[Congressional Record Volume 145, Number 8 (Tuesday, January 19, 1999)]
[Senate]
[Pages S387-S398]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. MOYNIHAN (for himself and Mr. Kerrey):
  S. 21. A bill to reduce social security payroll taxes, and for other 
purposes; to the Committee on Finance.


                  Social Security Solvency Act of 1999

  Mr. MOYNIHAN. Mr. President, I join my distinguished colleague, 
Senator Bob Kerrey of Nebraska, in reintroducing legislation that would 
preserve Social Security and make it solvent permanently, while 
providing a

[[Page S389]]

payroll tax cut of about $800 billion over the next ten years.
  Last March, Senator Kerrey and I introduced a nearly identical bill--
S. 1792, The Social Security Solvency Act of 1998. And in July of 1998 
Senators Gregg and Breaux introduced S. 2313, The 21st Century 
Retirement Security Plan, with a companion bill introduced in the House 
by Congressmen Koble and Stenholm. All of these bills attempt to steer 
a mid-course between those who seek to maintain the current system 
(albeit with some traditional modifications of payroll tax rates and 
benefits) and those who seek to replace Social Security with private 
accounts. The Moynihan/Kerrey and Gregg/Breaux/Koble/Stenholm bills are 
quite similar. In September of last year I, along with Senators Gregg, 
Breaux, Kerrey, Coats, Robb, Thomas, and Thompson formed a Bipartisan 
Social Security Coalition. In a ``Dear Colleague'' we argued that a 
number of principles have guided us in our efforts to build a consensus 
on the future of Social Security including:
  A payroll tax cut for all working Americans, with an opportunity for 
all workers to invest in personal savings account; Payroll tax rates 
set so that annual revenues closely match annual outlays throughout the 
actuarial valuation period; A progressive benefit formula; Accurate 
cost-of-living adjustments; Repeal of the earnings test so that 
beneficiaries are free to work while collecting benefits; and Permanent 
solvency for the Social Security program with a reduction in the 
Federal Government's unfunded liabilities.
  For those who care, as we do, about preserving this vital program, I 
would simply suggest that without these changes, Social Security as we 
know it will not survive. For some 20 years now, opinion polls have 
shown that a majority of non-retired adults do not believe they will 
get their Social Security when they retire. Ask anyone on the street; 
ask anyone in their thirties or forties. They are convinced that Social 
Security will not be there for them. In one sense, they have good 
reason to think so: the Social Security Trustees so state in their most 
recent annual report released in April, 1998, which pointedly notes 
that:

       * * * in 2034, tax income of OASI (Social Security) is 
     estimated to be sufficient to pay about \3/4\ of program 
     costs; that ratio is projected to decline to about \2/3\ by 
     the end of the projection period.

  Lack of confidence is partially the result of neglect by a Social 
Security Administration that has made little effort to stay in touch 
with Americans before retirement. But there is also a more powerful 
influence at work: a serious ideological movement opposed to government 
social insurance as a threat to individual initiative and, indeed, 
liberty. There is now abroad a powerful set of distinguished political 
leaders and academics who would turn the 60-year-old system of Social 
Security retirement, disability, and survivors benefits over to a 
system that depends solely on personal savings invested in the market.
  This is a legitimate idea, with respectable intellectual support. 
(One thinks of the energetic work of Martin Feldstein, who 20 years ago 
argued that ``Social Security significantly depresses private wealth 
accumulation.'') It is an idea that has gained world-wide recognition. 
Since 1988, workers in the United Kingdom had been permitted to opt out 
of a part of the Social Security system, if they sign up for some 
personal retirement savings plans similar to our IRAs or 401(k) 
arrangements. In Sweden, the model welfare state, a pension reform plan 
that includes a mandatory private pension component equal to 2.5 
percent of earnings went into effect this year, after being enacted by 
a coalition government composed of Social Democrats and other left of 
center parties.
  As the 1990s arrived, and with it the long stock market boom, the 
call for privatization of Social Security has all but drowned out the 
more traditional views. For the first time, something akin to 
abolishing Social Security becamer a possibility.
  Don't think it couldn't happen. In 1996, we enacted legislation which 
abolished Title IV-A of the Social Security Act, Aid to Families with 
Dependent Children. The mothers' pension of the progressive era, 
incorporated in the 1935 legislation, vanished with scarcely a word of 
protest.
  Will the Old Age pensions and survivors benefits disappear as well? 
What might once have seemed inconceivable is now somewhere between 
possible and probable. I, for one, hope that this will not happen. A 
minimum retirement guarantee, along with disability and survivors 
benefits, is surely something we ought to keep, even as we augment the 
basic guarantee--as both the U.K and Sweden have done--with some form 
of private accounts.
  Here is what Senator Bob Kerrey and I proposed, in the legislation 
that we are reintroducing today.
  Our bill makes changes that will preserve Social Security and make it 
solvent indefinitely. Under our plan, private accounts would complement 
Social Security, not replace it. Markets go up, but they also, as we 
made painfully clear last summer, frequently go down. But even with 
fluctuations in markets there are ways to safeguard private accounts. 
Working with the Securities and Exchange Commission and those in the 
securities industry we believe that it is possible to provide private 
savings instruments that meet the needs of workers planning for their 
retirement, and that are reasonably secure, with diminimus 
administrative costs.
  We believe that the best approach to retirement savings in the 21st 
century is a three-tier system founded on the basic Social Security 
annuity. To which is added one's private pension--which about half of 
Americans now enjoy--and one's private savings.
  Our plan would return Social Security to a pay-as-you-go system. This 
makes possible an immediate payroll tax cut of approximately $800 
billion over the next 10 years, as payroll tax rates would be cut from 
12.4 to 10.4 percent.
  The bill would permit voluntary personal savings accounts, which 
workers could finance with the proceeds of the two percentage point cut 
in the payroll tax. Under this provision in our legislation--together 
with a total of $3,500 deposited in an individual's account at birth 
and at ages 1-5 under the Kidsave provision of the bill--all workers 
will be able to accumulate an estate which they can pass on to their 
children and grandchildren.
  Our plan includes a one percentage point correction in cost of living 
adjustments for all indexed programs except Supplemental Security 
Income. Benefits are also adjusted to reflect projected increases in 
life expectancy, similar to what has just been adopted in Sweden.
  It is worth digressing here to note that under current law the so-
called normal retirement age (NRA) is scheduled to gradually increase 
from 65 to 67. In practice, the NRA, is important as a benchmark for 
determining the monthly benefit amount, but it does not reflect the 
actual age at which workers receive retirement benefits. More than 70 
percent of workers begin collecting Social Security retirement benefits 
before they reach age 65, and more than 50 percent do so at age 62. 
Under the bill, workers can continue to receive benefits at age 62 and 
the provision in the 1983 Social Security amendments that increased the 
NRA to age 67 is repealed. Instead, under this legislation, if life 
expectancy increases the level of benefits payable at age 65 (or at the 
age at which the worker actually retires) decreases. (Sweden has 
adopted a similar provision allowing workers to continue to retire at 
age 61, even as monthly benefits are reduced to mirror the projected 
gradual increase in life expectancy.)
  We also propose to eliminate the so-called earnings test, which 
reduces Social Security benefits for retirees who have wages 
significantly above $10,000 per year, and is a burden and annoyance to 
persons who wish to work after age 62.
  Finally, Social Security benefits would be taxed to the same extent 
private pensions are taxed, with the provision phased-in over the 5 
year period 2000-2004. And Social Security coverage would be extended 
to newly hired employees in currently excluded State and local 
positions.
  This package of changes ensures the long-run solvency of Social 
Security while reducing payroll taxes by almost $800 billion over the 
next decade, and with little or no change in the Federal budget 
surplus. Beginning in the year 2030, payroll tax rates would increase 
gradually to cover growing outlays, and would rise only slightly above 
the current level in the year 2035.

[[Page S390]]

  Can this be done? From an actuarial perspective, it's easy. We know--
or at least the actuaries can tell us--within a couple of million 
persons how many workers will be supporting how many retirees in 2050. 
Contrast this with Medicare, where you do not know where gene therapy 
will lead in three years, let alone 30 years. The 17 members of the 
National Bipartisan Commission on the Future of Medicare, ably chaired 
by Senator Breaux, can, I am sure, attest to the analytic complexity of 
the issues they are discussing as part of that important Commission's 
work.
  Politically, however, it won't be easy to fix Social Security. In a 
manner that the late economist Mancur Olson would recognize, over time 
Social Security has acquired a goodly number of veto groups which 
prevent changes, howsoever necessary. In so doing they also undermine 
confidence in Social Security by supporting a promised level of 
benefits which the Trustees, as noted above, readily admit cannot be 
delivered.
  The veto groups assert that the Moynihan-Kerrey bill will reduce 
benefits by 30 percent. Not true when compared to what actually can be 
delivered. With pay-as-you-go, and adjustments in benefits related to 
an accurate cost of living index and the increase in life expectancy, 
the Moynihan-Kerrey bill delivers higher benefits than Social Security 
can actually provide with projected tax revenues under current law. For 
example, in 2040 the Social Security actuaries estimate that the 
current program can only deliver 73 percent of promised benefits. We do 
slightly better than that. Add in the annuity--financed with voluntary 
contributions of 2 percent of earnings--and benefits are 20 percent or 
more higher than the current program can deliver--even assuming real 
rates of interest no higher than a modest 3 percent. For 2070, the 
actuaries estimate that current financing will only support benefits 
equal to 68 percent of what is promised--a reduction of more than 30 
percent. Again we do slightly better even without the private 
accounts--and more than 25 percent better with the private accounts.
  As I say, this won't be easy. Which is why this is a time for courage 
as well as policy analysis. Social Security, one of the great 
achievements of our government in this century, is ours to maintain. 
Our bill does just that.
  I ask unanimous consent the summary of the bill and the full text of 
the bill be included in the Record.
  There being no objection, the items were ordered to be printed in the 
Record, as follows:

                                 S. 21

       Be it enacted by the Senate and House of Representatives of 
     the United States of America in Congress assembled,

     SECTION 1. SHORT TITLE; TABLE OF CONTENTS.

       (a) Short Title.--This Act may be cited as the ``Social 
     Security Solvency Act of 1999''.
       (b) Table of Contents.--The table of contents of this Act 
     is as follows:

Sec. 1. Short title; table of contents.
Sec. 2. Modification of FICA rates to provide pay-as-you-go financing 
              of social security.
Sec. 3. Voluntary investment of payroll tax cut by employees.
Sec. 4. Increase of social security wage base.
Sec. 5. Cost-of-living adjustments.
Sec. 6. Tax treatment of social security payments.
Sec. 7. Coverage of newly hired State and local employees.
Sec. 8. Increase in length of computation period from 35 to 38 years.
Sec. 9. Modification of PIA factors to reflect changes in life 
              expectancy.
Sec. 10. Elimination of earnings test for individuals who have attained 
              early retirement age.
Sec. 11. Social security kidsave accounts.

