[Congressional Record Volume 146, Number 24 (Tuesday, March 7, 2000)]
[Senate]
[Pages S1196-S1201]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
PERSONAL SECURITY AND WEALTH IN RETIREMENT ACT
Mr. GRAMS. Mr. President, I want to take time this morning to talk
about one of the most important issues I think is facing American
society today; that is, the future of the retirement system in this
country--not only for those who are on Social Security today or for
those who are going to be on Social Security very soon, but basically
to look down the road to our children and our grandchildren at what
kind of Social Security or a retirement system we are going to leave
the next generation. I think that is very important.
I am very pleased this morning that President Clinton has finally
accepted the Republican Social Security lockbox which would lock in
every penny of the Social Security surplus, not for tax relief and not
for Government spending but for the retirement program of millions of
Americans.
However, what most concerns me is that the President appears to be
abandoning his ``Save Social Security First'' pledge. It was one thing
to lock in Social Security surpluses last year and in the future and to
further attempt to devote interest savings on a lower public debt to
Social Security, but that alone will not save Social Security because
we have spent too many years of the Social Security surplus prior to
the year 2000.
The President's budget does not address the future solvency of Social
Security to ensure retirement benefits will be there for the baby
boomers and also future generations. All he has proposed is to credit
Social Security with more IOUs that do nothing but increase taxes on
future generations.
So my point is, the President's Social Security proposal does not
push back the date that Social Security will run a deficit by a single
year, and the transfer from the general fund to Social Security does
not cover a fraction of the shortfall the system is going to face.
Without reform, the unfunded liability of Social Security will crowd
out all discretionary spending. It will create financial hardship for
millions of baby boomers. It will impose a heavy burden for our future
generations in the form of higher taxes. We must address this very
vitally important issue and do it as quickly as we can.
[[Page S1197]]
Just another note. Recently, a Social Security advisory panel found
that the Social Security economic and demographic assumptions the
Government uses to project the program's future economic status
underestimate the unfunded liability. What that means is, if the
panel's recommendations were adopted, Social Security projections would
show a financial imbalance in the system that is much greater than
currently forecast. In other words, the system is more likely to be in
worse shape today financially than previously even thought. This means
Social Security could go broke much sooner than we actually expect
today.
What I want to do is to look at the system itself and then look at a
plan I have introduced called the Personal Security and Wealth in
Retirement Act, which is personal retirement accounts, which I believe
is the direction in which we should go in order to save Social Security
and to have a safe, sound, and good retirement system for the future.
In doing this, I have been across the State of Minnesota, holding
many town meetings, talking to hundreds and thousands of Minnesotans,
trying to explain to them what the problems are. I think everybody
agrees there are some problems in Social Security. In fact, more young
people today believe Elvis Presley is still alive or believe in aliens
than they believe that Social Security is going to be there for them.
So there is a problem of perception.
What Americans are looking for--and I found this out traveling across
Minnesota--what they want is some information on what is happening and
what are some of the options we are going to have in order to address
this problem. That is why I have traveled across the State of Minnesota
doing a number of town meetings, talking to Minnesotans about this.
When we look at Social Security over the last 65 years, Social
Security has basically done what we have asked the program to do; that
is, to provide retirement benefits for millions of Americans over 65
years. It has done the job. In some cases, if one looks at their Social
Security check today, they will say it is not very good because it is
only $700 a month, $600 a month, $800 a month. That is not the kind of
retirement we want to leave to our children.
If we look ahead to the next 30 years, the system is facing some real
problems. We are going to strain the system to the point it will not be
able to meet the benefits that have been promised. In fact, if we look
out about 30 years, without any changes in Social Security, we will see
a reduction in the benefits of about one-third. We might have to raise
taxes; that is another option. We might have to raise the retirement
age.
If those are the options on the table, I don't think they are what we
want to leave our children, that they are going to have a retirement
system that is going to cost them more, going to give them less in
benefits, and they are going to have to be older to retire. Is that
what we are promising or hoping for our kids? I don't think it is. That
is why I have gone across Minnesota holding town meetings and talking
about this issue.
