[Congressional Record Volume 146, Number 136 (Thursday, October 26, 2000)]
[Senate]
[Pages S11048-S11052]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
ODD GIFT OF BONDS
Mr. DOMENICI. Mr. President, today I will speak about Vice President
Gore's lack of a Social Security policy. I will entitle my premise
today ``Odd Gift of Bonds.''
Let me start by saying I found it interesting that just 2 days ago
the Treasury Secretary--that is, Secretary Summers--took time out of
his busy schedule to speak with reporters and go on the talk show
circuit to comment on Governor Bush's Social Security proposal. Some of
Secretary Summer's conclusions appeared on the front page of the
Washington Post yesterday. The title was ``Cabinet Opens Up On Bush.''
``Treasury Secretary says Social Security Math Doesn't Add Up.''
I hope when I am finished some people will take a look at the Vice
President's so-called Social Security plan, and maybe they will
conclude, as I have, that the math does add up, but it doesn't do a
thing for Social Security long term. Nothing. Zero.
It should be noted, at least while I have been here, that
traditionally, Secretaries of the Treasury do not get themselves
involved in political campaigns, and for good reason. Indeed, former
Secretary Bob Rubin, also an appointee of this administration, stayed
out of the campaign in 1996. But apparently Secretary Summers had
enough time to give interviews; but he didn't have enough time to offer
any real evidence to back up his stated claims. None. No evidence. In
fact, I'm quite sure that the Secretary of the Treasury is grading a
fictional Bush plan so that he can join with the Vice President and
many other Democrats in orchestrating a campaign to scare senior
citizens, as they have done regularly in past campaigns.
Also, I find it interesting that the Washington Post reporter--whom I
know--who wrote this story, didn't come to any Member or anyone who has
tried to understand the Gore Social Security plan to ask for some
comments about it and whether it does anything at all for Social
Security.
So today I will take a few minutes to explain the Clinton-Gore Social
Security plan, and then the Gore plan, which is slightly different than
the Clinton-Gore plan, which is really not a plan at all but an
illusion of a plan. It is not a plan. It is an illusion of a plan.
President Clinton initially proposed a version of this plan in
January of 1999. It was never taken seriously then or now. And for good
reason. I can remember it was very difficult to get a Democrat to offer
the President's plan, including the so-called Social Security fix in
the budget hearings, in the Budget Committee, and surely there were
never more than a few Senators whom I believe in clear partisan
dedication who supported this odd gift of bonds to the Social Security
trust fund.
This so-called plan, the one that President Clinton sent us in 1999,
is strictly a political exercise intended to create the perception that
the President and Vice President have met their commitment to ``save
Social Security first,'' as they state it, when, in fact, they have no
such plan, and the Social Security long-term problems remain absolutely
unresolved.
In fact, as Governor Bush has said, for 8 years the Clinton-Gore
administration has promised to save Social Security, and yet, under the
Clinton-Gore administration, the present value of the Social Security
deficits have already increased 60 percent during that 8 years of doing
nothing, according to the Social Security actuaries. That's roughly
$28,000 per household. That is the amount that it has gone up. Perhaps
Secretary Summers, as the managing trustee of Social Security, should
be asked why he has allowed that to happen. It has happened because we
have not taken steps to reform or fix Social Security.
Now I will talk about the $40 trillion IOU plan. What does the
Clinton-Gore plan do? Beginning in the year 2011, and continuing
through 2050, they transfer IOUs from the general fund of the
government to the Social Security trust fund. I will soon introduce a
letter from the Congressional Budget Office that says over that period
of time from 2011 to 2050 the total accumulated costs of both interest
and IOUs--get this--will be $40 trillion. That means for that plan to
make sense somehow, some way, some time, during 2011 and 2050, they
will have to ask the American people to do one of three things:
No. 1, increase taxes by $40 trillion over that period of time. Why?