     SEC. 2. MODIFICATION OF FICA RATES TO PROVIDE PAY-AS-YOU-GO 
                   FINANCING OF SOCIAL SECURITY.

       (a) In General.--
       (1) Tax on employees.--Section 3101(a) of the Internal 
     Revenue Code of 1986 (relating to tax on employees) is 
     amended to read as follows:
       ``(a) Old-Age, Survivors, and Disability Insurance.--
       ``(1) In general.--In addition to other taxes, there is 
     hereby imposed on the income of every individual a tax equal 
     to the applicable percentage of the wages (as defined in 
     section 3121(a)) received by him with respect to employment 
     (as defined in section 3121(b)).
       ``(2) Applicable percentage.--For purposes of paragraph 
     (1), the applicable percentage shall be the percentage set 
     forth in the following table:

The applicable percentage shall be::
      2000 through 2029............................................5.2 
      2030 through 2034............................................6.2 
      2035 through 2049...........................................6.45 
      2050 through 2059...........................................6.65 
      2060 or thereafter.......................................6.85 .''

       (2) Tax on employers.--Section 3111(a) of such Code 
     (relating to tax on employers) is amended to read as follows:
       ``(a) Old-Age, Survivors, and Disability Insurance.--
       ``(1) In general.--In addition to other taxes, there is 
     hereby imposed on every employer an excise tax, with respect 
     to having individuals in his employ, equal to the applicable 
     percentage of the wages (as defined in section 3121(a)) paid 
     by him with respect to employment (as defined in section 
     3121(b)).
       ``(2) Applicable percentage.--For purposes of paragraph 
     (1), the applicable percentage shall be the percentage set 
     forth in the following table:

The applicable percentage shall be:
      2000 and 2001................................................6.2 
      2002 through 2029............................................5.2 
      2030 through 2034............................................6.2 
      2035 through 2049...........................................6.45 
      2050 through 2059...........................................6.65 
      2060 or thereafter.......................................6.85 .''

       (3) Self-employment tax.--Section 1401(a) of such Code 
     (relating to tax on self-employment income) is amended to 
     read as follows:
       ``(a) Old-Age, Survivors, and Disability Insurance.--
       ``(1) In general.--In addition to other taxes, there is 
     hereby imposed for each taxable year, on the self-employment 
     income of every individual, a tax equal to the applicable 
     percentage of the amount of the self-employment income for 
     such taxable year.
       ``(2) Applicable percentage.--For purposes of paragraph 
     (1), the applicable percentage shall be the percentage set 
     forth in the following table:


 
            ``In the case of a taxable year
                                                          The applicable
         Beginning after:               And before:       percentage is:
 
December 31, 1999................  January 1, 2002.....  11.4
December 31, 2001................  January 1, 2030.....  10.4
December 31, 2029................  January 1, 2035.....  12.4
December 31, 2034................  January 1, 2050.....  12.9
December 31, 2049................  January 1, 2060.....  13.3
December 31, 2059................  ....................  13.7.''
 


       (4) Effective dates.--
       (A) Employees and employers.--The amendments made by 
     paragraphs (1) and (2) apply to remuneration paid after 
     December 31, 1999.
       (B) Self-employed individuals.--The amendment made by 
     paragraph (3) applies to taxable years beginning after 
     December 31, 1999.
       (b) Reallocation of Employment Taxes.--
       (1) Reallocation of tax on employees and employers.--
     Section 201(b)(1) of the Social Security Act (42 U.S.C. 
     401(b)(1)) is amended by striking ``(Q) 1.70 per centum of 
     the wages (as so defined) paid after December 31, 1996, and 
     before January 1, 2000, and so reported, and (R) 1.80 per 
     centum of the wages (as so defined) paid after December 31, 
     1999, and so reported'' and inserting ``(Q) 1.70 per centum 
     of the wages (as so defined) paid after December 31, 1996, 
     and before January 1, 2000, and so reported, (R) 1.80 per 
     centum of the wages (as so defined) paid after December 31, 
     1999, and before January 1, 2030, and so reported, (S) 2.15 
     per centum of the wages (as so defined) paid after December 
     31, 2029, and before January 1, 2035, and so reported, (T) 
     2.23 per centum of the wages (as so defined) paid after 
     December 31, 2034, and before January 1, 2050, and so 
     reported, (U) 2.30 per centum of the wages (as so defined) 
     paid after December 31, 2049, and before January 1, 2060, and 
     so reported, and (V) 2.39 per centum of the wages (as so 
     defined) paid after December 31, 2059, and so reported''.
       (2) Reallocation of tax on self-employment income.--Section 
     201(b)(2) of such Act (42 U.S.C. 401(b)(2)) is amended by 
     striking ``(Q) 1.70 per centum of self-employment income (as 
     so defined) so reported for any taxable year beginning after 
     December 31, 1996, and before January 1, 2000, and (R) 1.80 
     per centum of self-employment income (as so defined) so 
     reported for any taxable year beginning after December 31, 
     1999'' and inserting ``(Q) 1.70 per centum of self-employment 
     income (as so defined) so reported for any taxable year 
     beginning after December 31, 1996, and before January 1, 
     2000, (R) 1.80 per centum of self-employment income (as so 
     defined) so reported for any taxable year beginning after 
     December 31, 1999, and before January 1, 2030, (S) 2.15 per 
     centum of self-employment income (as so defined) so reported 
     for any taxable year beginning after December 31, 2029, and 
     before January 1, 2035, (T) 2.23 per centum of self-
     employment income (as so defined) so reported for any taxable 
     year beginning after December 31, 2034, and before January 1, 
     2050, (U) 2.30 per centum of self-employment income (as so 
     defined) so reported for any taxable year beginning after 
     December 31, 2049, and before January 1, 2060, and (V) 2.39 
     per centum of self-employment income (as so defined) so 
     reported for any taxable year beginning after December 31, 
     2059''.
       (c) Future Rates and Allocation Between Trust Funds 
     Proposed by Board of Trustees for Legislative Action.--
       (1) In general.--Section 201(c) of the Social Security Act 
     (42 U.S.C. 401(c)) is amended in the matter following 
     paragraph (5) by striking ``(as defined by the Board of 
     Trustees).'' and inserting ``(as defined by the Board of 
     Trustees. If such finding shows that the combined Trust Funds 
     are not in close actuarial balance (as so defined), then such

[[Page S391]]

     report (beginning in April 2001) shall include a legislative 
     recommendation by the Board of Trustees specifying new rates 
     of tax under sections 3101(a), 3111(a), and 1401(a) of the 
     Internal Revenue Code of 1986, and the allocation of those 
     rates between the Trust Funds necessary in order to restore 
     the combined Trust Funds and each Trust Fund to actuarial 
     balance. If such finding shows that the combined Trust Funds 
     are in close actuarial balance (as so defined), but that 1 of 
     the Trust Funds is not in close actuarial balance, then such 
     report (beginning in April 2001) shall include a legislative 
     recommendation by the Board of Trustees specifying a new 
     allocation of such rates of tax between the Trust Funds, so 
     that each Trust Fund is in close actuarial balance. Such 
     recommendation shall be considered by Congress under 
     procedures described in subsection (n)).''.
       (2) Fast-track consideration of legislative 
     recommendations.--Section 201 of such Act (42 U.S.C. 401) is 
     amended by adding at the end the following new subsection:
       ``(n)(1) Any legislative recommendation included in the 
     report provided for in subsection (c) shall--
       ``(A) not later than 3 days after the Board of Trustees 
     submits such report, be introduced (by request) in the House 
     of Representatives by the Majority Leader of the House and be 
     introduced (by request) in the Senate by the Majority Leader 
     of the Senate; and
       ``(B) be given expedited consideration under the same 
     provisions and in the same way, subject to paragraph (2), as 
     a joint resolution under section 2908 of the Defense Base 
     Closure and Realignment Act of 1990 (10 U.S.C. 2678 note).
       ``(2) For purposes of applying paragraph (1) with respect 
     to such provisions, the following rules shall apply:
       ``(A) Section 2908(a) of the Defense Base Closure and 
     Realignment Act of 1990 (10 U.S.C. 2678 note) shall not 
     apply.
       ``(B) Any reference to the resolution described in 
     subsection (a) shall be deemed to be a reference to the 
     legislative recommendation submitted under subsection (c) of 
     this Act.
       ``(C) Any reference to the Committee on National Security 
     of the House of Representatives shall be deemed to be a 
     reference to the Committee on Ways and Means of the House of 
     Representatives and any reference to the Committee on Armed 
     Services of the Senate shall be deemed to be a reference to 
     the Committee on Finance of the Senate.
       ``(D) Any reference to the date on which the President 
     transmits a report shall be deemed to be a reference to the 
     date on which the recommendation is submitted under 
     subsection (c).''.
       (d) Conforming Amendments to FERS To Protect Payroll Tax 
     Cut.--The table contained in section 8422(a)(3) of title 5, 
     United States Code, is amended--
       (1) by striking ``7'' the second place it appears and 
     inserting ``6'';
       (2) by striking ``7.4'' and inserting ``6.4'';
       (3) by striking ``7.5'' the first, third, fifth, and 
     seventh places it appears and inserting ``6.5'';
       (4) by striking ``7.9'' each place it appears and inserting 
     ``6.9''; and
       (5) by striking ``8'' each place it appears and inserting 
     ``7''.

     SEC. 3. VOLUNTARY INVESTMENT OF PAYROLL TAX CUT BY EMPLOYEES.

