[Congressional Record Volume 144, Number 106 (Friday, July 31, 1998)]
[Senate]
[Pages S9545-S9547]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                SOLUTIONS TO THE SOCIAL SECURITY CRISIS

  Mr. GRAMS. Mr. President, during the past few weeks, I have made a 
series of remarks on the Senate floor concerning Social Security. I 
discussed the history of Social Security, the program's looming crisis, 
the old-age insurance reform efforts taken by other nations, and the 
financial gender and race gaps created by the current Social Security 
system.
  Today, I will sum up the major points I have made so far and then 
move on to speak about possible solutions to Social Security's 
problems, and the principles of reform we must uphold as we move 
forward.
  The concept of ``social security'' originated in Europe in the 1880s. 
It was devised supposedly to correct the problems created by laissez 
faire capitalism, to avoid a Marxist-led revolution. Social Security 
was not an American experience. In fact, a very small group of 
intellectuals promoted and designed the Social Security program in this 
country. Congress hastily passed the Social Security Act less than 
seven months following its introduction in 1935. The public never got 
the chance to participate in the debate.
  At the time, many Members of Congress from both sides of the aisle 
raised serious questions about the program. Unfortunately, many of 
their prophecies have become reality today. Senator Bennett Clark, a 
Democrat from Missouri, recognized the non-competitive nature of Social 
Security and offered an amendment to allow companies with private 
pensions to opt out of the public program. Workers would be given the 
freedom to choose either the federal Social Security program or a 
private pension plan offered by their employers.
  The Clark amendment received popular support in the Senate, but was 
dropped from the conference report with the promise it would be 
reconsidered immediately the following year. It was not--that promise 
was broken, the first of many broken promises that plague us today.
  In the 60 years following its creation, despite continued questions 
and criticism, the Social Security system has grown dramatically in 
size and scope. As more beneficiaries and more programs are added, 
Congress has raised the payroll tax 51 times.
  In 1964, Ronald Reagan was among the first to suggest investing 
Social Security funds in the market. But no one took his advice 
seriously.
  Then, in 1977 and 1983, Social Security ran into major crises, and 
Congress had no choice but to pass Social Security rescue packages that 
significantly increased taxes. Washington promised that Social Security 
would remain solvent for another 75 years. Today, another Social 
Security crisis is imminent. Unlike the previous two crises, however, 
the coming crisis will have a profound and devastating impact on our 
national economy, our society, and our culture.
  The Social Security program's $20 trillion--that is a large number--
$20 trillion--in unfunded liabilities have created an economic time 
bomb that threatens to shatter our economy. Beginning in 2008, 74 
million baby-boomers will become eligible for retirement and the system 
will begin to collapse.
  The problem begins with the fact that the current Social Security 
system is a ``pay-as-you-go'' entitlement program. The money a worker 
pays in today is used to support today's retirees--there are no 
individual accounts waiting for future retirees to dip into. This was 
not a problem in 1941, when there were 100 workers to support every 
beneficiary. It is a tremendous problem in 1998, when only two workers 
support each beneficiary.
  These factors all lead to the conclusion that the Social Security 
Trust Fund will go broke by 2032 if we continue on our present course. 
If the economy takes a turn for the worse, or if the demographic 
assumptions are too optimistic, the Trust Fund could go bankrupt even 
earlier. Without real reform, the Congressional Budget Office and the 
General Accounting Office estimate the debt held by the public will 
consume up to 200 percent of our national income within the next 40-50 
years.
  A national debt at this level would shatter our economy--and shatter 
our children's hopes of obtaining the American dream.
  Mr. President, retirement security programs worldwide, not just here 
in the United States, will face a serious challenge in the 21st Century 
due to a massive demographic shift that is now underway. The World Bank 
recently warned that, across the globe, ``old-age systems are in 
serious financial trouble and are not sustainable in their present 
form.''
  While Congress has yet to focus on this problem, many other countries 
have moved far ahead of us in taking steps to reform their old-age 
retirement systems. Some of these international efforts are extremely 
successful. Chile and Great Britain are excellent examples.
  Back in the late 1970s, after Chile realized that its publicly 
financed, pay-as-you-go retirement system would go broke, it replaced 
it with a system of

