-eds outlining his proposal 
in the Wall Street Journal. I ask unanimous consent that the February 
op-ed be entered into the Record.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

                   Let's Really Save Social Security

                         (By Martin Feldstein)

       ``Despite Mr. Clinton's rhetoric, all his budget `reserves' 
     for Social Security is what's left after other spending and 
     tax cuts chew up the projected budget surpluses.''
       President Clinton highlighted Social Security in the 
     resounding rhetoric of his State of the Union address--and 
     again in a speech yesterday--but completely ignored it in the 
     budget proposals he then presented to Congress. Despite the 
     president's calls to use the projected budget surpluses to 
     ``save Social Security first'', there is nothing in his 
     budget to improve Social Security's finances or to enhance 
     future retirement incomes.
       Mr. Clinton's inaction notwithstanding, the projected 
     budget surpluses do provide an unprecedented opportunity to 
     improve the financial outlook for Social Security and, at the 
     same time, to supplement future Social Security benefits with 
     investment-based pension income. Before I describe that 
     possibility in more detail, let's look more closely at what 
     Mr. Clinton said and what his words might have meant.


                             careful words

       In the State of the Union address; the president said: ``If 
     we balance the budget for next year, it is projected that we 
     will have a sizable surplus in the years immediately 
     afterward. I propose that we reserve 100% of the surplus--
     that's every penny of any surplus--until we have taken all 
     the measures necessary to strengthen the Social Security 
     system for the 21st century.'' What does that mean? Mr. 
     Clinton often chooses his words very carefully, so we must 
     read those words with equal care.
       Lets begin with the ``surplus'' itself. The Congressional 
     Budget Office now projects that the overall federal budget 
     will be essentially in balance for the next two years (annual 
     budget deficits of $2 billion and $3 billion) and will then 
     shift to a decade of surpluses that by 2006 will exceed $100 
     billion a year, equal to more than 1% of projected gross 
     domestic product.
       Contrary to the impression of his language, Mr. Clinton 
     does not propose to devote these projected surpluses to 
     Social Security. He only suggests that ``any surplus'' that 
     remains after whatever new spending and tax cutting occurs 
     should be ``reserved''. In short, he makes no commitment to 
     do anything for Social Security. Despite his rhetoric, all 
     that Social Security gets is what's left after other spending 
     and tax cuts chew up the projected budget surpluses. In 
     reality, saving Social Security comes last.
       The president's budget calls for a wide range of new 
     spending programs in health, education, child care, the 
     environment and transportation that would cause total 
     spending to exceed, by $40 billion over the next four years, 
     the budget caps that were the essence of the 1990 budget 
     agreement and that are the basis of the CBO's forecast of the 
     future budget surpluses. That $40 billion would be half of 
     the CBO's total projected surplus for the next four years. In 
     addition to these explicit new spending plans, the 
     president has several spending initiatives dressed up as 
     targeted tax reductions (e.g., ``a school construction tax 
     cut to help communities'').
       By an amazing feat of inside-the-Beltway logic, Mr. Clinton 
     claims that this jump in spending would be consistent with 
     his proposal to ``reserve 100% of the surplus'' for Social 
     Security. The trick is his plan to introduce new taxes on 
     cigarette smokers, high-income individuals and corporations. 
     Since those taxes have not yet been enacted, they are not 
     reflected in the projected budget surpluses. Mr. Clinton can 
     therefore propose to spend those future tax dollars while 
     technically claiming that he is not spending any of ``the 
     surplus''! Of course, those who are as concerned about the 
     future of Social Security as Mr. Clinton claims to be might 