To pay off the IOUs which are soon going to be needed by the Social
Security recipients of our country.
No. 2, restrain and restrict the programs of our Federal Government
over that period of time; that is, discipline our programs so we will
save $40 trillion and put it against the IOUs--a mammoth expectation
without any probability of occurring.
Or we can do some of the two of them.
Or we can just say we will do it all by cutting programs of ordinary
people that are going on day by day.
Nonetheless, these estimates will indicate that we will have to do
something in the future to raise large amounts of money that are not
currently within the Social Security actuarial expectations from the
payroll tax. It will have to come from somewhere. Is that a plan to fix
Social Security? I ask anyone if that is a plan? It is not a plan. It
won't work. It has been more or less unacceptable to Congress for the
2\1/2\ years that it has been lounging around someplace, for somebody
to consider.
The estimate I am talking about comes from the Social Security
actuaries who estimated the initial amount of general fund transfers to
be $9.9 trillion.
We then asked the Congressional Budget Office to calculate for us how
much additional interest would be paid to the trust fund, based on
these transfers. CBO, the Congressional Budget Office, using the
actuaries' numbers, estimated that the interest payments would add $30
trillion to the general fund transfers to the trust fund. In total,
then, that is $40 trillion in IOUs by 2050.
For those who might have a little difficulty with IOUs, let me just
say,
[[Page S11049]]
think of it as a postdated check. The check is there and it is valuable
because it has a signature on it: USA. But it is dated 2050. Then when
you say: OK, the check is good, pay me--we will, as a nation, have to
come up with $40 trillion.
When the President initially made this proposal, he--that is
President Clinton--he at least proposed one real provision that would
have changed Social Security's long-term financing. The President
proposed to set up a new Government-run board that would invest up to
15 percent of the Social Security trust fund in the stock market and
private bonds. President Bill Clinton recommended that. But it would be
run by the Government and the Government would be involved in huge
numbers and huge dollar values of the stock of the American stock
exchanges and of companies of America.
There was a resounding opposition to using a Government board to
invest Social Security money in the stock market because it would
become political. It would become a board that might not want to invest
in this because of public opinion, or that, because the particular
corporation causes obesity by selling hamburgers, that is not the right
thing so you would not invest in that particular stock.
The Federal Reserve Board Chairman said, to that piece of the
President's plan: Too much Government involvement in the private
economy.
So the Vice President has said he does not support that portion of
President Clinton's plan. So what he has left is a plan with no
investment and $40 trillion will accumulate, by the year 2050, which we
will have to pay from somewhere.
If you ask, Has he helped anything in his plan? Well, I ask you. He
also, I think, makes matters a little worse by proposing two new
unfunded benefit expansions that will cost between $100 and $180
billion over 10 years, which just adds to the numbers we have been
talking about because we have expanded Social Security without the
wherewithal to pay it after 2011.
To show you the lack of seriousness of this IOU proposal, the Gore
plan does not start transferring funds to Social Security until 2011,
well beyond any two terms that he might serve, and five Congresses from
now. What he is really saying is he wants the economy of this country
to commit $40 trillion in general funds on the promise that we will
impose fiscal discipline on 10 future Presidential terms and 20
Congresses. But he will not transfer a penny to Social Security until
2011.
Who is going to pay these IOUs off? Our children and our
grandchildren. They will be saddled with all the debt and they will be
forced to pay these IOUs back--in the form of higher taxes or through
the other suggestions that are possibilities that are talked about.
In March of 1999, Senator Bob Kerrey said, this plan ``has a great
deal of pain in [the] plan--a hidden pain in the form of income tax
increases that will be borne by future generations of Americans.''
That is by Bob Kerrey, Democrat from Nebraska. I could not agree
more.
What is more, the President's own budget for 2000 agreed with Senator
Kerrey:
These [trust fund] balances . . . are claims on the
Treasury that, when redeemed, will have to be financed by
raising taxes, through borrowing from the public, or reducing
the benefits or other expenditures. The existence of large
trust fund balances, therefore, does not, by itself, have any
impact on the Government's ability to pay the benefits.
