[Congressional Record Volume 146, Number 59 (Monday, May 15, 2000)]
[Senate]
[Pages S3938-S3940]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                            SOCIAL SECURITY

  Mr. GREGG. Mr. President, today Gov. George W. Bush set forth some 
ideas addressing the issue of Social Security. It is my understanding 
that the Vice President is also going to discuss this issue today, 
although he has, before today, made a number of comments in this area.
  I have spent a considerable amount of my time over the last 7 years I 
have served in the Senate working on the issue of Social Security, 
working on it in a bipartisan manner, trying to develop a coalition in 
this Senate to move toward resolution of what I consider to be one of 
the most significant public policy matters we have confronting us.
  Let me define the problem so we understand what we are working with 
and what the concerns are. Today, the Social Security system is running 
a very aggressive surplus. In other words, it is taking in more money 
than it is paying out. The Social Security system is on a dollar in/
dollar out basis. In other words, there is no asset value that is 
placed somewhere. There are not a set of dollars saved to pay your 
Social Security benefit. The dollar raised today pays the benefit that 
is incurred today. The younger worker who is paying Social Security 
taxes today is paying for the older worker who is retired today.
  We have the baby boom generation working today at its maximum earning 
capacity, and because we have a larger younger generation than the 
generation that is retired, we are now running a surplus. In other 
words, more money is being taken in to pay for the benefits than is 
being spent on the benefits. That extra money is being borrowed by the 
Federal Government. It is being used basically to operate the day-to-
day activities of the Federal Government. In exchange for that, a note 
is given back to the Social Security trust fund.

  Alternatively, the money is being used to buy down the debt of the 
Federal Government--the public debt in many instances--and that money 
is then basically returned to the marketplace in the form of proceeds 
going into the capital markets because we no longer have the Federal 
Government borrowing those moneys from the capital markets but, rather, 
the money is no longer needed by the Federal Government and, therefore, 
the capital markets are free to create more activity for a stronger 
capital market.
  The problem is, the baby boom generation today is generating the huge 
surplus in Social Security funds and is going to start retiring in the 
year 2008. When that generation starts to retire, the demographics of 
the situation change radically. The Social Security system was always 
perceived as a pyramid. It was always believed there would be a larger 
working generation than the retired generation. The retired generation 
at the top of the pyramid would be smaller and the working generation 
at the bottom of the pyramid would be larger.
  Because the postwar baby boom generation is so large, it is that 
unique generation that has changed this country in every decade and 
forced the country to build all sorts of elementary schools in the 
1950s and created the disruption to a large degree in the 1960s. It has 
gone through the pipeline and has changed the system in every 
generational phase. When that generation retires, we go from a pyramid 
to almost a rectangle. Instead of having 3.5 people working for every 
one person retired by the year 2015, we only have two people working 
for every one person retired. The system comes under a huge strain. The 
benefits don't change--or there is no plan to change them--and 
therefore all the folks who are retired have to be supported by a 
younger generation, which is a smaller generation, but they have to 
support them again with the tax dollars earned by that generation.
  As we look into the future--and we don't have to look very far; it 
begins in 2008--we see as we head into the second decade of this new 
century, the next generation, our children and their children are going 
to be subjected to a huge cost, a huge tax increase, in order to 
support the retirement of the baby boom generation. This escalates 
rather dramatically through the year 2045.
  There are Members who think something should be done, that we should 
not pass this huge burden on to the next generation; that we, as a baby 
boom generation, have an obligation to get ourselves and our Nation 
ready for the retirement of our generation.
  As I said, we worked across the aisle for the last few years to try 
to develop policies to address this problem. Dramatic progress has been 
made. There are at least four or five major initiatives in this Senate 
today which legitimately address the issue of making the Social 
Security system solvent for 100 years. One of them happens to be one 
which I worked on with Senator Breaux, Senator Kerrey, Senator 
Thompson, Senator Thomas, Senator Grassley, and Senator Robb. It is 
bipartisan and crosses philosophical spectrums.
  Our proposal, as scored by the Congressional Budget Office and by the 
Social Security actuaries, makes the system solvent for the next 100 
years. It does it without any tax increase of any significance.
  In order to accomplish this type of a change, we have to have 
comprehensive reform. We cannot do it piecemeal; we have to do the 
whole system. We can't just simply pick out one point in the system and 
try to change that and expect to address the system so it becomes 
solvent, so we do not put a huge burden onto our children's backs in 
new taxes, or additional tax increases.