     wonder why he wouldn't ``reserve'' the additional tax 
     revenues as well as the existing projected surpluses.
       It also takes a highly nuanced construction of language to 
     reconcile Mr. Clinton's big new spending plans with his call 
     in the State of the Union to ``approve only those priorities 
     that can actually be accomplished without adding a dime to 
     the deficit''. In truth, every one of his new spending 
     proposals would add to the deficit. But combined with enough 
     new taxes, there need be no increase in the deficit. That is 
     the nature of tax-and-spending budgeting. But if the 
     Republican-controlled Congress rejects Mr. Clinton's tax 
     increases, the popular spending plans that he proposes would 
     cut into the projected surpluses.
       Yet if there are some surpluses left, what might Mr. 
     Clinton mean by his proposal to ``reserve 100% of the 
     surplus''? The word ``reserve'' has no particular meaning in 
     the budget process. Money can be appropriated, spent or added 
     to trust funds, but it cannot be ``reserved''. And Mr. 
     Clinton doesn't even say that it should be reserved ``for 
     Social Security'' or for anything else in particular. Just 
     ``reserved''. Senior administration officials have 
     subsequently testified that it doesn't mean putting the money 
     in the Social Security Trust Fund. It turns out that 
     ``reserving'' this money has nothing at all to do with Social 
     Security.
       In short, Mr. Clinton talked eloquently about the Social 
     Security problem but offered no proposal to do anything about 
     it. The projected budget surpluses are clearly vulnerable to 
     a combination of special-interest spending programs and 
     populist tax cuts. And the Social Security program continues 
     to head toward a deficit that will require a massive tax 
     increase or drastic cuts in benefits.
       There is a simple and direct solution: a legislated 
     commitment now to use the projected surpluses to finance 
     Personal Retirement Accounts for every working person. The 
     projected surpluses are large enough to permit the government 
     to put 2% of each individual's wages (on earnings up to the 
     $68,400 Social Security maximum) each year in such an account 
     to be invested in stocks and bonds. There are a variety of 
     ways in which such accounts could be established and 
     financed; I offered one way, based on personal income-tax 
     credits, on this page in November.
       If the budget surpluses projected for the next decade are 
     used in this way, funding such accounts would not reduce the 
     money going into the Social Security Trust Fund and would not 
     cause a budget deficit. Committing future budget surpluses 
     now to individual investments in stocks and bonds would 
     guarantee that they add to national saving instead of being 
     dissipated in new government spending.
       A system of accounts based on 2% of earnings would 
     accumulate some very significant totals, providing the only 
     way in which many low- and middle-income households might 
     ever accumulate some personal wealth. Based on the historical 
     average return on a portfolio of stocks and bonds (5.5% a 
     year before personal taxes), a couple that earns $60,000 a 
     year (in 1998 dollars) and contributes 2% of that each year 
     from age 30 to 65 would accumulate $125,000 at age 65, enough 
     to finance a $10,000-a-year annuity for 20 years. In the 
     aggregate, such annuity payments would equal 17% of the 
     Social Security benefits implied for the year 2030 in current 
     law and 40% of the benefits implied for 2050.
       That has important implications for the long-term solvency 
     of the Social Security system. Following a suggestion of Sen. 
     Phil Gramm (R., Texas), the Personal Retirement Account-
     funded annuities could be ``integrated'' explicitly with 
     Social Security benefits so that traditional Social Security 
     benefits are reduced by a dollar for every two dollars that 
     individuals receive from their Personal Retirement Accounts. 
     That would leave individuals with more retirement income 
     while reducing the payroll-tax increases that would otherwise 
     be needed to finance future benefits.