[[Page S9546]]

personalized Pension Savings Accounts. Nearly two decades later, 
pensions in Chile are between 50 to 100 percent higher than they were 
under the old government system. Real wages have increased, personal 
savings rates have nearly tripled, and the economy has grown at a rate 
nearly double what it had prior to the change.
  When facing bankruptcy in the early 1980s, the United Kingdom 
reformed its system to allow individuals to choose the option of a new, 
self-financing private pension plan. The success of the English system 
has been overwhelming. Today, nearly 73 percent of the workforce 
participates in private plans, with a total pool worth more than $1 
trillion. The United Kingdom will pay off its national debt by 2030, 
about the same time experts estimate our Social Security Trust Fund 
will go bankrupt.
  Mr. President, we can learn a great deal from our global neighbors. 
As we pursue reform, we must also address the issue of why the current 
Social Security system puts women and minorities at a greater financial 
risk and disadvantage than other retirees face today. For women and 
minorities, average income remains low. This means they have less money 
available to save for their retirements. Therefore, a growing number of 
women and minorities are becoming increasingly dependent upon their 
Social Security checks. Today, the average female retiree earns 
approximately $621 per month, compared to her male counterpart at $810 
per month. But marriage alone does not always improve a woman's 
situation. In fact, 64 percent of all elderly women living in poverty 
are widows. This is because when a spouse dies, the widow's benefits 
are reduced by up to one-half.

  Race also continues to be an important factor in determining the 
level of retirement security for some Americans. As Social Security 
approaches bankruptcy and the rate of return diminishes, Hispanic and 
African-Americans will be forced to bear a disproportionate share of 
the financial burden.
  In an economic model prepared by the Heritage Foundation, a 
hypothetical Hispanic community of 50,000 lost $12.8 billion in 1997 
dollars over what it could have earned had they invested their Social 
Security funds in a conservative portfolio. The findings within the 
African-American community are similarly troubling. Like single 
Hispanic males, single African-American males have a lower life 
expectancy and are especially disadvantaged by the current Social 
Security system. A low-income, African-American male born after 1959 
can expect to receive less than 88 cents back on every dollar he 
contributes to the Social Security trust fund.
  Mr. President, Congress and the public itself have begun to focus on 
the inequities of the current system, with an eye toward the rapidly 
approaching crisis. To date, a number of Social Security reform 
proposals have been introduced by Members of Congress of both parties, 
by think tanks, and by individuals in the private sector. This is very 
encouraging. It appears to me there are wrong and right approaches to 
reforming the Social Security system. The wrong approaches are to 
tinker with the current system by either increasing the payroll tax or 
reducing benefits, or letting the government invest Social Security 
Trust Funds for the American people. Mr. President, let me take a few 
moments to discuss why.
  There are two points to consider in whether the federal government 
itself should invest the Social Security Trust Funds in the equity 
markets. The positive aspect of this approach, in my view, is that the 
authors of this proposal have admitted the insolvency of Social 
Security and have recognized the power of the markets to generate a 
better rate of return, and therefore improved benefits for retirees. 
The negative side is that direct federal involvement in the markets has 
the potential to do great harm.
  In the last week's Humphrey-Hawkins hearing, I asked Federal Reserve 
Chairman Alan Greenspan whether we should allow the government to 
invest the Social Security Trust Funds in the markets, and if this is 
right direction to go. Here are his exact words:

       No, I think it is very dangerous. . . I do not know of any 
     way that you can essentially insulate government decision-
     makers from having access to what will amount to very large 
     investments in American private industry. . . I am fearful 
     that we are taking on a position here, at least in 
     conjecture, that has very far-reaching, potential dangers for 
     a free American economy and a free American society. It is a 
     wholly different phenomenon of having private investment in 
     the market, where individuals own the stock and vote the 
     claims on management, (from) having government (doing so).

       I know there are those who believe it can be insulated from 
     the political process, they go a long way to try to do that. 
     I have been around long enough to realize that that is just 
     not credible and not possible. Somewhere along the line, that 
     breach will be broken.

