[Congressional Record Volume 144, Number 137 (Monday, October 5, 1998)]
[Senate]
[Pages S11443-S11448]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                       IMPROVING SOCIAL SECURITY

  Mr. GRAMS. Mr. President, our Nation's Social Security system, forged 
in a much simpler time and patched and plugged over the years to keep 
it relevant, has been a godsend for millions of Americans over the 
program's 63-year history. It doesn't provide a life of luxury, but 
Social Security offers senior citizens a little bit of certainty during 
what is often a very tough time.
  I have friends and family members who depend on that monthly check 
from Social Security, and I am grateful that it is there for them and 
would never do anything to take it away. But that is not to say we 
can't do something better, or we should not try to improve a system 
that will not be able to provide that certainty for retirees in the 
future.
  As a product of the 1930s, it is clear that the Social Security 
system is a system that was best suited for yesterday, not tomorrow. 
Social Security's pay-as-you-go structure fails to meet the challenge 
of a sharp demographic change that is now underway in this country. 
With fewer and fewer workers supporting each retiree, the program is 
soon to go broke, or it will be too costly for our children and 
grandchildren to support, thus creating financial hardship for millions 
of baby boomers and leaving nothing for future generations. In the 
meantime, Social Security is shortchanging today's workers, denying 
them the opportunity to expand their personal wealth and control their 
own financial destinies.
  The coming Social Security crisis is real, and it will shatter our 
economy and destroy the ability of our children to achieve the American 
dream. The question is, why? Because the only way to save the current 
system is to raise taxes by more than double, reduce benefits as much 
as one-third, while raising the age of eligibility to retire as high as 
70 years old. These solutions are unacceptable for the workers of the 
future. If you offered this to somebody, why would they want to pay 
more, get less, and wait longer for retirement? To be honest with our 
families, we have no choice but to pursue real reform of Social 
Security. Mr. President, the sooner we act, the easier and less costly 
our choices will be and the more secure our children's future will be.
  With a strong sense of responsibility, I rise today to introduce 
legislation that I believe will offer the best solution to avoiding the 
crisis ahead and preserving Social Security, while providing improved 
retirement security for every working American as we now approach the 
21st century.
  Mr. President, during the past six decades, whenever a Social 
Security crisis would arise, Washington's approach was to tinker with 
the system by either increasing the payroll tax or reducing benefits. 
When the tinkering was done, the politicians would slap themselves on 
the back and claim that Social Security will be solvent for another 50 
to 75 years. That has happened more than 50 times--always at the 
expense of the American workers, who found themselves with higher taxes 
or lower benefits. But this is obviously the wrong approach. If it had 
worked before, we would not be where we are today.
  Social Security, as you will remember, started off taking only one-
half of 1 percent of your income. It is now at 13 percent. One-eighth 
of everything you make goes into a system that, right now, can't 
promise you that you are going to get the benefits that you expect.
  Unlike any previous crisis, the magnitude of the current situation 
makes a traditional bailout impossible. Again, under an optimistic 
scenario, it would require a payroll tax increase of at least 50 
percent or a one-third cut in benefits just to keep Social Security 
from bankruptcy. Under a more realistic ``high-cost'' projection, 
paying promised Social Security benefits would require the current 12.4 
percent payroll tax to be more than doubled to 26 percent. If you 
include the additional tax to save Medicare, the total payroll tax 
would have to increase to an astonishing 46 percent, and even a tax 
hike that massive would be only a temporary fix. The total tax--income 
and payroll--could reach as high as nearly 80 percent for young 
Americans who enter the workforce today.
  Payroll tax hikes at this rate will heavily burden working Americans 
who are already struggling to make ends meet. They will rob our 
children of their financial future, and demolish our economy.
  Reducing benefits is not an acceptable solution. Low-income families 
are increasingly dependent on Social Security; in 1994, Social Security 
benefits accounted for 92% of the total income received by elderly 
Americans living alone, beneath the poverty line. A one-third benefit 
reduction will throw more elderly and disadvantaged Americans into 
poverty, and cast those already mired in poverty into further 
desperation. Again, those benefit cuts could be much deeper under more 
realistic scenarios.
  We must abandon the traditional approach to fixing the Social 
Security system. We must expand our thinking--explore new opportunities 
to fundamentally change the way we think about Social Security--resolve 
the problems once and for all and offer the American people nothing 
less than peace of mind when they retire.
  The best solution to avoiding the imminent crisis is to move from 
Social Security's pay-as-you-go system to a personalized retirement 
program that is fully funded and offers retirement security to every 
American. This is not a new idea. Sixty years ago, during debate in 
this chamber over creation of the Social Security system, Democratic 
Senator Bennett Clark proposed just such a plan. It passed the Congress 
overwhelmingly but was pulled out in conference with the promise it 
would be done the next year.
  Again, back in the 1930's, Democratic Senator Bennett proposed a plan 
for personal accounts for retirement. It passed the Congress 
overwhelmingly but it was pulled out in conference again with the 
promise that it would be done the next year. That promise was never 
kept by the few who advocated a government-financed and run program. 
During each past crisis, similar proposals of personal retirement 
accounts have been discussed--yet never implemented.
  Today, there are a number of plans that have been introduced by my 
colleagues from both aisles, favoring diverting anywhere from 1 to 4 
percent of the Social Security payroll tax to set up a system of 
market-based personal retirement accounts. My colleagues are to be 
commended, Mr. President, and this is a move in the right direction.
  However, if a market-based personal retirement system works so well, 
and is the right things to do as proven by countries like Britain, 
Chile, Australia and others, we should take full advantage of it by 
accelerating the wealth building for retirement security and expediting 
the transition from a PAYGO system to a fully funded system.
  Mr. President, this is precisely the reason I am introducing my 
reform plan.
  My legislation, the ``Personal Security and Wealth in Retirement 
Act,'' is based on six fundamental principles, principles that must 
guide Congress in any effort we undertake to ensure retirement 
security. The primary principle is to protect current and future 
beneficiaries, including disadvantaged and disabled adults or children, 
who choose to stay within the traditional Social Security system. The 
government must guarantee their benefits. There should be no change 
that reduces their benefits, and no retirement age increase.
  Let me say that again: a guarantee of no change in benefits or age of 
retirement for those who wish to stay within