An odd gift of bonds--which is the full extent, that I can find, of
the plan the Vice President has put forth. I can find very few
economists who believe these transfers to Social Security are a good
idea and they will fix Social Security.
In fact, Ed Gramlich, whom this President recently appointed to the
Federal Reserve Board, headed a commission for the President on Social
Security. This is what he said:
During the deliberations of the 1994-1996 Social Security
Advisory Commission, we considered whether general revenues
should be used to help shore up the Social Security program.
This idea was unanimously rejected for a number of reasons .
. . there are serious drawbacks to relaxing Social Security's
long-run budget constraint through general revenue transfers.
Alan Blinder, Gore's economic adviser, said, in 1999, that the
administration should drop the ``gift of bonds.''
It is from his quote that I named this assessment. He said that the
administration should drop the ``gift of bonds.''
This is what he said, that is Blinder, at a Ways and Means Committee
hearing in 1999.
It amounts to a pledge to provide that much more money for
Social Security in the future--somehow. But it does not
specify the sources. Thus, by itself, it does not fill any of
the funding gap. . . . There is a simpler and more
intuitively appealing plan which, had the President proposed
it, would, I believe, have generated less confusion and
raised fewer objections. That would be to dedicate the
[Social Security surpluses] over the next 15 years to debt
reduction, and therefore to national saving--and to forget
about the new gift of bonds and odd scorekeeping rules.
Meaning that you have to invent some way to score this in a budget
way or to make sense.
The Clinton-Gore plan is not really a plan at all. It is a political
proposal to confuse the debate and absolve him from the responsibility
to offer a real plan to save Social Security.
Mr. President, I ask unanimous consent the article by Glenn Kessler
regarding the Secretary of Treasury's assessment be printed in the
Record.
There being no objection, the material was ordered to be printed in
the Record, as follows:
[From the Washington Post, Oct. 25, 2000]
Cabinet Opens Up on Bush
treasury secretary says social security math doesn't add up
(By Glenn Kessler)
Treasury Secretary Lawrence H. Summers offered a detailed
critique of Texas Gov. George W. Bush's Social Security plan
yesterday, wading into a political fight usually shunned by
his predecessors and creating an unusual chorus of criticism
of the GOP presidential nominee by senior Cabinet officials.
In an interview, Summers said that Bush's comments on
Social Security ``reveal a fundamental misunderstanding of
the system.'' The Bush plan to divert a portion of payroll
taxes to help establish individual accounts for young
workers, he added, well require either ``large cuts'' in
guaranteed benefits or an infusion of billions of dollars in
new revenue.
But Summers--an economist who also serves as managing
trustee of Social Security and conducted academic work on
funding the system before he entered government--said there
is no way money collected now can also pay current benefits
if it is channeled into investment accounts.
``It is an arithmetic challenge that cannot be met,''
Summers said, asserting that under the Bush plan the Social
Security trust fund would be fully depleted when someone who
is now 42 retires.
Summers' remarks come as the Gore campaign and the
Democratic National Committee are pounding battleground
states with advertisements and recorded phone calls that echo
the themes outlined by Summers--that Bush's math on Social
Security doesn't add up and that the Republican is bound to
break promises to either senior citizens or young workers.
While Summers is a key behind-the-scenes economic adviser
to Vice President Gore, the Treasury Secretary, the Secretary
of State, the Defense Secretary and the Attorney General are
generally the Cabinet officials who try to remain aloof from
politics in presidential elections.
Yet, over the weekend, Secretary of State Madeleine K.
Albright also departed from that tradition, taking the
unusual step of denouncing Bush's proposal to withdraw U.S.
ground forces from the Balkans as risky and misguided and
possibly leading to the dissolution of NATO.