When Franklin Roosevelt created the Social Security program over six
decades ago, he wanted it also to feature a private sector component to
build retirement income. In other words, he did not think only Social
Security alone should do that. Social Security was supposed to be one
leg of a three-legged stool: Social Security, pensions, and savings
accounts.
But Franklin Roosevelt did have some concerns. In fact, there was a
Senator--I think from Missouri--who had passed on the floor of the
Senate a proposal to include private retirement accounts as well as the
public. When it got into conference, it was stripped out. They promised
him they would bring it back on the floor again the next year, but they
said: We have to pass this bill now. We are right at the height of the
Depression, with all the problems the country is facing. They promised
him they would bring this aspect back the next year. They never did. I
always say that is one of the first big lies dealing with Social
Security.
Social Security is a system that is stretched to its limits. We have
78 million baby boomers who are going to begin retiring by the year
2008. The average is going to be around 2011 or 2012, but 80-plus
percent of Americans retire at the age of 62, not at the age of 65. So
we can push back when it is going to hit that limit by a couple of
years to 2008. Social Security spending will begin to exceed tax
revenues by the year 2014.
We have all heard about the Social Security surplus and why we are
bringing in these surpluses every year. In 1983, a blue-ribbon panel,
chaired by Alan Greenspan, decided the way to extend the life of Social
Security was to begin overcharging for the FICA taxes. That excess
overcharge would be put into a trust fund or a savings account, and we
would then draw on that after the surpluses evaporated so we could meet
the shortfall from the savings account which would extend the life of
the program to the year 2032.
We hear everybody in debates saying: Social Security will be here
until the year 2032. Well, it will be here, but it won't be paying
benefits to the max after the year 2014 unless we raise taxes somehow
to retire some of the debt.
To give a quick example: It is as if we were paying out $100 in
benefits today. By the way, our Social Security system is a pay-as-you-
go system. In other words, the money brought in at the first of
February went out at the end of February. There is not one account with
your name on it with $1 in it in Washington for your retirement. You
have been paying in all these dollars, but you do not have an account
in Washington that has $1 for benefits for your retirement. All you can
rely on or hope for is that there are people working when you retire so
they can pay that benefit at the first of the month that you will
collect at the end of the month. That is the way this system works. It
is a pay-as-you-go system--no investments, no compound interest, no
assets, only the hope that there are going to be enough workers paying
into the system when you want to retire.
So if we are paying out $100 in benefits, we are bringing in $110
today. We put that $10 in the savings account. But by the year 2014, we
will bring in $100 and pay $100. So we are going to be even. By the
year 2015, estimates are we are going to bring in $98; we are going to
have to pay out the $100. That is when we were going to go to the
savings account or the trust fund to draw out $2 to make sure those
benefits are paid.
Then by the year 2020, for instance, we will only be bringing in $90
and we will pay out $100. We will have to borrow $10. Between 2014 and
2032, we would have evaporated that savings account. Then we will be
facing the problem we were hoping to deal with at that time.
The problem is, all that is in the trust fund today are IOUs. In
other words, every time $1 has been collected from you to go into the
trust fund, Washington has borrowed that money, put it into the general
fund and spent it for other Government programs. They have spent your
future retirement dollars. They have put in notes, IOUs, that say they
will pay back. It would be similar to going to your kid's piggy bank,
taking out 10 bucks and putting in an IOU. You are going to have to
have future revenues to pay back that IOU. So the money you have
already put in is gone. To replace it, we will have to go to current
taxpayers and raise more taxes to pay it off. All the money has been
used to increase Government spending. It hasn't gone for your
retirement security at all.
The Social Security trust fund goes broke in the year 2033. That is
when all the IOUs will be gone. I always like to say, if you think
these IOUs are good, go put a million-dollar IOU into your checking
account and find out how many checks your banker allows you to write
against that IOU. None. You are going to have to find additional
revenues. I have $1 million in my checking account. It looks good on
paper, but in reality there is nothing there to back it up but the good
word and faith of the Federal Government to some day go back and
collect more taxes to pay off this debt. So by 2014, we are going to
have to begin raising taxes or cut spending in other areas to pay off
an IOU. If we need $1 billion in the year 2014 and it is not in the
budget, where do we go to get it? We are going to have to go out and
get it from the taxpayers. So we are going to have to have a tax
increase beginning as early as 2014 to pay the benefits being promised.