[[Page S11444]]

the traditional Social Security system. We must do no less.
  I emphasize this principle not so much because we want to gain the 
support of seniors, 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's our contractual duty to honor that 
commitment. It would be wrong to let current or future beneficiaries 
bear the burden of the government's failure to make the changes needed 
in a system that cannot handle the demographic changes that will begin 
to create huge cracks in our existing program.
  The second principle my plan upholds is that Social Security reform 
must 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. And 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.
  The third principle is to preserve a safety net for disadvantaged 
Americans, so no covered person is forced to live in poverty.
  My fourth principle is that reform should make every American better 
off, and certainly no worse off, in their retirement than they are 
under the current system. It should enable workers to build personal 
retirement savings, improve the rate of return on their savings, 
increase capital ownership, and pass on their savings, as part of their 
estate, to their children.
  The fifth principle is to replace the current pay-as-you-go financing 
scheme, in which today's workers support today's retirees, with a fully 
funded program.
  In other words, one generation will pay for its own retirement and 
not rely on the second and third generation to pay for it. Social 
Security's pay-as-you-go feature is the program's fundamental flaw 
because it leaves the system vulnerable to changing demographics, thus 
creating enormous financial burdens for our children and grandchildren. 
Moving to a fully funded system will not only reduce inequality among 
generations, it will greatly increase our nation's savings and 
investment rates, and therefore prosperity.
  The sixth principle is that any reform of the current system must not 
increase the tax burden of the American people. The taxpayers are 
already giving up an historic 40 percent in federal, state, and local 
taxes out of every paycheck they earn. Hiking taxes yet again in the 
name of fixing Social Security would be unfair and unjust to working 
Americans, and would only pave the way for additional, future tax 
increases.
  Mr. President, with the above-mentioned principles as its foundation, 
the plan I bring before the Senate today is designed to achieve the 
goal of providing better and improved retirement benefits for all 
Americans. The proposal I will outline here is carefully designed to 
produce a highly appealing retirement option by maximizing the freedom 
and prosperity of working people. I have consulted seniors, farmers, 
small business owners, as well as large employers. I have made a number 
of revisions in accordance with their views.
  Now, Mr. President, allow me to present the highlights of the plan 
and explain how it works.
  The first component of the ``Personal Security and Wealth in 
Retirement Act'' upholds our primary principle by allowing people to 
remain in the current Social Security program if they so choose. In 
fact, my plan clearly stipulates that it is the right of workers to do 
so, and that they will be protected. The government will guarantee the 
promised benefits for those who elect to stay within the traditional 
system.
  Many of the existing reform proposals include components to increase 
the retirement age to anywhere from 67 to 70, and/or mandate a 
reduction in promised benefits. The polls show that 75 percent of the 
American people oppose the age increase. That is hardly a surprise; the 
American people already work too hard. It is not fair to raise the 
retirement age and force them to extend their work careers. You cannot 
promise one thing and then do another.
  Nor is it right to reduce their benefits. Such an irresponsible 
approach would serve only to throw more elderly Americans who 
increasingly depend on Social Security into poverty, and increase the 
hardship dramatically on those who are already suffering under poverty.
  That is why my plan explicitly protects those who choose to stay 
within the current system against an age increase or benefit reduction 
of any kind--again, those who choose to stay within the current system 
are explicitly protected.
  The key provision of my plan is to allow workers to set up a market-
based, fully personalized retirement account, or PRA. Currently, 
workers and their employers pay a 12.4 percent FICA tax into the Old-
Age/Survivor and Disability Insurance Trust Funds. Under my plan, we 
will allow workers to divert 10 percent out of their 12.4 percent FICA 
tax, within the covered earnings, into their PRAs and use the remaining 
2.4 percent to finance transition costs. The responsibility for payment 
of taxes will be equally divided between employers and employees.
  When the transition is complete, the 2.4 percent will be eliminated 
as tax relief, because under a market-based retirement system, a 
savings investment of 10 percent will itself provide a generous 
retirement.
  In fact, with the 2.4 percent tax cut, workers would be paying 20 
percent less into the fully funded system and they could still expect 
at least twice as much in benefits as they receive under Social 
Security. So our plan would actually cost less and it would provide 
more--much different from the current system.
  Under this plan, workers would enjoy maximum freedom to control their 
funds and the resources for their own retirement security. Workers 
would have at least the freedom to design their own retirement plan, 
investing in stocks, equities, bonds, T-bills, or any combination of 
these or other approved financial instruments with approved investment 
firms and financial institutions. A worker could even have their funds 
placed in a traditional savings account, if they would choose.
  There is no doubt that a market-based retirement system will generate 
much better returns than the traditional Social Security system we have 
today. Government data show that almost all workers in two-earner 
families receive real returns from their Social Security of 
approximately only 1 percent--a 1-percent or less return on their 
investments, with some actually receiving even negative returns. The 
return reaches 2 percent only for a family with two low-income working 
spouses. And these returns under Social Security will only diminish 
further in the future with benefit reductions and the raises in 
retirement age.
  Compare that to the performance of the market where, over the 70-year 
period from 1926 to 1996, the average annual nominal return was 10.89 
percent. And if you adjust that for inflation, that is still an average 
annual rate of return of 7.56 percent. So in over 70 years of the 
market there has been an average annual return of 7.56 percent. You 
couple that with Social Security now promising 1 percent or less in 
returns. It is much sounder, much better benefits for those under the 
new PRA system.
  PRAs will put the power of compound interest to work in providing 
benefits for everyone, and under my plan the average annual benefits 
for two average-income, full-time working spouses could reach over 
$200,000. Compare that to $33,000 under today's Social Security. For 
one spouse earning an average income, the benefit could be $140,000. 
Meanwhile, you provide under Social Security only about $29,000. Low-
income families also do better under my plan. The current Social 
Security program would provide $18,000 in annual benefits, but under 
this legislation their benefits could reach as high as $100,000.
  Now, this isn't a fantasy; it can be achieved, and the proof can be 
found right here in America. Consider the employees of Galveston 
County, TX. They opted out of Social Security back in 1981 to set up a 
private retirement plan, an option on which the Federal Government long 
ago has shut the door. And here is what they have been able to achieve 
in Galveston County. Under Social Security, the death benefit is only 
$253, while under the Galveston plan the average death benefit

