[Congressional Record Volume 144, Number 56 (Thursday, May 7, 1998)]
[Extensions of Remarks]
[Page E785]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

[[Page E785]]



                         SOCIAL SECURITY REFORM

                                 ______
                                 

                           HON. NEWT GINGRICH

                               of georgia

                    in the house of representatives

                         Thursday, May 7, 1998

  Mr. GINGRICH. Mr. Speaker, the issue of retirement security is one of 
the long-term priorities of our nation--a Goal for a Generation. 
Michael Barone points out in today's Wall Street Journal that this is a 
discussion that the American people are prepared to have. This is an 
excellent article and recommended reading. I submit it into the Record.

              [From the Wall Street Journal, May 7, 1998]

              Voters Are Ready for Social Security Reform

                          (By Michael Barone)

       Conventional wisdom has long held that Social Security is 
     the third rail of American politics: Touch it and you die. 
     Political events from the 1940s through the 1980s provided 
     plenty of support for this rule. But now the third rail has 
     shifted to the other side of the track: It is politically 
     risky not to propose changes.
       This shift was caused by two trends, neither created by 
     government, and neither much noticed by most politicians. The 
     first change was demographic, and the key year was 1993--the 
     first year in which Americans turning 65 had not served in 
     World War II. This was critical because the bedrock of 
     support for the existing Social Security system is the GI 
     generation, which grew up in the Depression, served in World 
     War II and then went on to build a prosperous postwar 
     America.
       This generation has a powerful sense of moral entitlement 
     to Social Security and, since 1965, to Medicare. These 
     Americans felt, justifiably, that they had been dealt a poor 
     hand, played it well, and passed on a much better one to the 
     next generation. Economically, the Social Security system was 
     an amazingly good deal for this generation. Former Sen. Alan 
     Simpson used to point out to complaining elders that the 
     value of the payroll taxes they had had paid during their 
     earning years was only a small fraction of the total they 
     would receive from their monthly checks. They paid him no 
     heed. If younger Americans had to pay much higher payroll 
     taxes than they had to pay, that was just fine.


