[Congressional Record Volume 146, Number 66 (Wednesday, May 24, 2000)]
[House]
[Pages H3754-H3756]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
FEARS OVER CHANGES IN SOCIAL SECURITY SYSTEM PROPOSED BY GOVERNOR BUSH
OF TEXAS
The SPEAKER pro tempore (Mr. King). Under the Speaker's announced
policy of January 6, 1999, the gentleman from New Jersey (Mr. Pallone)
is recognized for 60 minutes as the designee of the minority leader.
Mr. PALLONE. Mr. Speaker, I do not intend to use the entire hour this
evening, but I want to take what time I have to discuss my fears, and I
stress fears, this evening over the changes in the Social Security
system that have been proposed by Governor Bush of Texas.
Mr. Speaker, Social Security has lifted millions of seniors out of
poverty. It is, by far, the most successful economic program ever
passed by Congress, and the reasons for the success are simple. It
offers a guaranteed, and I stress guaranteed, benefit for every
American retiree. More than half of all Americans, especially working
families, have no retirement savings beyond Social Security.
Without the guaranteed income provided by Social Security, millions
of seniors could fall through the cracks left to live out their lives
in poverty. Recently, Governor George Bush proposed a Social Security
plan that would undermine Social Security, in my opinion, and
simultaneously threaten our thriving economy.
By diverting funds from the Social Security Trust Fund to set up
individual retirement accounts, as Bush proposed, the plan would hasten
the insolvency of the Social Security Trust Fund. It would also force
seniors to question rather than count on their Social Security
benefits.
Now, Governor Bush has also proposed a tax cut that would cost an
estimated $1.7 trillion. When combined with the cost of his individual
retirement accounts that he has mentioned with regard to Social
Security, Governor Bush's plan would spend more than three times the
projected surplus over the next 10 years. That money would come
directly out of the Social Security Trust Fund, weakening the program
even further and leaving little room in the budget for other priorities
like a prescription drug benefit for Medicare.
No plan that would endanger the guarantees of Social Security, rob
the trust fund, and leave other priorities unfunded can possibly be
taken seriously, and that is why I refer to the Bush plan as extremely
radical. Democrats have pretty much said that we are going to fight
this dangerous ill-conceived proposal, and I think we need to fight it
every step of the way.
Mr. Speaker, I want to discuss three of my concerns about the Bush
Social Security plan in a little more detail this evening. First of
all, I would like to express my concern that ultimately Governor Bush's
plan would lead to complete privatization of Social Security. Right now
the governor is saying only 2 percent of the money would be invested by
individuals in retirement accounts.
But in an Associated Press story on May 17, just a week or so ago,
Governor Bush said it was possible workers would eventually be allowed
to invest their entire Social Security tax, not just a portion of it.
The Houston Chronicle reported on the same day, and I quote, ``Bush
on Tuesday said his plan to create private savings accounts could be
the first step toward a complete privatization of Social Security.''
And I want to stress this: the Social Security program was began
under Franklin Roosevelt. The Republican leadership for many years
totally opposed it being started, and I think that this is part of a
historical trend essentially that what Governor Bush is saying, I do
not like a government program, Social Security is a government program.
Ultimately, I think it is best if it is privatized completely.
The second concern I have is this question of whether or not there
will be a guaranteed income, because that is what Social Security is
about to most seniors. They know that when they retire they will have a
guaranteed income every month, and a certain amount over the course of
the year.
Well, when asked on May 15 whether or not there would be a guaranteed
income, basically Governor Bush said this, and this is from the Dallas
Morning News of May 15, ``maybe or maybe not.'' Asked whether he
envisions a system in which future beneficiaries would receive no less
than they would have under the current system, Mr. Bush said ``maybe,
maybe not.''
Well, what he was essentially admitting was that it was conceivable
that a worker taking advantage of these private investment accounts
would get a lower guaranteed benefit from Social Security, and we know
that that obviously is the case, because it would depend how that
worker invested the money since it is an individual decision.
The New York Times reported on May 17, and I quote, ``Bush also
refused to say how much benefits might be reduced for workers who
created private investment accounts. That is all up for discussion,''
Mr. Bush said.