[[Page S11445]]

is $75,000, and the maximum benefit can reach $150,000. What a 
difference --$253 under Social Security and up to $150,000 in Galveston 
County, TX.
  The disability benefit from Social Security is $1,280 per month, but 
in Galveston County, TX, for its employees, disability benefits are 
$2,749--more than double the disability benefits for their employees in 
Galveston County, TX, than under Social Security.
  The maximum Social Security retirement benefit is $1,280 per month, 
but in Galveston County the average monthly retirement benefit for its 
employees is $4,790 a month--four times, nearly four times greater 
under the personal retirement plan than under Social Security--$1,280 
per month under Social Security, and Galveston County, with their 
personal retirement accounts, $4,790 a month.
  To their great credit, some in Washington have recognized the power 
of the markets. Their solution, however, has been to suggest we let the 
Federal Government invest the Social Security trust funds for the 
American people, or at least allow the Federal Government to invest a 
portion of it.
  While appreciating the distance that my colleagues have come in 
reaching this point, I strongly believe that Government investment of 
the Social Security funds is dangerous and that it could seriously 
disrupt a market that is performing so well. Even Federal Reserve 
Chairman Greenspan agrees that this is an unworkable idea, and in a 
recent hearing of the Senate Banking Committee he said:

       No, I think it's very dangerous. . . I don't 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.

  He also said:

       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.

  That was Chairman Greenspan.
  Studies reveal that the current Social Security system discriminates 
against divorced women. If a woman gets married, stays home to care for 
her children, and divorces in less than 10 years, she doesn't get any 
benefits from Social Security. As a result, women in general receive 
lower benefits than men do. Poverty rates are twice as high among 
elderly women as among elderly men--13.6 percent versus 6.2 percent. 
Imagine supporting a retirement system that puts many of our parents 
into poverty--not security but into poverty.
  My plan recognizes the need to have some form of protection built 
into the system to protect nonworking spouses as well, usually women, 
and especially in the event of divorce, and we propose to allow couples 
to treat the worker's retirement account as community property so 
divorced women would be able to share in the retirement benefits. 
Research shows that a 10-percent savings contribution rate would 
benefit women more than a partly personalized two-tiered system. And 
that is true even for poor women who move in and out of the job market.
  Critics of a personalized fully funded retirement system often cite 
Social Security's survivor and disability benefits as a key reason to 
defend the status quo, but, of course, they often omit the many 
restrictions that go along with these benefits as well. The fully 
funded retirement system I am outlining could provide better disability 
benefits than the current Social Security system offers, and again I 
will refer back to Galveston County, TX, as a great example. Under my 
plan, for example, when a worker dies, his family would inherit all of 
the funds accumulated in his PRA. The savings would not disappear into 
the black hole of the Social Security trust fund.
  The system would also provide, in addition to the retirement savings, 
a survivors benefit package. So imagine, Mr. President, right now--and 
I use my father as an example. When he died at the age of 61, there 
were no benefits at all from Social Security. So for the whole time 
that he paid into the system, he got $253 as a death benefit. But under 
our plan, all the money that he had accumulated in his personal 
retirement account would become a part of his estate tax free and go to 
his heirs--not to the Government but to the family. His heirs would 
benefit from his investment into his retirement account. Also, the 
system, as I said, would also provide, in addition to the retirement 