       (a) Voluntary Investment of Payroll Tax Cut.--
       (1) In general.--Title II of the Social Security Act (42 
     U.S.C. 401 et seq.) is amended--
       (A) by inserting before section 201 the following:

                    ``Part A--Insurance Benefits'';

     and
       (B) by adding at the end the following:

                ``Part B--Voluntary Investment Accounts


  ``employee election and designation of voluntary investment account 
                      under payroll deduction plan

       ``Sec. 251. (a) In General.--An individual who is an 
     employee of a covered employer may elect to participate in 
     the employer's voluntary investment account payroll deduction 
     plan either--
       ``(1) not later than 10 business days after the individual 
     becomes an employee of the employer, or
       ``(2) during any open enrollment period.
     The Commissioner shall by regulation provide for at least 1 
     open enrollment period annually.
       ``(b) Period of Election.--
       ``(1) Time election takes effect.--An election under 
     subsection (a) shall take effect with respect to the first 
     pay period beginning more than 14 days after the date of the 
     election.
       ``(2) Termination.--An election under subsection (a) shall 
     terminate--
       ``(A) upon the termination of employment of the employee of 
     the covered employer, or
       ``(B) with respect to pay periods beginning more than 14 
     days after the employee terminates such election.
       ``(c) Designation of Voluntary Investment Account.--
       ``(1) Initial election.--An employee shall, at the time an 
     election is made under subsection (a), designate the 
     voluntary investment account to which voluntary investment 
     account contributions on behalf of the employee are to be 
     deposited.
       ``(2) Changes.--The Commissioner shall by regulation 
     provide the time and manner by which an employee or a person 
     described in section 254(d) on behalf of such employee may--
       ``(A) designate another voluntary investment account to 
     which contributions are to be deposited, and
       ``(B) transfer amounts from one such account to another.
       ``(d) Form of Elections.--Elections under this section 
     shall be made--
       ``(1) on W-4 forms (or any successor forms), or
       ``(2) in such other manner as the Commissioner may 
     prescribe in order to ensure ease of administration and 
     reductions in burdens on employers.


         ``voluntary investment account payroll deduction plans

       ``Sec. 252. (a) In General.--Each person who is a covered 
     employer for a calendar year shall have in effect a voluntary 
     investment account payroll deduction plan for such calendar 
     year for such person's electing employees.
       ``(b) Voluntary Investment Account Payroll Deduction 
     Plans.--For purposes of this part, the term `voluntary 
     investment account payroll deduction plan' means a written 
     plan of an employer--
       ``(1) which applies only with respect to wages of any 
     employee who elects to become an electing employee in 
     accordance with section 251,
       ``(2) under which the voluntary investment account 
     contributions under section 3101(a) of the Internal Revenue 
     Code of 1986 will be deducted from an electing employee's 
     wages and, together with such contributions under section 
     3111(a) of such Code on behalf of such employee, will be paid 
     to the Social Security Administration for deposit in 1 or 
     more voluntary investment accounts designated by such 
     employee in accordance with section 251,
       ``(3) under which the employer is required to pay the 
     amount so contributed with respect to the specified voluntary 
     investment account of the electing employee within the same 
     time period as other taxes under sections 3101 and 3111 with 
     respect to the wages of such employee,
       ``(4) under which the employer receives no compensation for 
     the cost of administering such plan, and
       ``(5) under which the employer does not make any 
     endorsement with respect to any voluntary investment account.
       ``(c) Penalties for Failure To Establish Voluntary 
     Investment Account Payroll Deduction Plan.--
       ``(1) In general.--Any covered employer who fails to meet 
     the requirements of this section for any calendar year shall 
     be subject to a civil penalty of not to exceed the greater 
     of--
       ``(A) $2,500, or
       ``(B) $100 for each electing employee of such employer as 
     of the beginning of such calendar year.
       ``(2) Rules for application of subsection.--
       ``(A) Penalties assessed by commissioner.--Any civil 
     penalty assessed by this subsection shall be imposed by the 
     Commissioner of Social Security and collected in a civil 
     action.
       ``(B) Compromises.--The Commissioner may compromise the 
     amount of any civil penalty imposed by this subsection.
       ``(C) Authority to waive penalty in certain cases.--The 
     Commissioner may waive the application of this subsection 
     with respect to any failure if the Commissioner determines 
     that such failure is due to reasonable cause and not to 
     intentional disregard of rules and regulations.


              ``participation by self-employed individuals

       ``Sec. 253. An individual shall make an election to become 
     an electing self-employed individual, designate a voluntary 
     investment account, and have in effect a voluntary investment 
     account payroll deduction plan under rules similar to the 
     rules under sections 251 and 252.


                    ``definitions and special rules

       ``Sec. 254. (a) Voluntary investment account.--For purposes 
     of this part--
       ``(1) a voluntary investment account described in this 
     paragraph is a voluntary investment account in the Voluntary 
     Investment Fund (established under section 255),
       ``(2) a voluntary investment account described in this 
     paragraph is an individual retirement plan (as defined in 
     section 7701(a)(37) of the Internal Revenue Code of 1986), 
     other than a Roth IRA (as defined in section 408A(b) of such 
     Code), which is designated by the electing employee as a 
     voluntary investment account (in such manner as the Secretary 
     of the Treasury may prescribe) and which is administered or 
     issued by a bank or other person referred to in section 
     408(a)(2) of such Code, and
       ``(3) a voluntary investment account described in this 
     paragraph is a KidSave Account (as described in paragraph (1) 
     or (2) of section 262(a)) of the electing employee, which is 
     designated by the electing employee as a voluntary investment 
     account (in such manner as the Secretary of the Treasury may 
     prescribe).
       ``(b) Treatment of Accounts.--
       ``(1) In general.--Except as provided in paragraph (2)--
       ``(A) any voluntary investment account described in 
     paragraph (1) of subsection (a) shall be treated in the same 
     manner as an account in the Thrift Savings Fund under 
     subchapter III of chapter 84 of title 5, United States Code,

[[Page S392]]

       ``(B) any voluntary investment account described in 
     paragraph (2) of subsection (a) shall be treated in the same 
     manner as an individual retirement plan (as so defined), and
       ``(C) any voluntary investment account described in 
     paragraph (3) of subsection (a) shall be treated in the same 
     manner as the designated KidSave Account would have been 
     treated under section 262(b).
       ``(2) Exceptions.--
       ``(A) Contribution limit.--The aggregate amount of 
     contributions for any taxable year to all voluntary 
     investment accounts of an electing employee shall not exceed 
     the aggregate amount of contributions made pursuant to 
     sections 3101(a)(3), 3111(a)(3), and 1401(a)(3) of the 
     Internal Revenue Code of 1986 and paid pursuant to section 
     252 or 253 on behalf of such employee.
       ``(B) No deduction allowed.--No deduction shall be allowed 
     under section 219 of the Internal Revenue Code of 1986 for a 
     contribution to a voluntary investment account.
       ``(C) Rollover contributions.--No rollover contribution may 
     be made to a voluntary investment account unless it is from 
     another voluntary investment account or a KidSave Account (as 
     described in paragraph (1) or (2) of section 262(a)). A 
     rollover described in the preceding sentence shall not be 
     taken into account for purposes of subparagraph (A).
       ``(D) Distributions allowed to social security 
     beneficiaries.--Notwithstanding any other provision of law, 
     distributions may only be made from a voluntary investment 
     account of an electing employee on or after the earlier of--
       ``(i) the date on which the employee begins receiving 
     benefits under this title, or
       ``(ii) the date of the employee's death.
       ``(c) Other Definitions.--For purposes of this part--
       ``(1) Covered employer.--The term `covered employer' means, 
     for any calendar year, any person on whom an excise tax is 
     imposed under section 3111 of the Internal Revenue Code of 
     1986 with respect to having an individual in the person's 
     employ to whom wages are paid by such person during such 
     calendar year.
       ``(2) Electing employee.--The term `electing employee' 
     means an individual with respect to whom an election under 
     section 251 is in effect.
       ``(3) Electing self-employed individual.--The term 
     `electing self-employed individual' means an individual with 
     respect to whom an election under section 253 is in effect.
       ``(d) Treatment of incompetent individuals.--Any 
     designation under section 251(c)(2) to be made by an 
     individual mentally incompetent or under other legal 
     disability may be made by the person who is constituted 
     guardian or other fiduciary by the law of the State of 
     residence of the individual or is otherwise legally vested 
     with the care of the individual or his estate. Payment under 
     this part due an individual mentally incompetent or under 
     other legal disability may be made to the person who is 
     constituted guardian or other fiduciary by the law of the 
     State of residence of the claimant or is otherwise legally 
     vested with the care of the claimant or his estate. In any 
     case in which a guardian or other fiduciary of the individual 
     under legal disability has not been appointed under the law 
     of the State of residence of the individual, if any other 
     person, in the judgment of the Commissioner, is responsible 
     for the care of such individual, any designation under 
     section 251(c)(2) which may otherwise be made by such 
     individual may be made by such person, any payment under this 
     part which is otherwise payable to such individual may be 
     made to such person, and the payment of an annuity payment 
     under this part to such person bars recovery by any other 
     person.


                      ``voluntary investment fund

       ``Sec. 255. (a) Establishment.--There is established and 
     maintained in the Treasury of the United States a Voluntary 
     Investment Fund in the same manner as the Thrift Savings Fund 
     under sections 8437, 8438, and 8439 of title 5, United States 
     Code.
       ``(b) Voluntary Investment Fund Board.--
       ``(1) In general.--There is established and operated in the 
     Social Security Administration a Voluntary Investment Fund 
     Board in the same manner as the Federal Retirement Thrift 
     Investment Board under subchapter VII of chapter 84 of title 
     5, United States Code.
       ``(2) Specific investment duties.--The Voluntary Investment 
     Fund shall be managed by the Voluntary Investment Fund Board 
     in the same manner as the Thrift Savings Fund is managed 
     under subchapter VIII of chapter 84 of title 5, United States 
     Code.''.
       (2) Exemption from erisa requirements.--Section 4(b) of the 
     Employee Retirement Income Security Act of 1974 (29 U.S.C. 
     1003(b)) is amended--
       (A) in paragraph (4), by striking ``or'';
       (B) in paragraph (5), by striking the period and inserting 
     ``; or''; and
       (C) by inserting after paragraph (5) the following:
       ``(6) such plan is a voluntary investment account payroll 
     deduction plan established under part B of title II of the 
     Social Security Act.''.
       (3) Effective date and notice requirements.--
       (A) Effective date.--The amendments made by this subsection 
     (and any voluntary investment account payroll deduction plan 
     required thereunder) apply with respect to wages paid after 
     December 31, 2001, for pay periods beginning after such date 
     and self-employment income for taxable years beginning after 
     such date.
       (B) Notice requirements.--
       (i) In general.--Not later than October 1, 2001, the 
     Commissioner of Social Security shall--

       (I) send to the last known address of each eligible 
     individual a description of the program established by the 
     amendments made by this subsection, which shall be written in 
     the form of a pamphlet in language which may be readily 
     understood by the average worker,
        (II) provide for toll-free access by telephone from all 
     localities in the United States and access by the Internet to 
     the Social Security Administration through which individuals 
     may obtain information and answers to questions regarding 
     such program, and
       (III) provide information to the media in all localities of 
     the United States about such program and such toll-free 
     access by telephone and access by Internet.

