[Congressional Record Volume 144, Number 30 (Wednesday, March 18, 1998)]
[Senate]
[Pages S2154-S2168]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                  SOCIAL SECURITY SOLVENCY ACT OF 1998

  Mr. MOYNIHAN. Mr. President, I rise for the purpose of introducing 
the Social Security Solvency Act of 1998. I do so in the distinguished 
company of my friend from Nebraska, Senator Kerrey. This is a matter 
which we have just heard two distinguished Senators from the other side 
of the aisle say requires that we attend to, and soon. The President 
has asked us to devote this year to a national conversation on this 
subject. The Pew Charitable Trusts are beginning a series of forums 
across the country on the matter, and the prospect that we can reach 
some kind of a consensus is good, if we have just enough courage to do 
the few necessary things.
  I perhaps would start out by saying that we can save Social Security, 
and I don't use those words lightly, because Social Security is in 
jeopardy. In about 14 years' time Social Security outlays will exceed 
revenues. In a generation's time, there will be a huge gap between what 
is owed and what is received, and the mood will be to scrap the whole 
system as a relic of the 1930s, as, indeed, an inheritance from 
Bismarckian Germany. It predates the global economy of the present and 
the wide participation of our population in personal savings accounts 
and mutual funds and such matters.
  My distinguished friend from Nebraska and I have been thinking about 
this for a good long while. He has introduced important measures, and 
we now bring to the Senate floor and to the consideration of the 
Congress a matured proposal. May I say that we have worked very closely 
with the actuaries at the Social Security Administration, now an 
independent agency once again. We have worked with the Congressional 
Budget Office and the Joint Committee on Taxation. The numbers we 
present in this measure are, as near as they can be, accurate and 
agreed to by objective authorities who have no politics of any kind.
  I shall describe the essence of the bill very briefly as I see both 
the distinguished Senator from Nebraska and another distinguished 
colleague on the Finance Committee, the Senator from

[[Page S2155]]

Louisiana, on the floor. Our proposal is as simple as can be. We say go 
back to pay-as-you-go. That is the principle on which we began Social 
Security in 1935. We changed it in 1977 to a partially funded system. 
The payroll tax rose and rose again; 80 percent of American taxpayers 
now pay more in payroll taxes than they pay in income taxes. And the 
surplus has been used for other things altogether, it being the 
necessary fact that you cannot save it in any of the senses that an 
individual can save.
  We propose to reduce the payroll tax from 12.4 percent to 10.4 
percent. As you can see on this chart, our present arrangement would 
lead us, by the year 2070, to 18 percent of payroll--and it might even 
be higher. Under this legislation we stay at 10.4 until the year 2030, 
and then only very slightly go up in mid-21st century to 13 percent and 
a little more.
  Our second proposal is to allow employees--workers--to opt that the 2 
percent reduction in their present rate of taxation be put into a 
personal savings account. The Social Security Administration would 
present an array of different options, just as the Federal Thrift 
Savings Plan does now, from very conservative to more speculative, or a 
combination thereof. There are plenty of such options available. And at 
rather modest returns, given what John Maynard Keynes called ``the 
magic of compound interest,'' you would see a worker who put in 45 
years, let us say--as I remarked in the paper I gave at the John F. 
Kennedy School on Monday which describes this--a worker who spent 45 
years with the Bethlehem Steel Company could easily find himself with 
an estate of half a million dollars. The worker could pass on that 
wealth to his or her heirs.

  Retirement has been for some time taking up about one-quarter of the 
adult life. We would gradually raise the retirement age to continue at 
that ratio. A person retiring would have that basic annuity of Social 
Security, frequently--not always, but increasingly--a pension earned in 
his or her working life from the firm involved, and the returns on the 
personal savings account. This is an extraordinary possibility. The one 
essential that makes it possible is that we establish a correct cost-
of-living index, such that the value of the Social Security annuity is 
maintained but not overstated. This is something on which I believe the 
great majority of economists now agree. I was impressed, and I will 
close now, with a statement by Robert A. Pollak, the Hernreich 
Distinguished Professor of Economics at Washington University, in the 
Winter 1998 Journal of Economic Perspectives, a journal of the American 
Economic Association, just available, in which he says we ought to do 
two things. One is leave the CPI as it has been since 1918, keep its 
integrity. It is not a cost-of-living index; the Bureau of Labor 
Statistics which computes it so states. But then have the necessary 
political will to correct cost of living adjustments by 1 percentage 
point, which was the proposal of the commission headed by Professor 
Michael J. Boskin, of Stanford University, former chairman of the 
Council of Economic Advisers. As Professor Pollak writes:

       [O]n the political side--and here I step outside my role as 
     an economist and an expert on the CPI--I recommend modifying 
     not the CPI but the procedure used to index tax brackets and 
     transfer payments. More specifically, I recommend that the 
     CPI be left alone pending the report of the committee of 
     technical experts I have proposed, but that, pending their 
     report and action on it, tax brackets and transfer payments 
     be escalated by the CPI minus one percentage point. I 
     recommend one percentage point not because it is my estimate 
     of the amount by which the CPI overstated the rate of 
     inflation in some particular year but because of its 
     resemblance to what game theorists call a ``focal point.'' A 
     change in the indexation formula rather than in the procedure 
     used to calculate the CPI would accomplish two desirable 
     goals. First, it would maintain the integrity and credibility 
     of the CPI and, thus would do nothing to further erode trust 
     in government. Second, it would recognize that the procedure 
     currently used to index tax brackets and benefit payments is 
     working badly--that is it has become too expensive and is 
     leading to excessive transfers from young workers to the 
     elderly. As a political matter, I would like to see these 
     transfers reduced, but the responsibility for reducing them 
     belongs to elected politicians, not to unelected economists.

  Mr. President, we are all agreed on this. We only have to do it. It 
is not a complicated matter, but it is a daunting one because it 
requires courage. There are now veto groups which will say, ``Don't 
change this system.'' All public arrangements acquire such groups. In 
the end they will defeat themselves. And in a sense we have to save 
them from themselves. But to do so takes courage. If I may say, that is 
one of the reasons I am particularly proud to be associated in this 
matter with my gallant friend from Nebraska, who has shown remarkable 
courage in his lifetime in battle overseas and at home, where he has 
been willing to tell truths that were not always welcome but were very 
necessary.
  Mr. President, I ask unanimous consent that the text of the address 
at the John F. Kennedy School of Government at Harvard be printed in 
the Record.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

                         Social Security Saved!

                  (By Senator Daniel Patrick Moynihan)

       Let me begin with a proposition appropriate to our setting. 
     Social Security in the United States is very much the work of 
     academicians. It came about in an exceptional 14 months in 
     the first Roosevelt administration, but economists had been 
     planning it for a third of a century.
       A second proposition. As with much social policy that 
     originates with academic experts, the level of informed 
     political support for Social Security within the electorate 
     has always been low, and just now is getting lower.
       This history goes back to the progressive era at the 
     beginning of the century. It is to be associated, for 
     example, with John R. Commons of the University of Wisconsin 
     who helped found the American Association for Labor 
     Legislation in 1906. The German government had created a 
     workman's compensation system, a form of insurance against 
     industrial injuries, and a sickness insurance program in 
     1884. In the academic manner, these ideas crossed the 
     Atlantic, and were particularly well received by the north 
     European populace of Minnesota. Edwin E. Witte, the author of 
     the Social Security Act of 1935, a student of Commons, was, 
     for example, of Moravian stock.
       In a fairly short order workman's compensation became near 
     universal among the states, and the reformers now looked to 
     universal health insurance, a logical follow-on. In a mode we 
     have experienced in our time, this proved too much. Business 
     grew nervous. The American Federation of Labor, led by Samuel 
     Gompers, ``joined his fellow members in impassioned 
     opposition.'' \1\ Labor leaders of Gompers' generation looked 
     with suspicion on government-provided benefits. They wanted 
     trade unions to do that. World War I and its aftermath pretty 
     much ended the era. As Witte's biographer writes:
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     Footnotes at end of speech.
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       ``No great popular enthusiasm developed for health 
     insurance, and in the troubled days immediately following 
     World War I it went down to defeat amid contradictory cries 
     of Made in Germany and of Bolshevism.'' \2\
       In the event, when the political system was ready it had to 
     send for the academics. Roosevelt, pressed by Huey Long, and 
     the Townsend Plan, and the general distress of the 
     Depression, needed a big bill. In June of 1934 he set up the 
     Committee on Economic Security, headed by Frances Perkins, a 
     knowledgeable reformer, albeit of the Gramercy Park variety. 
     And also a woman with a magical ability to get strong men, 
     from Tammany district leaders to Supreme Court Justices, to 
     help her out because she was, well, so in need of help.
       Madame Perkins brought Commons' student Witte from 
     Wisconsin to staff her Committee on Economic Security, but it 
     was left to her to figure out how to get a bill passed. She 
     relates the sequence in ``The Roosevelt I Knew'':
       ``It is difficult now to understand fully the doubts and 
     confusions in which we were planning this great new 
     enterprise in 1934. The problems of constitutional law seemed 
     almost insuperable. I drew courage from a bit of advice I got 
     accidentally from Supreme Court Justice Stone. I had said to 
     him, in the course of a social occasion a few months earlier, 
     that I had great hope of developing a social insurance system 
     for the country, but that I was deeply uncertain of the 
     method since, as I said laughingly, Your Court tells us what 
     the Constitution permits. Stone had whispered, The taxing 
     power of the Federal Government, my dear; the taxing power is 
     sufficient for everything you want and need.\3\
       And so it came about that on August 14, 1935, when FDR 
     signed the bill, standing at the President's right in the 
     official photograph was Robert L. Doughton of North Carolina, 
     Chairman of the Committee on Ways and Means.
       I am not altogether comfortable with what I am about to 
     say, but I will do so anyway in the hope that you will give 
     the subject some thought. I suggest that giving jurisdiction 
     over Social Security to the tax writing committees of the 
     Congress (the Finance Committee in the Senate), has caused 
     the program to be treated as a somewhat marginal

[[Page S2156]]

     concern by its congressional guardians. As an example, no one 
     much objected when the originally independent Social Security 
     Administration was folded into first one agency then another, 
     to the point of near disappearing.
       In 1993 I became Chairman of Finance and in time was able 
     to re-establish an independent Social Security 
     Administration. In the Congressional Directory of that year 
     there were 278 names between the incumbent Secretary of 
     Health and Human Services and the Administrator of Social 
     Security, ``Vacant.'' \4\
       I even managed, as I put it, to decriminalize babysitting. 
     Early in the Clinton administration, a number of senior 
     appointees came afoul of the Social Security law. They had 
     not paid payroll taxes on various types of household help. 
     The taxes were due quarterly, in quintuplet forms and the 
     like. And few persons knew they were owed. This was 
     especially the case with babysitters. A fine rite of passage 
     for young girls. And yet a taxable occupation. I was able to 
     enact legislation putting an end to any of that for persons 
     under age 18. As I related in Miles To Go, it may have saved 
     my 1994 election.\5\ People didn't know much about Social 
     Security, but after a succession of prospective nominees for 
     Attorney General had to be withdrawn, they realized that 
     Social Security might send them to jail. Not what Frances 
     Perkins had in mind.
       Over the years, the original excitement surrounding Social 
     Security faded; and few noticed. When a time came that a 
     majority of non-retired young adults had concluded they 
     themselves would never get Social Security, few showed any 
     great concern. Some elements within the Republican Party seem 
     always to have been inclined to the thought that the whole 
     scheme was a Rooseveltian fraud, and the public seemed to 
     agree. (A Ponzi scheme, was the phrase, current in the 
     1930s.) Then in the late 1970s a combination of high 
     inflation and overindexing did indeed move the Trust Funds 
     perilously close to insolvency. There was no great danger. At 
     worst, checks might have been delayed a few days. But this 
     did not prevent President Reagan's budget director from 
     stating in the spring of 1981 that ``Unless both the House 
     and the Senate pass a bill in the Congress which can be 
     signed by the President within the next 15 months, the most 
     devastating bankruptcy in history will occur on or about 
     November 3, 1982.'' \6\ A Presidential Commission was set up, 
     chaired by the redoubtable Alan Greenspan, with Robert J. 
     Myers as staff director, Myers--a lifelong Republican--having 
     come from the Midwest to help out Witte in 1934! But no 
     agreement could be reached by the time the commission expired 
     at the end of 1982.
       Then the shade of Frances Perkins intervened. On January 3, 
     1983, Robert J. Dole, Senate Majority Leader, published an 
     article on the op-ed page of The New York Times, entitled 
     ``Reagan's Faithful Allies.'' It seemed that many people 
     thought Congressional Republicans weren't giving the 
     President the support he needed and deserved. Not so, Senator 
     Dole said, we are with the President and there are great 
     things still to be done. Then this:
       ``Social Security is a case in point. With 116 million 
     workers supporting it and 36 million beneficiaries relying on 
     it, Social Security overwhelms every other domestic priority. 
     Through a combination of relatively modest steps including 
     some acceleration of already scheduled taxes and some 
     reduction in the rate of future benefit increases, the system 
     can be saved. When it is, much of the credit, rightfully, 
     will belong to this President and his party.'' \7\
       That day I was being sworn in for a second term in the 
     Senate. I had read the article and went up to Senator Dole on 
     the Senate Floor and asked if he really thought that, why not 
     try one last time? And he did think it. A year of listening 
     to Myers had altered a lifetime of Republican dogma. We met 
     the next day. The day after that Barber Conable was brought 
     in, a Republican who both understood and believed in Social 
     Security. On January 15th, 13 days from our first exchange, 
     agreement was reached at Blair House and the crisis passed. 
     (In a November 2, 1997 interview on ``Meet The Press,'' 
     Senator Dole cited this as his greatest accomplishment in his 
     Senate career. And well he might.)
       Social Security was secure for the time being. Indeed, the 
     payroll tax generated a considerable surplus which we have 
     lived off ever since, and will continue to enjoy for yet a 
     few years. But the loss of confidence was grievous. Had we, 
     indeed, just barely escaped bankruptcy? What then did the 
     future hold but more such crises? In the meanwhile the 
     academic world had changed. Energetic and innovative minds 
     (one thinks of Martin Feldstein here at Harvard) had turned 
     away from government programs--``the nanny state''--toward 
     individual enterprise, self-reliance, free markets. As the 
     1990s arrived, and the long stock market boom, the call for 
     privatization of Social Security all but drowned out the more 
     traditional views.
       This was for real. In 1996, Congress enacted legislation, 
     signed by the President, which repealed Title IV-A of the 
     Social Security Act, Aid to Families with Dependent Children. 
     The mothers' pension of the progressive era, incorporated in 
     the 1935 legislation, vanished with scarcely a word of 
     protest.
       Will the Old Age pensions and survivors benefits disappear 
     as well? What might once have seemed inconceivable is now 
     somewhere between possible and probable. I, for one, hope 
     that this will not happen. A minimum retirement guarantee, 
     along with survivors benefits, is surely something we ought 
     to keep, even as we augment retirement income in other ways. 
     What is more, this can readily be done. Let me outline a 
     solution.
       I have a bill entitled ``The Social Security Solvency Act 
     of 1998.'' Senator Robert Kerrey and I will introduce it in 
     the Senate this week. Here are the specifics:


    i. reduce payroll taxes and return to pay-as-you-go system with 
                       optional personal accounts

          A. Reduce Payroll Taxes and Return to Pay-As-You-Go

       As I first proposed in 1989, this bill would return Social 
     Security to a pay-as-you-go system. That is, payroll tax 
     rates would be adjusted so that annual revenues from taxes 
     closely match annual outlays. This makes possible an 
     immediate payroll tax cut amounting to about $800 billion 
     over the next decade, with the lower rates remaining in place 
     for the next 30 years. We would cut the payroll tax from 12.4 
     to 10.4 percent between 2001 and 2024, and the rate would 
     stay at or below 12.4 percent until 2045. Even in the out-
     years, as we say, the pay-as-you-go rate under this plan will 
     increase only slightly above the current rate of 12.4 
     percent. It would top out at 13.4 percent in 2060. And in 
     order to ensure continued solvency, the Board of Trustees of 
     the Social Security Trust Funds will make recommendations for 
     a new pay-as-you-go tax rate schedule if the Trust Funds fall 
     out of close actuarial balance. Such a new tax rate schedule 
     would be considered by the Congress under fast track 
     procedures.
       There is a matter of fairness here. Of families that have 
     payroll tax liability, 80 percent pay more in payroll taxes 
     than in income taxes.