When I say that this is a radical proposal, it is radical because
most Americans think that they are going to have a certain guaranteed
income from their Social Security. It is clear that with the private
investment accounts and the further privatization that Governor Bush
has been talking about, there is no guaranteed income.
The third major concern that I have and would like to focus on in a
little more detail this evening is what I call the transition costs,
the trillion dollars in transition costs that might not be accounted
for or that Bush is really not accounting for. Bush acknowledged in
this same Associated Press story that I mentioned on May 17 that he has
not fully accounted for the cost of moving from the current Social
Security system to his proposed one.
Now, Vice President Al Gore says that the cost of that transition
could be something like $900 billion, almost $1 trillion. The plan laid
out by Governor Bush leaves out the most important factor, and that is
the cost. According to a new report published by the Center for Budget
and Policy Priorities, Bush's privatization plan would cost $900
billion over the first 10 years. These costs occur because the Social
Security system must simultaneously pay out current benefits while
privatization drains over 16 percent of the amount of money coming into
the system. That is assuming the 2 percent point diversion that Bush
has talked about. If we combine this with the cost of Bush's nearly $2
trillion tax cut, the Bush plan will leave multitrillion dollar debts
as far as the eye can see. This is basically from the Center for Budget
and Policy Priorities.
I want to talk a little further about some of the other impacts that
Governor Bush's privatization plan with regard to Social Security would
have. Here I would like to raise three issues, three impacts, if you
will, from this Bush Social Security privatization plan.
First, it would weaken our economy by eliminating our chance to pay
down the debt, which we have started to do ever since the surplus
occurred. Second, it would place at risk the secure retirement benefit
that Social Security provides. Third, and this is something that I
think a lot of people have not
[[Page H3755]]
thought about but we have to think about, the Bush Social Security
privatization plan would force a massive S&L, savings and loan-style
bailout if people's investments failed.
Let me talk, Mr. Speaker, in a little more detail about these three
impacts from this privatization plan.
First, let me go back to the fact that the Bush plan will eliminate
the chance to pay down the debt. This goes back to this $1 trillion in
transition cost that I mentioned before. According to the Center for
Budget and Policy Priorities, Bush's privatization plan would cost the
$900 billion I mentioned over 10 years. The reason these costs occur is
because the Social Security system has to pay out the current benefits,
as I mentioned, while the privatization drains this other 16 percent.
But the bottom line is that Bush's own aides acknowledge that these
transition costs would siphon away the money that could be used to pay
down the debt. Less debt reduction would translate into higher interest
payments on the debt over the same 10-year period, which in turn would
reduce the budget surplus.
If I could talk about this in a little more detail, I would like to
contrast it with what Vice President Gore not only has proposed but
what he is doing. Under Mr. Gore's plan, all of the Social Security
surplus will go to reducing the national debt held by the public. Some
of this is already happening. Some of the debt is actually being paid
down now. What Gore is saying, that he would take all of the Social
Security surplus and use it essentially to reduce the national debt.
There would not be that opportunity with Bush's plan. The money simply
would not be there to exercise that option.
As I said, not only Vice President Gore but President Clinton and the
administration's deficit and debt reduction that they have already done
has already helped the economy and families. Seven years ago, the
budget deficit was nearly $300 billion and growing; and as a result,
interest rates were high and growth was slow. By the year 2012, it was
projected that 25 cents on every tax dollar would be needed to pay
interest on the debt. Because of this administration, the Clinton-Gore
administration's commitment to fiscal discipline, deficits have turned
into surpluses and the Nation's debt is already $1.7 trillion lower
than it was projected to be this year. Because of the deficit and debt
reduction that the Clinton administration has already done, it is
estimated the typical family with a home mortgage might be expected to
save roughly $2,000 per year in mortgage payments.
Currently, about 13 cents on every Federal dollar is spent on net
interest payments. These payments which were once projected to be
nearly double that would be eliminated under Al Gore's plan. With the
Government no longer draining resources from capital markets, interest
rates are lower and businesses have more funds for productive
investment. Paying off the debt will continue to help fuel investment
and productivity growth.
What I am trying to say, Mr. Speaker, is essentially this. Let us
continue the policy of paying down the debt because ultimately that
makes the economy grow and it saves money that would be available in
the long run for Social Security. Let us not go down this risky,
radical plan that Governor Bush has proposed where on the one hand he
is spending trillions of dollars on tax cuts and on the other hand his
transition costs to this privatization plan would use up a significant
portion of the surplus as well.
