[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
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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
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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
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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.
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