                 B. Voluntary Personal Savings Accounts

       Beginning in 2001, the bill would permit voluntary personal 
     savings accounts, which workers could finance with the 
     proceeds of the two percent cut in the payroll tax. 
     Alternatively, a worker could simply take the employee share 
     of the tax cut in the form of an increase in take-home pay 
     equal to one percent of wages. (Economists will argue that 
     workers who do not opt for voluntary personal savings 
     accounts will also, eventually, receive the employer share in 
     the form of higher wages. But that's a discussion for another 
     time.)
       The magic of compound interest will enable workers who 
     contribute two percent of their wages to these personal 
     savings accounts for 45 years (2000-2045) to amass a 
     considerable estate, which they can leave to their heirs. 
     Some examples, in nominal dollars, for workers at various 
     earnings levels:

                          Real Rate of Interest                         
------------------------------------------------------------------------
          Earnings level            3 percent    4 percent    5 percent 
------------------------------------------------------------------------
Minimum wage ($12,000)...........     $110,000     $135,000     $175,000
Average wage ($30,000)...........      275,000      350,000      450,000
Maximum wage ($70,000)...........      660,000      850,000    1,100,000
------------------------------------------------------------------------

             C. Increase in Amount of Wages Subject to Tax

       Under current law, the Social Security payroll tax applies 
     only to the first $68,400 of wages in 1998, indexed to the 
     annual growth in average wages. At that level, we are taxing 
     about 85 percent of wages in covered employment. That 
     percentage has been drifting down because wages of persons 
     above the taxable maximum have been growing faster than wages 
     of persons below it.
       Historically, about 90 percent of wages have been subject 
     to tax. Under this bill, we propose to increase the taxable 
     maximum to $97,500 (thereby taxing about 87 percent of wages) 
     by 2003. We then resume automatic changes in the base, tied 
     to increases in wages, as under current law. (The taxable 
     maximum is projected to increase to $82,800 in 2003 under 
     current law.)


                       ii. indexation provisions

       As students of the Congress, you know by now that every tax 
     cut requires an offset. So how do we offset the payroll tax 
     cut in this bill? By two indexation procedures, and some 
     other changes that most observers agree are needed.

     A. Correct Cost of Living Adjustments by One Percentage Point

       We propose to correct cost of living adjustments by one 
     percentage point. This adjustment would apply to all indexed 
     programs (outlays and revenues) except Supplemental Security 
     Income.
       This is an issue that has been with us for a long while 
     now. Some 35 years ago in the Kennedy Administration I was 
     Assistant Secretary of Labor for Policy Planning and 
     Research, with nominal responsibility for the Bureau of Labor 
     Statistics. The then-Commissioner of the Bureau of Labor 
     Statistics, Ewan Clague, could not have been more friendly 
     and supportive; he and his staff undertook to teach me, to 
     the extent I was teachable. Although the BLS statisticians 
     were increasingly confident of the accuracy with which they 
     measured unemployment, business and labor were still 
     distrustful. By contrast, the Consumer Price Index, begun in 
     1918 (monthly unemployment numbers only begin in 1948) was 
     quite a different matter. It was beginning to be used as a 
     measure of inflation in labor contracts and such like. Our 
     BLS economists knew that the CPI overstated inflation, but no 
     one seemed to mind. Business could make that calculation in 
     collective bargaining contracts. And if they

[[Page S2157]]

     failed to do, well, it was good for the workers. Indeed, on 
     taking office in 1961, the Kennedy Administration had waiting 
     for it a report by a distinguished National Bureau of 
     Economic Research committee headed by George Stigler, who 
     would go on to win the Nobel Prize in economics. The Stigler 
     report, ``The Price Statistics of the Federal Government,'' 
     \8\ concluded that the CPI and other indexes overstated the 
     cost of living.
       That theme was picked up again by Professor Robert J. 
     Gordon in an article in the Public Interest in 1981.\9\ 
     Gordon wrote ``It is discouraging that so little has been 
     done [by the BLS] . . . for so long.'' The bias identified by 
     Stigler was still present in the CPI, which Gordon pointed 
     out was ``the single most quoted economic statistic in the 
     world.''
       In 1994, in a celebrated memorandum entitled ``Big 
     Choices,'' then-OMB Director Alice Rivlin noted that ``CPI 
     may be overstated by 0.4% to 1.5%.'' It then fell to the 
     Senate Finance Committee to pursue the issue. We held three 
     hearings and in short order found that the BLS itself 
     acknowledges that the CPI is not a cost of living index. In 
     the BLS pamphlet ``Understanding the Consumer Price Index: 
     Answers to Some Questions'' there is the following Q & A:
       ``Is the CPI a cost of living index? No, although it 
     frequently (and mistakenly) is called a cost-of-living 
     index.'' \10\
       In 1995, the Finance Committee appointed the Advisory 
     Commission to Study the Consumer Price Index. Chaired by 
     Professor Michael J. Boskin of Stanford, who had been 
     Chairman of the Council of Economic Advisers under President 
     Bush. Also on the Commission were two eminent members of the 
     Economics Department here at Harvard: Zvi Griliches and Dale 
     Jorgenson. Their final report concluded that the CPI 
     overstates changes in the cost of living by 1.1 percentage 
     points.\11\
       It is true that recently the Bureau of Labor Statistics has 
     made some improvements, a routine of some 80 years now, but 
     most of these were already anticipated when the Boskin 
     Commission issued its final report. That bias has not been 
     corrected. It is not in the nature of this beast. Speaking 
     before the annual meetings of the American Economic 
     Association and the American Finance Association in Chicago 
     in January of this year, Alan Greenspan said:
       ``Despite the advances in price measurement that have been 
     made over the years, there remains considerable room for 
     improvement.''
       So our legislation includes the one percentage point 
     correction, but it also establishes a Cost of Living Board to 
     determine on an annual basis if some further refinement is 
     necessary.

                     B. Increase in Retirement Age

       In our 1983 agreement, the retirement age was increased, 
     over time, to age 67 for those turning 62 in the year 2022. 
     This legislation would make gradual increases in the 
     retirement age by two months per year between 2000-2017, and 
     by one month every two years between years 2018 and 2065. 
     This increase is a form of indexation which results in 
     retirement ages of 68 in 2017 (for workers reaching age 62 in 
     that year), and 70 in 2065 (for workers reaching age 62 in 
     that year.)
       I refer to the increase as a form of indexation because it 
     is related to the increase in life expectancy. Persons 
     retiring in 1960 at age 65 had a life expectancy, at age 65, 
     of 15 years and spent about 25 percent of their adult life in 
     retirement. Persons retiring in 2073, at age 70, are 
     projected to have a life expectancy at age 70 of about 17 
     years, and would also spend about 25 percent of their adult 
     life in retirement. These are persons not yet born today. And 
     they can expect, on average, to live almost to age 90. And 
     that may be a conservative estimate as we don't know where 
     medical technology will take us.


          III. Program Simplification--Repeal of Earnings Test

       The so-called earnings test would be eliminated for all 
     beneficiaries age 62 and over, beginning in 2003. (Under 
     current law, the test increases to $30,000 in 2002.) The 
     earnings test is a relic of the Depression years. When Social 
     Security was enacted in 1935, the Federal government was 
     trying to discourage elderly workers from remaining in the 
     labor force because there were not enough jobs. Today, the 
     unemployment rate is down to 4.6 percent, and we should do 
     everything possible to encourage workers to remain in the 
     labor force. The earnings test is also an administrative 
     burden with about one million beneficiaries submitting forms 
     to the Social Security Administration so that benefits can be 
     withheld--reduced--if the beneficiary has wages in excess of 
     the earnings test. All for naught because higher benefits--
     roughly offsetting the loss in benefits--are paid in the 
     future for each month for which benefits are withheld.


                           IV. Other Changes

       All three factions of the 1994-1996 Social Security 
     Advisory Council supported some variation of the following 
     three provisions.\12\

                     A. Normal Taxation of Benefits

       We propose to tax Social Security benefits to the same 
     extent private pensions are taxed. That is, Social Security 
     benefits would be taxed to the extent that the worker's 
     benefits exceed his or her contributions to the system. 
     Consequently, about 95 percent of Social Security benefits 
     would be taxed. (For private pensions, the percentage taxed 
     varies according to how much of the plan is funded by 
     employee contributions. In many private pensions, the 
     employee makes no contribution, so 100 percent of the pension 
     benefits are taxed.)

          B. Coverage of Newly Hired State and Local Employees

       Effective in 2001, we would extend Social Security coverage 
     to newly hired employees in currently excluded State and 
     local positions. In 1935, State and local employees were not 
     included in Social Security because it was believed that the 
     Federal government did not have the power to tax State 
     governments. However, subsequent actions by Congress 
     providing for mandatory Medicare coverage of State and local 
     employees have not been challenged. Then a unanimous Supreme 
     Court decision in 1986 put the issue to rest. In Bowen v. 
     Public Agencies Opposed to Social Security Entrapment,\13\ 
     the Court upheld a provision in the Social Security 
     Amendments of 1983 that prevented States from withdrawing 
     from Social Security. Including State and local workers is 
     not only constitutional, it is fair, since most of the five 
     million State and local employees (about a quarter of all 
     State and local employees) not covered by Social Security in 
     their government jobs do receive Social Security benefits as 
     a result of working at other jobs--part-time or otherwise--
     that are covered by Social Security. Relative to their 
     contributions these workers receive generous benefits. Our 
     bill will bring these employees into the system, preventing 
     them from getting a windfall.

              C. Increase in Length of Computation Period

       We would increase the length of the computation period from 
     35 to 38 years. Consistent with the increase in life 
     expectancy and the increase in the retirement age, we expect 
     workers to have more years with earnings. Computation of 
     their benefits should be based on these additional years of 
     earnings.


                             BUDGET EFFECTS

       Not only does this proposal provide for long-run solvency 
     of Social Security, financed with payroll tax rates not much 
     higher than current rates in the out-years, but it is also 
     fully paid for in the short-run. The Congressional Budget 
     Office's preliminary estimate indicates that for the 10-year 
     period FY 1999-2008, the bill would increase the projected 
     cumulative budget surplus by $170 billion, from $671 billion 
     to $841 billion. For the five year period FY 1999-2003, CBO 
     projects that, under this plan, the cumulative surplus would 
     remain unchanged. In no year is there a deficit. And, to 
     repeat, all of this is accomplished while reducing payroll 
     taxes by almost $800 billion.
       Will this happen? I just do not know. In a manner that the 
     late Mancur Olsen would recognize, over time Social Security 
     has acquired a goodly number of veto groups which prevent 
     changes, howsoever necessary. There are exceptions as in 1983 
     when we did our work in 13 days and behind closed doors. But 
     otherwise, stasis is the norm. Thus for the past three or 
     four years almost all the major players in the Administration 
     have recognized that we had to employ a better measure of 
     price inflation. But repeatedly action was vetoed by the, 
     well, veto groups.
       They can go on in this manner if they choose. But if they 
     do, in 30 years time Social Security as we have known it 
     since 1935 will have vanished. The veto groups that prevented 
     any change in the welfare system--Title IV-A--for so long, 
     looked up one day to find the system had vanished. It is time 
     then for courage as well as policy analysis.

                                 notes

     \1\ Theron F. Schlabach, Edwin E. Witte: Cautious Reformer 
     (Madison: State Historical Society of Wisconsin, 1969), 83.
     \2\ Ibid.
     \3\ Frances Perkins, The Roosevelt I knew (New York: The 
     Viking Press, 1946), 286.
     \4\ Official Congressional Directory, 103rd Congress, 1993-
     1994 (Washington, DC: United States Government Printing 
     Office, 1993), 803-825.
     \5\ Daniel Patrick Moynihan, Miles to Go: A Personal History 
     of Social Policy (Cambridge, MA: Harvard University Press, 
     1996): 24-25.
     \6\ Social Security Financing Recommendations, Hearing before 
     the U.S. House of Representatives Subcommittee on Social 
     Security (28 May 1981) (testimony of David A. Stockman, 
     Director, Office of Management and Budget), 40-41.
     \7\ Bob Dole, ``Reagan's Faithful Allies,'' The New York 
     Times, 3 January 1983, A 19.
     \8\ Price Statistics Review Committee of the National Bureau 
     of Economic Research, The Price Statistics of the Federal 
     Government: A Report to the Office of Statistical Standards, 
     Bureau of the Budget (Washington, DC: National Bureau of 
     Economic Research, 1961), 35.
     \9\ Robert J. Gordon, ``The Consumer Price Index: Measuring 
     Inflation and Causing It,'' The Public Interest 62 (Spring 
     1981): 134.
     \10\ U.S. Department of Labor, Bureau of Labor Statistics, 
     Understanding the Consumer Price Index: Answers to Some 
     Questions (November 1997), 3.
     \11\ Senate Committee on Finance, Final Report of the 
     Advisory Commission to Study the Consumer Price Index (1996), 
     104th Cong., 2d sess. Committee Print, 1.
     \12\ Report of the 1994-1996 Advisory Council on Social 
     Security (Washington, DC), 184.
     \13\ 477 U.S. 41 (1986).
  Mr. MOYNIHAN. I see my friend from Nebraska on the floor. I wonder if 
he would like to speak at this point, in which event I yield such time 
as he may require.
  The PRESIDING OFFICER. The Senator from Nebraska.
  Mr. KERREY. Mr. President, let me first congratulate the senior 
Senator from New York. The only thing better than having the senior 
Senator from New York introducing this piece of legislation would be to 
have Franklin Delano Roosevelt himself out here introducing this bill. 
This does not just