savings, a survivors benefit package.
  Let me share a personal note here to prove that point. Under my 
legislation, retirement dollars stay right where they belong, and that 
is with the family that faithfully collected them, not with the 
Government. The Social Security disability insurance trust fund is most 
imperiled. Currently, workers pay 1.7 percent of their FICA tax for 
disability insurance. But the DI trust fund will be exhausted in the 
year 2019. GAO believes the program now to be outdated and that it 
doesn't reflect today's realities. So my plan requires that fund that 
manages the PRAs to use part of their annual contribution or yield to 
buy both life and disability insurance, supplementing their accumulated 
funds to at least match the promised Social Security survivors and 
disability benefits.
  By requiring retirement funds to purchase life and disability 
insurance for workers, all workers in each individual fund would be 
treated as a common pool for underwriting purposes and the insurance 
would be purchased as a group policy; not by individual workers, but by 
the investment firms or financial institutions, thus avoiding insurance 
policy underwriting discrimination while providing the largest amount 
of benefits at the lowest possible costs.
  Mr. President, another special feature in this plan is to allow PRAs 
to be established early on in life, before a child is even out of 
diapers. The idea is that when a child is born and given a Social 
Security number, his or her parents, even grandparents, should be able 
to put money into that child's retirement account and to allow compound 
interest to work. Mr. President, $1,000 deposited for a newborn could 
grow to nearly $200,000 by the time that child retires. That would not 
be a bad start. So, if you put $1,000 into his account when the child 
is born, by the time he or she would retire, that would add an 
additional $200,000 to that account. Not a bad start, and again it 
shows the power of compound interest.
  In fact, when Albert Einstein was once asked what is the most 
powerful force on Earth, he answered without delay; he said, ``compound 
interest.''
  To supply maximum flexibility and allow workers to tailor their 
insurance and retirement package according to their needs and financial 
ability, the Personal Security and Wealth in Retirement Act allows 
workers to invest up to 20 percent of after-tax income to make 
additional voluntary contributions to their PRAs. So those who want to 
look ahead and even maybe plan for an early retirement, they can put 
even more money away, up to 20 percent of their income. That way, funds 
will be accumulated faster, making early retirement possible. And, 
since this would be an after-tax contribution within the current income 
limit, it would not provide a tax shelter for the rich. I do not know 
about you, but I am hard-pressed to think of a better way to encourage 
savings, to allow workers to better control their retirement finances.
  One of the key components and most important parts of my plan is to 
ensure that a safety net will be there at all times for disadvantaged 
and unfortunate individuals. This can be done without any Government 
guarantees of investments or overly strict regulation of investment 
options. Under this legislation, a safety net would be set up and would 
be involved with a guaranteed minimum level: 150 percent of the poverty 
level. When a worker retires, if his or her PRA fails to provide the 
minimum retirement benefits, and for whatever reason, the Government 
then would make up the difference. It would fill the glass to the top. 
The same applies to survivor and disability benefits. If a worker dies 
or becomes disabled and his or her PRA doesn't accumulate sufficient 
funds in order to provide the minimum survivor and disability benefits, 
the Government would match those shortfalls.
  The simple safety net is necessary, and the minimum benefit would 
guarantee that no one, no one in our society would be left impoverished 
in retirement while still allowing workers to enjoy the freedom and 
prosperity achievable under a marketed-based retirement system.