       (ii) Eligible individual.--For purposes of this 
     subparagraph, the term ``eligible individual'' means an 
     individual who, as of the date of the pamphlet sent pursuant 
     to clause (i), is indicated within the records of the Social 
     Security Administration as being credited with 1 or more 
     quarters of coverage under section 213 of the Social Security 
     Act (42 U.S.C. 413).
       (iii) Matters to be included.--The Commissioner shall 
     include with the pamphlet sent to each eligible individual 
     pursuant to clause (i)--

       (I) a statement of the number of quarters of coverage 
     indicated in the records of the Social Security 
     Administration as of the date of the description as credited 
     to such individual under section 213 of such Act and the date 
     as of which such records may be considered accurate, and
       (II) the number for toll-free access by telephone 
     established by the Commissioner pursuant to clause (i).

       (b) Conforming Amendments to Payroll Tax Provisions.--
       (1) Employees voluntary investment contributions.--Section 
     3101(a) of the Internal Revenue Code of 1986 (relating to tax 
     on employees), as amended by section 2(a)(1), is amended by 
     adding at the end the following:
       ``(3) Voluntary investment account contribution.--In the 
     case of an electing employee (as defined in section 254(c)(2) 
     of the Social Security Act), in addition to other taxes, 
     there is hereby imposed on the income of such employee a 
     voluntary investment account contribution equal to 1 percent 
     of the wages (as so defined) received by him with respect to 
     employment (as so defined).''.
       (2) Employers matching contributions.--Section 3111(a) of 
     such Code (relating to tax on employers), as amended by 
     section 2(a)(2), is amended by adding at the end the 
     following:
       ``(3) Matching contribution to employee voluntary 
     investment account contribution.--In the case of an employer 
     having in his employ an electing employee (as defined in 
     section 254(c)(2) of the Social Security Act), in addition to 
     other taxes, there is hereby imposed on such employer a 
     voluntary investment account contribution equal to 1 percent 
     of the wages (as so defined) paid by him with respect to 
     employment (as so defined) of such employee.''.
       (3) Self-employment voluntary investment account 
     contributions.--Section 1401(a) of such Code (relating to tax 
     on self-employment income), as amended by section 2(a)(3), is 
     amended by adding at the end the following:
       ``(3) Voluntary investment account contribution.--In the 
     case of an electing self-employed individual (as defined in 
     section 254(c)(3) of the Social Security Act), in addition to 
     other taxes, there is hereby imposed for each taxable year, 
     on the self-employment income of such individual, a voluntary 
     investment account contribution equal to 2 percent of the 
     amount of the self-employment income for such taxable 
     year.''.
       (4) Effective dates.--
       (A) Employees and employers.--The amendments made by 
     paragraphs (1) and (2) apply to remuneration paid after 
     December 31, 2001.
       (B) Self-employed individuals.--The amendment made by 
     paragraph (3) applies to taxable years beginning after 
     December 31, 2001.

     SEC. 4. INCREASE OF SOCIAL SECURITY WAGE BASE.

       (a) In General.--Section 230 of the Social Security Act (42 
     U.S.C. 430) is amended--
       (1) in subsection (b)--
       (A) in paragraph (1), by striking ``$60,600'' and inserting 
     ``$99,900''; and
       (B) in paragraph (2), by striking ``1992'' and inserting 
     ``2002''; and
       (2) in subsection (c)--
       (A) by striking ``(1)'' and all that follows through 
     ``$29,700.'' and inserting ``the `contribution and benefit 
     base' with respect to remuneration paid (and taxable years 
     beginning)--
       ``(1) in 2002 shall be $87,000,
       ``(2) in 2003 shall be $94,000, and
       ``(3) in 2004 shall be $99,900.''; and
       (B) by striking ``specified in clause (2) of the preceding 
     sentence'' and inserting ``specified in the preceding 
     sentence''.
       (b) Effective Date.--The amendments made by this section 
     take effect on January 1, 2002.

[[Page S393]]

     SEC. 5. COST-OF-LIVING ADJUSTMENTS.

       (a) Cost-of-Living Board.--Title XI of the Social Security 
     Act (42 U.S.C. 1301 et seq.) is amended by adding at the end 
     the following:

                  ``Part D--Cost-of-Living Adjustments


                ``Determination of Inflation Adjustment

       ``Sec. 1180. (a) Modification of Cost-of-Living 
     Adjustment.--
       ``(1) In general.--Notwithstanding any other provision of 
     law, any cost-of-living adjustment described in subsection 
     (e) shall be reduced by the applicable percentage point.
       ``(2) Applicable percentage point.--In this section, the 
     term `applicable percentage point' means--
       ``(A) except as provided in subparagraph (B), 1 percentage 
     point; or
       ``(B) the applicable percentage point adopted by the Cost-
     of-Living Board under subsection (b) for the calendar year.
       ``(b) Cost-of-Living Board Determination.--
       ``(1) In general.--The Cost-of-Living Board established 
     under section 1181 shall for each calendar year after 1999 
     determine if a new applicable percentage point is necessary 
     to replace the applicable percentage point described in 
     subsection (a)(2)(A) to ensure an accurate cost-of-living 
     adjustment which shall apply to any cost-of-living adjustment 
     taking effect during such year.
       ``(2) Adoption or rejection of new applicable percentage 
     point.--
       ``(A) Adoption.--
       ``(i) In general.--If the Cost-of-Living Board adopts by 
     majority vote a new applicable percentage point under 
     paragraph (1), then, for purposes of subsection (a)(1), the 
     new applicable percentage point shall remain in effect during 
     the following calendar year.
       ``(ii) Appropriate adjustments.--The Cost-of-Living Board 
     shall make appropriate adjustments to the applicable 
     percentage point applied to any cost-of-living adjustment 
     if--

       ``(I) the period during which the change in the cost-of-
     living is measured for such adjustment is different than the 
     period used by the Cost-of-Living Board; or
       ``(II) the adjustment is based on a component of an index 
     rather than the entire index.

       ``(B) Rejection.--If the Cost-of-Living Board fails by 
     majority vote to adopt a new applicable percentage point 
     under paragraph (1) for any calendar year, then the 
     applicable percentage point for such calendar year shall be 
     the applicable percentage point described in subsection 
     (a)(2)(A).
       ``(c) Report.--Not later than November 1 of each calendar 
     year, the Cost-of-Living Board shall submit a report to the 
     President and Congress containing a detailed statement with 
     respect to the new applicable percentage point (if any) 
     agreed to by the Board under subsection (b).
       ``(d) Judicial Review.--Any determination by the Cost-of 
     Living Board under subsection (b) shall not be subject to 
     judicial review.
       ``(e) Cost-of-Living Adjustment Described.--A cost-of-
     living adjustment described in this subsection is any cost-
     of-living adjustment for a calendar year after 1999 
     determined by reference to a percentage change in a consumer 
     price index or any component thereof (as published by the 
     Bureau of Labor Statistics of the Department of Labor and 
     determined without regard to this section) and used in any of 
     the following:
       ``(1) The Internal Revenue Code of 1986.
       ``(2) Titles II, XVIII, and XIX of this Act.
       ``(3) Any other Federal program (not including programs 
     under title XVI of this Act).


                         ``COST-OF-LIVING BOARD

       ``Sec. 1181. (a) Establishment of Board.--
       ``(1) Establishment.--There is established a board to be 
     known as the Cost-of-Living Board (in this section referred 
     to as the `Board').
       ``(2) Membership.--
       ``(A) Composition.--The Board shall be composed of 5 
     members of whom--
       ``(i) 1 shall be the Chairman of the Board of Governors of 
     the Federal Reserve System;
       ``(ii) 1 shall be the Chairman of the President's Council 
     of Economic Advisers; and
       ``(iii) 3 shall be appointed by the President, by and with 
     the advice and consent of the Senate.

     The President shall consult with the leadership of the House 
     of Representatives and the Senate in the appointment of the 
     Board members under clause (iii).
       ``(B) Expertise.--The members of the Board appointed under 
     subparagraph (A)(iii) shall be experts in the field of 
     economics and should be familiar with the issues related to 
     the calculation of changes in the cost of living. In 
     appointing members under subparagraph (A)(iii), the President 
     shall consider appointing--
       ``(i) former members of the President's Council of Economic 
     Advisers;
       ``(ii) former Treasury department officials;
       ``(iii) former members of the Board of Governors of the 
     Federal Reserve System;
       ``(iv) other individuals with relevant prior government 
     experience in positions requiring appointment by the 
     President and Senate confirmation; and
       ``(v) academic experts in the field of price statistics.
       ``(C) Date.--
       ``(i) Nominations.--Not later than 30 days after the date 
     of enactment of the Social Security Solvency Act of 1999, the 
     President shall submit the nominations of the members of the 
     Board described in subparagraph (A)(iii) to the Senate.
       ``(ii) Senate action.--Not later than 60 days after the 
     Senate receives the nominations under clause (i), the Senate 
     shall vote on confirmation of the nominations.
       ``(3) Terms and vacancies.--
       ``(A) Terms.--A member of the Board appointed under 
     paragraph (2)(A)(iii) shall be appointed for a term of 5 
     years, except that of the members first appointed under that 
     paragraph--
       ``(i) 1 member shall be appointed for a term of 1 year;
       ``(ii) 1 member shall be appointed for a term of 3 years; 
     and
       ``(iii) 1 member shall be appointed for a term of 5 years.
       ``(B) Vacancies.--
       ``(i) In general.--A vacancy on the Board shall be filled 
     in the manner in which the original appointment was made and 
     shall be subject to any conditions which applied with respect 
     to the original appointment.
       ``(ii) Filling unexpired term.--An individual chosen to 
     fill a vacancy shall be appointed for the unexpired term of 
     the member replaced.
       ``(C) Expiration of terms.--The term of any member 
     appointed under paragraph (2)(A)(iii) shall not expire before 
     the date on which the member's successor takes office.
       ``(4) Initial meeting.--Not later than 30 days after the 
     date on which all members of the Board have been appointed, 
     the Board shall hold its first meeting. Subsequent meetings 
     shall be determined by the Board by majority vote.
       ``(5) Open meetings.--Notwithstanding section 552b of title 
     5, United States Code, or section 10 of the Federal Advisory 
     Committee Act (5 U.S.C. App.), the Board may, by majority 
     vote, close any meeting of the Board to the public otherwise 
     required to be open under that section. The Board shall make 
     the records of any such closed meeting available to the 
     public not later than 30 days of that meeting.
       ``(6) Quorum.--A majority of the members of the Board shall 
     constitute a quorum, but a lesser number of members may hold 
     hearings.
       ``(7) Chairperson and vice chairperson.--The Board shall 
     select a Chairperson and Vice Chairperson from among the 
     members appointed under paragraph (2)(A)(iii).
       ``(b) Powers of the Board.--
       ``(1) Hearings.--The Board may hold such hearings, sit and 
     act at such times and places, take such testimony, and 
     receive such evidence as the Board considers advisable to 
     carry out the purposes of this part.
       ``(2) Information from federal agencies.--The Board may 
     secure directly from any Federal department or agency such 
     information as the Board considers necessary to carry out the 
     provisions of this part, including the published and 
     unpublished data and analytical products of the Bureau of 
     Labor Statistics. Upon request of the Chairperson of the 
     Board, the head of such department or agency shall furnish 
     such information to the Board.
       ``(3) Postal services.--The Board may use the United States 
     mails in the same manner and under the same conditions as 
     other departments and agencies of the Federal Government.
       ``(4) Gifts.--The Board may accept, use, and dispose of 
     gifts or donations of services or property.
       ``(c) Board Personnel Matters.--
       ``(1) Compensation of members.--Each member of the Board 
     who is not otherwise an officer or employee of the Federal 
     Government shall be compensated at a rate equal to the daily 
     equivalent of the annual rate of basic pay prescribed for 
     level III of the Executive Schedule under section 5315 of 
     title 5, United States Code, for each day (including travel 
     time) during which such member is engaged in the performance 
     of the duties of the Board. All members of the Board who 
     otherwise are officers or employees of the United States 
     shall serve without compensation in addition to that received 
     for their services as officers or employees of the United 
     States.
       ``(2) Travel expenses.--The members of the Board shall be 
     allowed travel expenses, including per diem in lieu of 
     subsistence, at rates authorized for employees of agencies 
     under subchapter I of chapter 57 of title 5, United States 
     Code, while away from their homes or regular places of 
     business in the performance of services for the Board.
       ``(3) Staff.--
       ``(A) In general.--The Chairperson of the Board may, 
     without regard to the civil service laws and regulations, 
     appoint and terminate an executive director and such other 
     additional personnel as may be necessary to enable the Board 
     to perform its duties. The employment of an executive 
     director shall be subject to confirmation by the Board.
       ``(B) Compensation.--The Chairperson of the Board may fix 
     the compensation of the executive director and other 
     personnel without regard to the provisions of chapter 51 and 
     subchapter III of chapter 53 of title 5, United States Code, 
     relating to classification of positions and General Schedule 
     pay rates, except that the rate of pay for the executive 
     director and other personnel may not exceed the rate payable 
     for level IV of the Executive Schedule under section 5316 of 
     such title.
       ``(4) Detail of government employees.--Any Federal 
     Government employee may be detailed to the Board without 
     additional reimbursement (other than the employee's regular 
     compensation), and such detail shall be without interruption 
     or loss of civil service status or privilege.