[[Page S2158]]

save Social Security, it transforms it into a much better program, as 
we have done through the history of Social Security. We have made it 
better as need requires.
  I am very much appreciative of your warnings through our public life 
of the things that you see happening. Very often we have not heeded 
your warnings and then afterward have come back and said, ``You were 
right 30 years ago,'' ``You were right 20 years ago.'' For the sake of 
future beneficiaries, I hope it doesn't take us that long this time 
around to realize you are right.
  Before the Senator leaves, I want to ask him a couple questions, 
because there are a couple things in this proposal--and I am going to 
speak about the wealth-generating nature of this piece of legislation. 
Indeed, most remarkably, there are an awful lot of Americans who do not 
distinguish the difference between wealth and income.
  I read in your hometown newspaper, the New York Times, from time to 
time about people talking about the gap between the rich and the poor, 
and they immediately go to income, as if wealth and income are the same 
thing. They obviously are not. I could have $500,000 a year in income, 
but if I spend it all, I have no wealth. Likewise, I can cite this 
marvelous story of Osceola McCardy from Hattiesburg, MS, who worked 63 
or 64 years as a washerwoman, never made more than $10,000, discovered 
the magic of compounding interest rates. When she decided to retire at 
the age of 87, she called up Southern Mississippi University and said, 
``I want to give you a gift.'' They presumed, no doubt, it was a doily 
or something that she made at home. It was a couple hundred thousand 
dollars cash. When the New York Times asked her how she generated a 
couple hundred thousand dollars cash on that low income, she said it 
was the magic of compounding interest rates.
  In addition to the wealth-generating appeal of this long-term--
enabling our citizens to acquire ownership and wealth and the virtue 
that comes from that, as well as the security that comes from owning a 
share of your country and having an interest in keeping inflation under 
control and all sorts of other things, and the capacity to be generous 
with your own wealth and leave some not only to your children but 
perhaps to some other thing that you care deeply about.
  I was struck, as I read, again, your hometown newspaper this morning, 
that there is some division in the Republican ranks as well as the 
Democratic ranks of what to do with this so-called surplus, which, as 
you have pointed out, is nothing more than an overlevy. We do not have 
a surplus; we are just taxing people who get paid by the hour more than 
is necessary to pay the Social Security bills. In addition to the pay-
go and the wealth-generating part, perhaps the most important part of 
this proposal is that it represents an $800 billion tax cut over some--
  Mr. MOYNIHAN. An $800 billion tax cut over 10 years.
  Mr. KERREY. Again in your hometown newspaper, it reported anyway--
perhaps it is not--division on the other side of the aisle. Senator 
Domenici has a $30 billion tax cut over 5 years. Someone on that side 
of the aisle wanted a $60 billion tax cut over 5 years. I ask the 
Senator, what does this represent over 5 years in terms of a tax cut? 
Do you have that number available, or is it $800 billion?
  Mr. MOYNIHAN. Not quite. I believe about $300 billion. About $300 
billion over 5 years; $800 billion over 10 years.
  Mr. KERREY. I think one of the points we need to make to citizens who 
are watching this is that in the great tax debates that go around this 
Capitol, very often what we are talking about when we are talking about 
taxes is income taxes; people are debating taxes. For the median family 
of four--a husband, wife, and two children--they will pay about $2,700 
in income taxes, a $34,000 median family. They will pay $5,400 in 
payroll taxes. So for them, the payroll tax is the largest tax. The 
income tax is a smaller tax and a smaller burden on them than the 
income tax is.

  So perhaps one of the reasons, when we debate tax cuts, that $60 
billion over 5 years seems relatively large is that people have not 
paid attention, as they should, to the payroll tax. I just urge those 
who are wanting to give Americans a tax cut to look at this proposal 
seriously, because this is the biggest tax cut proposal anybody has put 
before this body that I have seen in recent memory.
  Does the Senator agree with that? Do you see this as a tax cut as 
well?
  Mr. MOYNIHAN. It would be one of the largest tax cuts in our history, 
and, in the process, it would put the Social Security System into 
permanent actuarial balance.
  Mr. KERREY. I also point out, Mr. President, since the Senator 
transitioned into that, that it would put it into actuarial balance for 
75 years, there have been a lot of people talking about--well, let's 
take again this surplus, which is nothing more than an overlevy. Let's 
be clear, we have taxes higher than they need to be to pay the bills. 
We have had a lot of folks come down and talk about the gasoline tax. 
The gasoline tax is higher than is needed to pay all the bills. So we 
are struggling with this problem here; we have a cap on expenditures.
  The same thing is true with payroll taxes. They are higher than 
needed to pay the bills, but because we are using them for other 
purposes, it doesn't seem to bother us so much.
  In addition to that, some have been talking about using the surplus 
without doing what the distinguished Senator has done, which is to say 
we are going to make Social Security sound. One of the reasons that 
this is very often confusing is that people think that the only people 
who are beneficiaries are people who are currently eligible, which are 
the 37 million or so currently eligible. That is not true. Everybody 
effectively who is alive in America today is a beneficiary. They may 
not be eligible today, but that is a promise on the table for them.
  You can send in a form to the Social Security Administration and say, 
``Hello. My name is Bob Kerrey. I am 54 years of age. What will my 
benefits be if I take retirement at age 65?'' if I decide I want to go 
out at 65. Or if I am 20 years old and just entering the work force, I 
can get the same thing. If you are 20 years old and you write to the 
Social Security Administration, they will say this is what is on the 
table, this is the promise that is currently on the table.
  Unfortunately, at the current level of benefits that are promised, 
the promise that is on the table we are not going to be able to keep. 
In fact, if you are under 35 today in America and you write to the 
Social Security Administration, they will say, ``This is the promise 
that is on the table, but unless changes are made, that benefit is not 
going to be available to you.''
  I should interrupt myself and say, I very often hear people say 
Social Security isn't going to be there for you. As long as we have a 
payroll tax, it is going to be there. As long as there is a payroll tax 
in place, it is a program that is going to be very well established.
  I interrupt myself further to say, I find one of the most appealing 
things about your proposal, I say to the Senator from New York, is that 
you are saying the survivor benefit must stay intact, the disability 
benefit must stay intact, and we must keep a defined benefit program in 
place. All three of those conditions, as a part of an option to acquire 
wealth with a significant tax cut, it seems to me, make this proposal 
overwhelmingly attractive, especially for those who like fiscal 
responsibility. Yours is fiscally responsible. It is fully funded. 
There is no funny money here. There is no, ``Well, I'm going to take 
the surplus and use it for accounts, but I really haven't figured out 
how exactly I am going to pay for it.''
  Yours is not only fully funded over the 10-year period, but it is 
fully funded for all beneficiaries for a 75-year period, which I find 
to be very, very attractive. For taxpayers who are concerned about not 
only today's Social Security Program but the Social Security Program 75 
years from now, they have to find this proposal enormously attractive 
as a consequence of your condition, your valuated condition of saying 
you are not going to have any deficit financing here, you are not going 
to let Social Security go into deficit, and you want to make sure every 
promise we have on the table we will have in 75 years.

  Mr. MOYNIHAN. Will the Senator yield for a comment?
  Mr. KERREY. Yes.

[[Page S2159]]

  Mr. MOYNIHAN. If you think of the prospect of retirement benefits, 
and that is real, but something that is not always recognized--I know 
the Senator understands it--only 62 percent of the beneficiaries of 
Social Security at this moment are retirees. The rest are survivors or 
persons who have been disabled, and that can be someone 24 years old or 
35 years old. This is a system that is not just devoted to the elderly. 
Keeping it is essential, and we can do it. I cannot tell you how much I 
am honored by you associating yourself with this proposal.
  Mr. KERREY. I appreciate that. I don't know how long the Senator is 
going to stay here, but I appreciate very much this proposal, because 
coming from the Senator from New York, it is, I think, much more likely 
to gather the attention of Americans who understand that this is a 
gentleman who is a strong defender of the Social Security Program; he 
understands its value.
  One out of seven Americans who get Social Security have Social 
Security as their only source of income. Without Social Security and 
Medicare, the rate of poverty over the age of 85 would be 54 percent. 
It is 12 percent today. It is a program that has transformed America as 
we know it and has made it a much better country, a much happier 
country. It can be changed; it can be changed in a way that will make 
the program even better, even more able to meet the needs of the 
American people.
  Mr. President, I want to talk about one real short-term aspect of 
this Social Security problem, and that is that there are an awful lot 
of people out there--and I went to the President's first event over at 
Georgetown where he announced the discussion he is going to have, a 
much-needed discussion, during the year about the Social Security 
Program. He was introduced by a young woman who was, I think, a third-
year law school student or second-year law school student. She was 
quite eloquent in her introduction of the President.
  She said when she first went into the work force at the age of 14 or 
15, she went home to her mother and said, ``Mom, who is this person 
FICA, and why are they taking so much money from me?'' She then did a 
little more research, and she said she discovered that FICA tax is 
taken from her and kept in an account for her; it is money that is 
saved up for her. And she hopes that through this discussion the money 
she contributes is going to be there for her when she retires.
  I give her full sympathy for not knowing what the program is. There 
are a lot of people who misunderstand Social Security and think of it 
as a savings program. I am constantly talking to people and I have to 
say, ``No, it is not a savings program. There is no account for you in 
Washington, DC, that is accumulating; there is no ownership here.'' If 
you die before 65, or 62, which is the early eligibility--if you die 
before 65 or 62, there is nothing there that transfers to heirs. There 
is no ownership of anything. It is a tax on wages. It is used for 
disability, it is used for survivors, and it is used for old age. If 
you are eligible under the classification of those three programs, you 
receive a benefit.
  The way that we accumulate the revenue for those benefits is that we 
put a tax on wages. The benefits are very progressive. One of the 
things I noted in the questions and answers that the Senator from New 
York was engaged in up at Harvard, and one of the things we have to 
explain to people, is the tax is regressive, the benefits are 
progressive. Social Security, in the main, is a very progressive 
program. You can't look at Social Security and say it is regressive 
only by examining the tax side.

  I ask if perhaps the Senator wants to comment on that. Does he hear 
that, as well--people talking about Social Security as a regressive 
program and has to offer his correction?
  Mr. MOYNIHAN. I do not think there are 100 people in the country who 
understand the formulas by which you have a higher rate of benefit for 
persons with lower incomes, but it has been there from the beginning. 
It is a very progressive program in that regard.
  That level of general unawareness, as the Senator knows, is a 
threatening fact, that a majority of nonretired adults think they will 
never get Social Security, not knowing they might need it for other 
purposes. If they don't think they will get it, they won't miss it if 
it is taken away. That is why we had better act now, and soon, and with 
a measure of courage that the people who created this institution 
showed in 1934, 1935.
  Mr. KERREY. Mr. President, let me talk about the wealth-generating 
portion of this. We know this represents the largest tax decrease in 
the history of the country, somewhere between $300 billion or $400 
billion over a 5-year period, an $800 billion tax cut overall, payroll 
taxes, a tax that for most Americans is the largest tax they pay. We 
know it establishes the solvency of the program for 75 years. We know 
it answers the question that lots of younger people have, which is, Is 
Social Security going to be there for me? We know it is fully paid for, 
that it is not only actuarially sound but fiscally sound as well.
  What is a new idea for people when they look at this program is, the 
potential to take Social Security and convert it, transform it into 
something in addition to survivors--I have to keep saying it because 
very often it gets missed--remains in place, disability remains in 
place, and the defined benefits program remains in place.
  But what we are doing is transforming it into something which, in 
addition to those three things, will now generate wealth--will generate 
wealth--for people. What happens in the process of discussing this is 
we begin to discover that this compounding interest rate formula that 
the Senator has referred to a couple of times as a real engine for 
wealth generation is a lot more powerful than we realized it was.
  Indeed, it is a mathematical certainty, if you have ever given a 
speech about the rich getting richer and the poor getting poorer, which 
lots of folks on our side of the aisle do, they identify that as a 
problem in America. It is a mathematical certainty we can solve that 
problem. But you have to be willing to use compounding interest rates 
to do it, unless you want to give everybody a ticket, a guaranteed 
payoff, which is not likely.
  You can use the Social Security Program as a means to get the job 
done. I emphasize that because in the public press where this debate is 
going on, very often I get asked, ``Are you for privatization?'' That 
becomes the debate, privatization versus Social Security as a defined 
benefit program. I say, no, I am for taking a piece of this program and 
personalizing it. So the bull's-eye to me is wealth generation.
  The goal for me is in addition to establishing the solvency of Social 
Security for 75 years, in addition to a tax cut which you accomplish by 
making it a pay-as-you-go system, I want Americans, regardless of their 
income, whether they are making $5.15 an hour or $115 an hour, 
regardless of their income, I want them to know, if they are willing to 
go out and go to work, they are going to have a shot at the American 
dream of having ownership and acquiring wealth.
  I want them to be connected to the future by knowing if they are 
going to go to work, that with absolute certainty, they are going to 
have wealth at the end of it. Can you connect that with private pension 
reform and tax reform, as the Senator from Delaware has advocated for a 
number of years? The answer is yes. But you can also take Social 
Security and make it a source of wealth.
  Just at 2 percent, again, the median family income of $34,000 will 
generate close to $400,000 over a 45-year working life. In my 
legislation, I also allow people--in fact, I require the opening of a 
$1,000 account at birth and to contribute $500 a year to that account 
for the first 5 years.
  The Senator from Louisiana and I and the Senator from Connecticut had 
a program we offered last year called KidSave which would do that. It 
passed the Senate and was dropped in conference. But the goal here is 
not just savings. The goal is wealth. The goal is to say, if you are 
willing to go to work, there is a Federal law that will enable you to 
acquire over the course of your working life wealth and the 
independence and the security and all the other sorts of things that 
come with wealth.
  There are lots of benefits from that for the individual, and it ought 
to be obvious. When we debated the budget, I recall the other side of 
the aisle wanted as one of the top priorities----

[[Page S2160]]

  The PRESIDING OFFICER. May I remind the Senator, morning business was 
to conclude at 11:30.
  Mr. MOYNIHAN. Mr. President, I ask unanimous consent that we have an 
additional 10 minutes.
  The distinguished chairman of the Finance Committee is agreeable to 
that. The Senator from Louisiana would like to conclude our remarks.
  The PRESIDING OFFICER. Is there objection? Hearing none, without 
objection, it is so ordered.
  Mr. KERREY. Mr. President, I will take 30 seconds to conclude.
  When we debated the Balanced Budget Act last year, one of the big 
issues was the inheritance tax. Well, only 1.5 percent of Americans 
have estates over $600,000--1.5 percent. That means 98.5 percent have 
less. For all those who are enthusiastic about raising that threshold--
I voted for it and I thought the threshold ought to be raised--I call 
on them now, on behalf of the 98.5 percent whose estates are under 
$600,000, to embrace this proposal to help them with the means to 
acquire wealth and what I think Social Security should provide.
  Mr. BREAUX addressed the Chair.
  The PRESIDING OFFICER. The Senator from Louisiana.
  Mr. BREAUX. I thank the Chair.
  I want to start off by commending both of the speakers who have 
previously spoken on this issue, especially Senator Moynihan.
  Social Security has always been referred to as the third rail of 
politics. I might add that Medicare is probably also a part of that 
third rail. The theory was that, if you touch it politically, you die. 
I mean, you can't talk about it because it has always been too 
controversial with all the groups and organizations around the country 
that, if you ever tried to change anything in the area of Social 
Security, people will kill you politically.