[[Page S11446]]

  Some of my colleagues may be concerned about the Government financing 
this type of subsidy. Since the likely performance of the personalized 
retirement system would be far better than today's, Government spending 
for this minimum benefit is likely to be quite modest. In fact, the 
reform overall would probably allow us to reduce Government income 
assistance spending by far more than we would spend subsidizing the 
minimum benefit.
  Let me say that again. If this would work out and allow the 
Government to help subsidize the minimum benefit, to make sure no one 
retires into poverty--in fact retirement benefits would be 150 percent 
of poverty--that would reduce Government income assistance spending by 
far more than we would spend to subsidize the minimum benefit. Because 
workers would retire with far higher benefits through the personalized 
retirement system, they would need less Government assistance than they 
need today. So, again, there would be savings in the system that would 
help to pay for this subsidy.
  Unlike all other existing proposals, workers under my legislation 
could retire at any time. So, again, unlike all the other existing 
plans that are out there, workers under my proposal could retire any 
time they choose and withdraw funds from their PRAs as long as the 
minimum retirement benefit could be guaranteed by the account. So what 
we are doing is giving control of not only the fund, but also the 
future plans of the retired individual. When he wants to retire, rather 
than the Government saying you have to retire at 65, under my plan you 
could retire at 55 if you had the money set aside to meet those minimum 
benefits. Or if you wanted to continue working, you could stop paying 
into the account and you could work until you are 75 and invest in 
other avenues or other financial instruments.
  Once workers reach the minimum retirement benefit level they can 
continue to contribute to the PRAs, but they would not be required to 
do so. They could then choose to retire, continue working and invest 
that portion of income in other accounts, or they could just plain 
choose to spend their money as they wanted to. The rationale for this 
is simple. When workers accumulate enough funds for their retirement, 
they are no longer in danger of becoming a burden on society and they 
should therefore be allowed to retire at any age they choose without 
the Government telling them when.
  Why should the Government tell you when you can retire or penalize 
those who choose to continue working or retire even earlier? Over time, 
early retirements will surely reduce the ratio of workers per 
beneficiaries. But because this is a fully funded system, demographic 
changes will have no effect--they will have no effect--on the solvency 
of the system. A generation would pay for its own retirement. It will 
not be held hostage to the next generation. And the word 
``independence'' fits right here.
  Under this plan, workers could use the accumulated funds upon 
retirement to buy an annuity paying promised benefits for the rest of 
the worker's life. Annuities would be structured to provide benefits 
not just over the worker's life, but also over the life of their 
spouse. Unlike today, widows would not have to live in poverty. The 
benefits would not be reduced when one or the other would die. Or the 
workers could make regular, periodic withdrawals or a lump sum 
withdrawal of the money not needed to buy the annuity to provide the 
minimum benefits.
  The bottom line is that these withdrawal options would allow workers 
to basically sit down, to design their own retirement income so they 
will not be forced to buy an annuity when the market is temporarily 
down upon their retirement. And what is more, all the withdrawals will 
be tax free and smart retirement planning will help maximize the 
benefits.
  One of the major criticisms of a market-based personal retirement 
account system is that it inherently is volatile, and again subject to 
the whims of investors, exposing a worker's retirement income to 
unnecessary risks. My plan has specifically addressed this concern by 
requiring the approved investment firms and financial institutions that 
would be there to manage personal retirement accounts to have insurance 
against any investment loss. By approximating the role of the FDIC, we 
