[Congressional Record Volume 144, Number 94 (Wednesday, July 15, 1998)]
[Senate]
[Pages S8244-S8248]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. GREGG (for himself, Mr. Breaux, Mr. Thompson, Mr. Robb, 
        Mr. Thomas, and Mr. Coats):
  S. 2313. A bill to amend title II of the Social Security Act to 
provide for individual security accounts funded by employee and 
employer Social Security payroll deductions, to extend the solvency of 
the old-age, survivors, and disability insurance program, and for other 
purposes; to the Committee on Finance.


                  TWENTY-FIRST CENTURY RETIREMENT ACT

 Mr. GREGG. Mr. President, today I introduce--I believe I can 
say without exaggeration--a landmark piece of legislation, the Twenty-
First Century Retirement Act.
  Joining me as principal co-sponsor of this legislation is Senator 
John Breaux, with whom I served as co-chair of the National Commission 
on Retirement Policy during the last year. Also this week, the same 
legislation will be introduced by our House colleagues, Congressmen Jim 
Kolbe and Charles Stenholm.
  With many pieces of legislation, naming the cosponsors upon 
introduction is merely a perfunctory exercise. With this one, it is 
significant. Also as original cosponsors of this legislation, we have 
Senators Fred Thompson, Chuck Robb, Craig Thomas, and Dan Coats. 
Several cosponsors from both sides of the aisle are also joining on the 
House bill.
  This in and of itself is almost an unprecedented accomplishment. This 
simply does not happen with Social Security, long considered the 
``third rail'' of American politics. We are turning this

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``third rail'' into a passenger train--a bipartisan, bicameral process 
for reform.
  Two months ago, the National Commission on Retirement Policy voted 
24-0 to approve the recommendations that this legislation would 
implement. Today we are introducing it with several cosponsors from 
both sides of the aisle. Given the difficulty that most experts see 
with restoring the Social Security system to balance, our proposal has 
set a modern record for the most support attracted to any proposal to 
place Social Security on sound long-term footing.
  For several years, we have seen numerous Commissions divide among 
themselves, breaking into factions, issuing separate minority opinions 
instead of coming to agreement. We have seen various--many of them 
visionary and constructive--individual legislators introduce reform 
proposals that could attract little support beyond the original co-
sponsors. But today we stand here with a proposal that has received 
endorsements that have not been given to other Social Security 
proposals in recent years.
  What have we done that has enabled us to build such support?
  The first thing we did was to take careful note of what Social 
Security has meant to Americans, and what they insist that it mean in 
the future. Social Security has long been the principal government 
program lifting senior citizens out of poverty. In addition to 
providing a basic level of protection against poverty, the program has 
also been sold to Americans as not a welfare program, but rather a 
program under which benefits paid will bear a reasonable relationship 
to the contributions that people have put in.
  So we set about to ensure that this remained the case. We wanted to 
have a system that, in the end, would do an even better job of lifting 
Americans out of poverty--and would, at the same time, ensure that 
people received a fair deal for the investment that they made in the 
program.
  Let me step back a bit, Mr. President, and review why action is 
necessary to achieve this purpose. This requires me to review the 
projections for Social Security under current law.
  It is often said that Social Security faces an actuarial problem. It 
is said that the program is solvent only through the year 2032. That is 
true. But it does not begin to describe all of the problems with the 
program.
  Even an actuarially sound Social Security program would face enormous 
financing problems under its current structure. It is a ``pay as you 
go'' system. Any surplus assets it holds are invested in the federal 
government--which then has to pay it back at some date in the future. 
So, even if the books were balanced--and they are trillions of dollars 
out of balance--the general taxpayer would still face the problem of 
paying off more than $4 trillion in Trust Fund assets. This would be 
needed above and beyond payroll taxes (!) in order to pay the benefits 
that have been promised to the baby boom generation of retirees.
