[Congressional Record Volume 146, Number 69 (Wednesday, June 7, 2000)]
[House]
[Pages H4031-H4033]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




    CONCERNS OVER SOCIAL SECURITY CHANGES PROPOSED BY GOVERNOR BUSH

  The SPEAKER pro tempore. 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, this evening I would like to discuss my 
concerns over the changes in Social Security that have been proposed by 
Governor Bush of Texas.
  Mr. Speaker, as we know, 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 reason for its success is 
simple. It offers a 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 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, Bush's plan would hasten 
the insolvency of the Social Security Trust Fund and force seniors to 
question, rather than to count on, their Social Security benefits.
  Now, Governor Bush has also proposed a tax cut that would cost an 
estimated $1.7 billion. When combined with the cost of his individual 
retirement accounts, Governor Bush's plan would spend more than 3 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 the prescription drug benefit under Medicare and 
investment in education.
  In my opinion, Mr. Speaker, no plan that would endanger the 
guarantees of Social Security or rob the trust fund and leave other 
priorities unfunded can possibly be taken seriously, and that is why I 
think it is important, Mr. Speaker, that Democrats fight this 
dangerously ill-conceived proposal every step of the way. Myself and 
other Members on our side of the aisle will be here frequently over the 
next few weeks and the next few months speaking out against Governor 
Bush's proposal.
  Mr. Speaker, I wanted to discuss some of the major problems that I 
see associated with replacing part of Social Security with individual 
accounts the way that Governor Bush has proposed, and I would like to 
just get into a little more detail about some of these problems this 
evening.

  First, I would point out that individual accounts would mean massive 
cuts in Social Security benefits. Using a portion of the payroll tax to 
fund individual accounts would divert vitally important financial 
resources away from Social Security and would make Social Security's 
financial shortfall much worse. We know that we are eventually going to 
have a shortfall in Social Security and we have to find some way of 
shoring up the fund to make sure that the money is available. Well, 
what the Bush individual accounts plan does is to basically make the 
financing shortfall even worse.
  For instance, redirecting 2 percentage points of the current payroll 
tax

[[Page H4032]]

into individual accounts without other program changes would more than 
double Social Security's currently projected long-range deficit of 1.89 
percent of taxable payroll. To make up for this lost payroll tax 
revenue, individual account plans would also have to impose dramatic 
cuts in Social Security benefits. One such plan introduced in the 105th 
Congress would have reduced Social Security benefits by one-third for 
an average wage worker retiring in 2025. I want to repeat that. It 
would reduce Social Security benefits by one-third for an average wage 
worker retiring in 2025. This is why I say that Bush's plan is so 
radical, because rather than having a guaranteed level of money that 
would come to you, a guaranteed income that would come to you, you 
could likely see a one-third cut in that income that you are expecting.
  Now, some claim that Governor Bush could avoid cutting Social 
Security benefits by relying on anticipated budget surpluses to finance 
individual accounts. We know that there is going to be a significant 
and ever-growing surplus, assuming the economy continues to be good. 
But the problem is that Governor Bush has already made commitments 
during his campaign for President that would preclude the use of budget 
surpluses for that purpose.
  First, he has offered a variety of tax proposals that, all told, 
would cost roughly $1.7 trillion from the years 2002 through 2010; $800 
billion in excess of projected nonSocial Security surpluses over the 
same period. So the money is simply not there from the surplus to shore 
up Social Security or to pay for these individual accounts because he 
has already said that he wants to use it for these tax cuts, primarily 
for wealthy individuals and corporations.
  Also, Governor Bush has pledged to protect future Social Security 
surpluses by placing them in a lockbox, thus neither surpluses from 
Social Security nor outside of the program would be available to 
finance individual accounts if Governor Bush intends to keep his other 
campaign promises.
  Mr. Speaker, it just does not add up. On the one hand, Governor Bush 
proposes taking a percentage of the trust fund and using it for 
individual savings accounts; there is no money to pay for that, and it 
would actually force us to have less benefits for recipients in the 
future. On the other hand, he cannot use the surplus to make up for 
that because he already has this huge tax plan that would use up most 
of the surplus.
  Now, the next problem I would like to discuss, Mr. Speaker, is that 
individual accounts would force Americans to bear greater risk. Social 
Security protects against a host of risks: the risk of death or 
disability, the risk of low lifetime earnings, the risk of unexpectedly 
long life, the risk of inflation. Now, individual accounts would 
undermine these protections and would add the uncertainty of market 
risk to the program. Advocates of individual accounts argue that since 
fluctuations in the stock market average out over time, that individual 
investment risk is negligible. Well, I do not think that is true at 
all. I think it is highly risky and a lot of people do not realize what 
the risk is.