  We are running out of options in 1998. Unless some changes are made, 
the program is not going to be there. It is not going to exist. I 
commend Senator Moynihan for his courage and for his intelligence and 
for his long history of involvement in this particular area, talking 
about not just what the situation is today, but talking about the 
future, and is it going to be there for our children and our 
grandchildren?
  People who are in retirement programs today are in good shape from 
the standpoint of knowing the program is going to be there for the rest 
of their lives. What we are really talking about, however, is, is it 
going to be there for their children and grandchildren and future 
generations?
  This is not 1935. I mean, when the program was designed by President 
Roosevelt and Congress, in those days it was a program that really was 
targeted to what was happening at that time. I commend particularly the 
recommendations of the senior Senator from New York that we have a 
program that now establishes or allows people to establish individual 
accounts. That is very, very important.
  We invest the Social Security trust funds in Government securities. 
You know how much money we get for their investments? About 2.3 
percent. That is not a good investment. We are only getting a 2.3 
percent, on average, return from the Social Security investments. That 
does not make sense in 1998. When the stock market is increasing at a 
15 percent rate of return, we should be allowing people to participate 
in something that will give them more money back than 2.3 percent which 
we get now for Social Security investments.
  The second thing that allows, as I understand it, is patterned after 
the thrift savings accounts which we have an opportunity to do as 
Federal employees. Every Federal employee, including myself as a 
Senator, and House Members, all Federal employees have an option of 
putting their retirement moneys into a high-risk plan or a moderate-
risk plan or a low-risk plan with no risk at all but a lower return, in 
order to build up our savings. That is much better, in my opinion, than 
Social Security retirees have with the 2.3 percent return with regard 
to the Social Security retirement plan.
  Here is the problem. Social Security today is pay as you go. The 
problem is, we have fewer people paying and more people going. We have 
fewer people contributing the money and more and more people going into 
retirement. So we have a pay-as-you-go system, but there are fewer and 
fewer people paying and more and more people going.
  What do I mean by that? It is very simple. In 1950, there were 16.5 
people paying for every one person going into retirement. Today, we 
have about three people paying for every one person going. In the year 
2030, there are going to be only two people paying for every person 
going.
  We have 77 million baby boomers who are getting ready to go. They are 
going into retirement starting in 2010. The question is, do we have 
enough people paying for all of those people that are going? The answer 
is clearly no.
  So I very much congratulate the senior Senator from New York and 
Senator Kerrey from Nebraska for having the political courage to come 
to the floor and talk about this.
  One of my concerns is that it is voluntary. I think I would like to 
take it a step further and say you have to, if you are going to get a 
tax cut, you have to put it into an individual retirement account.
  I am concerned a lot of people may take the money, the dough, and not 
put it into a savings account. But we still have the obligation to take 
care of their retirement. I think we need to talk about that. I mean, I 
think you are right on target and are moving in the right direction. 
This is a major contribution to something that we spend too little time 
addressing.
  Mr. MOYNIHAN. I thank my colleague for his generosity.
  Mr. President, if the deputy leader would allow me, I just conclude 
our morning business. I ask unanimous consent that the text of the 
Social Security Solvency Act of 1998 be printed in the Record, along 
with a brief summary of the bill.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

                                S. 1792

       Be it enacted by the Senate and House of Representatives of 
     the United States of America in Congress assembled,

     SECTION 1. SHORT TITLE; TABLE OF CONTENTS.

       (a) Short Title.--This Act may be cited as the ``Social 
     Security Solvency Act of 1998''.
       (b) Table of Contents.--The table of contents of this Act 
     is as follows:

Sec. 1. Short title; table of contents.
Sec. 2. Modification of FICA rates to provide pay-as-you-go financing 
              of social security.
Sec. 3. Voluntary investment of payroll tax cut by employees.
Sec. 4. Increase of social security wage base.
Sec. 5. Cost-of-living adjustments.
Sec. 6. Tax treatment of social security payments.
Sec. 7. Coverage of newly hired State and local employees.
Sec. 8. Increase in length of computation period from 35 to 38 years.
Sec. 9. Phased in increase in social security retirement age.
Sec. 10. Elimination of earnings test for individuals who have attained 
              early retirement age.

     SEC. 2. MODIFICATION OF FICA RATES TO PROVIDE PAY-AS-YOU-GO 
                   FINANCING OF SOCIAL SECURITY.

       (a) In General.--
       (1) Tax on employees.--Section 3101(a) of the Internal 
     Revenue Code of 1986 (relating to tax on employees) is 
     amended to read as follows:
       ``(a) Old-Age, Survivors, and Disability Insurance.--
       ``(1) In general.--In addition to other taxes, there is 
     hereby imposed on the income of every individual a tax equal 
     to the applicable percentage of the wages (as defined in 
     section 3121(a)) received by him with respect to employment 
     (as defined in section 3121(b)).
       ``(2) Applicable percentage.--For purposes of paragraph 
     (1), the applicable percentage shall be the percentage set 
     forth in the following table:

    ``In the case wages                                  The applicable
                                                   percentage shall be:
      1999 through 2024............................................5.2 
      2025 through 2029............................................5.7 
      2030 through 2044............................................6.2 
      2045 through 2054...........................................6.35 
      2055 through 2059............................................6.5 
      2060 or thereafter........................................6.7.'' 
       (2) Tax on employers.--Section 3111(a) of such Code 
     (relating to tax on employers) is amended to read as follows:
       ``(a) Old-Age, Survivors, and Disability Insurance.--
       ``(1) In general.--In addition to other taxes, there is 
     hereby imposed on every employer an excise tax, with respect 
     to having individuals in his employ, equal to the applicable 
     percentage of the wages (as defined in section 3121(a)) paid 
     by him with respect to employment (as defined in section 
     3121(b)).
       ``(2) Applicable percentage.--For purposes of paragraph 
     (1), the applicable percentage shall be the percentage set 
     forth in the following table:

    ``In the case wages                                  The applicable
                                                   percentage shall be:
      1999 and 2000................................................6.2 
      2001 through 2024............................................5.2 

[[Page S2161]]

      2025 through 2029............................................5.7 
      2030 through 2044............................................6.2 
      2045 through 2054...........................................6.35 
      2055 through 2059............................................6.5 
      2060 or thereafter........................................6.7.'' 
       (3) Self-employment tax.--Section 1401(a) of such Code 
     (relating to tax on self-employment income) is amended to 
     read as follows:
       ``(a) Old-Age, Survivors, and Disability Insurance.--
       ``(1) In general.--In addition to other taxes, there is 
     hereby imposed for each taxable year, on the self-employment 
     income of every individual, a tax equal to the applicable 
     percentage of the amount of the self-employment income for 
     such taxable year.
       ``(2) Applicable percentage.--For purposes of paragraph 
     (1), the applicable percentage shall be the percentage set 
     forth in the following table:

       

                                                                        
              ``In the case of a taxable year                    The    
                                                              applicable
                                                              percentage
          Beginning after:                 And before:           is:    
                                                                        
  December 31, 1998................  January 1, 2001                11.4
  December 31, 2000................  January 1, 2025                10.4
  December 31, 2024................  January 1, 2030                11.4
  December 31, 2029................  January 1, 2045                12.4
  December 31, 2044................  January 1, 2055                12.7
  December 31, 2054................  January 1, 2060                13.0
  December 31, 2059................  ......................      13.4.''
                                                                        

       (4) Effective dates.--
       (A) Employees and employers.--The amendments made by 
     paragraphs (1) and (2) apply to remuneration paid after 
     December 31, 1998.
       (B) Self-employed individuals.--The amendment made by 
     paragraph (3) applies to taxable years beginning after 
     December 31, 1998.
       (b) Reallocation of Employment Taxes.--
       (1) Reallocation of tax on employees and employers.--
     Section 201(b)(1) of the Social Security Act (42 U.S.C. 
     401(b)(1)) is amended by striking ``(Q) 1.70 per centum of 
     the wages (as so defined) paid after December 31, 1996, and 
     before January 1, 2000, and so reported, and (R) 1.80 per 
     centum of the wages (as so defined) paid after December 31, 
     1999, and so reported'' and inserting ``(Q) 1.70 per centum 
     of the wages (as so defined) paid after December 31, 1996, 
     and before January 1, 1999, and so reported, (R) 1.80 per 
     centum of the wages (as so defined) paid after December 31, 
     1998, and before January 1, 2015, and so reported, (S) 2.00 
     per centum of the wages (as so defined) paid after December 
     31, 2014, and before January 1, 2025, and so reported, (T) 
     2.30 per centum of the wages (as so defined) paid after 
     December 31, 2024, and before January 1, 2030, and so 
     reported, (U) 2.20 per centum of the wages (as so defined) 
     paid after December 31, 2029, and before January 1, 2035, and 
     so reported, (V) 2.30 per centum of the wages (as so defined) 
     paid after December 31, 2034, and before January 1, 2040, and 
     so reported, (W) 2.40 per centum of the wages (as so defined) 
     paid after December 31, 2039, and before January 1, 2045, and 
     so reported, (X) 2.80 per centum of the wages (as so defined) 
     paid after December 31, 2044, and before January 1, 2055, and 
     so reported, and (Y) 2.90 per centum of the wages (as so 
     defined) paid after December 31, 2054, and so reported''.
       (2) Reallocation of tax on self-employment income.--Section 
     201(b)(2) of such Act (42 U.S.C. 401(b)(2)) is amended by 
     striking ``(Q) 1.70 per centum of self-employment income (as 
     so defined) so reported for any taxable year beginning after 
     December 31, 1996, and before January 1, 2000, and (R) 1.80 
     per centum of self-employment income (as so defined) so 
     reported for any taxable year beginning after December 31, 
     1999'' and inserting ``(Q) 1.70 per centum of self-employment 
     income (as so defined) so reported for any taxable year 
     beginning after December 31, 1996, and before January 1, 
     1999, (R) 1.80 per centum of self-employment income (as so 
     defined) so reported for any taxable year beginning after 
     December 31, 1998, and before January 1, 2015, (S) 2.00 per 
     centum of self-employment income (as so defined) so reported 
     for any taxable year beginning after December 31, 2014, and 
     before January 1, 2025, (T) 2.30 per centum of self-
     employment income (as so defined) so reported for any taxable 
     year beginning after December 31, 2024, and before January 1, 
     2030, (U) 2.20 per centum of self-employment income (as so 
     defined) so reported for any taxable year beginning after 
     December 31, 2029, and before January 1, 2035, (V) 2.30 per 
     centum of self-employment income (as so defined) so reported 
     for any taxable year beginning after December 31, 2034, and 
     before January 1, 2040, (W) 2.40 per centum of self-
     employment income (as so defined) so reported for any taxable 
     year beginning after December 31, 2039, and before January 1, 
     2045, (X) 2.80 per centum of self-employment income (as so 
     defined) so reported for any taxable year beginning after 
     December 31, 2044, and before January 1, 2055, and (Y) 2.90 
     per centum of self-employment income (as so defined) so 
     reported for any taxable year beginning after December 31, 
     2054''.
       (c) Future Rates and Allocation Between Trust Funds 
     Proposed by Board of Trustees for Legislative Action.--
       (1) In general.--Section 201(c) of the Social Security Act 
     (42 U.S.C. 401(c)) is amended in the matter following 
     paragraph (5) by striking ``(as defined by the Board of 
     Trustees).'' and inserting ``(as defined by the Board of 
     Trustees. If such finding shows that the combined Trust Funds 
     are not in close actuarial balance (as so defined), then such 
     report (beginning in April 2000) shall include a legislative 
     recommendation by the Board of Trustees specifying new rates 
     of tax under sections 3101(a), 3111(a), and 1401(a) of the 
     Internal Revenue Code of 1986, and the allocation of those 
     rates between the Trust Funds necessary in order to restore 
     the combined Trust Funds and each Trust Fund to actuarial 
     balance. If such finding shows that the combined Trust Funds 
     are in close actuarial balance (as so defined), but that 1 of 
     the Trust Funds is not in close actuarial balance, then such 
     report (beginning in April 2000) shall include a legislative 
     recommendation by the Board of Trustees specifying a new 
     allocation of such rates of tax between the Trust Funds, so 
     that each Trust Fund is in close actuarial balance. Such 
     recommendation shall be considered by Congress under 
     procedures described in subsection (n)).''.
       (2) Fast-track consideration of legislative 
     recommendations.--Section 201 of such Act (42 U.S.C. 401) is 
     amended by adding at the end the following new subsection:
       ``(n)(1) Any legislative recommendation included in the 
     report provided for in subsection (c) shall--
       ``(A) not later than 3 days after the Board of Trustees 
     submits such report, be introduced (by request) in the House 
     of Representatives by the Majority Leader of the House and be 
     introduced (by request) in the Senate by the Majority Leader 
     of the Senate; and
       ``(B) be given expedited consideration under the same 
     provisions and in the same way, subject to paragraph (2), as 
     a joint resolution under section 2908 of the Defense Base 
     Closure and Realignment Act of 1990 (10 U.S.C. 2678 note).
       ``(2) For purposes of applying paragraph (1) with respect 
     to such provisions, the following rules shall apply:
       ``(A) Section 2908(a) of the Defense Base Closure and 
     Realignment Act of 1990 (10 U.S.C. 2678 note) shall not 
     apply.
       ``(B) Any reference to the resolution described in 
     subsection (a) shall be deemed to be a reference to the 
     legislative recommendation submitted under subsection (c) of 
     this Act.
       ``(C) Any reference to the Committee on National Security 
     of the House of Representatives shall be deemed to be a 
     reference to the Committee on Ways and Means of the House of 
     Representatives and any reference to the Committee on Armed 
     Services of the Senate shall be deemed to be a reference to 
     the Committee on Finance of the Senate.
       ``(D) Any reference to the date on which the President 
     transmits a report shall be deemed to be a reference to the 
     date on which the recommendation is submitted under 
     subsection (c).''.
       (d) Conforming Amendments to FERS To Protect Payroll Tax 
     Cut.--The table contained in section 8422(a)(3) of title 5, 
     United States Code, is amended--
       (1) by striking ``7'' the second place it appears and 
     inserting ``6'';
       (2) by striking ``7.25'' and inserting ``6.25'';
       (3) by striking ``7.4'' and inserting ``6.4'';
       (4) by striking ``7.5'' the first, third, fifth, and 
     seventh places it appears and inserting ``6.5'';
       (5) by striking ``7.75'' each place it appears and 
     inserting ``6.75'';
       (6) by striking ``7.9'' each place it appears and inserting 
     ``6.9''; and
       (7) by striking ``8'' each place it appears and inserting 
     ``7''.

     SEC. 3. VOLUNTARY INVESTMENT OF PAYROLL TAX CUT BY EMPLOYEES.