  We have tried to draw into this debate, to get this process moving, 
the White House and the President, but we have had singularly little 
luck in doing that. Regrettably, although this administration has 
occasionally talked about Social Security reform, and the President in 
his State of the Union even said this would be one of his primary goals 
in his waning years in office, it has done virtually nothing and, in 
fact, has put out proposals that would dramatically cause the situation 
to deteriorate, especially for the younger generation, in the form of 
major tax increases.
  Today, Governor Bush has put forth a proposal. Regrettably, the 
response by Vice President Gore, up until today--and I suspect he will 
not change his tune today--and the response of the White House, has 
been to essentially take the old time school approach of attacking it 
in the most demagogic terms, saying the proposal is going to end Social 
Security; it is going to put at risk recipients who are presently 
benefiting from Social Security, and that it is a proposal which 
undermines this critical national program of Social Security.
  The Vice President has used terms such as ``risky'' to describe it. 
He has used terms such as ``inappropriate.'' He has used terms--
``smug,'' I think is one term, and other terms which try to demonize 
the proposal in a way that is

[[Page S3939]]

not constructive. So let's look at the proposal because I think it is 
important to think about this. What Governor Bush has suggested is 
this.
  First, we recognize anybody who is on the Social Security system 
today, or about to go on the Social Security system soon, should have 
their benefits locked in place and the structure of the system 
maintained exactly as they receive it; there should not be any change 
at all for those folks. So any senior citizen today or anybody who is 
about to go on the system, anybody 55 years or older, I believe, has no 
concern here. Essentially the proposal says you will be held harmless. 
Nothing is going to impact your way of life as it relates to Social 
Security. Yet it is very obvious the Vice President is trying to scare 
senior citizens and is saying the proposals coming from Governor Bush 
will in some way affect their benefit structure when Governor Bush is 
saying specifically it will not.
  Second, Governor Bush suggested we set up a bipartisan commission to 
take a look at this, a proposal that has been put forth by Senator 
Moynihan and Senator Kerrey and Senator McCain, I think. It is not a 
bad idea because this needs to be done in a bipartisan way, and we have 
worked very hard on the bipartisan process in this Senate, so that 
makes sense.
  Third, the Governor suggested we take a look at what is known as 
personal savings accounts. This is an idea whose time has come, in my 
opinion. Why? First, let's talk about what personal savings accounts 
are in the context of Social Security reform.
  There are three ways you can address Social Security and make it 
solvent, only three ways. One, you can raise taxes. That is the 
Clinton-Gore proposal. In fact, under the Gore-Clinton proposal, there 
will have to be a tax increase each year going forward on working 
Americans in order to support retired Americans. That goes up and goes 
up, I think, until it is $1 trillion around 2035. That is their 
proposal: Raise taxes on Americans in the outyears. Just do not tell 
Americans that is what is going to happen to them.