[[Page S394]]

       ``(5) Procurement of temporary and intermittent services.--
     The Chairperson of the Board may procure temporary and 
     intermittent services under section 3109(b) of title 5, 
     United States Code, at rates for individuals which do not 
     exceed the daily equivalent of the annual rate of basic pay 
     prescribed for level V of the Executive Schedule under 
     section 5316 of such title.
       ``(d) Termination.--Section 14 of the Federal Advisory 
     Committee Act (5 U.S.C. App.) shall not apply to the Board.
       ``(e) Authorization of Appropriations.--There are 
     authorized to be appropriated to the Board such sums as are 
     necessary to carry out the purposes of this part.''.
       (c) Termination of Wage Index Adjustment.--Section 
     215(i)(1)(C) of the Social Security Act (42 U.S.C. 
     415(i)(1)(C)) is amended--
       (1) in clause (i)--
       (A) by inserting ``and before 2000'' after ``after 1988''; 
     and
       (B) by inserting ``, or in any calendar year after 1999, 
     the CPI increase percentage''; and
       (2) in clause (ii), by inserting ``and before 2000'' after 
     ``after 1988''.

     SEC. 6. TAX TREATMENT OF SOCIAL SECURITY PAYMENTS.

       (a) In General.--Section 86(a) of the Internal Revenue Code 
     of 1986 (relating to social security and tier 1 railroad 
     retirement benefits) is amended to read as follows:
       ``(a) Income Inclusion.--
       ``(1) General rule.--Notwithstanding section 207 of the 
     Social Security Act, social security benefits shall be 
     included in the gross income of a taxpayer for any taxable 
     year in the manner provided under section 72.
       ``(2) Transition rules.--
       ``(A) In general.--Notwithstanding paragraph (1), with 
     respect to any taxable year beginning in 2000, 2001, 2002, or 
     2003, gross income of the taxpayer shall include social 
     security benefits in an amount equal to the greater of--
       ``(i) the applicable percentage of the amount which would 
     have been included under paragraph (1) for such year, or
       ``(ii) the amount which would have been included under this 
     section for such year if the amendments made by section 6 of 
     the Social Security Solvency Act of 1999 had not been 
     enacted.
       ``(B) Applicable percentage.--For purposes of subparagraph 
     (A)(i), the applicable percentage for any taxable year shall 
     be determined in accordance with the following table:

The applicable percentage is:year beginning in--
  2000..........................................................20 ....

  2001..........................................................40 ....

  2002..........................................................60 ....

  2003.......................................................80.''.....

       (b) Conforming Amendments.--Section 86 of the Internal 
     Revenue Code of 1986 is amended by striking subsections (b), 
     (c), and (e) and by redesignating subsections (d) and (f) as 
     subsections (b) and (c), respectively.
       (c) Transfers to Trust Funds.--Paragraph (1)(A) of section 
     121(e) of the Social Security Amendments of 1983, as amended 
     by section 13215(c)(1) of the Omnibus Budget Reconciliation 
     Act of 1993, is amended by striking ``1993.'' and inserting 
     ``1993, plus (iii) the amounts equivalent to the aggregate 
     increase in tax liabilities under chapter 1 of the Internal 
     Revenue Code of 1986 which is attributable to the amendments 
     to section 86 of such Code made by section 6 of the Social 
     Security Solvency Act of 1999.''.
       (d) Effective Date.--The amendments made by this section 
     apply to taxable years ending after December 31, 1999.

     SEC. 7. COVERAGE OF NEWLY HIRED STATE AND LOCAL EMPLOYEES.

       (a) Amendments to the Social Security Act.--
       (1) In general.--Paragraph (7) of section 210(a) of the 
     Social Security Act (42 U.S.C. 410(a)(7)) is amended to read 
     as follows:
       ``(7) Excluded State or local government employment (as 
     defined in subsection (s));''.
       (2) Excluded state or local government employment.--
       (A) In general.--Section 210 of such Act (42 U.S.C. 410) is 
     amended by adding at the end the following new subsection:

            ``Excluded State or Local Government Employment

       ``(s)(1) In General.--The term `excluded State or local 
     government employment' means any service performed in the 
     employ of a State, of any political subdivision thereof, or 
     of any instrumentality of any one or more of the foregoing 
     which is wholly owned thereby, if--
       ``(A)(i) such service would be excluded from the term 
     `employment' for purposes of this title if the preceding 
     provisions of this section as in effect on December 31, 2001, 
     had remained in effect, and (ii) the requirements of 
     paragraph (2) are met with respect to such service, or
       ``(B) the requirements of paragraph (3) are met with 
     respect to such service.
       ``(2) Exception for Current Employment Which Continues.--
       ``(A) In general.--The requirements of this paragraph are 
     met with respect to service for any employer if--
       ``(i) such service is performed by an individual--
       ``(I) who was performing substantial and regular service 
     for remuneration for that employer before January 1, 2002,
       ``(II) who is a bona fide employee of that employer on 
     December 31, 2001, and
       ``(III) whose employment relationship with that employer 
     was not entered into for purposes of meeting the requirements 
     of this subparagraph, and
       ``(ii) the employment relationship with that employer has 
     not been terminated after December 31, 2001.
       ``(B) Treatment of multiple agencies and 
     instrumentalities.--For purposes of subparagraph (A), under 
     regulations (consistent with regulations established under 
     section 3121(t)(2)(B) of the Internal Revenue Code of 1986)--
       ``(i) all agencies and instrumentalities of a State (as 
     defined in section 218(b)) or of the District of Columbia 
     shall be treated as a single employer, and
       ``(ii) all agencies and instrumentalities of a political 
     subdivision of a State (as so defined) shall be treated as a 
     single employer and shall not be treated as described in 
     clause (i).
       ``(3) Exception for Certain Services.--
       ``(A) In general.--The requirements of this paragraph are 
     met with respect to service if such service is performed--
       ``(i) by an individual who is employed by a State or 
     political subdivision thereof to relieve such individual from 
     unemployment,
       ``(ii) in a hospital, home, or other institution by a 
     patient or inmate thereof as an employee of a State or 
     political subdivision thereof or of the District of Columbia,
       ``(iii) by an individual, as an employee of a State or 
     political subdivision thereof or of the District of Columbia, 
     serving on a temporary basis in case of fire, storm, snow, 
     earthquake, flood, or other similar emergency,
       ``(iv) by any individual as an employee included under 
     section 5351(2) of title 5, United States Code (relating to 
     certain interns, student nurses, and other student employees 
     of hospitals of the District of Columbia Government), other 
     than as a medical or dental intern or a medical or dental 
     resident in training,
       ``(v) by an election official or election worker if the 
     remuneration paid in a calendar year for such service is less 
     than $1,000 with respect to service performed during 2002, 
     and the adjusted amount determined under subparagraph (C) for 
     any subsequent year with respect to service performed during 
     such subsequent year, except to the extent that service by 
     such election official or election worker is included in 
     employment under an agreement under section 218, or
       ``(vi) by an employee in a position compensated solely on a 
     fee basis which is treated pursuant to section 211(c)(2)(E) 
     as a trade or business for purposes of inclusion of such fees 
     in net earnings from self-employment.
       ``(B) Definitions.--As used in this paragraph, the terms 
     `State' and `political subdivision' have the meanings given 
     those terms in section 218(b).
       ``(C) Adjustments to dollar amount for election officials 
     and election workers.--For each year after 2002, the 
     Secretary shall adjust the amount referred to in subparagraph 
     (A)(v) at the same time and in the same manner as is provided 
     under section 215(a)(1)(B)(ii) with respect to the amounts 
     referred to in section 215(a)(1)(B)(i), except that--
       ``(i) for purposes of this subparagraph, 1999 shall be 
     substituted for the calendar year referred to in section 
     215(a)(1)(B)(ii)(II), and
       ``(ii) such amount as so adjusted, if not a multiple of 
     $50, shall be rounded to the nearest multiple of $50.