       (a) Short Title.--This section may be cited as the 
     ``Voluntary Investment Contribution Act (VICA)''.
       (b) Voluntary Investment of Payroll Tax Cut.--
       (1) In general.--Title II of the Social Security Act (42 
     U.S.C. 401 et seq.) is amended--
       (A) by inserting before section 201 the following:

                    ``Part A--Insurance Benefits'';

     and
       (B) by adding at the end the following:

                ``Part B--Voluntary Investment Accounts


  ``employee election and designation of voluntary investment account 
                      under payroll deduction plan

       ``Sec. 251. (a) In General.--An individual who is an 
     employee of a covered employer may elect to participate in 
     the employer's voluntary investment account payroll deduction 
     plan either--
       ``(1) not later than 10 business days after the individual 
     becomes an employee of the employer, or
       ``(2) during any open enrollment period.
     The Commissioner shall by regulation provide for at least 1 
     open enrollment period annually.
       ``(b) Period of Election.--
       ``(1) Time election takes effect.--An election under 
     subsection (a) shall take effect with respect to the first 
     pay period beginning more than 14 days after the date of the 
     election.
       ``(2) Termination.--An election under subsection (a) shall 
     terminate--
       ``(A) upon the termination of employment of the employee of 
     the covered employer, or
       ``(B) with respect to pay periods beginning more than 14 
     days after the employee terminates such election.
       ``(c) Designation of Voluntary Investment Account.--
       ``(1) Initial election.--An employee shall, at the time an 
     election is made under subsection (a), designate the 
     voluntary investment account to which voluntary investment 
     account contributions on behalf of the employee are to be 
     deposited.

[[Page S2162]]

       ``(2) Changes.--The Commissioner shall by regulation 
     provide the time and manner by which an employee may--
       ``(A) designate another voluntary investment account to 
     which contributions are to be deposited, and
       ``(B) transfer amounts from one such account to another.
       ``(d) Form of Elections.--Elections under this section 
     shall be made--
       ``(1) on W-4 forms (or any successor forms), or
       ``(2) in such other manner as the Commissioner may 
     prescribe in order to ensure ease of administration and 
     reductions in burdens on employers.


         ``voluntary investment account payroll deduction plans

       ``Sec. 252. (a) In General.--Each person who is a covered 
     employer for a calendar year shall have in effect a voluntary 
     investment account payroll deduction plan for such calendar 
     year for such person's electing employees.
       ``(b) Voluntary Investment Account Payroll Deduction 
     Plans.--For purposes of this part, the term `voluntary 
     investment account payroll deduction plan' means a written 
     plan of an employer--
       ``(1) which applies only with respect to wages of any 
     employee who elects to become an electing employee in 
     accordance with section 251,
       ``(2) under which the voluntary investment account 
     contributions under section 3101(a) of the Internal Revenue 
     Code of 1986 will be deducted from an electing employee's 
     wages and, together with such contributions under section 
     3111(a) of such Code on behalf of such employee, will be paid 
     to the Social Security Administration for deposit in 1 or 
     more voluntary investment accounts designated by such 
     employee in accordance with section 251,
       ``(3) under which the employer is required to pay the 
     amount so contributed with respect to the specified voluntary 
     investment account of the electing employee within the same 
     time period as other taxes under sections 3101 and 3111 with 
     respect to the wages of such employee,
       ``(4) under which the employer receives no compensation for 
     the cost of administering such plan, and
       ``(5) under which the employer does not make any 
     endorsement with respect to any voluntary investment account.
       ``(c) Penalties for Failure To Establish Voluntary 
     Investment Account Payroll Deduction Plan.--
       ``(1) In general.--Any covered employer who fails to meet 
     the requirements of this section for any calendar year shall 
     be subject to a civil penalty of not to exceed the greater 
     of--
       ``(A) $2,500, or
       ``(B) $100 for each electing employee of such employer as 
     of the beginning of such calendar year.
       ``(2) Rules for application of subsection.--
       ``(A) Penalties assessed by commissioner.--Any civil 
     penalty assessed by this subsection shall be imposed by the 
     Commissioner of Social Security and collected in a civil 
     action.
       ``(B) Compromises.--The Commissioner may compromise the 
     amount of any civil penalty imposed by this subsection.
       ``(C) Authority to waive penalty in certain cases.--The 
     Commissioner may waive the application of this subsection 
     with respect to any failure if the Commissioner determines 
     that such failure is due to reasonable cause and not to 
     intentional disregard of rules and regulations.


              ``participation by self-employed individuals

       ``Sec. 253. An individual shall make an election to become 
     an electing self-employed individual, designate a voluntary 
     investment account, and have in effect a voluntary investment 
     account payroll deduction plan under rules similar to the 
     rules under sections 251 and 252.


                    ``DEFINITIONS AND SPECIAL RULES

       ``Sec. 254. For purposes of this part--
       ``(1) Voluntary investment account.--
       ``(A) In general.--The term `voluntary investment account' 
     means--
       ``(i) any voluntary investment account in the Voluntary 
     Investment Fund (established under section 255) which is 
     administered by the Voluntary Investment Board, or
       ``(ii) any individual retirement plan (as defined in 
     section 7701(a)(37) of the Internal Revenue Code of 1986), 
     other than a Roth IRA (as defined in section 408A(b) of such 
     Code), which is designated by the electing employee as a 
     voluntary investment account (in such manner as the Secretary 
     of the Treasury may prescribe) and which is administered or 
     issued by a bank or other person referred to in section 
     408(a)(2) of such Code.
       ``(B) Treatment of accounts.--
       ``(i) In general.--Except as provided in clause (ii)--

       ``(I) any voluntary investment account described in 
     subparagraph (A)(i) shall be treated in the same manner as an 
     account in the Thrift Savings Fund under subchapter III of 
     chapter 84 of title 5, United States Code, and
       ``(II) any voluntary investment account described in 
     subparagraph (A)(ii) shall be treated in the same manner as 
     an individual retirement plan (as so defined).

       ``(ii) Exceptions.--

       ``(I) Contribution limit.--The aggregate amount of 
     contributions for any taxable year to all voluntary 
     investment accounts of an electing employee shall not exceed 
     the aggregate amount of contributions made pursuant to 
     sections 3101(a)(3), 3111(a)(3), and 1401(a)(3) of the 
     Internal Revenue Code of 1986 and paid pursuant to section 
     252 or 253 on behalf of such employee.
       ``(II) No deduction allowed.--No deduction shall be allowed 
     under section 219 of the Internal Revenue Code of 1986 for a 
     contribution to a voluntary investment account described in 
     subparagraph (A)(ii).
       ``(III) Rollover contributions.--No rollover contribution 
     may be made to a voluntary investment account unless it is 
     from another voluntary investment account. A rollover 
     described in the preceding sentence shall not be taken into 
     account for purposes of subclause (I).
       ``(IV) Distributions allowed to social security 
     beneficiaries.--Notwithstanding any other provision of law, 
     distributions may only be made from a voluntary investment 
     account of an electing employee on or after the earlier of 
     the date on which the employee begins receiving benefits 
     under this title or the date of the employee's death.

       ``(2) Covered employer.--The term `covered employer' means, 
     for any calendar year, any person on whom an excise tax is 
     imposed under section 3111 of the Internal Revenue Code of 
     1986 with respect to having an individual in the person's 
     employ to whom wages are paid by such person during such 
     calendar year.
       ``(3) Electing employee.--The term `electing employee' 
     means an individual with respect to whom an election under 
     section 251 is in effect.
       ``(4) Electing self-employed individual.--The term 
     `electing self-employed individual' means an individual with 
     respect to whom an election under section 253 is in effect.


                      ``Voluntary Investment Fund

       ``Sec. 255. (a) Establishment.--There is established and 
     maintained in the Treasury of the United States a Voluntary 
     Investment Fund in the same manner as the Thrift Savings Fund 
     under sections 8437, 8438, and 8439 of title 5, United States 
     Code.
       ``(b) Voluntary Investment Fund Board.--
       ``(1) In general.--There is established and operated in the 
     Social Security Administration a Voluntary Investment Fund 
     Board in the same manner as the Federal Retirement Thrift 
     Investment Board under subchapter VII of chapter 84 of title 
     5, United States Code.
       ``(2) Specific investment duties.--The Voluntary Investment 
     Fund shall be managed by the Voluntary Investment Fund Board 
     in the same manner as the Thrift Savings Fund is managed 
     under subchapter VIII of chapter 84 of title 5, United States 
     Code.''.
       (2) Exemption from erisa requirements.--Section 4(b) of the 
     Employee Retirement Income Security Act of 1974 (29 U.S.C. 
     1003(b)) is amended--
       (A) in paragraph (4), by striking ``or'';
       (B) in paragraph (5), by striking the period and inserting 
     ``; or''; and
       (C) by inserting after paragraph (5) the following:
       ``(6) such plan is a voluntary investment account payroll 
     deduction plan established under part B of title II of the 
     Social Security Act.''.
       (3) Effective date and notice requirements.--
       (A) Effective date.--The amendments made by this subsection 
     (and any voluntary investment account payroll deduction plan 
     required thereunder) apply with respect to wages paid after 
     December 31, 2000, for pay periods beginning after such date 
     and self-employment income for taxable years beginning after 
     such date.
       (B) Notice requirements.--
       (i) In general.--Not later than October 1, 2000, the 
     Commissioner of Social Security shall--

       (I) send to the last known address of each eligible 
     individual a description of the program established by the 
     amendments made by this subsection, which shall be written in 
     the form of a pamphlet in language which may be readily 
     understood by the average worker,
        (II) provide for toll-free access by telephone from all 
     localities in the United States and access by the Internet to 
     the Social Security Administration through which individuals 
     may obtain information and answers to questions regarding 
     such program, and
       (III) provide information to the media in all localities of 
     the United States about such program and such toll-free 
     access by telephone and access by Internet.

       (ii) Eligible individual.--For purposes of this 
     subparagraph, the term ``eligible individual'' means an 
     individual who, as of the date of the pamphlet sent pursuant 
     to clause (i), is indicated within the records of the Social 
     Security Administration as being credited with 1 or more 
     quarters of coverage under section 213 of the Social Security 
     Act (42 U.S.C. 413).
       (iii) Matters to be included.--The Commissioner shall 
     include with the pamphlet sent to each eligible individual 
     pursuant to clause (i)--

       (I) a statement of the number of quarters of coverage 
     indicated in the records of the Social Security 
     Administration as of the date of the description as credited 
     to such individual under section 213 of such Act and the date 
     as of which such records may be considered accurate, and

[[Page S2163]]

       (II) the number for toll-free access by telephone 
     established by the Commissioner pursuant to clause (i).

       (c) Conforming Amendments to Payroll Tax Provisions.--
       (1) Employees voluntary investment contributions.--Section 
     3101(a) of the Internal Revenue Code of 1986 (relating to tax 
     on employees), as amended by section 2(a)(1), is amended by 
     adding at the end the following:
       ``(3) Voluntary investment account contribution.--In the 
     case of an electing employee (as defined in section 254(3) of 
     the Social Security Act), in addition to other taxes, there 
     is hereby imposed on the income of such employee a voluntary 
     investment account contribution equal to 1 percent of the 
     wages (as so defined) received by him with respect to 
     employment (as so defined).''.
       (2) Employers matching contributions.--Section 3111(a) of 
     such Code (relating to tax on employers), as amended by 
     section 2(a)(2), is amended by adding at the end the 
     following:
       ``(3) Matching contribution to employee voluntary 
     investment account contribution.--In the case of an employer 
     having in his employ an electing employee (as defined in 
     section 254(3) of the Social Security Act), in addition to 
     other taxes, there is hereby imposed on such employer a 
     voluntary investment account contribution equal to 1 percent 
     of the wages (as so defined) paid by him with respect to 
     employment (as so defined) of such employee.''.
       (3) Self-employment voluntary investment account 
     contributions.--Section 1401(a) of such Code (relating to tax 
     on self-employment income), as amended by section 2(a)(3), is 
     amended by adding at the end the following:
       ``(3) Voluntary investment account contribution.--In the 
     case of an electing self-employed individual (as defined in 
     section 254(4) of the Social Security Act), in addition to 
     other taxes, there is hereby imposed for each taxable year, 
     on the self-employment income of such individual, a voluntary 
     investment account contribution equal to 2 percent of the 
     amount of the self-employment income for such taxable 
     year.''.
       (4) Effective dates.--
       (A) Employees and employers.--The amendments made by 
     paragraphs (1) and (2) apply to remuneration paid after 
     December 31, 2000.
       (B) Self-employed individuals.--The amendment made by 
     paragraph (3) applies to taxable years beginning after 
     December 31, 2000.

     SEC. 4. INCREASE OF SOCIAL SECURITY WAGE BASE.

       (a) In General.--Section 230 of the Social Security Act (42 
     U.S.C. 430) is amended--
       (1) in subsection (b)--
       (A) in paragraph (1), by striking ``$60,600'' and inserting 
     ``$97,500''; and
       (B) in paragraph (2), by striking ``1992'' and inserting 
     ``2001''; and
       (2) in subsection (c)--
       (A) by striking ``(1)'' and all that follows through 
     ``$29,700.'' and inserting ``the `contribution and benefit 
     base' with respect to remuneration paid (and taxable years 
     beginning)--
       ``(1) in 2001 shall be $85,000,
       ``(2) in 2002 shall be $92,000, and
       ``(3) in 2003 shall be $97,500.''; and
       (B) by striking ``specified in clause (2) of the preceding 
     sentence'' and inserting ``specified in the preceding 
     sentence''.
       (b) Effective Date.--The amendments made by this section 
     take effect on January 1, 2001.

     SEC. 5. COST-OF-LIVING ADJUSTMENTS.

       (a) Cost-of-Living Board.--Title XI of the Social Security 
     Act (42 U.S.C. 1301 et seq.) is amended by adding at the end 
     the following:

                  ``Part D--Cost-of-Living Adjustments


                ``Determination of Inflation Adjustment

       ``Sec. 1180. (a) Modification of Cost-of-Living 
     Adjustment.--
       ``(1) In general.--Notwithstanding any other provision of 
     law, any cost-of-living adjustment described in subsection 
     (e) shall be reduced by the applicable percentage point.
       ``(2) Applicable percentage point.--In this section, the 
     term `applicable percentage point' means--
       ``(A) except as provided in subparagraph (B), 1 percentage 
     point; or
       ``(B) the applicable percentage point adopted by the Cost-
     of-Living Board under subsection (b) for the calendar year.
       ``(b) Cost-of-Living Board Determination.--
       ``(1) In general.--The Cost-of-Living Board established 
     under section 1181 shall for each calendar year after 1998 
     determine if a new applicable percentage point is necessary 
     to replace the applicable percentage point described in 
     subsection (a)(2)(A) to ensure an accurate cost-of-living 
     adjustment which shall apply to any cost-of-living adjustment 
     taking effect during such year.
       ``(2) Adoption or Rejection of New Applicable Percentage 
     Point.--
       ``(A) Adoption.--
       ``(i) In general.--If the Cost-of-Living Board adopts by 
     majority vote a new applicable percentage point under 
     paragraph (1), then, for purposes of subsection (a)(1), the 
     new applicable percentage point shall remain in effect during 
     the following calendar year.
       ``(ii) Appropriate adjustments.--The Cost-of-Living Board 
     shall make appropriate adjustments to the applicable 
     percentage point applied to any cost-of-living adjustment 
     if--

       ``(I) the period during which the change in the cost-of-
     living is measured for such adjustment is different than the 
     period used by the Cost-of-Living Board; or

       ``(II) the adjustment is based on a component of an index 
     rather than the entire index.