  The way they do not tell you is they say we are going to use the 
interest on the Social Security to pay down the debt, which is 
occurring today because we are returning a surplus; we are going to use 
that interest to extend the life of the trust fund. That is a paper 
game, the bottom line of which is a tax increase that hits $1 trillion 
by the year 2035. Why is that?
  Just to make an aside for the moment, so people understand what the 
Vice President is proposing: There are no assets in the Social Security 
trust fund other than Government bonds. What do Government bonds do? 
Government bonds are a claim on the taxpayers of America to be paid. It 
is an IOU from the taxpayers to the trust fund. It says we, the 
taxpayers of America, owe you this money. When you need this money, 
when that baby boom generation retires, then we, the taxpayers, of 
America will pay it.
  Who is ``we''? We are the younger generation. The ``we'' in that 
sentence is my children and their children, your children and 
grandchildren who will be working then. They will get stuck with the 
IOUs that Vice President Gore wants to stick them with, with his little 
gamesmanship of transferring interest, which is purely a paper 
transaction, creating absolutely no assets in the trust fund. All it 
does is create an IOU which has to be paid by the younger generation. 
These kids sitting right here as pages are going to pay that IOU.
  It means their taxes on Social Security will not be 12 percent of 
their payroll; it will be somewhere in the vicinity of 18 percent of 
their payroll. As I said, it will amount to about a $1 trillion tax 
increase on working Americans by the year 2035. That is the Vice 
President's proposal: Raise taxes but do not tell anybody it is coming. 
Use this little euphemism: We are going to transfer the savings on 
interest over to the trust fund, which means we are going to create a 
massive tax burden on the next generation in the outyears in order to 
pay for the benefits of this generation of which I am part, the baby 
boom generation. But do not tell anybody about that. Just use the term, 
``We are going to transfer the savings from interest.'' ``We are going 
to transfer the savings from interest on Social Security'' sounds 
good--do that by paying down the Social Security funds, and that 
savings means we will extend the life of the trust fund.
  That means nothing. It simply means we are going to end up increasing 
taxes and having more IOUs our younger generation has to pay. So that 
is the first way you can do it; you can raise taxes--the Vice 
President's proposal.
  The second way you can address the issue is to reduce benefits. There 
is not much incentive for reducing benefits in our society. People do 
not like that idea in a democracy. In fact, the Vice President not only 
is not going to reduce benefits; he is already suggesting we increase 
benefits. The only specific proposals he has made on Social Security is 
we raise benefits in two different accounts. It happens to be both 
those proposals to raise benefits make some sense, but they have to be 
done in the context of the entire structure. There has to be some 
tradeoff. If you are going to raise those benefits, there has to be 
some adjustment in the other benefit side or else you significantly 
increase the liability to the trust fund, which means once again you 
raise the taxes on the next generation to pay for those benefits, that 
younger generation. So he has raised benefits. That is not the way to 
solve it.

  The third way he can address it--remember, you can address it by 
raising taxes on the younger generation that is earning the benefits 
for the older generation that is receiving the benefits, or the third 
way is you can prefund the liability. That is what personal savings 
accounts do, prefund the liability. By prefunding the liability, we 
mean you actually create an asset which is owned, actually physically 
owned by the person who is going to retire, which is not a debt 
instrument of the Federal Government. It is not an IOU that has to be 
paid for out of taxes, necessarily. It can be stocks or bonds--some of 
the bonds could be U.S. Government bonds--but it would be an asset 
owned by the individual. What does that do?
  Today, if you are in the Social Security system and you happen to 
die, unfortunately, before you reach retirement age--say you die and 
you are 59 years old and you do not have a spouse or any children. 
Everything you paid into the Social Security system is lost. You paid 
in for years and years and years and your estate does not get anything 
from it. It is gone; it just dissipates into the system. Somebody else 
benefits from all those taxes you paid. You have no asset value.
  Even if you have a spouse and you die before you retire at 62 or 65, 
or even if you die soon after that, the benefits that spouse gets as a 
result of your death, as a result of your Social Security payment, is 
really minimal--very, very small--compared to the amount of taxes you 
actually paid in to Social Security. So there is nothing physically 
there that you own. You have an obligation from the Federal Government 
to support you at a certain level after you retire, but you have no 
asset value.
  What a personal account does is it allows you to take a small portion 
of the taxes you are paying in to Social Security--and it is a very 
small portion. Under the plan that we have, it is 2 percent. Of the 
12.4 percent of taxes you presently pay in Social Security, you would 
get to put 2 percent of those taxes into some sort of savings vehicle 
which you would own. You would physically own it. It might be stocks; 
it might be bonds, but you would physically own it. It could not be 
placed in those vehicles and then be speculated with; it would follow 
the course of what we call the thrift savings vehicle. That vehicle 
would require the Social Security trustees to basically set up the 
investment vehicles in which you could invest.
  One would be limited in how one could invest that money. They could 
not speculate with it. They would have to put it into basically large 
mutual funds which would be approved by and would be under the 
fiduciary control of the Social Security trustees.
  Mr. President, I note it is 3 o'clock. I ask unanimous consent to 
proceed for another 4 minutes.
  Mr. BURNS. I have no objection.
  The PRESIDING OFFICER. Without objection, it is so ordered. The 
Senator is recognized.
  Mr. GREGG. Mr. President, a person would have this asset called a 
personal account which they would have to invest in three, four, five, 
or six different