ensure that every PRA would generate a minimum rate of return of at 
least 2.5 percent to provide no less than the minimum retirement 
benefits.
  Regardless of the ups and downs of the markets, workers would still 
do better under this system than under the current Social Security 
system. So even under the minimum benefit of 2.5 percent minimum, that 
is still better than the current system of Social Security today paying 
1 percent or even less. This is another safety net built into the plan 
to give the American people peace of mind when it comes to their 
retirement investment. Further, to reduce risks to a worker's PRA, my 
legislation also requires that rules, regulations and restrictions 
similar to those governing IRA's would apply to personal retirement 
accounts as well. PRA's must be properly structured and they must 
follow strict, sensible guidelines set forth by the independent Federal 
board that will be set up to oversee the system.
  To choose qualified investment firms and financial institutions that 
will be there to manage the PRAs, the oversight board would be 
responsible for examining the credibility and ability of the companies 
and approve them as PRA managers accordingly.

  As workers choose the new worker retirement system, this legislation 
requires the Government to issue also what we call recognition bonds. 
That is, to help compensate them for past taxes that they have already 
paid into Social Security so that you would not lose any money that you 
have already paid into the existing Social Security system. The bonds 
would be credited with real interest for workers over the age of 50. 
The bonds for workers below 50 and above 30 would be credited with an 
inflation adjustment. So since younger workers would benefit most from 
the reform, workers under the age of 30 would not get recognition 
bonds.
  Another important element of the plan is to ensure that a worker's 
PRA remains his or her private property, and also that the holder has 
the right, as I have said before, to pass it on. So it becomes part of 
the estate for their family or heirs, not for the Government. When he 
or she dies, the remaining funds would be transferred to any person or 
persons designated by the holder. Their heirs would not pay any estate 
tax on the inheritance as well.
  So, Mr. President, a major legitimate concern about PRAs is the 
transition cost. Obviously, this is the most difficult part of every 
PRA plan. Every PRA plan has had to struggle with this. Social 
Security, however, has accumulated to date over $20 trillion in 
unfunded liabilities. So, in other words, we have made promises--
Congress, the Government--has made promises to Americans saying we are 
going to pay X amount of benefits to retirees. If you put that into 
dollars--we have underfunded; we have made promises but with no money 
to back it up yet--$20 trillion in unfunded liabilities.
  The transition from the current system to a personal and fully funded 
retirement system will also be costly. However, my point is we should 
not focus too much on this issue at the expense of resolving the coming 
Social Security crisis because if we do not make the tough choices, the 
trust fund is going to go broke.
  So we have $20 trillion in unfunded liabilities. The estimates are, 
to transition to a personal retirement account system would take maybe 
about $13 trillion.
  We believe it is going to be a less costly, more secure future and 
providing better benefits if we step up to the plate and make the 
decisions we need to make. No matter how much we pay for the 
transition, it is still much cheaper to finance the transition than it 
is to watch Social Security go broke, because once our plan is fully 
solvent, Social Security will still be facing some of the biggest 
problems or even greater problems in funding.
  Having said that, Mr. President, we should also be sensible about the 
transition costs. We shouldn't increase the overall tax burden or incur 
huge debt to finance the transition. Again, we shouldn't be out there 
increasing the overall tax burden. We shouldn't be out there building a 
huge debt to finance this transition. And since the unfunded liability 
is enormous, we need to find some innovative ways to help pay for them, 
not through tax hikes, not to