       ``(B) Rejection.--If the Cost-of-Living Board fails by 
     majority vote to adopt a new applicable percentage point 
     under paragraph (1) for any calendar year, then the 
     applicable percentage point for such calendar year shall be 
     the applicable percentage point described in subsection 
     (a)(2)(A).
       ``(c) Report.--Not later than November 1 of each calendar 
     year, the Cost-of-Living Board shall submit a report to the 
     President and Congress containing a detailed statement with 
     respect to the new applicable percentage point (if any) 
     agreed to by the Board under subsection (b).
       ``(d) Judicial Review.--Any determination by the Cost-of 
     Living Board under subsection (b) shall not be subject to 
     judicial review.
       ``(e) Cost-of-Living Adjustment Described.--A cost-of-
     living adjustment described in this subsection is any cost-
     of-living adjustment for a calendar year after 1998 
     determined by reference to a percentage change in a consumer 
     price index or any component thereof (as published by the 
     Bureau of Labor Statistics of the Department of Labor and 
     determined without regard to this section) and used in any of 
     the following:
       ``(1) The Internal Revenue Code of 1986.
       ``(2) Titles II, XVIII, and XIX of this Act.
       ``(3) Any other Federal program (not including programs 
     under title XVI of this Act).


                         ``COST-OF-LIVING BOARD

       ``Sec. 1181. (a) Establishment of Board.--
       ``(1) Establishment.--There is established a board to be 
     known as the Cost-of-Living Board (in this section referred 
     to as the `Board').
       ``(2) Membership.--
       ``(A) Composition.--The Board shall be composed of 5 
     members of whom--
       ``(i) 1 shall be the Chairman of the Board of Governors of 
     the Federal Reserve System;
       ``(ii) 1 shall be the Chairman of the President's Council 
     of Economic Advisers; and
       ``(iii) 3 shall be appointed by the President, by and with 
     the advice and consent of the Senate.

     The President shall consult with the leadership of the House 
     of Representatives and the Senate in the appointment of the 
     Board members under clause (iii).
       ``(B) Expertise.--The members of the Board appointed under 
     subparagraph (A)(iii) shall be experts in the field of 
     economics and should be familiar with the issues related to 
     the calculation of changes in the cost of living. In 
     appointing members under subparagraph (A)(iii), the President 
     shall consider appointing--
       ``(i) former members of the President's Council of Economic 
     Advisers;
       ``(ii) former Treasury department officials;
       ``(iii) former members of the Board of Governors of the 
     Federal Reserve System;
       ``(iv) other individuals with relevant prior government 
     experience in positions requiring appointment by the 
     President and Senate confirmation; and
       ``(v) academic experts in the field of price statistics.
       ``(C) Date.--
       ``(i) Nominations.--Not later than 30 days after the date 
     of enactment of the Social Security Solvency Act of 1998, the 
     President shall submit the nominations of the members of the 
     Board described in subparagraph (A)(iii) to the Senate.
       ``(ii) Senate action.--Not later than 60 days after the 
     Senate receives the nominations under clause (i), the Senate 
     shall vote on confirmation of the nominations.
       ``(3) Terms and vacancies.--
       ``(A) Terms.--A member of the Board appointed under 
     paragraph (2)(A)(iii) shall be appointed for a term of 5 
     years, except that of the members first appointed under that 
     paragraph--
       ``(i) 1 member shall be appointed for a term of 1 year;
       ``(ii) 1 member shall be appointed for a term of 3 years; 
     and
       ``(iii) 1 member shall be appointed for a term of 5 years.
       ``(B) Vacancies.--
       ``(i) In general.--A vacancy on the Board shall be filled 
     in the manner in which the original appointment was made and 
     shall be subject to any conditions which applied with respect 
     to the original appointment.
       ``(ii) Filling unexpired term.--An individual chosen to 
     fill a vacancy shall be appointed for the unexpired term of 
     the member replaced.
       ``(C) Expiration of terms.--The term of any member 
     appointed under paragraph (2)(A)(iii) shall not expire before 
     the date on which the member's successor takes office.
       ``(4) Initial meeting.--Not later than 30 days after the 
     date on which all members of the Board have been appointed, 
     the Board shall hold its first meeting. Subsequent meetings 
     shall be determined by the Board by majority vote.
       ``(5) Open meetings.--Notwithstanding section 552b of title 
     5, United States Code, or section 10 of the Federal Advisory 
     Committee Act (5 U.S.C. App.), the Board may, by majority 
     vote, close any meeting of the Board to the public otherwise 
     required to be open under that section. The Board shall make 
     the records of any such closed meeting available to the 
     public not later than 30 days of that meeting.
       ``(6) Quorum.--A majority of the members of the Board shall 
     constitute a quorum, but

[[Page S2164]]

     a lesser number of members may hold hearings.
       ``(7) Chairperson and vice chairperson.--The Board shall 
     select a Chairperson and Vice Chairperson from among the 
     members appointed under paragraph (2)(A)(iii).
       ``(b) Powers of the Board.--
       ``(1) Hearings.--The Board may hold such hearings, sit and 
     act at such times and places, take such testimony, and 
     receive such evidence as the Board considers advisable to 
     carry out the purposes of this part.
       ``(2) Information from federal agencies.--The Board may 
     secure directly from any Federal department or agency such 
     information as the Board considers necessary to carry out the 
     provisions of this part, including the published and 
     unpublished data and analytical products of the Bureau of 
     Labor Statistics. Upon request of the Chairperson of the 
     Board, the head of such department or agency shall furnish 
     such information to the Board.
       ``(3) Postal services.--The Board may use the United States 
     mails in the same manner and under the same conditions as 
     other departments and agencies of the Federal Government.
       ``(4) Gifts.--The Board may accept, use, and dispose of 
     gifts or donations of services or property.
       ``(c) Board Personnel Matters.--
       ``(1) Compensation of members.--Each member of the Board 
     who is not otherwise an officer or employee of the Federal 
     Government shall be compensated at a rate equal to the daily 
     equivalent of the annual rate of basic pay prescribed for 
     level III of the Executive Schedule under section 5315 of 
     title 5, United States Code, for each day (including travel 
     time) during which such member is engaged in the performance 
     of the duties of the Board. All members of the Board who 
     otherwise are officers or employees of the United States 
     shall serve without compensation in addition to that received 
     for their services as officers or employees of the United 
     States.
       ``(2) Travel expenses.--The members of the Board shall be 
     allowed travel expenses, including per diem in lieu of 
     subsistence, at rates authorized for employees of agencies 
     under subchapter I of chapter 57 of title 5, United States 
     Code, while away from their homes or regular places of 
     business in the performance of services for the Board.
       ``(3) Staff.--
       ``(A) In general.--The Chairperson of the Board may, 
     without regard to the civil service laws and regulations, 
     appoint and terminate an executive director and such other 
     additional personnel as may be necessary to enable the Board 
     to perform its duties. The employment of an executive 
     director shall be subject to confirmation by the Board.
       ``(B) Compensation.--The Chairperson of the Board may fix 
     the compensation of the executive director and other 
     personnel without regard to the provisions of chapter 51 and 
     subchapter III of chapter 53 of title 5, United States Code, 
     relating to classification of positions and General Schedule 
     pay rates, except that the rate of pay for the executive 
     director and other personnel may not exceed the rate payable 
     for level IV of the Executive Schedule under section 5316 of 
     such title.
       ``(4) Detail of government employees.--Any Federal 
     Government employee may be detailed to the Board without 
     additional reimbursement (other than the employee's regular 
     compensation), and such detail shall be without interruption 
     or loss of civil service status or privilege.
       ``(5) Procurement of temporary and intermittent services.--
     The Chairperson of the Board may procure temporary and 
     intermittent services under section 3109(b) of title 5, 
     United States Code, at rates for individuals which do not 
     exceed the daily equivalent of the annual rate of basic pay 
     prescribed for level V of the Executive Schedule under 
     section 5316 of such title.
       ``(d) Termination.--Section 14 of the Federal Advisory 
     Committee Act (5 U.S.C. App.) shall not apply to the Board.
       ``(e) Authorization of Appropriations.--There are 
     authorized to be appropriated to the Board such sums as are 
     necessary to carry out the purposes of this part.''.
       (c) Termination of Wage Index Adjustment.--Section 
     215(i)(1)(C) of the Social Security Act (42 U.S.C. 
     415(i)(1)(C)) is amended--
       (1) in clause (i)--
       (A) by inserting ``and before 1999'' after ``after 1988''; 
     and
       (B) by inserting ``, or in any calendar year after 1998, 
     the CPI increase percentage; and
       (2) in clause (ii), by inserting ``and before 1999'' after 
     ``after 1988''.

     SEC. 6. TAX TREATMENT OF SOCIAL SECURITY PAYMENTS.

       (a) In General.--Section 86(a) of the Internal Revenue Code 
     of 1986 (relating to social security and tier 1 railroad 
     retirement benefits) is amended to read as follows:
       ``(a) In General.--Notwithstanding section 207 of the 
     Social Security Act, social security benefits shall be 
     included in the gross income of a taxpayer for any taxable 
     year in the manner provided under section 72.''.
       (b) Conforming Amendments.--Section 86 of the Internal 
     Revenue Code of 1986 is amended by striking subsections (b), 
     (c), and (e) and by redesignating subsections (d) and (f) as 
     subsections (b) and (c), respectively.
       (c) Transfers to Trust Funds.--Paragraph (1)(A) of section 
     121(e) of the Social Security Amendments of 1983, as amended 
     by section 13215(c)(1) of the Omnibus Budget Reconciliation 
     Act of 1993, is amended by striking ``1993.'' and inserting 
     ``1993, plus (iii) the amounts equivalent to the aggregate 
     increase in tax liabilities under chapter 1 of the Internal 
     Revenue Code of 1986 which is attributable to the amendments 
     to section 86 of such Code made by section 6 of the Social 
     Security Solvency Act of 1998.''.
       (d) Effective Date; Application; Waiver of Penalty.--
       (1) Effective date.--The amendments made by this section 
     apply to taxable years ending after June 30, 1998.
       (2) Application of amendments to taxable year 1998.--In the 
     case of any taxable year which includes July 1, 1998, the 
     amount a taxpayer is required to include in gross income 
     under section 86 of the Internal Revenue Code of 1986 shall 
     (in lieu of the amount otherwise determined) be equal to 50 
     percent of the sum of--
       (A) the amount of social security benefits of the taxpayer 
     to be included in gross income for such year under such 
     section 86, determined as if the amendments made by this 
     section had not been enacted, plus
       (B) such amount determined as if such amendments had been 
     in effect for the entire taxable year.
       (3) Waiver of certain estimated tax penalties.--No addition 
     to tax shall be imposed under section 6654 of the Internal 
     Revenue Code of 1986 (relating to failure to pay estimated 
     income tax) with respect to any underpayment of an 
     installment required to be paid with respect to a taxable 
     year to which paragraph (2) applies to the extent that such 
     underpayment was created or increased by the amendments made 
     by this section.

     SEC. 7. COVERAGE OF NEWLY HIRED STATE AND LOCAL EMPLOYEES.

       (a) Amendments to the Social Security Act.--
       (1) In general.--Paragraph (7) of section 210(a) of the 
     Social Security Act (42 U.S.C. 410(a)(7)) is amended to read 
     as follows:
       ``(7) Excluded State or local government employment (as 
     defined in subsection (s));''.
       (2) Excluded state or local government employment.--
       (A) In general.--Section 210 of such Act (42 U.S.C. 410) is 
     amended by adding at the end the following new subsection:

            ``Excluded State or Local Government Employment

       ``(s)(1) In general.--The term `excluded State or local 
     government employment' means any service performed in the 
     employ of a State, of any political subdivision thereof, or 
     of any instrumentality of any one or more of the foregoing 
     which is wholly owned thereby, if--
       ``(A)(i) such service would be excluded from the term 
     `employment' for purposes of this title if the preceding 
     provisions of this section as in effect on December 31, 2000, 
     had remained in effect, and (ii) the requirements of 
     paragraph (2) are met with respect to such service, or
       ``(B) the requirements of paragraph (3) are met with 
     respect to such service.
       ``(2) Exception for current employment which continues.--
       ``(A) In general.--The requirements of this paragraph are 
     met with respect to service for any employer if--
       ``(i) such service is performed by an individual--
       ``(I) who was performing substantial and regular service 
     for remuneration for that employer before January 1, 2001,
       ``(II) who is a bona fide employee of that employer on 
     December 31, 2000, and
       ``(III) whose employment relationship with that employer 
     was not entered into for purposes of meeting the requirements 
     of this subparagraph, and
       ``(ii) the employment relationship with that employer has 
     not been terminated after December 31, 2000.
       ``(B) Treatment of multiple agencies and 
     instrumentalities.--For purposes of subparagraph (A), under 
     regulations (consistent with regulations established under 
     section 3121(t)(2)(B) of the Internal Revenue Code of 1986)--
       ``(i) all agencies and instrumentalities of a State (as 
     defined in section 218(b)) or of the District of Columbia 
     shall be treated as a single employer, and
       ``(ii) all agencies and instrumentalities of a political 
     subdivision of a State (as so defined) shall be treated as a 
     single employer and shall not be treated as described in 
     clause (i).
       ``(3) Exception for certain services.--
       ``(A) In general.--The requirements of this paragraph are 
     met with respect to service if such service is performed--
       ``(i) by an individual who is employed by a State or 
     political subdivision thereof to relieve such individual from 
     unemployment,
       ``(ii) in a hospital, home, or other institution by a 
     patient or inmate thereof as an employee of a State or 
     political subdivision thereof or of the District of Columbia,
       ``(iii) by an individual, as an employee of a State or 
     political subdivision thereof or of the District of Columbia, 
     serving on a temporary basis in case of fire, storm, snow, 
     earthquake, flood, or other similar emergency,
       ``(iv) by any individual as an employee included under 
     section 5351(2) of title 5, United States Code (relating to 
     certain interns, student nurses, and other student employees 
     of hospitals of the District of Columbia Government), other 
     than as a medical or dental intern or a medical or dental 
     resident in training,
       ``(v) by an election official or election worker if the 
     remuneration paid in a calendar year for such service is less 
     than $1,000

[[Page S2165]]

     with respect to service performed during 2001, and the 
     adjusted amount determined under subparagraph (C) for any 
     subsequent year with respect to service performed during such 
     subsequent year, except to the extent that service by such 
     election official or election worker is included in 
     employment under an agreement under section 218, or
       ``(vi) by an employee in a position compensated solely on a 
     fee basis which is treated pursuant to section 211(c)(2)(E) 
     as a trade or business for purposes of inclusion of such fees 
     in net earnings from self-employment.
       ``(B) Definitions.--As used in this paragraph, the terms 
     `State' and `political subdivision' have the meanings given 
     those terms in section 218(b).
       ``(C) Adjustments to dollar amount for election officials 
     and election workers.--For each year after 2001, the 
     Secretary shall adjust the amount referred to in subparagraph 
     (A)(v) at the same time and in the same manner as is provided 
     under section 215(a)(1)(B)(ii) with respect to the amounts 
     referred to in section 215(a)(1)(B)(i), except that--
       ``(i) for purposes of this subparagraph, 1998 shall be 
     substituted for the calendar year referred to in section 
     215(a)(1)(B)(ii)(II), and
       ``(ii) such amount as so adjusted, if not a multiple of 
     $50, shall be rounded to the nearest multiple of $50.