I talked about why my fear about how Bush's privatization plan places
retirement funds at risk, but I would like to talk about that a little
more in terms of the second point here on potential impacts of this
risky Bush plan. For whatever reason, I guess it is because the stock
market has done so well in the last 5, 10 years now that people do not
even remember that there was a time when it was not doing that well.
But the bottom line is that if you have privatization the way Governor
Bush proposes, it puts individual retirement security at the whims of
the stock market where people can lose.
Throughout its history, Social Security has stood as a guaranteed
secure retirement regardless of the fluctuations of the economy or the
stock market. Investing these funds in the market means that some or
all of that benefit could be lost. There was a GAO report that shows
the risk of stock market investments with Social Security. This is from
a statement by the associate director of income security issues for the
GAO, April 22, 1998.
The GAO report noted that caution is warranted in counting on future
stock returns in designing Social Security reform. The report goes on.
However, an average over nearly a century obscures the reality that
stock returns fluctuate substantially from year to year. Over the past
70 years or so, stock market returns were negative in nearly 1 out of 4
years. There is no guarantee that investing in the stock market even
over 2 or 3 decades will yield the long-term average return. The stock
market could drop and stay depressed for a prolonged period of time. Of
course it has. We know that historically it has stayed depressed for a
long period of time.
{time} 1900
Interestingly enough, in this same GAO report they point out that the
Social Security Trust Fund actually outperformed nominal stock returns
35 percent of the time from 1950 to 1996, over a period of 45 or so
years. The 10-year moving average of the S&P 500 underperformed the
Social Security Trust Fund's treasury returns at times. A long-term
average does not reflect fluctuations in year-to-year stock returns. In
fact, nominal stock returns were less than the Social Security Trust
Fund's annual yield in 17 years from 1950 to 1996, more than 35 percent
of the time, from that same GAO report.
Sometimes I wonder why it is necessary to explain why the stock
market is a risky business, because I would think that anybody who
looks at the history of the market knows that that is the case, but I
guess because the market has done so well in the last few years and the
last decade there are people, particularly young people, who feel that
it will always do well. But that is simply not true. It is not borne
out by the historical facts.
Let me mention the third impact that I would like to discuss in a
little more detail this evening, and that is that privatization could
result in massive government bailouts. The reason for that is simple,
that if the people who take these private investment accounts do not
succeed and actually lose money or the stock market goes bad, they are
going to come back to the Government and ask the Government to bail
them out, because everybody does that, the big corporations do, the
savings & loan associations did, and obviously the average person is
going to do that if they lose all their money and they cannot make ends
meet.
Bush and his advisers have indicated that his privatization plan for
Social Security will have no downside risk and the Government will
guarantee that future Social Security beneficiaries will receive no
less than they would have under the current system. Thus, the risky
nature of the stock market could force the Government to bail out
Social Security during market downturns or for people who make poor
investment choices.
The Governor is saying, Don't worry. If you do these investments with
your private accounts, don't worry, because we will make it good if you
don't do well. How is he going to do that without a massive bailout,
and where is the money going to come from? Ultimately the taxpayers. We
would have a major problem.
The other thing is that obviously privatization could make Social
Security go insolvent a lot earlier. Plans to divert 2 percentage
points of the payroll tax, or 16 percent of the money paid into the
Social Security system, into private accounts, could make Social
Security go insolvent 14 years sooner than it would if no action were
taken at all. Under a 2 percentage point plan, Social Security could go
bankrupt by 2023, according to a study again from the Center for Budget
and Policy Priorities.
Well, that is common sense. If this money is taken out of the system,
then this system will go broke sooner; and that is, again, why it makes
no sense to move with this very risky Bush privatization plan.
Now, I want to talk a little bit, if I could, about what Vice
President Gore
[[Page H3756]]
has proposed and why his plan to shore up Social Security is much
preferable to Governor Bush's, and certainly not risky, by any means.