[[Page S3940]]

funds set up under the auspices of the Social Security Administration. 
The asset would be owned by that person. If they were to die at 45 or 
59 or even 66, their estate would receive the asset held in that 
account and it would go to their wife, husband, children, or to 
whomever they wanted it to go.
  Equally important, the rate of return on personal accounts would 
dramatically exceed what one gets under the Social Security system 
today. A person who is today beginning in the workplace, who is about 
22 or 25 years old, is going to pay more, if they are an African 
American, into the trust funds than they will ever receive from the 
trust funds. In other words, they get zero rate of return.
  If one happens to be a typical, average American, their rate of 
return in the Social Security trust funds, if they are in their 
twenties today, is about 1.4 percent. If they are in their thirties, it 
might get up to 2 percent. If they are in their forties, it might reach 
2.5 percent--might. It is a terrible rate of return under the Social 
Security system. People are paying all these taxes and getting 
virtually nothing in return.
  Under a personal account--remember, it is only a small percentage of 
one's Social Security tax which is going to be invested in this 
personal account--one will own the asset; plus, the average rate of 
return over any 20-year period, including the Depression, of investment 
in the stock market exceeds 5 percent. Since I am talking about a 20-
year period, not a 4-month period or a 5-month period or a 1-year 
period or 3-year period, one can be pretty sure the rate of return on 
the personal account is going to be at least twice the rate of return 
on the taxes that person is paying into the Social Security fund 
generally.
  That is called prefunding liability. In other words, we are going to 
give a person the opportunity as a citizen, especially a younger 
citizen--people over 55 are not going to be affected by this at all--to 
actually own an asset and have that asset grow at a rate that is at 
least twice the rate of their investment in Social Security. Then when 
they retire, that asset will be physically there to benefit them in 
their retirement. The liability that is owed to that person by the 
Federal Government will have actually been prefunded. There are many 
ways we can talk about that, but it gets into some complexities I do 
not have time for now.
  Essentially, what it means is that the younger generation, instead of 
having to pay a huge tax increase to support retirement, is going to 
actually be creating assets which give them, when they retire, a rate 
of return which will be significantly or at least as good as what they 
would get under Social Security without having to pay all these new 
taxes. It is a way of keeping the system solvent and, at the same time, 
maintaining a benefit structure that is reasonable and, at the same 
time, not dramatically increasing taxes.

  What we have is a pretty simple debate, in real terms, between the 
Vice President and Governor Bush. The Vice President does not want to 
tell people the younger generation is going to get hit with a huge 
burden of new taxes under his plan, and he does not want to tell us how 
he is going to address the Social Security system and reform it in the 
outyears. Governor Bush, on the other hand, is willing to step forward 
and put some interesting and innovative ideas on the table to address 
one of the most critical issues that will face our country over the 
next 30 or 40 years.
  The PRESIDING OFFICER. The Senator's time has expired.
  Mr. GREGG. Mr. President, I appreciate the courtesy of the Senator 
from Montana. I yield the floor.

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