     The Commissioner of Social Security shall determine and 
     publish in the Federal Register each adjusted amount 
     determined under this subparagraph not later than November 1 
     preceding the year for which the adjustment is made.''.
       (B) Conforming amendments.--
       (i) Subsection (k) of section 210 of such Act (42 U.S.C. 
     410(k)) (relating to covered transportation service) is 
     repealed.
       (ii) Section 210(p) of such Act (42 U.S.C. 410(p)) is 
     amended--

       (I) in paragraph (2), by striking ``service is performed'' 
     and all that follows and inserting ``service is service 
     described in subsection (s)(3)(A).''; and
       (II) in paragraph (3)(A), by inserting ``under subsection 
     (a)(7) as in effect on December 31, 2000'' after ``section''.

       (iii) Section 218(c)(6) of such Act (42 U.S.C. 418(c)(6)) 
     is amended--

       (I) by striking subparagraph (C);
       (II) by redesignating subparagraphs (D) and (E) as 
     subparagraphs (C) and (D), respectively; and
       (III) by striking subparagraph (F) and inserting the 
     following:

       ``(E) service which is included as employment under section 
     210(a).''
       (b) Amendments to the Internal Revenue Code of 1986.--
       (1) In general.--Paragraph (7) of section 3121(b) of the 
     Internal Revenue Code of 1986 (relating to employment) is 
     amended to read as follows:
       ``(7) excluded State or local government employment (as 
     defined in subsection (t));''.
       (2) Excluded state or local government employment.--Section 
     3121 of such Code is amended by inserting after subsection 
     (s) the following new subsection:
       ``(t) Excluded State or Local Government Employment.--
       ``(1) In general.--For purposes of this chapter, the term 
     `excluded State or local government employment' means any 
     service performed in the employ of a State, of any political 
     subdivision thereof, or of any instrumentality of any one or 
     more of the foregoing which is wholly owned thereby, if--
       ``(A)(i) such service would be excluded from the term 
     `employment' for purposes of this chapter if the provisions 
     of subsection (b)(7) as in effect on December 31, 2000, had 
     remained in effect, and (ii) the requirements of paragraph 
     (2) are met with respect to such service, or
       ``(B) the requirements of paragraph (3) are met with 
     respect to such service.
       ``(2) Exception for current employment which continues.--
       ``(A) In general.--The requirements of this paragraph are 
     met with respect to service for any employer if--
       ``(i) such service is performed by an individual--

       ``(I) who was performing substantial and regular service 
     for remuneration for that employer before January 1, 2001,
       ``(II) who is a bona fide employee of that employer on 
     December 31, 2000, and
       ``(III) whose employment relationship with that employer 
     was not entered into for purposes of meeting the requirements 
     of this subparagraph, and

       ``(ii) the employment relationship with that employer has 
     not been terminated after December 31, 2000.
       ``(B) Treatment of multiple agencies and 
     instrumentalities.--For purposes of subparagraph (A), under 
     regulations--
       ``(i) all agencies and instrumentalities of a State (as 
     defined in section 218(b) of the Social Security Act) or of 
     the District of Columbia shall be treated as a single 
     employer, and
       ``(ii) all agencies and instrumentalities of a political 
     subdivision of a State (as so defined) shall be treated as a 
     single employer and shall not be treated as described in 
     clause (i).
       ``(3) Exception for certain services.--
       ``(A) In general.--The requirements of this paragraph are 
     met with respect to service if such service is performed--
       ``(i) by an individual who is employed by a State or 
     political subdivision thereof to relieve such individual from 
     unemployment,
       ``(ii) in a hospital, home, or other institution by a 
     patient or inmate thereof as an employee of a State or 
     political subdivision thereof or of the District of Columbia,
       ``(iii) by an individual, as an employee of a State or 
     political subdivision thereof or of the District of Columbia, 
     serving on a temporary basis in case of fire, storm, snow, 
     earthquake, flood, or other similar emergency,
       ``(iv) by any individual as an employee included under 
     section 5351(2) of title 5, United States Code (relating to 
     certain interns, student nurses, and other student employees 
     of hospitals of the District of Columbia Government), other 
     than as a medical or dental intern or a medical or dental 
     resident in training,
       ``(v) by an election official or election worker if the 
     remuneration paid in a calendar year for such service is less 
     than $1,000 with respect to service performed during 2001, 
     and the adjusted amount determined under section 210(s)(3)(C) 
     of the Social Security Act for any subsequent year with 
     respect to service performed during such subsequent year, 
     except to the extent that service by such election official 
     or election worker is included in employment under an 
     agreement under section 218 of the Social Security Act, or
       ``(vi) by an employee in a position compensated solely on a 
     fee basis which is treated pursuant to section 1402(c)(2)(E) 
     as a trade or business for purposes of inclusion of such fees 
     in net earnings from self-employment.
       ``(B) Definitions.--As used in this paragraph, the terms 
     `State' and `political subdivision' have the meanings given 
     those terms in section 218(b) of the Social Security Act.''.
       (3) Conforming amendments.--
       (A) Subsection (j) of section 3121 of such Code (relating 
     to covered transportation service) is repealed.
       (B) Paragraph (2) of section 3121(u) of such Code (relating 
     to application of hospital insurance tax to Federal, State, 
     and local employment) is amended--
       (i) in subparagraph (B), by striking ``service is 
     performed'' in clause (ii) and all that follows through the 
     end of such subparagraph and inserting ``service is service 
     described in subsection (t)(3)(A).''; and
       (ii) in subparagraph (C)(i), by inserting ``under 
     subsection (b)(7) as in effect on December 31, 2000'' after 
     ``chapter''.
       (c) Effective Date.--Except as otherwise provided in this 
     section, the amendments made by this section shall apply with 
     respect to service performed after December 31, 2000.

     SEC. 8. INCREASE IN LENGTH OF COMPUTATION PERIOD FROM 35 TO 
                   38 YEARS.

       Section 215(b)(2)(B) of the Social Security Act (42 U.S.C. 
     415(b)(2)) is amended--
       (1) in clause (ii), by striking ``and'' at the end;
       (2) in clause (iii)--
       (A) by striking ``age 62'' and inserting ``the applicable 
     age''; and
       (B) by striking the period at the end and inserting ``; 
     and''; and
       (3) by adding at the end the following:
       ``(iv) the term ``applicable age'' means with respect to 
     individuals who attain age 62--
       ``(I) before 2001, age 62;
       ``(II) in 2001, age 63;
       ``(III) in 2002, age 64; and
       ``(IV) after 2002, age 65.''.

     SEC. 9. PHASED IN INCREASE IN SOCIAL SECURITY RETIREMENT AGE.

       (a) In General.--Section 216(l) of the Social Security Act 
     (42 U.S.C. 416(l) is amended--
       (1) in paragraph (1), by striking subparagraphs (B), (C), 
     (D), and (E) and inserting the following:
       ``(B) with respect to an individual who attains early 
     retirement age after December 31, 1999, and before January 1, 
     2018, 65 years of age plus \2/12\ of the number of months in 
     the period beginning with January 2000 and ending with 
     December of the year in which the individual attains early 
     retirement age;
       ``(C) with respect to an individual who attains early 
     retirement age after December 31, 2017, and before January 1, 
     2066, 68 years of age plus \1/24\ of the number of months in 
     the period beginning with January 2018 and ending with 
     December of the year in which the individual attains early 
     retirement age, rounded down to the lowest whole month; and
       ``(D) with respect to an individual who attains early 
     retirement age after December 31, 2065, 70 years of age.''; 
     and
       (2) by striking paragraph (3).
       (b) Conforming Reductions for Receiving Benefits Before 
     Normal Retirement Age.--Section 202(q)(9)(A) of the Social 
     Security Act (42 U.S.C. 402(q)(9)(A)) is amended by striking 
     ``and five-twelfths of 1 percent for any additional months 
     included in such periods'' and inserting ``five-twelfths of 1 
     percent for the next 24 months included in such periods, 
     three-eighths of 1 percent for the next 24 months included in 
     such periods, and one-third of 1 percent for any additional 
     months included in such periods''.
       (c) Study of the Effect of Increasing the Retirement Age.--
       (1) Study plan.--Not later than February 15, 2000, the 
     Commissioner of Social Security shall submit to Congress a 
     detailed study plan for evaluating the effects of increases 
     in the retirement age scheduled under section 216(l) of the 
     Social Security Act on the day before the date of enactment 
     of the amendments made by subsection (a) and under such 
     amendments. The study plan shall include a description of the 
     methodology, data, and

[[Page S2166]]

     funding that will be required in order to provide to Congress 
     not later than February 15, 2005--
       (A) an evaluation of trends in mortality and their 
     relationship to trends in health status, among individuals 
     approaching eligibility for social security retirement 
     benefits;
       (B) an evaluation of trends in labor force participation 
     among individuals approaching eligibility for social security 
     retirement benefits and among individuals receiving 
     retirement benefits, and of the factors that influence the 
     choice between retirement and participation in the labor 
     force;
       (C) an evaluation of changes, if any, in the social 
     security disability program that would reduce the impact of 
     increases in the retirement age on workers in poor health or 
     physically demanding occupations;
       (D) an evaluation of the methodology used to develop 
     projections for trends in mortality, health status, and labor 
     force participation among individuals approaching eligibility 
     for social security retirement benefits and among individuals 
     receiving retirement benefits; and
       (E) an evaluation of such other matters as the Commissioner 
     deems appropriate for evaluating the effects of increases in 
     the retirement age.
       (2) Report on results of study.--Not later than February 
     15, 2005, the Commissioner of Social Security shall provide 
     to Congress an evaluation of the implications of the trends 
     studied under paragraph (1), along with recommendations, if 
     any, of the extent to which the conclusions of such 
     evaluations indicate that future scheduled increases in the 
     retirement age should be modified. Furthermore, such report 
     should include recommendations for modifying the social 
     security disability program and other income support programs 
     that should be considered in conjunction with scheduled 
     increases in the retirement age.

     SEC. 10. ELIMINATION OF EARNINGS TEST FOR INDIVIDUALS WHO 
                   HAVE ATTAINED EARLY RETIREMENT AGE.

       (a) In General.--Section 203 of the Social Security Act (42 
     U.S.C. 403) is amended--
       (1) in subsection (c)(1), by striking ``the age of 
     seventy'' and inserting ``early retirement age (as defined in 
     section 216(l))'';
       (2) in paragraphs (1)(A) and (2) of subsection (d), by 
     striking ``the age of seventy'' each place it appears and 
     inserting ``early retirement age (as defined in section 
     216(l))'';
       (3) in subsection (f)(1)(B), by striking ``was age seventy 
     or over'' and inserting ``was at or above early retirement 
     age (as defined in section 216(l))'';
       (4) in subsection (f)(3)--
       (A) by striking ``33\1/3\ percent'' and all that follows 
     through ``any other individual,'' and inserting ``50 percent 
     of such individual's earnings for such year in excess of the 
     product of the exempt amount as determined under paragraph 
     (8),''; and
       (B) by striking ``age 70'' and inserting ``early retirement 
     age (as defined in section 216(l))'';
       (5) in subsection (h)(1)(A), by striking ``age 70'' each 
     place it appears and inserting ``early retirement age (as 
     defined in section 216(l))''; and
       (6) in subsection (j)--
       (A) in the heading, by striking ``Age Seventy'' and 
     inserting ``Early Retirement Age''; and
       (B) by striking ``seventy years of age'' and inserting 
     ``having attained early retirement age (as defined in section 
     216(l))''.
       (b) Conforming Amendments Eliminating the Special Exempt 
     Amount For Individuals Who Have Attained Age 62.--
       (1) Uniform Exempt Amount.--Section 203(f)(8)(A) of the 
     Social Security Act (42 U.S.C. 403(f)(8)(A)) is amended by 
     striking ``the new exempt amounts (separately stated for 
     individuals described in subparagraph (D) and for other 
     individuals) which are to be applicable'' and inserting ``a 
     new exempt amount which shall be applicable''.
       (2) Conforming Amendments.--Section 203(f)(8)(B) of the 
     Social Security Act (42 U.S.C. 403(f)(8)(B)) is amended--
       (A) in the matter preceding clause (i), by striking 
     ``Except'' and all that follows through ``whichever'' and 
     inserting ``The exempt amount which is applicable for each 
     month of a particular taxable year shall be whichever'';
       (B) in clauses (i) and (ii), by striking ``corresponding'' 
     each place it appears; and
       (C) in the last sentence, by striking ``an exempt amount'' 
     and inserting ``the exempt amount''.
       (3) Repeal of Basis for Computation of Special Exempt 
     Amount.--Section 203(f)(8)(D) of the Social Security Act (42 
     U.S.C. (f)(8)(D)) is repealed.
       (c) Additional Conforming Amendments.--
       (1) Elimination of Redundant References to Retirement 
     Age.--Section 203 of the Social Security Act (42 U.S.C. 403) 
     is amended--
       (A) in subsection (c), in the last sentence, by striking 
     ``nor shall any deduction'' and all that follows and 
     inserting ``nor shall any deduction be made under this 
     subsection from any widow's or widower's insurance benefit if 
     the widow, surviving divorced wife, widower, or surviving 
     divorced husband involved became entitled to such benefit 
     prior to attaining age 60.''; and
       (B) in subsection (f)(1), by striking clause (D) and 
     inserting the following: ``(D) for which such individual is 
     entitled to widow's or widower's insurance benefits if such 
     individual became so entitled prior to attaining age 60,''.
       (2) Conforming Amendment to Provisions for Determining 
     Amount of Increase on Account of Delayed Retirement.--Section 
     202(w)(2)(B)(ii) of the Social Security Act (42 U.S.C. 
     402(w)(2)(B)(ii)) is amended--
       (A) by striking ``either''; and
       (B) by striking ``or suffered deductions under section 
     203(b) or 203(c) in amounts equal to the amount of such 
     benefit''.
       (3) Provisions Relating to Earnings Taken Into Account in 
     Determining Substantial Gainful Activity of Blind 
     Individuals.--The second sentence of section 223(d)(4) of 
     such Act (42 U.S.C. 423(d)(4)) is amended by striking ``if 
     section 102 of the Senior Citizens' Right to Work Act of 1996 
     had not been enacted'' and inserting the following: ``if the 
     amendments to section 203 made by section 102 of the Senior 
     Citizens' Right to Work Act of 1996 and by the Social 
     Security Solvency Act of 1998 had not been enacted''.
       (d) Study of the Effect of Taking Earnings Into Account in 
     Determining Substantial Gainful Activity of Disabled 
     Individuals.--
       (1) In general.--Not later than February 15, 2000, the 
     Commissioner of Social Security shall conduct a study on the 
     effect that taking earnings into account in determining 
     substantial gainful activity of individuals receiving 
     disability insurance benefits has on the incentive for such 
     individuals to work and submit to Congress a report on the 
     study.
       (2) Contents of study.--The study conducted under paragraph 
     (1) shall include the evaluation of--
       (A) the effect of the current limit on earnings on the 
     incentive for individuals receiving disability insurance 
     benefits to work;
       (B) the effect of increasing the earnings limit or changing 
     the manner in which disability insurance benefits are reduced 
     or terminated as a result of substantial gainful activity 
     (including reducing the benefits gradually when the earnings 
     limit is exceeded) on--
       (i) the incentive to work; and
       (ii) the financial status of the Federal Disability 
     Insurance Trust Fund;
       (C) the effect of extending eligibility for the Medicare 
     program to individuals during the period in which disability 
     insurance benefits of the individual are gradually reduced as 
     a result of substantial gainful activity and extending such 
     eligibility for a fixed period of time after the benefits are 
     terminated on--
       (i) the incentive to work; and
       (ii) the financial status of the Federal Hospital Insurance 
     Trust Fund and the Federal Supplementary Medical Insurance 
     Trust Fund; and
       (D) the relationship between the effect of substantial 
     gainful activity limits on blind individuals receiving 
     disability insurance benefits and other individuals receiving 
     disability insurance benefits.
       (3) Consultation.--The analysis under paragraph (2)(C) 
     shall be done in consultation with the Administrator of the 
     Health Care Financing Administration.
       (d) Effective Date.--The amendments and repeals made by 
     subsections (a), (b), and (c) shall apply with respect to 
     taxable years ending after December 31, 2002.
                                                                    ____