  So what would that mean? It would mean raising taxes on future 
generations of Americans. The payroll tax would ultimately have to go 
up by almost 50%! That is because the net cost of the system would 
ultimately top 18% of payroll, as opposed to today's 12.4% tax rate.
  Raising the FICA tax today, immediately, by 2.2% of payroll, would 
not solve this problem. It would just mean that future taxpayers would 
have a larger Trust Fund to pay off later on, and that the 50% payroll 
tax increase would be borne indirectly, through general taxation.
  But there would be another dire effect of such a change. Under 
current law, rates of return under Social Security are dropping. If you 
are a single male, the chances are very good that you will never get 
back the value of the contributions that you put in. The situation is 
comparably grim for single females--and for two-earner couples.
  If we were to raise taxes to restore the system to solvency--or, for 
that matter, if we simply and mindlessly cut benefits--that situation 
would grow far worse. More and more Americans would be losing money 
through the program. Ultimately, its political support would be 
imperiled. The basic societal consensus in favor of Social Security--
based on the premise that it treats everyone fairly--would be 
undermined.
  So we must find another way to restore Social Security to health--and 
to enable it to provide the kind of retirement income that Americans 
have a right to expect from the program.
  I believe that it is imperative that we begin to ``pre-fund'' the 
future liabilities of Social Security. A ``pay as you go'' system is 
not built for a demographic shift on the order of the baby boom 
generation. A ``pay as you go'' system assumes that there is always a 
demographic pyramid--that each generation coming through at the bottom 
is more numerous than the generation that they are supporting above 
them.
  But with the baby boomers coming through in such great numbers--and 
having comparatively fewer kids--the pyramid looks more like a 
rectangle. And the individuals at the bottom will bear a crushing 
burden unless we reduce some of it by putting additional funding aside 
now.
  Fortunately, we have an opportunity to do this. We have projections 
of near-term budget surpluses--and we already have short-term Social 
Security surpluses. We are collecting money that the government does 
not need to meet current operations, and we are collecting it through 
the Social Security system.
  The very first thing we should do is to give this extra money 
directly back to taxpayers, allow them to own it once again, and to 
fund a portion of their future retirement benefits through those 
personally-owned retirement accounts.
  Our legislation would do that. It would refund 2% of the current 
payroll tax back to individual Americans, to be used to directly 
finance some of their future Social Security benefits. We will move 
that portion of the benefit--and of future unfunded liabilities--off of 
the federal ledger.
  We would set up these personal accounts on the model of the Thrift 
Savings Plan currently provided to federal employees. We do this 
because it is an obvious way to reduce administrative costs. We also do 
it to avoid new mandates on employers. Employers would continue to pay 
the payroll tax just as they do now, and individuals would decide in 
which fund they want 2% of the current 12.4% payroll tax to be 
invested.
  The Thrift Savings Plan is a tested, workable way of generating 
investment wealth for beneficiaries. It strikes a reasonable balance 
between providing good investment opportunities and limiting individual 
risk. Perhaps most importantly, all Americans would have the 
opportunity to save for retirement on a payroll deduction basis--not 
just those who have pension plans, or who have gone through the trouble 
of setting up IRAs. This will do a tremendous amount to provide 
investment wealth to the millions of Americans who have not thus far 
had the opportunity to share in that wealth.
  Our legislation would also permit individuals to make $2,000 in extra 
voluntary contributions--above the 2% automatically redirected for 
them--to these personal savings accounts. This means that we have 
created a vehicle through which net national savings should increase. 
The more that individuals contribute to their personal accounts--the 
more retirement income they will have--and the greater the chances that 
they will be able to retire early, just as is the case with other 
retirement saving.
  This proposal is the most comprehensive one developed to date. It has 
been scored by the Social Security actuaries as achieving solvency 
through the next century. Perhaps even more importantly, it eliminates 
the enormous financing gap under current law. If we enact this 
legislation, we will remove the need for taxpayers to pony up hundreds 
of billions of dollars, above payroll taxes, in order to pay current 
benefits. Each year, the cash flow for the system will be smooth and 
manageable, and there will be a much closer balance between payroll tax 
revenue and the benefits that must be paid from it.