                           clear opportunity

       There are many changes that can be made to help Social 
     Security weather the surge in

[[Page S1768]]

     benefit outlays when the baby boomers begin to retire, about 
     a decade from now. The four regional forums on overhauling 
     Social Security that Mr. Clinton announced yesterday, as well 
     as the bipartisan summit he says he plans to call a year from 
     now, can grapple with those tough choices.
       But the projected budget surpluses now provide the clear 
     opportunity for a simple legislative action that would help 
     all working people, raise national saving and contain the 
     rise in future payroll taxes. With the president's support, 
     this can be done quickly, before the opportunity to do so is 
     destroyed by the pressures that will otherwise dissipate the 
     projected surpluses. A bipartisan effort could actually turn 
     Mr. Clinton's rhetoric into a serious plan to save Social 
     Security and protect future retirement incomes.

  Mr. ROTH. In his State of the Union Address, President Clinton 
promised to ``Save Social Security First'' with the budget surpluses. 
At the time, he said that the surpluses were at least 2 years off. The 
good news--what makes now such a timely moment in history--is that the 
surpluses are not two years off, but will begin this year, according to 
the Congressional Budget Office.
  In other words, we have the opportunity to begin almost immediately 
to use budget surplus to fund personal retirement accounts for 
Americans. How far will this go? CBO estimates that the cumulative 
budget surplus over the next eleven years--from 1998 though 2008--will 
be $679 billion. That equals about 1.4 percent of the taxable payroll 
that would be collected over this same period.
  Now, 1.4 percent of a person's wages might not sound like much. But 
look at what happens if we follow Dr. Feldstein's recommendation and 
use the budget surpluses to create retirement accounts for Americans. 
According to a report published by the Congressional Research Service 
on March 4, for an average wage worker--someone who is 40 today and 
making about $27,000 in 1998--just 1 percent put annually into a stock 
account based on the historical return of the S&P 500 could equal 10 
percent of that individual's projected Social Security benefit over the 
next 25 years.
  Let me repeat that. Investing just 1 percent of a 40-year-old 
worker's income in a retirement account will grow to equal a full 109 
percent of his or her Social Security benefit! For someone younger--say 
25 and who has even more time to earn interest--1 percent could equal 
almost 27 percent of their future Social Security benefit.
  Indeed, all Americans can figure out what 1.4 percent of their wages 
will be over the next 10 years, and then ask themselves how that might 
grow in 10 or 20 years.
  Using budget surpluses to create retirement accounts represents an 
excellent first step toward shoring up Social Security for the long 
run. This would be a new program in addition to the current Social 
Security program. By establishing these accounts this year, it will 
allow us to demonstrate their value--their potential--in providing 
retirement benefits for working Americans in the years to come.
  Creating these accounts will give the majority of Americans who do 
not own any investment assets a new stake in America's economic 
growth--because that growth will be returned directly to their benefit. 
More Americans will be the owners of capital--not just workers.
  Creating these accounts will demonstrate to all Americans the power 
of saving--even small amounts--and how savings may grow over time. 
Americans today save less than people in almost every other country. 
And even this low private savings rate has declined from 4.3 in 1996 
(as a share of after-tax income) to 3.8 percent in 1997.
  And creating these accounts will help Americans to better prepare for 
retirement generally. According to the Congressional Research Service, 
60 percent of Americans are not actively participating in a retirement 
program other than Social Security. A recent survey by the Employee 
Benefits Research Institute found that only 27 percent of working 
Americans have any idea of what they will need to save in order to 
retire when and how they want. Personal retirement accounts will help 
Americans better understand retirement planning.
  Lastly, these accounts may point the way to a permanent solution to 
Social Security's problems. We do not need fixes for a few years or a 
few decades--but solutions that have more permanent promise. It was 
just 15 years ago--in 1983--that we fixed Social Security for 75 
years--to about 2058. But again Social Security is in trouble.
  Madam President, let me also note that other choices will be far less 
attractive to keep the promise of Social Security, for example, we 
cannot count on tax hikes. To fix Social Security would require a huge, 
50-percent increase in the payroll tax over the next 75 years. And 
today's tax is already a burden for many families. Forty-one percent of 
families pay more in Social Security taxes than income taxes, and if 
you factor in employer Social Security taxes--which economists tell us 
are really forgone wages--80 percent of Americans pay more in Social 
Security than income taxes. And let us remember Social Security taxes 
are on the first dollar of income--no deductions, no exemptions.
  Indeed, in a speech last month at Georgetown University on Social 
Security, the President promised not to unfairly burden the next 
generation--who will be supporting tomorrow's Social Security 
beneficiaries. Tax hikes would do that.
  One way to establish and manage these new personal retirement 
accounts is to follow a proven model--the Federal Thrift Savings Plan. 
Back in 1983, when I was then chairman of the Committee on Governmental 
Affairs, the retirement program for Federal employees needed to be 
revamped.
  One of the new elements we added was the Federal Thrift Savings Plan 
(TSP), managed by a Board of Trustees. TSP is a unique institution. 
Each Federal employee has an account, and can allocate their 
investments among three options--a stock index fund that mirrors the 
S&P 500; a bond fund, largely invested in corporate bonds; and a 
Government bond fund that invests in T-bills. The Thrift Board is now 
planning to add two other funds.
  Last year, we looked closely at the Federal Employees Health Benefit 
Plan (FEHBP) as a model to reform Medicare by providing more private 
choices in health insurance. The lessons of FEHBP were invaluable. So, 
too, I believe we can adapt the Federal Thrift Savings Plan as a model 
for Social Security personal investment accounts.
  Mr. President, I want to respond to two specific concerns I have 
heard raised about personal investment accounts. First, that some 
people will have great investment performance, others miserable. We can 
surely avoid that. The funds of the Federal Thrift Savings plan have 
had excellent performance, while remaining conservative investments. 
Indeed, I am very sensitive to the issue that investments should be 
handled in a responsible fashion--and I think we do that with even more 
choices than offered by the Federal plan.
  The second concern is that the progressive nature of Social Security 
benefits will be lost with personal investment accounts. I believe we 
can construct a system that benefits low-wage workers, and I am 
committed to that. The bottom line is that by using the budget surplus 
to create personal investment accounts, we will go a long way toward 
providing a workable and very attractive solution to the challenges 
facing Social Security. We will do it without compromising the current 
system. And we will do it in a way that places us square on the course 
to long-term opportunity for all Americans.
  Promises made are promises that should be kept. As chairman of the 
Senate Finance Committee, I feel the responsibility of making sure 
Social Security remains strong and viable in the lives of those who 
depend on it. Today, we have an irreplaceable opportunity to do this.
  Personal retirement accounts--funded by budget surpluses--can both 
return real benefits to working Americans and demonstrate how to fix 
the problems of Social Security. There are still a number of technical 
questions we need to answer in developing personal retirement accounts 
legislation that can pass Congress this year. Toward this end, I will 
continue to work with my staff, and I welcome the views and advice of 
colleagues on both sides of the aisle.

                          ____________________