     The Commissioner of Social Security shall determine and 
     publish in the Federal Register each adjusted amount 
     determined under this subparagraph not later than November 1 
     preceding the year for which the adjustment is made.''.
       (B) Conforming amendments.--
       (i) Subsection (k) of section 210 of such Act (42 U.S.C. 
     410(k)) (relating to covered transportation service) is 
     repealed.
       (ii) Section 210(p) of such Act (42 U.S.C. 410(p)) is 
     amended--

       (I) in paragraph (2), by striking ``service is performed'' 
     and all that follows and inserting ``service is service 
     described in subsection (s)(3)(A).''; and
       (II) in paragraph (3)(A), by inserting ``under subsection 
     (a)(7) as in effect on December 31, 2001'' after ``section''.

       (iii) Section 218(c)(6) of such Act (42 U.S.C. 418(c)(6)) 
     is amended--

       (I) by striking subparagraph (C);
       (II) by redesignating subparagraphs (D) and (E) as 
     subparagraphs (C) and (D), respectively; and
       (III) by striking subparagraph (F) and inserting the 
     following:

       ``(E) service which is included as employment under section 
     210(a).''
       (b) Amendments to the Internal Revenue Code of 1986.--
       (1) In general.--Paragraph (7) of section 3121(b) of the 
     Internal Revenue Code of 1986 (relating to employment) is 
     amended to read as follows:
       ``(7) excluded State or local government employment (as 
     defined in subsection (t));''.
       (2) Excluded state or local government employment.--Section 
     3121 of such Code is amended by inserting after subsection 
     (s) the following new subsection:
       ``(t) Excluded State or Local Government Employment.--
       ``(1) In general.--For purposes of this chapter, the term 
     `excluded State or local government employment' means any 
     service performed in the employ of a State, of any

[[Page S395]]

     political subdivision thereof, or of any instrumentality of 
     any one or more of the foregoing which is wholly owned 
     thereby, if--
       ``(A)(i) such service would be excluded from the term 
     `employment' for purposes of this chapter if the provisions 
     of subsection (b)(7) as in effect on December 31, 2001, had 
     remained in effect, and (ii) the requirements of paragraph 
     (2) are met with respect to such service, or
       ``(B) the requirements of paragraph (3) are met with 
     respect to such service.
       ``(2) Exception for current employment which continues.--
       ``(A) In general.--The requirements of this paragraph are 
     met with respect to service for any employer if--
       ``(i) such service is performed by an individual--

       ``(I) who was performing substantial and regular service 
     for remuneration for that employer before January 1, 2002,
       ``(II) who is a bona fide employee of that employer on 
     December 31, 2001, and
       ``(III) whose employment relationship with that employer 
     was not entered into for purposes of meeting the requirements 
     of this subparagraph, and

       ``(ii) the employment relationship with that employer has 
     not been terminated after December 31, 2001.
       ``(B) Treatment of multiple agencies and 
     instrumentalities.--For purposes of subparagraph (A), under 
     regulations--
       ``(i) all agencies and instrumentalities of a State (as 
     defined in section 218(b) of the Social Security Act) or of 
     the District of Columbia shall be treated as a single 
     employer, and
       ``(ii) all agencies and instrumentalities of a political 
     subdivision of a State (as so defined) shall be treated as a 
     single employer and shall not be treated as described in 
     clause (i).
       ``(3) Exception for certain services.--
       ``(A) In general.--The requirements of this paragraph are 
     met with respect to service if such service is performed--
       ``(i) by an individual who is employed by a State or 
     political subdivision thereof to relieve such individual from 
     unemployment,
       ``(ii) in a hospital, home, or other institution by a 
     patient or inmate thereof as an employee of a State or 
     political subdivision thereof or of the District of Columbia,
       ``(iii) by an individual, as an employee of a State or 
     political subdivision thereof or of the District of Columbia, 
     serving on a temporary basis in case of fire, storm, snow, 
     earthquake, flood, or other similar emergency,
       ``(iv) by any individual as an employee included under 
     section 5351(2) of title 5, United States Code (relating to 
     certain interns, student nurses, and other student employees 
     of hospitals of the District of Columbia Government), other 
     than as a medical or dental intern or a medical or dental 
     resident in training,
       ``(v) by an election official or election worker if the 
     remuneration paid in a calendar year for such service is less 
     than $1,000 with respect to service performed during 2002, 
     and the adjusted amount determined under section 210(s)(3)(C) 
     of the Social Security Act for any subsequent year with 
     respect to service performed during such subsequent year, 
     except to the extent that service by such election official 
     or election worker is included in employment under an 
     agreement under section 218 of the Social Security Act, or
       ``(vi) by an employee in a position compensated solely on a 
     fee basis which is treated pursuant to section 1402(c)(2)(E) 
     as a trade or business for purposes of inclusion of such fees 
     in net earnings from self-employment.
       ``(B) Definitions.--As used in this paragraph, the terms 
     `State' and `political subdivision' have the meanings given 
     those terms in section 218(b) of the Social Security Act.''.
       (3) Conforming amendments.--
       (A) Subsection (j) of section 3121 of such Code (relating 
     to covered transportation service) is repealed.
       (B) Paragraph (2) of section 3121(u) of such Code (relating 
     to application of hospital insurance tax to Federal, State, 
     and local employment) is amended--
       (i) in subparagraph (B), by striking ``service is 
     performed'' in clause (ii) and all that follows through the 
     end of such subparagraph and inserting ``service is service 
     described in subsection (t)(3)(A).''; and
       (ii) in subparagraph (C)(i), by inserting ``under 
     subsection (b)(7) as in effect on December 31, 2001'' after 
     ``chapter''.
       (c) Effective Date.--Except as otherwise provided in this 
     section, the amendments made by this section shall apply with 
     respect to service performed after December 31, 2001.

     SEC. 8. INCREASE IN LENGTH OF COMPUTATION PERIOD FROM 35 TO 
                   38 YEARS.

       Section 215(b)(2)(B) of the Social Security Act (42 U.S.C. 
     415(b)(2)) is amended--
       (1) in clause (ii), by striking ``and'' at the end;
       (2) in clause (iii)--
       (A) by striking ``age 62'' and inserting ``the applicable 
     age''; and
       (B) by striking the period at the end and inserting ``; 
     and''; and
       (3) by adding at the end the following:
       ``(iv) the term `applicable age' means with respect to 
     individuals who attain age 62--
       ``(I) before 2002, age 62;
       ``(II) in 2002, age 63;
       ``(III) in 2003, age 64; and
       ``(IV) after 2003, age 65.''.

     SEC. 9. MODIFICATION OF PIA FACTORS TO REFLECT CHANGES IN 
                   LIFE EXPECTANCY.

       (a) Modification of PIA Factors.--Section 215(a)(1) of the 
     Social Security Act (42 U.S.C. 415(a)(1)(B)) is amended by 
     redesignating subparagraph (D) as subparagraph (F) and by 
     inserting after subparagraph (C) the following:
       ``(D) For individuals who initially become eligible for 
     old-age insurance benefits in any calendar year after 1999, 
     each of the percentages under clauses (i), (ii), and (iii) of 
     subparagraph (A) shall be multiplied the applicable number of 
     times by .988 (.997, for any calendar year after 2017). For 
     purposes of the preceding sentence, the term `applicable 
     number of times' means a number equal to the lesser of 66 or 
     the number of years beginning with 2000 and ending with the 
     year of initial eligibility.
       ``(E) For any individual who initially becomes eligible for 
     disability insurance benefits in any calendar year after 
     1999, the primary insurance amount for such individual shall 
     be equal to the greater of--
       ``(i) such amount as determined under this paragraph, or
       ``(ii) such amount as determined under this paragraph 
     without regard to subparagraph (D) thereof.''.
       (b) Restoration of Normal Retirement Age at 65.--
       (1) In general.--Section 216(l)(1) of the Social Security 
     Act (42 U.S.C. 416(l) is amended to read as follows:
       ``(l)(1) The term `retirement age' means 65 years of 
     age.''.
       (2) Conforming Amendments.--
       (A) Section 216(l) of the Social Security Act (42 U.S.C. 
     416(l)) is amended by striking paragraph (3).
       (B) Section 202(q) of such Act (42 U.S.C. 402(q)) is 
     amended--
       (i) in paragraph (1), by striking ``Subject to paragraph 
     (9), if'' and inserting ``If''; and
       (ii) by striking paragraph (9).
       (c) Study of the Effect of Increases in Life Expectancy.--
       (1) Study plan.--Not later than February 15, 2001, the 
     Commissioner of Social Security shall submit to Congress a 
     detailed study plan for evaluating the effects of increases 
     in life expectancy on the expected level of retirement income 
     from social security, pensions, and other sources. The study 
     plan shall include a description of the methodology, data, 
     and funding that will be required in order to provide to 
     Congress not later than February 15, 2006--
       (A) an evaluation of trends in mortality and their 
     relationship to trends in health status, among individuals 
     approaching eligibility for social security retirement 
     benefits;
       (B) an evaluation of trends in labor force participation 
     among individuals approaching eligibility for social security 
     retirement benefits and among individuals receiving 
     retirement benefits, and of the factors that influence the 
     choice between retirement and participation in the labor 
     force;
       (C) an evaluation of changes, if any, in the social 
     security disability program that would reduce the impact of 
     changes in the retirement income of workers in poor health or 
     physically demanding occupations;
       (D) an evaluation of the methodology used to develop 
     projections for trends in mortality, health status, and labor 
     force participation among individuals approaching eligibility 
     for social security retirement benefits and among individuals 
     receiving retirement benefits; and
       (E) an evaluation of such other matters as the Commissioner 
     deems appropriate for evaluating the effects of increases in 
     life expectancy.
       (2) Report on results of study.--Not later than February 
     15, 2006, the Commissioner of Social Security shall provide 
     to Congress an evaluation of the implications of the trends 
     studied under paragraph (1), along with recommendations, if 
     any, of the extent to which the conclusions of such 
     evaluations indicate that projected increases in life 
     expectancy require modification in the social security 
     disability program and other income support programs.

     SEC. 10. ELIMINATION OF EARNINGS TEST FOR INDIVIDUALS WHO 
                   HAVE ATTAINED EARLY RETIREMENT AGE.