  Moreover, we have compared the results of our plan with a plan that 
would simply balance the current system within the existing 12.4% tax 
rate. In general, beneficiaries will receive much more income from our 
plan than they would from a plan that simply balanced the old system 
without personal accounts.

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  We have also compared the benefits that our plan would provide to 
beneficiaries relative to current law, presuming that current benefits 
were made whole with tax increases. A 2.2% payroll tax hike to make the 
current system actuarially sound was compared with the income that 
individuals would receive if they made 2.2% voluntary contributions to 
our personal accounts. Virtually across the board, individuals would do 
much, much better under our plan.
  These are among the reasons why a personal account system is so vital 
for Social Security reform. Not only will they remove some of the 
unfunded liabilities of the federal government, but they will provide 
greater income to individual beneficiaries.
  We have also carefully thought through the relationship between 
personal account income and income through the traditional Social 
Security system. I would like to comment about some of what our 
legislation would accomplish in this regard.
  Personal accounts, by their nature, are not progressive. There is a 
direct relationship between money put in and benefits received. It is 
not redistributed from wealthy beneficiaries to needier ones.
  Accordingly, if we move towards a system that includes personal 
accounts, benefits on the traditional side must be made more 
progressive if we are ultimately to have a system that is just as 
progressive, as a whole, as is our current one. We have done this with 
our plan.
  Our plan includes a new ``minimum benefit'' poverty protection that 
would strengthen the safety net for low-income beneficiaries. If an 
individual works for a full 40 years, we would guarantee that they will 
not retire in poverty. An individual becomes eligible for some of the 
protection after 20 years of work, and receives increased protection 
for every quarter of work after that.
  Thus, for low-income beneficiaries, our plan would provide additional 
income security, even without the personal accounts. The personal 
account income would be a pure bonus for them. Even if they invest 
badly, their basic protections will be secure--not only secure, but 
strengthened.
  In the short term, because of these protections, the Social Security 
system would become more progressive than it is now. Ultimately, when 
the personal accounts have built up to be much larger, in the year 2050 
or 2060, the progressivity of the system would be essentially what is 
now--the main difference being that individuals would have much more 
income.
  We also did much to correct the flawed incentives of the current 
system. We eliminate the earnings test above the normal retirement 
age--a disincentive for continued work.
  We would also increase the delayed retirement credit, and restore the 
proper relationship between normal retirement and early retirement 
benefits. Under current law, an individual has little incentive to wait 
until normal retirement age, because the extra payroll taxes he pays 
during those years will never fully be received back in benefits. We 
would change this, so that for each year an individual works, benefits 
would increase more sharply, and work would be rewarded.
  We also would credit an individual for every year of earnings in the 
benefit formula. Right now, the Social Security system only calculates 
a benefit based on the average of the highest 35 years of earnings. 
Many reform proposals would increase this number of years, effectively 
reducing benefits. Our proposal also recognizes the necessity of 
increasing the number of computation years in the denominator of this 
formula--but on the other hand, we would credit an individual in the 
numerator for every year of earnings, no matter how small.
  I am certain that my colleagues have received letters from senior 
citizens who say, ``I am working part-time at the age of 64, but it is 
not among my highest years of lifetime earnings. I won't get any credit 
for this in my Social Security benefits. Why not?'' We believe that we 
should reward all work, and this proposal would. We even would have the 
minimum benefit guarantee also depend on the total number of years 
worked. If we enact this proposal, rewards for continued work would be 
greatly strengthened, and our country will benefit as a result.
  At this point, I feel compelled to point out that there is no ``free 
lunch'' in Social Security reform. It is essential that we enact 
personal accounts, but we must enact them in the right way.