  Averages, essentially, are misleading. For every person whose 
investments perform above average, there is another person counting on 
Social Security whose investments perform below average with the stock 
market. Averages also ignore timing and the millions of Americans who 
might retire during a downturn in the stock market. Now, just to give 
some examples, and I use an example from the Congressional Budget 
Office. There were 15 years in the past century, 1908 through 1912; 
1937 through 1939; 1965 through 1966; 1968 through 1973, in which the 
real value of the stock market fell by more than 40 percent over the 
preceding decade. Moreover, if we look at the AARP's Center for 
Retirement Research, they point out that between January 1973 and 
September of 1976, the stock market declined by 43 percent and did not 
return to its 1972 high for almost 10 years. And then, just as another 
source of data on this problem, the General Accounting Office observes 
that over the past 70 years or so, stock returns were negative in 
nearly one out of 4 years. So anyone who tells us that this is not a 
risky venture, that this investment does not pose potential problems 
for the money that one invests in these individual accounts, is simply 
not looking at the historical record.
  Another major problem I would like to mention this evening, Mr. 
Speaker, is that individual accounts would be expensive to administer. 
The governor does not say how he is administering or where the money is 
coming from to pay for administering these individual accounts. When he 
announced his Social Security principles, Governor Bush failed to 
specify the structure or the institutions he would create to oversee 
individual accounts. This should come as no surprise, since the 
administration of such accounts would impose new and substantial 
burdens on employers, workers, and to the Federal Government. Even 
administrative charges that appear small at the outset add up over 
time. An annual fee of 1 percent of assets under management over the 
course of a 40-year career would absorb 20 percent of the worker's 
individual account. So once again, this all sounds very nice in theory, 
but in practice, the reality is that the money just is not there.
  Mr. Speaker, another problem I would like to point out tonight is 
that individual accounts would cripple efforts to eliminate the 
national debt. This is such an important reason why Governor Bush's 
proposal should not be adopted, because we are now paying down the 
national debt for the first time in anyone's memory, and this is a 
significant factor in keeping the economy going and letting the economy 
grow. In the absence of benefit cuts, diverting a portion of the Social 
Security payroll tax into individual accounts would lead to 
significantly smaller Social Security surpluses and to the rapid 
depletion of the Social Security Trust Fund.
  According to the Center on Budget and Policy Priorities, if the 
current payroll tax were reduced by 2 percentage points to fund 
individual accounts, which is what Governor Bush has proposed, and if 
the current payroll tax were reduced by 2 percentage points in that 
way, the assets in the Social Security Trust Funds would be exhausted 
in 2023, well before the currently expected date of 2037. Moreover, 
Social Security benefit payments would begin to exceed payroll tax 
revenue by 2005, a decade earlier than what is now projected. So again, 
the money is not there. If we start taking the money away from these 
individual accounts, Social Security is going to become insolvent a lot 
sooner.
  Mr. Speaker, this has direct implications on the ability to pay down 
the national debt. Reduced Social Security surpluses and an earlier 
date of trust fund exhaustion necessarily implies less debt reduction. 
The Federal Government has been able to begin retiring decades of debt 
only because of large Social Security surpluses and fiscal discipline 
in the rest of the budget. Less debt reduction necessarily implies 
higher interest costs and using payroll taxes to fund individual 
accounts would mean that billions of dollars would be used for interest 
payments on the debt, rather than for critical investments in our 
Nation's future.
  Now, the President, President Clinton has suggested a plan that would 
dedicate all projected Social Security surpluses to debt reduction. The 
President's plan would not only extend Social Security solvency until 
2054, but it would also eliminate the debt held by the public by 2013. 
The combination of Governor Bush's tax proposal and his Social Security 
principles would make it impossible to eliminate the publicly-held debt 
that quickly.
  When I talk to my constituents, they all tell me the same thing. They 
want to make sure that Social Security is there for them when they 
retire. Well, if we implement Governor Bush's plan, it will not be 
there because the insolvency will occur even earlier, and, worse than 
that, we do not pay down the national debt, which I think is a major 
factor in our ability to keep the economy going and to continue growth 
in our economy.
  Mr. Speaker, I would like to point this evening to an analysis that 
was done by the Social Security Network. The Social Security Network is 
a project of the Century Foundation. Basically, they did an analysis 
recently that evaluates the diversion of 2 percentage points of the 
current Social Security payroll tax into individual accounts. Now, 
Governor Bush has not

[[Page H4033]]

specified how large his proposed individual accounts would be, but the 
Bush campaign has used examples involving the 2 percentage points, and 
that is why I use that 2 percentage points, and that is why the Social 
Security network used the 2 percentage points in its analysis. But this 
analysis, and I should also say, before I get into this analysis a 
little more, that the calculations it uses, if anything, underestimate 
the cuts in Social Security benefits likely to occur under a Bush-like 
individual account plan.
  But what this analysis by the Social Security network suggests is the 
following: first, if Social Security benefits were cut equally for all 
workers age 55 or younger in 2002, benefits would have to be cut by 41 
percent to maintain the solvency of Social Security over the next 75 
years.