[[Page S1198]]
Why is the system now being stretched to the limit? Back in about
1940, there were 100 workers for every retiree. Today, there are about
2\1/2\ workers for every retiree. In 25 years, there are going to be
less than two for every retiree. Why does this put a strain on the
system? Say if you were going to have a $1,000-benefit in 1940. One
hundred workers would only have to put $10 a month into the system to
make sure it was solvent. Today, we are asking that you put nearly $500
a month into the system in order to maintain the benefits for this
retiree. In 2025, our grandchildren will have to pay more than $500
apiece in order to maintain those benefits. So $10 compared to over
$500 shows the strain that will be put on the Social Security system if
we do nothing to improve it.
Where are we today with the system? The numbers say the system is
probably more in debt than we expected it to be. If we look at this
chart, on this line is zero; this line shows the continuing surpluses
we will be bringing in until about the years 2012 to 2014. But after
that, we see the red line as it goes down. This is the debt the system
is going to incur, and it is over $20 trillion of unfunded liabilities.
In other words, this is after we have already collected Social Security
taxes from your paychecks. This is what we are going to run short if we
are to pay the benefits the Government promises. So if we are going to
continue paying just today's level of benefits--adjusting this for
inflation, of course--in today's dollars, we are going to be $20
trillion short over the next 70 years.
Again, others would say: Well, if we can't do that, we will lessen
the retirement age, and that will lessen the debt; cut benefits by a
third. That will lessen the debt even more, or we are going to raise
taxes, which could eliminate it. But that is the plan they have
proposed.
The biggest risk to our Social Security system today is to do
nothing. There are a lot of people who say we can't really touch it, or
maybe we should raise taxes a little bit. Right now, proposals are
floating around to raise your FICA taxes by another 2.2 percent in
order to maintain these benefits. That is like putting a Band-Aid over
cancer; you can wait 5 years, but when you pull that Band-Aid off, the
cancer is probably going to be much worse than it is today. So that is
no cure.
In fact, to support Social Security we have raised taxes 52 or 53
different times. People like to say they want to ``tinker'' with Social
Security. If you get out the Washington dictionary and you open it up
to ``tinker,'' it means a tax increase. They say, if we can only raise
it 2.2 percent more, we can solve this problem. Well, if you believe
that, why have they done it 52 or 53 times? This would be 54.
How many more tax increases would have to be imposed in order to do
that? To keep promising Social Security benefits, the payroll tax would
have to be increased, some say, a minimum of 50 percent--a minimum of
50 percent--not the 2.2, but a minimum of about 6.5 percent. Others say
that could be more than double in order to maintain it.
In fact, here are the payroll taxes on this chart. This is where we
started in 1950. It was under 3 percent at that time. It started out,
by the way, at 1 percent of the first $1,000 of earned income. It has
grown now. So it is 12.4 percent on $70,200, or somewhere in that
neighborhood.
You can see how taxes have continued to increase to where we are
today. But this red line shows the intermediate projections. These are
the best-guess estimates of what could happen. By 2030, our children
could be paying about 23.5 percent just for Social Security--not
Medicare, just Social Security. You can add Medicare and then you are
at about 28 or 30 percent. Then add in Federal taxes and it is 56
percent because that averages 28 percent. Then add in local taxes,
sales taxes, property taxes, excise taxes, and everything else, and in
30 years our children are going to be looking at tax rates as high as
70 percent or maybe even higher because high-cost projections show that
this amount probably would not be 25 but it could actually be somewhere
closer to 28 or 29 percent. That would put our children well over the
70-percent mark.
Is that what we want for our children, where, for every $100 they
make, they will take $30 or $35 home and the Federal Government gets
the remainder of it? I don't know how many children will vote in the
year 2030 for a politician who will keep a system such as this.
The diminishing return of Social Security: If you retired in 1960 or
1955, you probably got back everything you had put into Social Security
within the first year. It was a good investment for that generation.
But today, the average return on Social Security is less than 2
percent. If you are a young person today, by the time you retire, there
is actually going to be a negative return. In other words, they would
be better off to put their retirement money in a tin can and bury it in
the backyard, and they would have more buying power in retirement than
if they invested it in Social Security.