  Our proposal would explicitly replace unfunded benefits with funded 
benefits. We move part of the current payroll tax into personal 
accounts, to fund future benefits. This only makes policy sense if we 
use such a change to reduce federal liabilities. If we set up personal 
accounts--but leave all of the old, traditional liabilities in place--
we have not achieved anything. Indeed, we could make the financing 
problem worse.
  So we gradually replace unfunded benefits with funded ones. Every 
responsible proposal to move towards pre-funded benefits will be 
vulnerable to the attack that it is ``cutting'' benefits, even though 
in sum, total benefits would be higher than under a ``traditional 
fix.'' It is imperative that Congress and the public not buy into such 
misrepresentations as we undertake Social Security reform. If we leave 
in place all of the unfunded liabilities, and all of the old unfunded 
benefit promises, then we will leave in place all of the projected tax 
increases as well.
  For example. Our proposal would, in order to prevent the traditional 
system from posing an ever-increasing burden on taxpayers, gradually 
raise the age of eligibility for full benefits to 70 in the year 2037 
(for individuals turning 62 in the year 2029.) No one over the age of 
31 would be affected by the full phase-in of this change.
  At the same time, it must be noted--we do not set an age for access 
to the personal retirement accounts. Our proposal would allow people to 
retire on these accounts once they are capable of providing a poverty-
level annual benefit--even if this earlier than early retirement age. 
This is an incentive for individuals to put more money into these 
accounts, and it provides them with flexibility on their age of 
retirement that they do not have under current law.
  We would also require additional reforms to the Consumer Price Index, 
and adjust the bend points in the Social Security benefit formula in a 
progressive manner, to gradually phase down the liabilities on the 
traditional side as we move those benefits over into funded accounts.
  I would repeat: Personal accounts are an indispensable component of a 
Social Security reform program that delivers more retirement income 
than merely balancing an unreformed system can possibly provide. But 
they will not solve our long-term financing problems unless we use them 
to phase down the unfunded liabilities of the old system. This means 
directly addressing the growth of the unfunded benefits we are 
promising to pay out, at the same time that we are replacing them with 
funded benefits.
  As a result, we believe our plan is the most fiscally responsible 
proposal yet devised. The net liabilities upon the federal government 
in any year during the baby boom retirement period--whether you pick 
2020, 2025, 2030, or beyond--would be significantly less than under 
almost any other proposal. We have avoided any and all tax increases--
while at the same time avoided unseen financing costs above and beyond 
the explicit tax rates.
  We have also produced a proposal that will give beneficiaries the 
opportunity to generate more retirement income through self-directed 
investments, provide a Social Security system that the economy can 
sustain, and at the same time enhance protections against the risk of 
poverty.
  I want to thank my co-sponsors--especially Senator John Breaux, 
Congressman Kolbe, and Congressman Stenholm--and their staffs, who have 
worked so closely with me and with my staff throughout a long and 
difficult process.
  I also want to thank all others who are constructively participating 
in the Social Security reform debate. We have made it this far without 
turning this critical issue into a partisan shooting match. I am 
pleased that the President has remained open to various proposals for 
reform, and we have been reaching out to him to explain our ideas. I am 
also appreciative that Senators Moynihan and Kerrey have also produced

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an actuarially sound proposal, and that discussions of the differences 
between our proposals have been made on a constructive basis. I would 
extend a similar appreciation for a number of other Senators who are 
exploring this issue seriously--everyone from Congressmen Mark Sanford 
and Nick Smith, to Senators Roth, Santorum and Phil Gramm in our own 
chamber.
 Mr. THOMPSON. Mr. President, I am delighted to join my 
colleagues today as an original cosponsor of an exciting new proposal 
to reform Social Security.
