[Congressional Record Volume 144, Number 94 (Wednesday, July 15, 1998)]
[Extensions of Remarks]
[Pages E1303-E1304]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                            SOCIAL SECURITY

                                 ______
                                 

                          HON. LEE H. HAMILTON

                               of indiana

                    in the house of representatives

                        Wednesday, July 15, 1998

  Mr. HAMILTON. Mr. Speaker, I would like to insert my Washington 
Report for Wednesday, July 8, 1998 into the Congressional Record.

                         Social Security Reform

       In recent months, much attention has been focused in 
     Congress on the status of the Social Security program. 
     Following President Clinton's State of the Union address this 
     past January in which he recommended that saving Social 
     Security be a top priority, reform proposals have become a 
     hot topic. The most widely discussed proposals include 
     investing some of the Social Security Trust Fund in the stock 
     market, adding a meanstest requirement, or enacting a 
     combination of tax cuts and benefit reductions.


                      SUCCESSES OF SOCIAL SECURITY

       Social Security is not only a very popular program but has 
     also proven to be an extremely successful program in 
     providing a safety net for our nation's elderly.
       Since the program began under President Franklin Roosevelt 
     in 1935, Social Security has provided benefits to generations 
     of workers and their families, with the number of 
     beneficiaries over the last half century in excess of 160 
     million Americans. With almost 92% of Americans over the age 
     of 65 receiving Social Security benefits, this program 
     provides nearly universal coverage. In Indiana, over 960,000 
     Hoosiers are beneficiaries, covering over 17% of our state's 
     population. Therefore, Social Security has played, and 
     continues to play, an important role in the lives of many 
     beneficiaries and their families.
       In addition to serving as a broad safety net for millions 
     of Americans, Social Security is also the largest anti-
     poverty program. By some estimates, half of our nation's 
     elderly (about 18 million people) would live in poverty if 
     Social Security did not exist. Last year, two-thirds of the 
     elderly in America were provided benefits from Social 
     Security that represented at least half of their income. 
     Social Security is more than simply a retirement program. 
     More than a third of benefits go to widows or widowers, 
     children, and the disabled.


                          LONG--TERM SOLVENCY

       Social Security is our largest domestic social program. In 
     1996, the benefits paid out exceeded $347 billion. Social 
     Security has been able to pay these benefits with great 
     efficiency. Administration costs for Social Security are 
     about 1% of benefits, compared to the 12-14% that is typical 
     for private insurance plans. But while the program has 
     operated with relative efficiency over the years, there still 
     remain significant challenges to the long-term financial 
     health of Social Security. In particular, the impending 
     increase in the number of retirees and the increase in

[[Page E1304]]

     the life span of Americans both present other sets of 
     challenges for the long-term solvency of Social Security.
       The Social Security Trust Fund is currently solvent and is 
     projected to remain solvent well into the next century. But 
     the long-term changes in the workforce will place a major 
     strain on its ability to pay full benefits for the baby 
     boomers' retirement. Social Security will be able to pay all 
     promised benefits including cost-of-living adjustments until 
     the year 2032. After 2032, the trust fund will still be able 
     to pay 75% of promised benefits. Thus if no adjustments are 
     made between now and then, the trust fund will experience a 
     shortfall, but will not be exhausted. Our current economic 
     prosperity, and projected budget surpluses, though, offer a 
     great opportunity to act now to avert the depletion of the 
     trust fund.


                            Reform Proposals

       The reform debate is focusing on three broad approaches to 
     shore up Social Security.
       Incremental reform: The first approach is to make modest 
     adjustments to the existing program by reducing benefits and 
     altering the taxation of benefits. For example, the working 
     period over which a retiree's benefits are computed could be 
     increased from 35 to 38 years. By taking into account the 
     additional three years, a worker's earlier, and usually 
     lower-paying, employment years would figure into her wage 
     history, thereby lowering the level of benefits. Another 
     proposal on the benefits side calls for adjusting the 
     consumer price index so that it more accurately reflects the 
     rate of inflation. On the tax side, the income threshold for 
     taxation of Social Security benefits could be raised. 
     Currently, only beneficiaries with incomes above certain 
     annual thresholds, $32,000 for married couples and $25,000 
     for single people, owe taxes on their benefits.
       Means-testing: A second basic approach to reform entails 
     means-testing Social Security. This approach would involve 
     reducing payments to beneficiaries who earn more than a 
     specified income threshold. Advocates of means-testing argue 
     that Social Security was designed to protect the elderly from 
     financial adversity in old age, and that benefits could be 
     reduced for those who are better off and have less of a need 
     for benefits. Critics respond that means-testing might 
     transform the public's perception of the program from one 
     that benefits everyone to one that serves only low-income 
     beneficiaries. This opens up the possibility of undermining 
     the broad political base of support for the program.
       Privatization: A third approach is to privatize the Social 
     Security system. The main proposal would establish a system 
     of Individual Retirement Accounts. These accounts would allow 
     workers to invest their savings directly into higher yielding 
     assets than government securities. Most proposals which 
     include some type of private account would maintain a minimum 
     level of benefits, lower than today's benefit level, while 
     allowing an additional amount to be invested in the stock 
     market. Both components would continue to be financed by 
     payroll taxes. One major advantage of privatization would 
     come from the potential higher returns that beneficiaries 
     could obtain from the stock market. A down turn on the 
     market, on the other hand, presents significant risks for any 
     privatization plans.


                               Conclusion

       Social Security has been a very successful program. The 
     program provides nearly universal coverage of American 
     workers and their dependents, as well as helping a 
     significant number of the disabled and children. The program 
     is progressive in offering larger benefits relative to 
     lifetime earnings for lower earners than for higher earnings. 
     It is an efficient program and is an important means to 
     eliminating poverty. The program, however, clearly requires 
     reform so that we can provide benefits to future generations 
     of retirees. The challenge will be to enact reforms which 
     build on the successes of the program, enjoy broad public 
     support, and put the program on firm financial footing for 
     generations to come.

     

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