For many of the minority groups today, they are already in a negative
cash-flow for Social Security because of age expectancy. So already it
is beginning to hurt that portion of our population. To compare it,
what if we invested it in the markets? The markets traditionally, over
the last 80 years, including the crash of 1929 and all the ups and
downs of the markets over the last 80 years, averaged a little over 7
percent in real rate of return. That is after inflation and all of the
adjustments. It averaged over 7 percent in real rate of return. I don't
know how many people would line up at the window to invest in an
account that said: We are going to pay you less than 1 percent; in
fact, it may be a negative percent. Right now, that is the only option
you have. You have no choice as to where your money is going.
What have we done in Washington? Everybody now agrees--the President,
Democrats and Republicans, the Senate and the House--that we need to
lock it away to make sure all money collected for Social Security goes
to pay for Social Security. We have introduced the lockbox. That means
all the additional surpluses now are going to be set aside for Social
Security retirement. That is very important. We need to continue to do
that.
Stop raiding the trust fund. The Social Security Protection Act,
which I introduced, would automatically reduce nonentitlement spending
of Social Security dollars. Our spending and revenues now are based on
the best estimates we can put together. The question is, Are we really
serious about making sure we don't spend Social Security surplus money,
even by accident?
We should have a protective mechanism in place. So if we estimate we
are going to spend $1.8 trillion and we bring in a billion dollars less
than that, right now, the only option is to go to the trust funds to
make up the difference in spending. My bill would say we don't do that.
We would reduce spending across the board evenly by that amount to make
sure we did not take any money from the Social Security trust fund.
Again, if that is our promise, if we are serious about doing that, we
should not say ``except to'' or make an exception. If we made an
exception for $1 billion, you know there would be exceptions for $50
billion. So we have to be honest in what we are doing. It might only be
.0003 percent; it might be .01 percent. If instead of getting $100 we
would get $99, if that is what we need to do to protect Social Security
funds, I think we should do that. If that is our top priority, we
should live up to that priority.
When I was putting together the six principles of saving Social
Security, I asked, what do we need to do if we are going to at
reforming our securing retirement benefits for the future? First and
foremost, we have to protect current and future beneficiaries. That
means if you are on Social Security today, or plan to retire in the
near future, you should be assured that the Government is not going to
reduce the promises it has made. In other words, you can retire at the
same age the Government says now, and your benefits will be there and
protected, and we are not going to raid your taxes between now and then
in order to do this.
You basically made a contract with the Government when you started
working and you said, all right, I am going to put money into the
system, and I expect to get the benefits when I retire. It is a
contract. You said you were going to do this, and the Government said
you are going to have the
[[Page S1199]]
benefits. Late in the game, when you sit down and plan for retirement,
in Washington they say: We don't have enough money in the budget
anymore. We are going to have to make changes here and raise your
retirement age, or cut your benefits, or maybe we need to raise your
taxes a little more. That is not the fair way to do that.
Allow freedom of choice. If you want to stay with the current system
of Social Security, you have the option to do that. But also if you
want to move into a personal retirement account, be in control of your
retirement and your investments and maximize those dollars, you should
have the freedom of choice to do that. Today, the Government gives you
no choice. Washington knows better. Washington tells you what you have
to do with your retirement. Somehow Washington doesn't believe you are
smart enough to plan for retirement. You might be smart enough to make
the money but not smart enough to put it away for yourself.
Preserve the safety net. That means you have to have a net there for
disability and survivor's benefits. Let's make Americans better off,
not worse off. So when you retire, you are going to have at least the
benefits promised, but even better if we can. My plan does that.
Create a fully funded system. We have proposed personal retirement
accounts in the Private Security and Wealth in Retirement Act. Bottom
line: No tax increases in order to do this. The easiest way is always
to raise taxes. The hardest way is to make real reforms. The Personal
Security and Wealth in Retirement Act provides for personal retirement
accounts. I introduced it in the 105th Congress and last May 24. It is
S. 1103; the Personal Security and Wealth in Retirement Act allows for
personal retirement accounts.