Because of the administration's commitment to fiscal discipline, as I
have mentioned, the Nation's debt is already $1.7 trillion lower than
it was projected to be this year. In fact, when the administration took
office, by the year 2012 it was projected that 25 cents of every dollar
would go to pay the interest on the national debt. That has not
happened, because we are now paying down the national debt with the
surplus that has been generated.
Vice President Gore is basically saying that he is going to pay off
the national debt and help maintain America's prosperity in a number of
ways. But what I want to zero in on is how he would dedicate $2.1
trillion for debt reduction, and this is basically to prepare the
Nation for the retiring of the baby-boomers.
He is proposing to use more than 95 percent of the Social Security
surplus to pay down the debt, with the idea being, of course, that
ultimately that will strengthen the economy and prepare for the fact
that so many more senior citizens are going to be retiring as part of
this baby-boom generation.
After a decade of debt reduction, Gore transfers the interest savings
that come from using the Social Security surplus to buy down the debt
to strengthen the solvency of the Social Security program. By 2016,
Gore will be adding about $250 billion annually to strengthen Social
Security until at least 2050.
He is investing $103 billion, less than 5 percent of the surplus, in
strengthening Social Security's benefits for older women, because, as
we know, poverty among elderly women is a major national challenge. In
1997, poverty among elderly widows was 1 percent, compared to 5 percent
for married women. Gore believes that we can and should strengthen
benefits for widows and mothers that were penalized for years spent
caring for children as part of the plan to extend the solvency of
Social Security.
Now, I could talk in more detail about how the Vice President's plan
helps older women, but I just want to mention two things, if I could,
about that before I conclude this evening. One point is to eliminate
the motherhood penalty. The current Social Security formula is based on
average earnings over 35 years of work. Because women take several
years raising their children, the typical woman only works 27 years.
However, those years raising children do not count towards Social
Security earnings, effectively creating this motherhood penalty. Gore
says that he would eliminate the motherhood penalty by allowing parents
to take credit for up to 5 years of earnings, if they take that time to
raise children. This would increase Social Security benefits for those
women by about $600 a year.
The second thing that Gore would do to strengthen benefits for women,
under current law widows can have their combined benefits cut in half.
Living costs such as rent and utilities often do not decrease with the
death of a spouse, but then there is a cut in benefits to that widow.
In fact, single elderly women are four times as likely to be poor as
married women. Gore would fight to raise the widow's benefit to three-
quarters of the couple's combined benefit, helping more than 3 million
elderly women receive a benefit that reflects their cost of living.
I am not going to go in more detail tonight, but I know over the next
few weeks, and certainly after the Memorial Day recess, you are going
to see myself and other Democrats come to the floor and constantly talk
about our concerns with regard to the Bush privatization Social
Security plan, because I really believe it is a radical plan, and I do
not think the average American or senior understands what it is all
about.
This plan, and this is how I want to conclude this evening, the
greatest fault in it is the numbers simply do not add up. I think this
goes back, again, to the fact that he has this $1 trillion tax cut, and
then he is taking all this money out of the Social Security system.
If you take the money out of the surplus for tax cuts, and then you
put in effect this risky Social Security plan, it just has too much of
a drain on the Federal budget. Taken together, the tax cut and Bush's
privatization plan essentially would swallow the whole surplus for the
next 10 years, and also use a significant portion of the surplus that
is dedicated to Social Security.
The combination of those two large $1 trillion plans and the impact
that they would have on the budget would basically not leave any room
for other vital priorities. I think, Mr. Speaker, you know that both
the Democrats and the Republicans have talked about a Medicare drug
benefit. There is no way that there would be any money left in this
surplus to pay for a Medicare drug benefit for seniors if we
implemented the Bush plan. The money would simply not be there. It just
does not add up.
That is not to mention other priorities. Governor Bush has talked
about education. Where is the money going to come from to pay for our
education priorities, such as money that goes back to the
municipalities to pay for extra teachers to bring class size down, or
money that would go back to the towns around the country for school
construction and renovation? It just does not add up. The money simply
is not going to be there.
So that is why I think it is important for me and Democrats, and
hopefully Republicans as well, to bring up the truth about this very
risky privatization plan that Governor Bush has proposed, because it
would not only have a negative impact on Social Security, but would
have a negative impact basically on the economy and the Federal budget,
and essentially I think what Americans see today as the reasons for our
prosperity.
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