       (a) In General.--Section 203 of the Social Security Act (42 
     U.S.C. 403) is amended--
       (1) in subsection (c)(1), by striking ``the age of 
     seventy'' and inserting ``early retirement age (as defined in 
     section 216(l))'';
       (2) in paragraphs (1)(A) and (2) of subsection (d), by 
     striking ``the age of seventy'' each place it appears and 
     inserting ``early retirement age (as defined in section 
     216(l))'';
       (3) in subsection (f)(1)(B), by striking ``was age seventy 
     or over'' and inserting ``was at or above early retirement 
     age (as defined in section 216(l))'';
       (4) in subsection (f)(3)--
       (A) by striking ``33\1/3\ percent'' and all that follows 
     through ``any other individual,'' and inserting ``50 percent 
     of such individual's earnings for such year in excess of the 
     product of the exempt amount as determined under paragraph 
     (8),''; and
       (B) by striking ``age 70'' and inserting ``early retirement 
     age (as defined in section 216(l))'';
       (5) in subsection (h)(1)(A), by striking ``age 70'' each 
     place it appears and inserting ``early retirement age (as 
     defined in section 216(l))''; and
       (6) in subsection (j)--
       (A) in the heading, by striking ``Age Seventy'' and 
     inserting ``Early Retirement Age''; and

[[Page S396]]

       (B) by striking ``seventy years of age'' and inserting 
     ``having attained early retirement age (as defined in section 
     216(l))''.
       (b) Conforming Amendments Eliminating the Special Exempt 
     Amount For Individuals Who Have Attained Age 62.--
       (1) Uniform exempt amount.--Section 203(f)(8)(A) of the 
     Social Security Act (42 U.S.C. 403(f)(8)(A)) is amended by 
     striking ``the new exempt amounts (separately stated for 
     individuals described in subparagraph (D) and for other 
     individuals) which are to be applicable'' and inserting ``a 
     new exempt amount which shall be applicable''.
       (2) Conforming amendments.--Section 203(f)(8)(B) of the 
     Social Security Act (42 U.S.C. 403(f)(8)(B)) is amended--
       (A) in the matter preceding clause (i), by striking 
     ``Except'' and all that follows through ``whichever'' and 
     inserting ``The exempt amount which is applicable for each 
     month of a particular taxable year shall be whichever'';
       (B) in clauses (i) and (ii), by striking ``corresponding'' 
     each place it appears; and
       (C) in the last sentence, by striking ``an exempt amount'' 
     and inserting ``the exempt amount''.
       (3) Repeal of basis for computation of special exempt 
     amount.--Section 203(f)(8)(D) of the Social Security Act (42 
     U.S.C. (f)(8)(D)) is repealed.
       (c) Additional Conforming Amendments.--
       (1) Elimination of redundant references to retirement 
     age.--Section 203 of the Social Security Act (42 U.S.C. 403) 
     is amended--
       (A) in subsection (c), in the last sentence, by striking 
     ``nor shall any deduction'' and all that follows and 
     inserting ``nor shall any deduction be made under this 
     subsection from any widow's or widower's insurance benefit if 
     the widow, surviving divorced wife, widower, or surviving 
     divorced husband involved became entitled to such benefit 
     prior to attaining age 60.''; and
       (B) in subsection (f)(1), by striking clause (D) and 
     inserting the following: ``(D) for which such individual is 
     entitled to widow's or widower's insurance benefits if such 
     individual became so entitled prior to attaining age 60,''.
       (2) Conforming amendment to provisions for determining 
     amount of increase on account of delayed retirement.--Section 
     202(w)(2)(B)(ii) of the Social Security Act (42 U.S.C. 
     402(w)(2)(B)(ii)) is amended--
       (A) by striking ``either''; and
       (B) by striking ``or suffered deductions under section 
     203(b) or 203(c) in amounts equal to the amount of such 
     benefit''.
       (3) Provisions relating to earnings taken into account in 
     determining substantial gainful activity of blind 
     individuals.--The second sentence of section 223(d)(4) of 
     such Act (42 U.S.C. 423(d)(4)) is amended by striking ``if 
     section 102 of the Senior Citizens' Right to Work Act of 1996 
     had not been enacted'' and inserting the following: ``if the 
     amendments to section 203 made by section 102 of the Senior 
     Citizens' Right to Work Act of 1996 and by the Social 
     Security Solvency Act of 1999 had not been enacted''.
       (d) Study of the Effect of Taking Earnings Into Account in 
     Determining Substantial Gainful Activity of Disabled 
     Individuals.--
       (1) In general.--Not later than February 15, 2001, the 
     Commissioner of Social Security shall conduct a study on the 
     effect that taking earnings into account in determining 
     substantial gainful activity of individuals receiving 
     disability insurance benefits has on the incentive for such 
     individuals to work and submit to Congress a report on the 
     study.
       (2) Contents of study.--The study conducted under paragraph 
     (1) shall include the evaluation of--
       (A) the effect of the current limit on earnings on the 
     incentive for individuals receiving disability insurance 
     benefits to work;
       (B) the effect of increasing the earnings limit or changing 
     the manner in which disability insurance benefits are reduced 
     or terminated as a result of substantial gainful activity 
     (including reducing the benefits gradually when the earnings 
     limit is exceeded) on--
       (i) the incentive to work; and
       (ii) the financial status of the Federal Disability 
     Insurance Trust Fund;
       (C) the effect of extending eligibility for the Medicare 
     program to individuals during the period in which disability 
     insurance benefits of the individual are gradually reduced as 
     a result of substantial gainful activity and extending such 
     eligibility for a fixed period of time after the benefits are 
     terminated on--
       (i) the incentive to work; and
       (ii) the financial status of the Federal Hospital Insurance 
     Trust Fund and the Federal Supplementary Medical Insurance 
     Trust Fund; and
       (D) the relationship between the effect of substantial 
     gainful activity limits on blind individuals receiving 
     disability insurance benefits and other individuals receiving 
     disability insurance benefits.
       (3) Consultation.--The analysis under paragraph (2)(C) 
     shall be done in consultation with the Administrator of the 
     Health Care Financing Administration.
       (e) Effective Date.--The amendments and repeals made by 
     subsections (a), (b), and (c) shall apply with respect to 
     taxable years ending after December 31, 2002.

     SEC. 11. SOCIAL SECURITY KIDSAVE ACCOUNTS.

       Title II of the Social Security Act (42 U.S.C. 401 et 
     seq.), as amended by section 3(a), is amended by adding at 
     the end the following:

                       ``Part C--KidSave Accounts


                           ``kidsave accounts

       ``Sec. 261. (a) Establishment.--The Commissioner of Social 
     Security shall establish in the name of each individual born 
     on or after January 1, 1995, a KidSave Account described in 
     paragraph (1) of section 262(a), upon the later of--
       ``(1) the date of enactment of this part, or
       ``(2) the date of the issuance of a Social Security account 
     number under section 205(c)(2) to such individual.

     The KidSave Account shall be identified to the account holder 
     by means of the account holder's Social Security account 
     number.
       ``(b) Contributions.--
       ``(1) In general.--There are appropriated such sums as are 
     necessary in order for the Secretary of the Treasury to 
     transfer from the general fund of the Treasury for crediting 
     by the Commissioner to each account holder's KidSave Account 
     under subsection (a), an amount equal to the sum of--
       ``(A) in the case of any individual born on or after 
     January 1, 2000, $1000.00, on the date of the establishment 
     of such individual's KidSave Account, and
       ``(B) in the case of any individual born on or after 
     January 1, 1995, $500.00, on the 1st, 2nd, 3rd, 4th, and 5th 
     birthdays of such individual occurring on or after January 1, 
     2000.
       ``(2) Adjustment for inflation.--For any calendar year 
     after 2009, each of the dollar amounts under paragraph (1) 
     shall be increased by the cost-of-living adjustment 
     determined under section 215(i) for the calendar year.
       ``(c) Designations Regarding KidSave Accounts.--
       ``(1) Initial designations of investment vehicle.--A person 
     described in subsection (d) shall, on behalf of the 
     individual described in subsection (a), designate the 
     investment vehicle for the KidSave Account to which 
     contributions on behalf of such individual are to be 
     deposited. Such designation shall be made on the application 
     for such individual's Social Security account number.
       ``(2) Changes in investment vehicles or types of kidsave 
     accounts.--The Commissioner shall by regulation provide the 
     time and manner by which--
       ``(A) an individual or a person described in subsection (d) 
     on behalf of such individual may change 1 or more investment 
     vehicles for a KidSave Account described in paragraph (1) of 
     section 262(a), and
       ``(B) an individual or a person described in subsection (d) 
     on behalf of such individual may designate a KidSave Account 
     described in paragraph (2) of section 262(a) or a voluntary 
     investment account described in paragraph (1) or (2) of 
     section 254(a) of the individual to which all or a portion of 
     the amounts in an existing KidSave Account described in 
     paragraph (1) of section 262(a) are to be transferred.
       ``(d) Treatment of Minors and Incompetent Individuals.--Any 
     designation under subsection (c) to be made by a minor, or an 
     individual mentally incompetent or under other legal 
     disability, may be made by the person who is constituted 
     guardian or other fiduciary by the law of the State of 
     residence of the individual or is otherwise legally vested 
     with the care of the individual or his estate. Payment under 
     this part due a minor, or an individual mentally incompetent 
     or under other legal disability, may be made to the person 
     who is constituted guardian or other fiduciary by the law of 
     the State of residence of the claimant or is otherwise 
     legally vested with the care of the claimant or his estate. 
     In any case in which a guardian or other fiduciary of the 
     individual under legal disability has not been appointed 
     under the law of the State of residence of the individual, if 
     any other person, in the judgment of the Commissioner, is 
     responsible for the care of such individual, any designation 
     under subsection (c) which may otherwise be made by such 
     individual may be made by such person, any payment under this 
     part which is otherwise payable to such individual may be 
     made to such person, and the payment of an annuity payment 
     under this part to such person bars recovery by any other 
     person.


                    ``definitions and special rules

       ``Sec. 262. (a) Kidsave Accounts.--For purposes of this 
     part--
       ``(1) a KidSave Account described in this paragraph is a 
     KidSave Account in the Voluntary Investment Fund (established 
     under section 255(a)), and
       ``(2) a Kidsave Account described in this paragraph is any 
     individual retirement plan (as defined in section 7701(a)(37) 
     of the Internal Revenue Code of 1986), other than a Roth IRA 
     (as defined in section 408A(b) of such Code), which is 
     designated by an individual as a KidSave Account (in such 
     manner as the Secretary of the Treasury may prescribe) and 
     which is administered or issued by a bank or other person 
     referred to in section 408(a)(2) of such Code.
       ``(b) Treatment of Accounts.--
       ``(1) In general.--Except as provided in paragraph (2)--
       ``(A) any KidSave Account described in subsection (a)(1) 
     shall be treated in the same manner as an account in the 
     Thrift Savings Fund under subchapter III of chapter 84 of 
     title 5, United States Code, and
       ``(B) any KidSave Account described in subsection (a)(2) 
     shall be treated in the same manner as an individual 
     retirement plan (as so defined).