The plan provides for retirement security. I think it offers better
options for you. In other words, right now you have no options. The
Government tells you what you are going to do. They tell you what you
are going to pay in from your check. They tell you what your benefits
are going to be when you retire.
You don't have an option on that. They also tell you at what age you
can retire. They give you more options.
Workers under my plan would pay 10 percent of their income. Right now
they are paying 12.4. That goes to Social Security. My plan would take
10 percent of your income and put it into personal retirement accounts.
The other 2.4 percent we still have to collect.
That is part of the funding mechanism for those who wish to remain on
Social Security. That 2.4 percent, plus other means of financing, is
going to have to go into the current Social Security Administration in
order to fund that. We are going to talk about taking 10 percent of
your money and putting it into a retirement account, or a PRA, that
will be managed by a government-approved private investment company.
Firms will set up these retirement accounts--whether it is U.S.
banks, whether it is Citibank, Travelers, whether it is Lutheran
Brotherhood, whether it is Norwest Bank, or whatever. They would set up
these retirement accounts based on safety and soundness--such as the
FDIC account in which you put your savings accounts in a bank.
There would be very rigid safety and soundness measures to make sure
the money put into this account is going to be there when you retire.
So safety and soundness is first and utmost.
A couple of examples: On $30,000 of income, you are putting $3,720 a
year in to support Social Security. Under my plan you would put $3,000
of that into your personal retirement account, and the rest of it would
then go to the Government.
Just to show you the difference on this, they would be taking $3,720
and putting it into Social Security and then being allowed to take
$3,000 and put it into a personal retirement account based on the
market and what you could then hope to receive at retirement.
Under this example, this is what you would do. If you made $30,000 a
year for a lifetime and went to draw your benefits from Social
Security, you would get about $10,668 a month. But if you could take
that $3,000 and put it into a personal retirement account and get the
average market return, you would have about $54,500 per year in
benefits. Compare 10.6 to 54.5. That is a big difference in what
retirement accounts invested in the market could do compared to pay as
you go.
Let's take a couple of other income examples. This would be for an
average income family which has $42,000 or $43,000 a year in average
income. This is one spouse earning the average income in a household,
one spouse not employed outside the home, a one-worker family. If you
paid in a lifetime the average earnings into Social Security, you could
expect to get about $29,000 a year in benefits. If you would have
invested these same dollars from the personal retirement account into a
private mixed stock and bond market--in other words, more
conservatively and maybe not the highest returns but more conservative
investments--you would get at least $66,000 in return. If you had
invested in the market, you would have a return of nearly $140,000 per
year compared to $30,000 a year in return.
Let's take the same for a two-income, low-income family with both
spouses working with an average low income over their lifetime. They
would get about $18,400 in benefits. But if they could put the dollars
into the personal retirement account and invest it in, say, the market,
they could get over $100,000 a year in benefits, or about $45,000--if
they put it into a mixed type and more conservative investment account.
But, either way, they are still much better off.
The reason Albert Einstein was labeled as ``the man of the century''
by Time magazine was because Albert Einstein at one time said the most
powerful force on Earth is compounded interest.
That is what we are trying to show, because if you are working and
doing a pay-as-you-go system, you are getting $18,500. But if you use
this most powerful force on Earth--compounding interest--you can see
how it would compound. So your benefits would increase fivefold over
your lifetime in order to draw better Social Security benefits.
Is this a pipe dream or is this just speculation or whatever? No.
This is actual. Galveston County, TX, has a personal retirement
account, as does the entire country of Chile, as does about 120 other
countries in the world. Thirty other countries are doing this.
If you had a little history on our Social Security system, it is all
based or duplicated off of one that was started in Germany in 1880.
Bismarck at that time designed the system we have adopted as the model
that Chile had, and many other countries. In fact, in 1880, Bismarck
set the retirement age at 65 years. The average worker in Germany in
1880 was 49.5 years. When we adopted the Social Security system in this
country, we set the retirement age at 65. The average life of a worker
in this country was 59.5 years.
You can see what happened because as we have extended the life line,
as people now enjoy 20-plus years of healthy retirement. The system was
never designed to do that. That is why so many limits are being placed
on it.
Let's look at Galveston County, TX, and how the employees there are
reaping the benefits of a private retirement account instead of Social
Security.