                              {time}  2200

  So here again, their analysis shows we are going to have an even 
greater problem maintaining the solvency of social security.
  To avoid a sharp reduction in retirement income for older workers 
that would result from this, benefit cuts could be phased in. Because 
less would be saved in early years, reductions for younger workers 
would have to be larger to ensure that social security remains solvent 
over the next 75 years.
  For example, under one plausible phase-in approach, social security 
benefits would have to be reduced by 29 percent for those 50 years old 
in 2002, and by 54 percent for those 30 years old or younger. So what 
we are saying is if we do not do this all at once but we phase it in, 
then the consequence on younger workers is even greater in terms of the 
amount of benefits they are going to have when they retire.
  Not only would the average benefits be cut relative to current law 
under the Bush proposal, but workers would also have to shoulder 
substantially increased risk under individual accounts. In other words, 
benefits might be smaller or larger than under current law.
  Here again, the Social Security Network gives us some examples. If 
holders of individual accounts suffer from market returns as low as the 
worst 35-year period since World War II, the total benefit reduction, 
including the individual account income, for 30-year-old single average 
earners would be 38 percent rather than 28 percent. So depending on the 
market fluctuations, and if we use the period before World War II as an 
example, we could have as much as a 38 percent reduction in the 
benefits that we get.
  Then the Social Security Network has another example. If, on the 
other hand, individual account holders enjoy market returns as good as 
the best of the 35 years since World War II, so now we are going in the 
opposite direction, instead of using the worst years prior to World War 
II we are using the best years after World War II, including now, the 
income for 30-year-old single average earners would be about the same 
as under current law.
  So what are we gaining? What this is essentially saying in this 
analysis is if we use the best years since World War II, you would not 
gain anything. If we use the worst years prior to World War II, we 
could have as much as a 38 percent reduction. There is no benefit.
  The problem is that everyone, that Governor Bush is relying on 
people's assumptions about the economy in the last 5 or 10 years, when 
things have been the best they have ever been. There is no guarantee 
that is going to continue over the life of the program before somebody 
who is younger retires, which could be 35, 40 years.
  The conclusion is that Governor Bush's proposal could cut social 
security benefits by more than 50 percent for young workers, and the 
proceeds from the individual account would on average make up only a 
portion of that cut while exposing individuals to significant risk. 
This is from, as I said, the Social Security Network's analysis.
  Mr. Speaker, I did not intend to take up a lot of time tonight 
because I intend to come back and keep talking about this on other 
occasions, but I just wanted to say in conclusion, Mr. Speaker, that 
the bottom line is that Governor Bush's social security proposal simply 
does not add up. Most of the surplus for tax cuts plus most of the 
surplus for a risky social security plan equals too much of the Federal 
budget. We cannot take the money from this tax plan and at the same 
time have a huge tax cut and end up with anything but less benefits for 
the average social security recipient.
  If we take these two things together, his social security plan and 
the tax cut, we swallow up the surpluses whole for the next 10 years, 
and we use a significant portion of the social security surplus as 
well, so both the general revenue and the social security surplus would 
be used up.

  Devoting all the surplus to these two plans, the Governor's social 
security plan and the tax cut plan, means leaving nothing at all for 
the rest of the budget. The combination would leave no room for other 
vital priorities like the Medicare prescription drug benefit or more 
funding for new teachers and modern classrooms.
  In addition to the fact that it does not add up for the recipient, 
who would probably end up with cuts in their benefits, it also means 
that money is not going to be available to expand Medicare, which I 
think, Mr. Speaker, we know that many of our constituents, most of our 
constituents, are saying that they would like Medicare to be expanded 
to include prescription drugs.
  There is no way we could do that if we adopted Bush's social security 
plan as well as his tax cut, because there would not be any money left 
over to do that, to help seniors with a program under Medicare that 
would pay for their prescription drugs.
  Of course, that does not even take into account other priorities that 
affect the general population, like the need for more money for 
education to go back to local schools so they can have smaller class 
sizes by hiring more teachers, or the need to pay for school 
construction and give money to the local schools so they can renovate 
school buildings and upgrade the infrastructure for the Internet, and 
those types of things.
  Nothing would be left. This would just take up everything, and for no 
reason, for no actual benefit to the average senior citizen.
  I just think that the Governor's proposal for social security is 
extremely radical. It does not add up. I just hope that over the next 
few months that we are able to expose this so the American people 
realize this, because it should not be enacted, and it certainly should 
not be the basis for any policy program by Governor Bush or anyone 
else.

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