[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
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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
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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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