[[Page S397]]

       ``(2) Exceptions.--
       ``(A) Contribution limit.--The aggregate amount of 
     contributions for any taxable year to all KidSave Accounts of 
     an individual shall not exceed the contribution made pursuant 
     to section 261(b) for such year on behalf of such individual.
       ``(B) Rollover contributions.--No rollover contribution may 
     be made to a KidSave Account unless it is from another 
     KidSave Account. A rollover described in the preceding 
     sentence shall not be taken into account for purposes of 
     subparagraph (A).
       ``(C) Distributions.--Notwithstanding any other provision 
     of law, distributions may only be made from a KidSave Account 
     of an individual on or after the earlier of--
       ``(i) the date on which the individual begins receiving 
     benefits under this title, or
       ``(ii) the date of the individual's death.''.
                                  ____


Social Security Solvency Act of 1999 Introduced on January 19, 1999, by 
     Senators Moynihan and Kerrey--Brief Description of Provisions


    i. reduce payroll taxes and return to pay-as-you-go system with 
                  voluntary personal savings accounts

     A. Reduce payroll taxes and return to pay-as-you-go
       The bill would return Social Security to a pay-as-you-go 
     system. That is, payroll tax rates would be adjusted so that 
     annual revenues from taxes closely match annual outlays. This 
     makes possible an immediate payroll tax cut of approximately 
     $800 billion over the next 10 years, with reduced rates 
     remaining in place for the next 30 years. Payroll tax rates 
     would be cut from 12.4 to 10.4 percent for the period 2002 to 
     2029, and the rate would not increase above 12.4 percent 
     until 2035. Even in the out-years, the pay-as-you-go rates 
     under the plan will increase only slightly above the current 
     rate of 12.4 percent. Based on estimates prepared last year 
     the proposed rate schedule is:

Years:                                                          Percent
  2002-2029........................................................10.4
  2030-2034........................................................12.4
  2035-2049........................................................12.9
  2050-2059........................................................13.3
  2060 and thereafter..............................................13.7

       To ensure continued solvency, the Board of Trustees of the 
     Social Security Trust Funds would make recommendations for a 
     new pay-as-you-go tax rate schedule if the Trust Funds fall 
     out of close actuarial balance. The new tax rate schedule 
     would be considered by Congress under fast track procedures.
     B. Personal savings accounts
       Beginning in 2002, the bill would permit voluntary personal 
     savings accounts which workers could finance with the 
     proceeds of the two percentage point cut in the payroll tax. 
     Alternatively, a worker could simply take the employee share 
     of the tax cut (one percent of wages) as an increase in take-
     home pay. In addition, KidSave accounts, of up to $3,500, 
     would be opened for all children born in 1995 or later.
     C. Increase in amount of wages subject to tax
       Under current law, the Social Security payroll tax applies 
     only to the first $72,600 of wages in 1999. At that level, 
     about 85 percent of wages in covered employment are taxed. 
     That percentage has been falling because wages of persons 
     above the taxable maximum have been growing faster than wages 
     of persons below it.
       Historically, about 90 percent of wages have been subject 
     to tax. Under the bill, the taxable maximum would be 
     increased to $99,900 (thereby imposing the tax on about 87 
     percent of wages) by 2004. Thereafter, automatic changes in 
     the base, tied to increases in average wages, would be 
     resumed. (Under current law, the taxable maximum is projected 
     to increase to $84,900 in 2004, with automatic changes also 
     continuing thereafter.)


                       II. INDEXATION PROVISIONS

     A. Correct cost of living adjustments by one percentage point
       The bill includes a one percentage point correction in cost 
     of living adjustments. The correction would apply to all 
     indexed programs (outlays and revenues) except Supplemental 
     Security Income. The Bureau of Labor Statistics has made some 
     improvements in the Consumer Price Index, but most of these 
     were already taken into account when the Boskin Commission 
     appointed by the Senate Finance Committee reported in 1996 
     that the overstatement of the cost of living by the CPI was 
     1.1 percentage points.\1\ Members of the Commission believe 
     that the overstatement will average about one percentage 
     point for the next several years. The proposed legislation 
     would also establish a Cost of Living Board to determine on 
     an annual basis if further refinements are necessary.
---------------------------------------------------------------------------
     \1\ A number of improvements announced by the BLS after this 
     legislation was first introduced in 1998 would lower the 
     reported change in prices. The authors are considering what 
     modifications, if any, should be made to the bill as a result 
     of the BLS announcements. They are also discussing, with the 
     Social Security actuaries, the effects of this change on the 
     long-run projections made by the actuaries.
---------------------------------------------------------------------------
     B. Adjustments in monthly benefits related to changes in life 
         expectancy
       Under current law, the so-called normal retirement age 
     (NRA) is scheduled to gradually increase from age 65 to 67. 
     In practice, the NRA is important as a benchmark for 
     determining the monthly benefit amount, but it does not 
     reflect the actual age at which workers receive retirement 
     benefits. More than 70 percent of workers begin collecting 
     Social Security retirement benefits before they reach age 65, 
     and more than 50 percent do so at age 62. Under the bill, 
     workers can continue to receive benefits at age 62 and the 
     provision in the 1983 Social Security amendments that 
     increased the NRA to 67 is repealed. Instead, under this 
     legislation, if life expectancy increases the level of 
     monthly benefits payable at age 65 (or at the age at which 
     the worker actually retires) decreases.
       These changes in monthly benefits are a form of indexation 
     that mirrors the projected gradual increase in life 
     expectancy over a period of more than 100 years. For example, 
     persons who retired in 1960 at age 65 had a life expectancy, 
     at age 65, of 15 years and spent about 25 percent of their 
     adult life in retirement. Persons retiring in 2060, at age 
     70, are projected to have a life expectancy at age 70 of more 
     than 16 years, and thus would also spend about 25 percent of 
     their adult life in retirement.


          III. PROGRAM SIMPLIFICATION--REPEAL OF EARNINGS TEST

       The so-called earnings test would be eliminated for all 
     beneficiaries age 62 and over, beginning in 2003. (Under 
     current law, the test increases to $30,000 in 2002.) Under 
     the earnings test benefits are withheld (reduced) for one 
     million beneficiaries because wages are in excess of 
     the earnings limit. This is an unnecessary administrative 
     burden because beneficiaries eventually receive all of the 
     benefits that are withheld. Indeed, Social Security 
     Administration actuaries estimate that the long-run cost 
     of repealing the earnings test is zero.


                           iv. other changes

       All three factions of the 1994-96 Social Security Advisory 
     Council supported some variation of the following common 
     sense changes in the program.
     A. Normal Taxation of Benefits
       Social Security benefits would be taxed to the same extent 
     private pensions are taxed. That is, Social Security benefits 
     would be taxed to the extent that the worker's benefits 
     exceed his or her contributions to the system (currently 
     about 95 percent of benefits would be taxed). This provision 
     would be phased-in over the 5 year period 2000-2004.
     B. Coverage of Newly Hired State and Local Employees
       Effective in 2002, Social Security coverage would be 
     extended to newly hired employees in currently excluded State 
     and local positions. Inclusion of State and local workers is 
     sound public policy because most of the five million State 
     and local employees (about a quarter of all State and local 
     employees) not covered by Social Security in their government 
     employment do receive Social Security benefits as a result of 
     working at other jobs--part-time or otherwise--that are 
     covered by Social Security. Relative to their contributions 
     these workers receive generous benefits.
     C. Increase in Length of Computation Period
       The legislation would increase the length of the 
     computation period from 35 to 38 years. Consistent with the 
     increase in life expectancy and the increase in the 
     retirement age we would expect workers to have more years 
     with earnings. Computation of their benefits should be based 
     on these additional years of earnings.


                       summary of budget effects

       The legislation provides for long-run solvency of Social 
     Security, with little or no effect on the budget surplus. In 
     the Economic and Budget Outlook: Update, released in August, 
     1998, the Congressional Budget Office (CBO) projected that 
     for the five-year period FY 1999-2003, the cumulative surplus 
     would be $520 billion, and $1.548 trillion for the ten-year 
     period FY 1999-2008. Preliminary estimates, based on these 
     budget projections, indicate that this legislation, while 
     preserving Social Security, and while reducing payroll taxes 
     by almost $800 billion, will reduce the ten-year cumulative 
     surplus by less than $200 billion. In no year is there a 
     budget deficit. (CBO will provide updated budget estimates 
     after its new baseline is released later this month.)--
     Prepared by the Senate Finance Committee Minority Staff, 
     January, 1999.

    PAY-AS-YOU-GO PAYROLL TAX RATES REQUIRED TO FUND SOCIAL SECURITY
------------------------------------------------------------------------
                                                                 Social
                                                      Assuming  Security
                        Year                             no     Solvency
                                                       program   Act of
                                                       changes    1999
------------------------------------------------------------------------
2002................................................     10.40     10.40
2005................................................     10.40     10.40
2010................................................     10.40     10.40
2015................................................     12.40     10.40
2020................................................     15.20     10.40
2025................................................     16.50     10.40
2030................................................     17.00     12.40
2035................................................     17.00     12.90
2040................................................     17.00     12.90
2045................................................     17.00     12.90
2050................................................     17.00     13.30
2055................................................     17.80     13.30
2060................................................     17.80     13.70
2065................................................     17.80     13.70
2070................................................     18.30     13.70
------------------------------------------------------------------------
Note: The Social Security payroll tax rate is fixed by statute at 12.4
  percent. Assuming no program changes the current law program is not
  sustainable. In 2013, outgo for the OASDI program will exceed tax
  revenues. In 2032, all OASDI assets (reserves) will be expended, after
  which tax revenues will only be sufficient to pay 75 percent or less
  or promised benefits.


[[Page S398]]


                                                      CBO BUDGET ESTIMATES--FISCAL YEARS 1999-2008
                                                                (In billions of dollars)
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                     Cumulative surplus
                                                                                                                                   ---------------------
                              Year                               1999  2000  2001   2002   2003   2004   2005   2006   2007   2008   5 years    10 years
                                                                                                                                    1999-2003  1999-2008
--------------------------------------------------------------------------------------------------------------------------------------------------------
Estimated surplus under current policies: CBO summer 1998
 budget projection.............................................    80    79    86    139    136    154    170    217    236    251      520       1,548
Estimated surplus under the Social Security Solvency Act of
 1999..........................................................    80    48    50     92     89    121    153    211    240    268      359       1,352
--------------------------------------------------------------------------------------------------------------------------------------------------------
Prepared by the Senate Finance Committee Minority Staff based on the Congressional Budget Office Summer 1998 Budget projection and preliminary estimate
  of the Social Security Solvency Act of 1999. January 1999.

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