In about 1980, one of the administrators in Galveston County saw the
loophole in the law. At that time, if you were a public employee and
you already had a retirement system, you did not have to join Social
Security. You could remain with your own private retirement account.
By the way, the President's plan to reform Social Security is to make
sure that all those accounts are closed, and everybody would be drawing
from Social Security.
But in Galveston County, they saw this loophole and opted out of
Social Security, although the Government quickly closed that door so
nobody else could. But that is what happened in Galveston County over
the last 20 years.
According to today's schedules, under Social Security a death benefit
is $253.
My father died at the age of 61. For all of the money he paid in over
his lifetime, when he passed away his heirs received $253. That was
all. In Galveston County the minimum death benefit is $75,000.
Disability benefits per month, if you are disabled under Social
Security,
[[Page S1200]]
total about $1,280. In Galveston County, the disability benefits are
$2,750 a month.
Retirement benefits per month: Social Security--again, currently we
are basing this on average income--$1,280 a month would be about the
best you could get out of Social Security. In Galveston County, you are
at nearly $4,800 a month--nearly four times greater in benefits in
Galveston County than if you are on Social Security today.
There was a young woman who wrote an editorial to the Wall Street
Journal about 2 years ago. Her husband passed away suddenly of a heart
attack at 44. She was 42. They had three children. She received the
death benefit, plus the benefits she receives from Social Security and
from her private retirement account, which allows her to maintain her
home. If she had been on Social Security, her family would have been in
poverty with the payments she would have gotten. Today, she can
maintain the home as she did before. In the article, all she could say
was: Thank God for Galveston County and the system they have.
What about moving to this new retirement account? If we move to the
personal retirement account, somebody 45 years old would say: I have
worked now for 40 years. What happened to all that money I paid into
Social Security? What am I going to do? I can't afford to lose that--
although you hear some people say: You can keep everything I have paid
in; let me out of the system.
We have said those are dollars the Government has collected with the
promise of paying you benefits. We know exactly how much we have
collected in Washington from you for Social Security. If it is $20,000,
we would give you a $20,000 recognition bond. That would be deposited
into your private account. Adjusted for inflation and interest over the
years, you could then cash this bond when you are 65, because that is
the way everything is based right now. If it is $30,000, you get a
$30,000 bond. If it is $44,220, we would give you that as a recognition
bond. But it would be one of your options to say: I am going to have
this credited to my account, and then I am going to begin my personal
retirement system.
Again, taking care of today's Social Security recipients means that
if an individual chooses to remain within the current system, the
Government should and will guarantee the benefits--no age increase, no
reduction in benefits, no tax increase, no ifs, ands, or buts. If one
decides to stay within the current system, this is what to expect your
government to do at the minimum, to guarantee your benefits, and not
hear 5 or 20 years from now: I am sorry, we don't have the funds; we
will have to reduce your benefits.
We need to rely on this in order to make sure the system is well.
Preserving the safety net is my plan. The Personal Security and
Wealth in Retirement Act preserves the safety net for disadvantaged
Americans, so that no covered person is forced to live in poverty.
Today, poverty is recognized at about $8,240. My plan says workers
cannot retire with less than 150 percent of poverty. They have to have
income of at least $12,400--that is what workers receive in retirement.
We don't want anybody retiring in poverty. In fact, today about 18 to
20 percent of Americans who retire--mostly women--retire into poverty.
We think we should have at least a safety net. Retirees have to have at
least 150 percent in order to retire so they don't go into poverty.
Funds that manage PRAs are required to buy life and disability
insurance to cover those minimum benefits. As with Social Security
today, they are the safety nets for survivor and disability benefits,
as I showed earlier with Galveston benefits. The Federal Government
will make up the difference for those who fall short of the minimum
benefits.
Perhaps someone has been in and out of the workforce or doesn't have
enough money in that account, or they have had a minimum-wage job all
their life and they cannot come up with the money to buy an annuity to
pay the $12,400 a year. For those individuals, which we believe is a
very small percentage, the Government will, in the only part that is
any kind of entitlement or involvement by the Government at all, fill
that glass full so benefits are paid.