[[Page S11447]]

burden Americans with more taxes, but to find innovative ways to help 
make the transition.
  As you know, when a family faces financial trouble, every member of 
the family pitches in. It first cuts its spending, it won't go to the 
movies, or it might not eat out as often as it has and will delay 
purchasing big household items. The Government needs to take the same 
type of approach. A family, when it is facing a financial crisis, needs 
to pitch in and make financial sacrifices to make it through. The 
Government has to do the same thing.
  My plan proposes to help cut Government spending to help finance the 
transition. We require capping mandatory Government spending by 
allowing only new spending for new beneficiaries who meet the same 
criteria for benefits under the law. This would prohibit the expansion 
of these programs during the transition, but it would still cover those 
entitled to the current benefits.
  In addition, we propose a 5-percent across-the-board budget cut for 
every Federal agency, plus a 15-percent reduction in Government 
overhead.
  Mr. President, in the long run, my plan will balance itself because 
as workers opt for the personalized retirement system, they will 
receive fewer benefits from the old Social Security system as a result. 
Again, remember the statement made by the President and many others, 
and that statement is: Save Social Security first. That takes money, 
not just good intentions; not slogans, but actual action.
  Since the plan is designed to spread its transition costs across 
generations, the system will start off relatively slowly. It will grow 
over time and, therefore, offer other financial mechanisms that will be 
needed, particularly during the start-off period.
  One of these mechanisms is to ask workers who opt out of the Social 
Security system to continue to pay, as I said before, the 2.4 percent 
of their FICA tax to help with the transition. Right now, we pay 12.4 
percent of income into Social Security. Under this plan, 2.4 percent 
would go to transition costs. The other 10 percent would go into the 
individual retirement fund.
  The plan also proposes using the majority of the general revenue 
budget surplus, again with the notion, ``Save Social Security first.'' 
If there is a surplus, the majority of our budget surplus should go to 
helping reduce the transition costs of Social Security.
  To cover a portion of the transition deficit, we would sell the $700 
billion in Government bonds that have accumulated in the Social 
Security trust fund. If we still fall short in financing the gap, my 
plan calls for issuing new Government bonds to the public in order to 
help raise money. This would be done over a period of time, and, again, 
this stretches the financing of the transition over generations, not 
one generation having to pay for the mistakes the system has made, but 
many generations will have to help cover the costs.
  These bonds would not involve new Government debt. This is 
important--no new debt. We are not talking about issuing new bonds to 
create new debt but to, in other words, put into focus the $20 trillion 
in unfunded liability. What we are doing is saying we are now going to 
recognize that and put into place bonds that are going to help cover 
this. Again, this is not new debt but only explicit recognition of the 
implicit debt that the Government already owes through the unfunded 
liabilities of Social Security.
  These are the promises that we have already made, and they need to be 
paid for. It is the cost of hanging on to this system too long, and it 
will cost even more if we wait.
  Mr. President, the advocates of the status quo are using the recent 
stock market adjustment in an attempt to scare the American people away 
from a market-based retirement system. In my view, it is highly 
improper to use market cycles as the reason to deny exploring a viable 
solution to the coming Social Security crisis.
  Historical data recognizes market cycles, and the long-term prospects 
for the stock market have always been bullish. William Shipman, one of 
the country's leading pension management experts, has studied the worst 
performances of the market. He finds that in the past 70 years--and 
this includes the period of the Great Depression--on only 10 occasions 
have stocks fallen by 18 percent in 1 quarter or 14 percent in 1 month 
or 8 percent in 1 day. Even if the market would drop 89 percent on the 
day that a worker entered retirement, that worker would still have more 
in their retirement account than they would have available under Social 
Security.