 Social Security Solvency Act of 1998--Brief Description of Provisions


    I. Reduce Payroll Taxes and Return to Pay-As-You-Go System with 
                       Optional Personal Accounts

     A. Reduce payroll taxes and return to pay-as-you-go
       The bill would return Social Security to a pay-as-you-go 
     system. That is, payroll tax rates would be adjusted so that 
     annual revenues from taxes closely match annual outlays. This 
     makes possible an immediate payroll tax cut of approximately 
     $800 billion over the next 10 years, with reduced rates 
     remaining in place for the next 30 years. Payroll tax rates 
     would be cut from 12.4 to 10.4 percent between 2001 and 2024, 
     and the rate would stay at or below 12.4 percent until 2045. 
     Even in the out-years, the pay-as-you go rates under the plan 
     will increase only slightly above the current rate of 12.4 
     percent. It would reach 13.4 percent in 2060. The proposed 
     rate schedule is:

                                                                Percent
2001-2024..........................................................10.4
2025-2029..........................................................11.4
2030-2044..........................................................12.4
2045-2054..........................................................12.7
2055-2059..........................................................13.0
2060 and thereafter................................................13.4

       In order to ensure continued solvency, the Board of 
     Trustees of the Social Security Trust Funds would make 
     recommendations for a new pay-as-you-go tax rate schedule if 
     the Trust Funds fall out of close actuarial balance. The new 
     tax rate schedule would be considered by Congress under fast 
     track procedures.
     B. Voluntary personal savings accounts
       Beginning in 2001, the bill would permit voluntary personal 
     savings accounts, which workers could finance with the 
     proceeds of the two percent cut in the payroll tax. 
     Alternatively, a worker could simply take the employee share 
     of the tax cut in the form of an increase in take-home pay 
     equal to one percent of wages.
     C. Increase in amount of wages subject to tax
       Under current law, the Social Security payroll tax applies 
     only to the first $68,400 of wages in 1998. At that level, 
     about 85 percent of wages in covered employment are taxed.

[[Page S2167]]

     That percentages has been falling because wages of persons 
     above the taxable maximum have been growing faster than wages 
     of persons below it.
       Histocially, about 90 percent of wages have been subject to 
     tax. Under the bill, the taxable maximum would be increased 
     to $97,500 (thereby imposing the tax on about 87 percent of 
     wages) by 2003. Thereafter, automatic changes in the base, 
     tied to increases in average wages, would be resumed. (Under 
     current law, the taxable maximum is projected to increase to 
     $82,800 in 2003, with automatic changes also continuing 
     thereafter.)


                       ii. indexation provisions

       The payroll tax cut in the legislation is offset by two 
     indexation provisions and other changes that most observers 
     agree are needed.
     A. Correct cost of living adjustments by one percentage point
       The bill includes a one percentage point correction in cost 
     of living adjustments. The correction would apply to all 
     indexed programs (outlays and revenues) except Supplemental 
     Security Income. The Bureau of Labor Statistics has made some 
     improvements in the Consumer Price Index, but most of these 
     were already taken into account when the Boskin Commission 
     appointed by the Senate Finance Committee reported in 1996 
     that the overstatement of the cost of living by the CPI was 
     1.1 percentage points. Members of the Commission believe that 
     the overstatement will average about one percentage point for 
     the next several years. The proposed legislation would also 
     establish a Cost of Living Board to determine on an annual 
     basis if further refinements are necessary.
     B. Increase in retirement age
       In 1983, the retirement age was increased, over time, to 
     age 67 for those turning 62 in the year 2022. The proposed 
     legislation modifies present law, so that the retirement age 
     increases by two months per year between 2000 and 2017, and 
     by one month every two years between years 2018 and 2065. 
     This increase is a form of indexation which results in 
     retirement ages of 68 in 2017 (for workers reaching age 62 in 
     that year), and 70 in 2065 (for workers reaching age 62 in 
     that year.)
       The increase in the retirement age is a form of indexation 
     because it is related to the increase in life expectancy. 
     Persons retiring in 1960 at age 65 had a life expectancy, at 
     age 65, of 15 years and spent about 25 percent of their adult 
     life in retirement. Persons retiring in 2073, at age 70, are 
     projected to have a life expectancy at age 70 of about 17 
     years, and would also spend about 25 percent of their adult 
     life in retirement. These are persons not yet born today who 
     can expect, on average, to live almost to age 90.


          iii. program simplification--repeal of earnings test

       The so-called earnings test would be eliminated for all 
     beneficiaries age 62 and over, beginning in 2003. (Under 
     current law, the test increases to $30,000 in 2002.) The 
     earnings test is an administrative burden with about 1 
     million beneficiaries submitting forms to the Social Security 
     Administration so that benefits can be withheld (reduced) if 
     the beneficiary has wages in excess of the earnings test. 
     Social Security Administration actuaries estimate that the 
     long-run cost of repealing the earnings test is zero 
     because beneficiaries eventually receive all of the 
     benefits that were withheld due to the earnings test.


                           IV. Other Changes

       All three factions of the 1997 Social Security Advisory 
     Council supported some variation of the following three 
     provisions:
     A. Normal taxation of benefits
       Social Security benefits would be taxed to the same extent 
     private pensions are taxed. That is, Social Security benefits 
     would be taxed to the extent that the worker's benefits 
     exceed his or her contributions to the system (currently 
     about 95 percent of benefits would be taxed).
     B. Coverage of newly hired State and local employees
       Effective in 2001, Social Security coverage would be 
     extended to newly hired employees in currently excluded State 
     and local positions. Inclusion of State and local workers is 
     sound public policy because most of the five million State 
     and local employees (about a quarter of all State and local 
     employees) not covered by Social Security in their government 
     employment do receive Social Security benefits as a result of 
     working at other jobs--part-time or otherwise--that are 
     covered by Social Security. Relative to their contributions 
     these workers receive generous benefits.
     C. Increase in length of computation period
       The legislation would increase the length of the 
     computation period from 35 to 38 years. Consistent with the 
     increase in life expectancy and the increase in the 
     retirement age we would expect workers to have more years 
     with earnings. Computation of their benefits should be based 
     on these additional years of earnings.


                       Summary of Budget Effects

       The legislation provides for long-run solvency of Social 
     Security, financed with payroll taxes that are not much 
     higher than current rates. It is also fully paid for in the 
     short-run. The Congressional Budget Office's preliminary 
     estimate indicates that for the ten-year period FY 1999-2008, 
     the proposal increases the projected cumulative budget 
     surplus by $170 billion, from $671 billion to $841 billion. 
     For the five-year period FY 1999-2003, CBO projects that 
     under the plan, the cumulative surplus is unchanged. In no 
     year is there a deficit. All of this is accomplished while 
     reducing payroll taxes by almost $800 billion. A table 
     showing CBO's estimate of the surplus under current policies 
     and under the Social Security Solvency Act of 1998 is 
     attached.

                                                                  CBO BUDGET ESTIMATES                                                                  
                                                    [Fiscal years 1999-2008, in billions of dollars]                                                    
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                   Cumulative surplus   
                                                                                                                               -------------------------
                Year                    1999     2000     2001     2002     2003     2004     2005     2006     2007     2008     5 years      10 years 
                                                                                                                                 1999-2003    1999-2008 
--------------------------------------------------------------------------------------------------------------------------------------------------------
Estimated Surplus Under Current                                                                                                                         
 Policies...........................        9        1       13       67       53       70       75      115      130      138          143          671
Estimated Surplus Under The Social                                                                                                                      
 Security Solvency Act of 1998......        5       12        6       65       55       79       94      148      176      201          143          841
--------------------------------------------------------------------------------------------------------------------------------------------------------


    PAY-AS-YOU-GO PAYROLL TAX RATES REQUIRED TO FUND SOCIAL SECURITY    
------------------------------------------------------------------------
                                                                Social  
                                                Assuming no    Security 
                     Year                         program      Solvency 
                                                  changes    Act of 1998
------------------------------------------------------------------------
2001..........................................        10.40        10.40
2005..........................................        11.40        10.40
2010..........................................        12.40        10.40
2015..........................................        13.90        10.40
2020..........................................        15.40        10.40
2025..........................................        16.40        11.40
2030..........................................        16.40        12.40
2035..........................................        16.90        12.40
2040..........................................        16.90        12.40
2045..........................................        16.90        12.70
2050..........................................        16.90        12.70
2055..........................................        17.40        13.00
2060..........................................        17.80        13.40
2065..........................................        17.80        13.40
2070..........................................        18.00       13.40 
------------------------------------------------------------------------
 Note.--The Social Security payroll tax rate is fixed by statute at 12.4
  percent. Assuming no program changes the current law program is not   
  sustainable. In 2012, outgo for the OASDI program will exceed tax     
  revenues. In 2029, all OASDI assets (reserves) will be expended, after
  which tax revenues will only be sufficient to pay 75 percent of       
  expected benefits.                                                    

  Mr. NICKLES addressed the Chair.
  The PRESIDING OFFICER. The Senator from Oklahoma.
  Mr. NICKLES. Mr. President, I wish to compliment my colleagues, 
Senator Moynihan and Senator Breaux and Senator Kerrey, for the 
introduction of this legislation. I am not joining as a cosponsor now, 
but I certainly want to sponsor and echo the comments that they made 
that we need to reform Social Security and we need to move Social 
Security away from a pay-go system into a funded system, a capitalized 
system, a system that has an investment behind it, one that people get 
to own and control and can invest in.
  They have taken a small step in that direction. As I understand it, 
the proposal would allow 2 percent of the 12.4 percent to go in that 
direction, either to be returned in the form of a tax cut or to be put 
into a personalized savings Social Security account.
  I echo very strongly that right now we should depart from an unfunded 
system, a pay-go system, a system that is destined for bankruptcy 
unless we change it, unless we save it--and a lot of us are very 
committed to saving Social Security. We think the real way to save 
Social Security is to move it into a funded system. Private plans have 
been doing that all across the country. They are allowing individuals, 
participants in their plans, to reap the benefits and rewards of good 
investments.
  I heard my colleague--I think Senator Breaux mentioned that if a 
Federal employee had invested 100 percent in the stock option plan last 
year, the rate of return was 40 percent.
  Mr. MOYNIHAN. I wasn't.
  Mr. NICKLES. I was. I put 100 percent of my thrift plan in, and it 
made a 40 percent return. For the S&P index for those months, which 
included September 30, it was a 34 percent rate of return, a phenomenal 
rate of return. It was a lot less for Government bonds. There are three 
different options for Federal employees. They all made significant 
returns far greater than the 1 or 2 percent that a person can make in 
Social Security today.
  So we can allow those accounts to accumulate and grow and allow 
people to become entrepreneurs and to achieve some real savings and 
also lessen their dependence on Social Security at the same time.

[[Page S2168]]

  Senator Moynihan also had the nerve to say--I think he said, that we 
should have, an accurate CPI. Again, a lot of people do not want to 
touch that. But we should have an accurate CPI. If we have a balanced 
budget or if we have a surplus or a deficit, we should have an accurate 
CPI. And, yes, there are significant savings in that proposal as well.
  He talked about some other things, talking about increasing the 
retirement dates. That is not real popular maybe with a lot of people, 
but, frankly, you have to look at the actuarial analysis of Social 
Security. Social Security has big, big problems. Although i have some 
reservations, I think my colleague from New York has taken some giant 
steps in the right direction.
  I understand there is a little tax increase on the personal income 
tax side. I would like to see if we can do it without that. 
Transitionally we may have some challenges. I would very much like to 
get the percentage up from 2 percent. Actually, right now an individual 
pays 12.4 percent of their payroll for Social Security up to $68,000, 
$68,400, I believe. I would like to be able to get half of that into an 
individual's personal savings account where they can really see some 
rewards. That is over $9,000 that an individual, if they make $68,000, 
is paying in Social Security today. It would be nice if they could put 
half or at least a significant portion of that into their own 
retirement account where they can watch it grow, where they can invest 
it. They could be very cautious in their investments and invest it in T 
bills if they so desired or invest it in stocks or they can invest it 
in bonds. They would have those options.
  I would like to give them the maximum amount of options that we give 
people for 401(k)s, that we give people for IRAs, that we give Senate 
employees through thrift plans and so on. I would like to give all 
American taxpayers that option so we can have a lot of millionaires, a 
lot of people driving a truck in Nebraska or Oklahoma becoming 
millionaires by the time they retire so they will not become dependent, 
frankly, on an unfunded pay-go system like we have right now into which 
their children will be paying enormous sums in the future.
  I think you hear a lot of people trying to sell programs by using 
kids. I think we need to be very, very concerned about future 
liabilities in Social Security for our kids. How in the world will they 
be able to make those payments if we do not reform the system? Senator 
Moynihan had a chart out there that said the payroll tax would have to 
go up astronomically. I do not think that is fair for our kids.
  Maybe we can alleviate that pressure if we allow individuals now, 
before they hit their retirement age, to be able to set up these 
personal savings accounts and be able to reap decent rates of return 
and become less dependent on their children and grandchildren for their 
future retirement benefits.
  Conceptually, I commend my colleagues on their work, and I think you 
will find strong bipartisanship support for working together to see if 
we cannot make this concept of making funded capitalized personal 
savings accounts a part of every individual's Social Security for the 
future. We will work to try to make that a reality in America.
  Thank you, Mr. President.
  Mr. MOYNIHAN. Mr. President, may I take a moment to thank the 
distinguished deputy majority leader. I couldn't be more grateful. If 
there are auspices, his comments make them very good indeed.
  I yield the floor.
  Mr. ROTH. Mr. President, I suggest the absence of a quorum.
  The PRESIDING OFFICER. The clerk will call the roll.
  The assistant legislative clerk proceeded to call the roll.
  Mr. ROTH. Mr. President, I ask unanimous consent that the order for 
the quorum call be rescinded.
  The PRESIDING OFFICER (Mr. Burns). Without objection, it is so 
ordered.

                          ____________________