Perhaps a worker only had the dollars to buy an $11,000 benefit plan.
The Government would put in the additional dollars to make sure when
they retire their minimum benefit would be $12,400 a year.
Providing a safety net and soundness: The rules are similar to those
who apply to today's IRAs or 401(k)s and would apply to personal
retirement accounts, as well. As banks operate under very strict rules
of safety and soundness, the same type of rules are applied to the
personal retirement accounts to make sure the money in their account is
going to be there at retirement, don't worry about it.
By the way, workers can't invest their money into a gold mine that
evaporates and then be left with no retirement benefits. Again, this is
the safety net, the Government-sponsored plan, to guarantee retirement
benefits so you are not a ward of the State, you have the wherewithal
to pay your way in retirement.
Now, workers can still have other IRAs, other savings accounts, they
can still have a stock portfolio. Only this narrow area will have the
safety net or the Government set-aside to make sure individuals have a
retirement.
Investment companies that manage PRAs are required to have an
insurance plan to ensure at least a minimum of a 2\1/2\ percent return
on each account. That is not much, but compare that to today's less
than 2 percent and a growing number of less than zero in 20 or 30
years. This maintains at least a floor for the return on your
investment. That also would be written into the law.
Workers decide when to retire and when to withdraw their retirement.
As I said earlier, today workers don't have the choice or the options;
they have to do what the Federal Government says. They cannot retire
until they reach a certain age. Benefits are determined by the Federal
Government. The Government says what each person is going to receive as
a benefit. They have decided over the years what your contributions to
this package has been.
With our retirement plan, when one can buy an annuity to provide
income of 150 percent of poverty, anyone can retire anytime once that
obligation is met. Once you have met the obligation to be able to buy
an annuity that pays at least 150 percent of poverty, anyone can
retire, or stop paying into the system and use that 10 percent of
income to do what you want, use it for other investments, or spend it.
Once an individual has met the threshold, they do not become a ward of
a State. Anyone can arrange regular, periodic withdrawals of money in
the account.
An individual 21 today making an average income--about $42,000 a year
today--their whole life, tucking away those dollars, would have about
$1.5 million in a bank account when they decided to retire. Annuities
cost about $100,000 per $1,000 a month of annuity. If one buys an
annuity to pay $1,300, one needs $130,000 in order to buy that annuity
today. That leaves $1.27 million left in the bank account, in the
savings account. You can do whatever you want with that. You can take
out periodic withdrawals; you can take a trip to Europe, and write a
check to do it. This is your money, not the Government's money.
An individual can withdraw the portion of the PRA that is above the
minimum retirement benefits, free of income taxes and earning tests.
All of these dollars placed into the retirement accounts are taxed
before we put them in, as they are today.
I don't know if many realize this, but the Government taxes everyone
on the Social Security moneys that taxpayers put into the Social
Security system today. It is taxed before the Government takes it out
of their check. We do the same. The Government today, when an
individual withdraws Social Security, much of that is exposed to
additional Federal taxes, and it could be exposed to even more taxes as
part of an estate. We are saying, once you have it in the account, it
is your money tax free.
More choices for families with PRAs. In divorce cases, they are
treated as community property. Upon death, PRA benefits go to the
heirs, without estate taxes. There are no taxes. If you pass away with
$1.2 million in your account, that goes to your heirs when you die, not
like when my father passed away.
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There was nothing after a lifetime of investment into Social Security
except a $253 death benefit.
Under this plan, all the money remaining in the account goes to
heirs--your children, your spouse, your church, wherever desired. That
is what happens: Build up an estate that can be passed on to the next
generation.
Workers may arrange PRAs for nonworking children, with workers able
to put up to 20 percent of their income. We say now a minimum of 10
percent, with an option of up to 20 percent can be put into their own
account.
If one wants to retire at 55, put more money in to make sure you have
enough to buy this minimum retirement benefit. Do it quicker and retire
earlier. Do what you want, or put it into the account for nonworking
children. A parent with five children could put 10 percent aside for
himself and 2 percent in each child's account. This gives your children
a headstart on retirement benefits.