  If you look at the numbers, Mr. President, again, even if the market 
would happen to drop 89 percent of its value in just 1 day, and it 
happened to be on the day the worker retired, the worker would still 
have more in their retirement account than they would have available 
under Social Security. That would be a worst-case scenario.
  We know that better planning and looking ahead would mean the worker 
would lose very little, if any, no matter how the market cycle would go 
with good financial planning. So the scare tactics that many are using 
are just that, scare tactics in order to help support their current 
Social Security system. We need to give the American people the 
information they need so they can make a very educated choice. We don't 
need scare tactics from either side. We need just to lay out the 
information, show them the truth, and then allow Americans to help us 
make this change.
  Let me repeat, even if the market dropped 89 percent on the day a 
worker entered retirement, that worker would still have more in their 
retirement account than they would have available under Social 
Security.
  Mr. President, there are also many safeguards in this plan that a 
worker would not have to draw retirement money on that day, that there 
could be moneys taken out so he could wait a while or also do many 
things leading up to his retirement so he wouldn't have to worry what 
was going to happen on that last day. There are many choices and 
options to maximize retirement benefits, but many are going to use any 
fluctuations in the market to try to scare people. Again, we need to 
just give the American people the information they need to help them 
make the choice.
  As you know, our entire economy is based on a capitalistic market. If 
the market drops at this rate, even Social Security won't be immune 
from any downturn. We will have to borrow against future workers to pay 
any benefits. A market-based retirement plan is a long-term investment, 
not short-term speculation, and that is a key distinction that I urge 
all my colleagues to acknowledge in considering this plan.
  The market-based retirement plan is a long-term investment, not a 
short-term speculation. When you are in it for 40 years, you can ride 
out those cycles, but, again, over the last 70 years the market has 
paid 7.56 percent in interest, not the 1 percent or less than we now 
see in Social Security.
  The entire debate over how to reform Social Security boils down to a 
few simple questions: Do you trust the Government to provide retirement 
security, or would you rather rely on yourself and would you rather 
have more control over your own resources? Do you want the Government 
to be your financial adviser? Is it necessarily true that what is good 
for Washington is good for you? I don't think so. To me and many 
Americans, the choice is very clear.
  In conclusion, I turn to the words of President Franklin D. Roosevelt 
on June 8, 1934, and that is the day he proposed to Congress the 
establishment of the Federal Social Security system. He wrote this:

       This seeking for a greater measure of welfare and happiness 
     does not indicate a change in values. It is rather a return 
     to values lost in the course of our economic development and 
     expansion.

  Mr. President, 63 years later, after six decades of economic 
development and expansion that dwarf what the world had known in 1934, 
we began to stray from the values that helped found this great 
Nation. We have strayed from the words of President Franklin Roosevelt 
as he signed Social Security into law.

  In 1998, Americans choose to turn, not to the Government to provide 
that ``greater measure of welfare and happiness,'' but to the 
individual, to ourselves; not to look to Washington, but to look to our 
families. The Government cannot be there to provide the ``greater 
measure of welfare and happiness.''
  Mr. President, the Personal Security and Wealth in Retirement Act 
acknowledges that to achieve the fullest

[[Page S11448]]

measure of security and individual liberty, the individual must be free 
from the inherent constraints of Government. It restores those values 
from which we have drifted, and it offers every American the 
opportunity to achieve real personal wealth--not with the Government 
telling you what you are going to get in retirement, not with the 
Government telling you you have to retire, not with the Government 
telling you what benefits that you are going to get--but America will 
be offered the opportunity to achieve real personal wealth and the 
dignity and the freedom and the security that it affords in retirement.
  Thank you very much, Mr. President.
  Mr. GRAMS addressed the Chair.
  The PRESIDING OFFICER (Mr. Sessions). The Senator from Minnesota.

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