  Perhaps no one in the country is more knowledgeable about the 
American economy than Chairman Greenspan. He was among the first to 
raise the issue of Social Security's unfunded liabilities and warned 
Congress a few years ago about the consequences if we fail to fix 
Social Security. Chairman Greenspan has been consistent in his 
position. But last week was the first time he spoke so clearly, 
forcefully, and persuasively against the idea of letting the government 
invest the Social Security Trust Funds. Mr. President, we should never 
venture out onto what Chairman Greenspan called ``a slippery slope of 
extraordinary magnitude.
  We hear some argue that Social Security is not in crisis, it is not 
broken, and all we need to do is make a few ``minor adjustments,'' such 
as raising the payroll tax by 2.2 percent. History has already proved 
that this approach will not work.
  If we were to adopt this plan, the tax hike would cost roughly $75 
billion in fiscal year 1998, which is the equivalent of a 10 percent 
increase in everyone's personal income taxes. Such an increase would 
not only represent an impossible hardship for America's already 
overtaxed, hard-working families, but it would not fix Social Security 
either.
  This 2.2 percent figure is based only on what is called actuarial 
balance, not operating balance. This calculation itself is problematic 
because actuarial balance counts accumulated surpluses, which are 
nothing but IOUs that can only be redeemed by raising taxes or 
borrowing from the public. Even if Congress adopted the 2.2 percent 
solution, Social Security would still face large and steadily growing 
deficits starting in 2020.
  When I asked Chairman Greenspan about this proposal, he told me that 
increasing taxes will not create the savings, the investment, nor the 
production of real assets required for retirees, because: First, it is 
the same failed remedy we have turned to repeatedly, and second, it 
does not change a pay-as-you-go system to a fully funded one. The right 
approach, according to Chairman Greenspan, is to allow private 
retirement accounts which he believes will ``far more readily move 
toward full funding'' of the system. He believes a fully funded system 
will provide the savings and investment, and thus increased 
productivity, needed for retirement security. I fully agree with him.
  You don't have to go far to find empirical evidence supporting this 
approach. Employees of Galveston County, Texas opted out of Social 
Security in 1981 to set up a private retirement plan. Let me offer some 
comparisons. Under Social Security, the death benefit is only $253 
while under the Galveston plan, the average death benefit is $75,000 
and the maximum benefit can reach $150,000. Disability benefits under 
Social Security are $1,280 per month, compared with $2,749 for 
Galveston employees. The maximum Social Security retirement benefit is 
$1,280 per month, while the average retirement benefit for Galveston 
employees is $4,790 per month.
  Mr. President, it is obvious which plan is superior.
  Those who argue passionately for preserving Social Security's status 
quo insist that personal retirement accounts are too risky and too 
expensive to operate. This is not true. Any investment involves risk, 
but in my view, Social Security is even riskier than other long-term 
market investments. Social Security has already had two crises in the 
last two decades. The coming crisis will wipe out a worker's entire 
lifetime of Social Security investments. With today's well regulated 
and matured markets, risk can be managed to the minimum for long-term 
investment. In addition, workers do not necessarily have to invest in 
stocks. In fact, they can invest in low-risk bonds,

[[Page S9547]]

and even Treasury bills, and still do better than Social Security.