To demonstrate how this money mounts up, by placing $1,000 into an
average account when a child is born, by the time that child reaches
65, that $1,000 would be worth nearly $250,000 with just that one
investment into the retirement account. For grandparents, that is a
good gift for grandchildren. That shows how it can grow. Additional
accounts for children give a real leg up on their retirement benefits
in the future.
No new taxes. Bottom line, we say we do not want to raise taxes.
There are things we need to do to finance this transition. As I said,
there is $20 trillion in unfunded liabilities out there. Somebody has
to pay that. We have made the commitment to them. The question is, How
do we do that over the next 70 years so we do not put a tremendous
strain on any one generation? As I said, in the next 25 or 30 years
alone, we could put a strain on our children or grandchildren of up to
a 70-percent tax rate in order to support the system if we don't make
some changes now.
Again, what this all means, the bottom line, is retirement income
will be there for all, whether one decides to stay within the current
Social Security system--that is a choice, if that is what you want to
do--or whether one chooses to build a personal retirement account.
Again, there is a choice. Individuals don't have to do what Washington
says; you can have a choice in what you want to do. Citizens can decide
which retirement options work for them.
How do you want to do this? When the dollars are taken from your
check, as they are today, deducted from Social Security, when the
dollars are taken from you, you dedicate where you want the dollars to
be sent, which retirement fund is going to handle your dollars--whether
it be Citibank, Lutheran Brotherhood, Norwest, or whatever it might be.
You decide where the dollars go. It goes into your account.
Also, you can tell that account holder: I want 65 percent in the
market; I want 35 percent in Government bonds and securities. You can
do that. Each individual has control over how the investments are
handled.
Any person visiting the country of Chile, just ride in a taxicab and
ask the cabdriver: How much do you have in your retirement account? He
will pull out a retirement account passbook and state to the penny how
much he has in the retirement account. That is his money.
They do not have their hands on it anymore. This takes Social
Security out of the control of Washington and it puts it into the
people's control. They make the decisions of what to do and how to
build their retirement.
Everybody is different. Families are different. Everybody's hopes and
expectations are different. Right now, Washington gives us that cookie-
cutter, one system, and that is it. Our plan gives all the options so
the American people can provide and create a retirement system they
want.
With a PRA, an average Minnesotan could receive at least three times
their current projected Social Security income, at least, and some of
the projections go as high as 5, 6, maybe even 10 percent.
The bottom line is, the system is under tremendous strain and we are
going to have to do something to protect retirement benefits in this
country. The question is, What type of retirement system do we want to
leave our children and our grandchildren?
Again, there are going to be those out there and some on the campaign
trail today for President who are going to be talking about maintaining
the status quo. In other words, let's put a Band-Aid over this cancer,
let's raise taxes a little bit, and we will get by for a while. When
that Band-Aid is pulled off, that cancer is going to be even worse than
it is today.
We have an opportunity today to make a decision that is going to be
better for retirement; in other words, it is going to cost less and
there will be less pain in the transition. The longer we wait, it is
going to be harder and more costly to make any kind of decision. We
need to do this soon.
Are we going to get it done this year? No, there is not enough time
this year to do it. It should be on the front burner when we come back
in the 107th Congress in 2001, with a new President and the next
Congress. It should be one of the first items we should look at: How
are we going to save and support future retirement for our kids and
grandchildren in the future.
I am 52 years old today, but I have very few options. I might be
stuck with the plan we have today because by the time we implement it,
I will be 55, 56 years old. At that time, will I have the option to
move into personal retirement accounts? Maybe not.
We have to give our children and grandchildren at least the option to
provide a better retirement for themselves than what we have today. For
many people on retirement, if they are getting $800 a month and they
think that is great, maybe that is what they want their grandchildren
to have. But if they have retirement benefits three or four times that,
I think that is an option to give our children and grandchildren.
I hope to talk about this again in the near future.
I yield back the remainder of my time and suggest the absence of a
quorum.
The PRESIDING OFFICER. The clerk will call the roll.
The bill clerk proceeded to call the roll.
Mr. BROWNBACK. Mr. President, I ask unanimous consent that the order
for the quorum call be rescinded.
The PRESIDING OFFICER. Without objection, it is so ordered.
Under the previous order, the Senator from Kansas is recognized to
speak for up to 30 minutes.
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