  We all know that the Social Security program gets in serious 
financial trouble when the Baby Boomers start retiring early in the 
next century. The Social Security actuaries tell us that, just 15 years 
from now, in 2013, Social Security will begin paying out more in 
benefits than it receives in taxes and will have to begin redeeming the 
treasury bonds issued to the Trust Funds. By 2032, the Trust Funds will 
be exhausted, and the program will be running annual cash deficits of 
hundreds of billions of dollars.
  As more and more people become aware of these financial realities, 
Social Security has quickly ceased to be the untouchable third rail of 
politics. In my view, it should soon become the brass ring of politics. 
Entitlement reform is one of the greatest challenges our nation faces, 
and we should all be reaching for the solution that will enable Social 
Security to provide for our grandchildren like it did for our 
grandparents.
  Fortunately, right now we have a tremendous window of opportunity for 
real reform. Our economy is strong; the federal budget is balanced for 
the first time in 30 years; and the Congressional Budget Office is 
actually projecting budget surpluses each year for the next decade. 
Just as important, the 76 million Baby Boomers are still in the 
workforce paying taxes into the Social Security system. If we wait 
until this enormous group stops paying taxes and instead begins drawing 
benefits, the fixes will have to be much more severe.
  Over the past 15 months, Senators Judd Gregg and John Breaux, along 
with Congressmen Jim Kolbe and Charles Stenholm, have served as 
congressional co-chairmen for the National Commission on Retirement 
Policy, sponsored by the Center for Strategic and International 
Studies. This 24-member group of politicians, businessmen, and policy 
experts developed and unanimously approved a broad proposal for 
reforming Social Security. The Senators and Congressmen then crafted 
bipartisan legislation based on the commission's recommendations.
  The outline of the Gregg-Breaux plan is simple. It would reduce the 
Social Security payroll tax by 2 percentage points and divert the money 
into a mandatory savings account for every worker under age 55. The 
accounts would supplement--not replace--benefits guaranteed through the 
traditional system. Workers could pick from a limited number of 
investment funds dealing in stocks, government bonds, or a combination 
of the two, much like the Thrift Savings Plan available to members of 
Congress and federal employees. The benefits of current retirees and 
workers age 55 or older would not be affected by the private accounts, 
and benefits to survivors of deceased workers and the disabled would 
also be protected.
  Meanwhile, Gregg-Breaux would make changes to the remaining pay-as-
you-go system to bring it into actuarial balance. It would accelerate 
the scheduled increase in the retirement age, raising the age for full 
benefits to 70 and the age for early retirement benefits to 65 by 2029. 
It would reduce the Consumer Price Index by half a percentage point so 
that it more accurately reflects the rate of inflation, and it would 
scale back benefits to wealthier retirees, who are likely to fare 
better with their individual accounts. Unlike several of the proposals 
that are on the table, however, the Gregg-Breaux plan does not raise 
taxes, period. In fact, the payroll tax is reduced from 12.4 to 10.4 
percent and never rises above 10.4 percent again.
  Some groups continue to insist that only minor adjustments are needed 
to put Social Security back on sound financial footing. What they often 
won't tell you is that all of these adjustments would either raise 
taxes or cut benefits. For me, it's clear that ``reforming'' Social 
Security in this way will no longer suffice. These kinds of traditional 
reforms were last used by the 1983 Greenspan Commission to ``fix'' 
Social Security for 75 years. Today, we know the program will be in 
trouble again in 2013, when tax revenues are no longer sufficient to 
pay promised benefits.
  Instead of taxing Americans at ever-higher rates while scaling back 
their retirement benefits, our goal should be to enable all workers to 
accumulate a level of wealth that will allow them to retire with a 
basic level of economic security. That's why private accounts are a 
central part of the plan I support.
  Private accounts would give working-class Americans the same access 
to the power of compound interest that the rich enjoy today. This 
notion terrifies those who want to keep workers as dependent on 
government as possible, but more and more people acknowledge that 
private accounts are the best way to simultaneously solve the two 
crises facing Social Security--the impending insolvency of the program 
due to enormous demographic shifts, and the lower and lower rates of 
return for each new generation of workers. First, private accounts 
would allow younger workers to take advantage of the higher returns 
available to private investment. Second, because these workers would be 
giving up some of their future claims on traditional Social Security 
benefits, the unfunded liability of the program would be reduced.