  Actual fees and administrative costs for existing investments in the 
markets are generally well below 1 percent. With much higher yields, a 
market-based system still results in much better benefits than are 
realized under Social Security.
  Supporters of the status quo also argue that a personalized 
retirement security system will hurt lower-income workers. Again, this 
is untrue. Under the Galveston plan, a 25-year-old worker, making 
$20,000 a year and retiring at age 65, will receive $2,740 in 
retirement benefits per month. That's more than three times greater 
than Social Security's $800 per month benefit.
  A personalized retirement system is the best retirement system for 
today's and tomorrow's American workers because, not only will it make 
Social Security solvent, it will produce maximum retirement benefits 
and a sustainable economy. In fact, I believe this is the only solution 
to the Social Security crisis. We should move in this direction as soon 
as possible, and we should allow workers to use as much of their 
payroll tax as possible to set up their personal retirement accounts. 
There are existing proposals to allow workers to set aside two, three, 
or four percent of the payroll tax for their personal retirement 
accounts. These are all well-analyzed proposals, and each has its own 
merits. We should take a close look at them.
  However, if a personalized retirement system will generate the best 
outcome, why do not we allow workers to put all their payroll taxes 
into the new system? That would allow workers to accumulate more 
savings, enjoy higher returns, generate additional benefits for their 
retirement in a shorter time, and pass the savings on to their 
children. By so doing, we can shift to a fully funded retirement system 
much more quickly. This will have an enormous, positive impact on our 
savings and investment, and our economy--while providing the retirement 
security we have pledged to deliver. I soon will offer legislation to 
achieve this goal.
  Clearly we have no choice but to pursue real reform of Social 
Security. What remain are the difficult questions of how we should 
proceed, which principles should guide us, and which options offer 
Americans the best opportunities for retirement security.
  In my view, the primary principle in reforming Social Security is to 
protect current and future beneficiaries who choose to stay within the 
traditional Social Security system. The government must guarantee their 
benefits. Any change that reduces their benefits, or adversely affects 
those Americans, is not acceptable. Let me repeat: it is not acceptable 
if any reform results in a reduction of benefits, or harms in any way 
those Americans who are depending--or who want to depend--upon Social 
Security.
  I emphasize this principle not so much because we want to gain the 
support of seniors--although their support is essential to the success 
of our efforts--nor to neutralize their opposition to Social Security 
reform, but because of the sacred covenant the federal government has 
entered into with the American people to provide their retirement 
benefits. It is our contractual duty to honor that commitment. It would 
be wrong to let current or future beneficiaries bear the burden of the 
government's mistakes in creating a poorly-designed program and failing 
to foresee demographic changes.
  The second principle we must uphold is to give the American people 
freedom of choice in pursuing retirement security. The purpose of 
Social Security is to provide a basic level of benefits for everyone in 
case of misfortune. So if social insurance is a safety net to catch 
those who fall, it does not make sense to penalize those who are quite 
able to stand on their own two feet. Freedom is the cornerstone on 
which this nation is built--taking away freedom will lower the standard 
of living we enjoy today. Allowing workers to control their own funds 
and resources for retirement will strengthen our constitutional 
democracy and put individuals in charge of their own savings.
  The third principle is to preserve a safety net for unlucky or 
disadvantaged Americans, so that no covered person is forced to live in 
poverty. Today's Social Security program has 44 million beneficiaries: 
we must ensure that the safety net will continue to be there for them. 
But we must also separate the retirement function from the welfare 
function and make them transparent, so that we can better manage and 
improve old-age retirement programs and welfare programs.
  The fourth principle is that reform should provide better or improved 
retirement security for American workers than is currently available. 
We can do that by enabling them to build personal retirement savings, 
improve the rate of return on their savings, increase capital 
ownership, and pass their savings on to their children.
  More and more people are relying on Social Security as their only 
source of retirement income. As that number grows, however, the rate of 
return for Social Security contributions is diminishing.
  And so it is becoming ever more difficult to juggle the increased 
dependency on Social Security with the expectations for a decent 
retirement. Any reform of the current system must meet this challenge 
and provide better benefits for every American, regardless of their 
income, than are available under the current system.
  The fifth principle should be to replace the current pay-as-you-go 
system with a fully funded program. The fundamental flaw of the Social 
Security system is the PAYGO finance mechanism, which has been very 
vulnerable to changing demographics, and hardly remains actuarially 
balanced.
  It has created enormous financial burdens for our children and 
grandchildren. Moving to a fully funded system will not only reduce 
inequality among generations, it will also greatly increase our 
nation's savings and investment rates, and therefore prosperity.
  The sixth principle is that any reform of the current system should 
not increase the tax burden of the American people. The taxpayers are 
already paying an historic 40 percent in federal, state and local taxes 
out of every paycheck they earn.
  Although Congress has increased payroll taxes more than 51 times in 
the past 63 years, Social Security still faces a crisis. Hiking taxes 
yet again to fix Social Security would be unfair and unjust to working 
Americans, and would only pave the way for additional, future tax 
increases.
  We must neither increase taxes to tinker with the current system, nor 
to finance a transition from a PAYGO system to one that is prefunded. 
Instead, we should look for a more innovative and more appropriate way 
to finance reform, such as reducing government spending and selling 
government assets, to achieve the goal.
  Although the degree to which the various reform proposals being 
discussed meet the core principles I have outlined varies greatly, the 
fact that we are openly debating this subject at all is heartening.
  In conclusion, Mr. President, the looming Social Security crisis is 
real. The threat to our economy is devastating. The best solution to 
avoiding this imminent crisis is to move from Social Security's PAYGO-
based system to a personalized retirement program that is fully funded 
and offers each American the security they seek--and deserve--in their 
retirement years.
  Congress has the power to create this brighter future for all. 
Congress has the responsibility to act before the coming danger is 
irreversible. All Congress needs now is courage.
  The PRESIDING OFFICER. The Senator from New York is recognized.
  Mr. D'AMATO. I thank the chair.
  (The remarks of Mr. D'Amato pertaining to the introduction of S. 2419 
are located in today's Record under ``Statements on Introduced Bills 
and Joint Resolutions.'')

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