                           Smaller Generation

       But every day the GI generation becomes smaller. Today 
     about one-quarter of Americans over 65 were born after 1927--
     members of what authors William Strauss and Neal Howe call 
     the silent generation. They didn't suffer through the 
     Depression or serve in World War II; the escalator of postwar 
     prosperity was already moving up when they stepped on. They 
     lack the sense of moral entitlement that their elders have.
       Meanwhile, the younger generations have come to realize 
     that they are on the losing end of a Ponzi scheme. Their 
     payroll taxes are high, and there is no way they are going to 
     receive benefits comparable to their ``contributions.'' Ask 
     twentysomethings what they expect to get from Social 
     Security, and they'll just laugh. They know that the ratio of 
     workers to retirees is falling and that the payroll tax will 
     have to become even steeper to support current Social 
     Security payments. Indeed, the Congressional Budget Office 
     estimates the Social Security tax will have to jump from 12% 
     to 18% over the next 30 years.
       The twentysomethings know there is an alternative to that 
     heavy blow. Which brings us to the second great change that 
     makes Social Security reform foreseeable: the boom in 
     investment. Pollster Peter Hart, in a 1997 survey for the 
     National Association of Securities Dealers, found that 43% of 
     Americans owned stock, vs. just 21% in 1990. An NBC/Wall 
     Street Journal survey conducted in 1997 reported that 51% of 
     respondents said they owned at least $5,000 worth of common 
     stock or mutual funds, either individually or through a 
     retirement savings program.
       We are becoming a nation of investors. In the 1970s and 
     '80s, most Americans had the bulk of their wealth in 
     residential housing; by 1997, a majority had more wealth in 
     stocks than houses. Americans have long had a stake in stocks 
     through their pension plans; but that stake is increasingly 
     direct, as employers shift from defined-benefit plans (in 
     which a centralized entity does the investing and promises a 
     specific pension) to defined-contribution plans (in which the 
     employee invests his pension directly and the return depends 
     on his own choices).
       Over time, the stock market grows faster than incomes, as 
     the investing public has come to understand. Harvard 
     economist Martin Feldstein notes that while funds raised by 
     the payroll tax have historically risen at about 2% a year, 
     stocks rise by 5% to 6% a year over the long run. (Mr. 
     Feldstein's calculations are based on the period 1926-94, 
     which means they include the Depression and exclude the 
     doubling of the market since 1994.) It is increasingly plain 
     to Americans that they would do well to look more to stocks 
     and less to the payroll tax for their retirement income.
       But there is increasing evidence that the economic factor 
     most important to Americans is not short-term income but 
     long-term wealth. Voters of the GI generation were sensitive 
     to small fluctuations in income. They remembered the 1930s, 
     when a layoff was often the prelude to years of unemployment. 
     But voters growing up in an age of credit cards and vast job 
     growth know that they can survive a period of temporary 
     income loss. They are more concerned with how they are faring 
     in their lifetime project of accumulating wealth.
       A focus on wealth rather than income helps to explain the 
     otherwise puzzling responses of voters to economic events in 
     the 1990s. The relatively small income losses of the 1990-91 
     recession are not enough to explain why George Bush fell to 
     37% of the vote in 1992 from 53% in 1988. But a look at where 
     his greatest losses occurred tells the story: They were in 
     New Hampshire and Southern California, which also suffered 
     the nation's biggest drops in housing values. Voters spurned 
     him because they lost wealth and he didn't seem to be doing 
     anything about it.
       In 1994, the old political formulas based on macroeconomic 
     indicators suggested the Democrats should have lost about a 
     dozen House seats. Instead they lost 52, in part because 
     their big-government programs threatened wealth accumulation. 
     And how to explain the current euphoric feeling about the 
     direction of the nation, and Bill Clinton's high job ratings 
     amid deepening political scandal? Income growth is lower than 
     the peaks of the Reagan years, so that's not it. But look at 
     the stock market, and the vast increases in wealth it has 
     given millions of Americans--there's the source.
       A final bit of evidence: In the 1996 campaign, Democrats 
     hammered away at Republican ``cuts'' in Medicare (actually 
     lower increases). For months, these attacks hurt Republicans. 
     But at the beginning of October the Republicans 
     counterattacked, and as Peter Hart has noted, the Democrats' 
     Medicare advantage disappeared by the middle of the month. In 
     a country with a vanishing GI generation and two younger 
     generations skeptical that they will receive much from 
     Medicare or Social Security, the Medicare issue was a wash.
       So we now have an electorate ready for Social Security 
     reform. Only a few politicians have stepped forward, the 
     first among them being junior Republican representatives like 
     South Carolina's Mark Sanford and Michigan's Nick Smith. Then 
     this January came Mr. Clinton's opportunistic poly to 
     outflank tax-cut proposals by calling for budget surpluses to 
     be plowed into Social Security. That put the issue into play. 
     In March, Sen. Daniel Patrick Moynihan (D., N.Y.) came 
     forward with his own plan for cutting payroll taxes and 
     establishing supplementary personal investment accounts. Mr. 
     Moynihan's proposal is far from radical, but the direction is 
     apparent. Suddenly U.S. politicians are moving toward an 
     investment based system similar to those already working in 
     Chile and Britain.


                        Strength and Confidence

       Will they get their anytime soon? That is by no means 
     clear. Neither the scandal-plagued president nor the razor-
     thin congressional Republican majority may have the strength 
     and confidence necessary to move ahead. Which would be 
     unfortunate, because suddenly the money to pay for the costs 
     of transition is at hand, in the form of a budget surplus.
       But politicians don't have the excuse for hesitation that 
     they had in the 1980s, when they claimed the public would not 
     accept significant changes. The generational shifts and the 
     investment boom of the '90s have created a new America--a 
     nation of investors embarked on a lifetime project of 
     accumulating wealth, confidently relying on their own 
     decisions in the marketplace. Suddenly, the time is ripe for 
     Social Security reform.

     

                          ____________________