  As the American people learn more about the issue of Social Security 
reform, public opinion on the issue of private accounts has clearly 
shifted. Depending on how the question is phrased, between 60 and 80 
percent of Americans now say they favor letting workers invest some 
portion of their Social Security tax payments. Most of the current 
reform plans have an element of private investment, and I am pleased 
that several of our Democratic colleagues in the Senate have openly 
endorsed them.
  In my view, reforming Social Security is the most significant 
political issue on the horizon for the foreseeable future, and I am 
encouraged that the American people and elected officials on both sides 
of the aisle recognize its importance to our nation's continued 
prosperity. History has shown us that an issue of this magnitude can 
only be addressed successfully through a bipartisan process. The Gregg-
Breaux plan is a thoughtful approach to reform, and I expect it to 
wield considerable influence in shaping the important debate that lies 
ahead.
 Mr. COATS. Mr. President, I rise today as a cosponsor of the 
sweeping Social Security Legislation introduced by my colleagues--
Senators Gregg and Breaux. The ``21st Century Retirement Security Plan 
of 1998'' is designed to strengthen Social Security now, encourage 
personal savings, and expand the availability of private pension plans.
  Senators Gregg and Breaux recently co-chaired the National Commission 
on Retirement Policy. This bipartisan commission of lawmakers, 
economists, pension experts, and businessmen released a report calling 
for legislation including, among other things, personal savings 
accounts and a gradual increase in the retirement age. The ``21st 
Century Retirement Plan'' implements both these provisions and aims to 
serve a two-fold purpose: It strengthens the Social Security system--
ensuring payment to all of the hard-working Americans that have paid 
into it. And it expands opportunities for private retirement savings--
which will provide Americans with more options to save and invest in 
their future.
  As we approach the dawn of the 21st century, it is common knowledge 
that the aging baby boom will create huge financial problems for future 
generations. Without changes, the Social Security trust funds will be 
unable to pay full benefits beginning around the year 2030. Therefore, 
a thirty-eight year old individual, making an average wage, will have 
to live until the age of 91 to get back what he paid into the system. 
This is not the time to propose patchwork solutions to this problem, 
but rather to seize this unique opportunity to restructure the entire 
system. I believe that this legislation is a logical first step toward 
achieving that goal.
  President Clinton has also jumped on the save Social Security 
bandwagon,

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although his plan is to sit back and wait until we have three or four 
``national town meetings'' to discuss the ramifications of changing the 
system. Coincidentally, those meetings conclude at the end of this 
year--which just happens to be an election year. This epitomizes the 
lack of courage of the part of most of our elected officials.
  This legislation will save the Social Security system through the 
next century without raising taxes. In fact, under this plan, taxpayers 
would be able to invest 2 percent of their current payroll tax in 
private savings accounts modeled after the Government's thrift savings 
plan. This change would not affect current retirees, but would rather 
assist current tax-paying Americans preparing for their retirement. As 
a tax-paying American, I trust myself to manage my money much more than 
I trust the Federal Government to provide for my future.
  This allocation of part of the payroll tax would be offset by our 
current budget surplus and a gradual rise of the retirement age from 67 
to 70 by 2029. Further, these accounts would provide a higher rate of 
return for recipients. This would, as provided by the bill, lower 
guaranteed Social Security payments and ease the burden on the system.
  This plan improves retirement security and protects future 
generations by strengthening the safety-net aspect of the Social 
Security system and providing Americans more options for savings and 
investment. The ``21st Century Retirement Security Plan of 1998'' 
contains the courage and common sense necessary to save our children 
and our children's children from the economic strife that is bound to 
arise if we do not address this impending problem.
                                 ______