``This is a very inappropriate continuing pattern of the
politicization of the most sensitive Cabinet agencies, State
and Treasury,'' said Bush spokesman Ari Fleischer. ``In the
waning days of the Clinton era, perhaps it was too much to
hope that the historically nonpolitical agencies could remain
about the fray.''
As Treasury secretary four years ago, Robert E. Ruben would
only obliquely make observations about the economic proposals
offered by Republican presidential candidate Robert J. Dole,
usually in response to questions and then mostly to defend
administration policy. Nicholas Brady, Treasury secretary in
1988 under President Ronald Reagan and in 1992 under Bush's
father, President George Bush, said yesterday that Summers'
comments were ``totally inappropriate.''
``I don't think it's his business to be commenting on
Governor Bush's proposal on Social Security,'' Brady said.
Allen Sinai, chief executive of Primark Decision Economics,
agreed that the critique was unusual but said it was
appropriate, given Summers' background. ``We happened to have
the coincidence of having a Treasury secretary who is also
the finest economist of our generation,'' Sinai said. ``Who's
to say what's fair or not fair?''
Treasury officials made much the same case, saying Summers'
comments were justified because he is the managing trustee of
Social Security and had been considered an expert in the
field when he was in academia.
Summers also took issue with Bush's claim that he would be
able to build up $3 trillion in these new private accounts
while also
[[Page S11050]]
eliminating the national debt by 2016. Gore has set a goal of
eliminating the debt by 2012.
``Without dedicating Social Security surpluses to debt
reduction rather than to new private accounts, it appears to
me that on any realistic basis it is impossible to eliminate
the debt any time in the next 20 years without using nearly
the entire budget surplus, which is clearly precluded by
their large tax cuts,'' Summers said.
Under the Bush plan, about $1.9 trillion would be
transferred from the Social Security surplus to the private
accounts by 2016, which the campaign says would grow to $3
trillion, assuming a 5.5 percent return and moderate
inflation. But that money could not also be used to pay down
the debt.
Fleischer insisted the Bush plan will pay down the entire
national debt by 2016.
Summers began making the case against Bush's Social
Security plan in a little-noticed address before the
Conference Board in New York last week. In that speech, he
said that diverting two percentage points of the payroll
tax--about 15 percent--a year ``would lead to an excess of
benefits over tax revenues by 2005, and the total exhaustion
of the trust fund in the early 2020s.''
Yesterday, Summers expounded on that theme and also
targeted Bush's contention in his first debate with Gore that
``I want to get a better rate of return for your own money
than the paltry 2 percent that the current Social Security
trust gets today.''
Summers said that reflected a ``fundamental
misunderstanding'' because payroll taxes are used to provide
benefits for retirees, the disabled and survivors, and thus
can't be invested. ``Comparing rates of return is just not a
legitimate argument,'' Summers said.
Mr. DOMENICI. Mr. President, how much time do I have remaining?
The PRESIDING OFFICER. The Senator has 11 minutes.
Mr. DOMENICI. Mr. President, I ask unanimous consent to have printed
in the Record a letter which I sent on October 6 to Dan L. Crippen--he
is the Congressional Budget Office Director. I asked him the following:
I am attaching a June 26, 2000 memorandum from the SSA [the
Social Security people] actuaries which gives the exact size
of these annual transfers. Their data shows that $9.8
trillion in cumulative annual transfers will have been made
by 2050 under the Administration's proposal. I would like CBO
to estimate what the cumulative interest on these transfers
would be in the years specified in the attached table.
Secondly, could you tell me the total amount of IOUs that
will be deposited into the [Social Security] trust fund as a
result of the cumulative transfers plus the cumulative
interest on these transfers in each of the specified years.
I ask unanimous consent that letter be printed in the Record.
There being no objection, the letter was ordered to be printed in the
Record, as follows:
U.S. Senate,
Committee on the Budget,
Washington, DC, October 6, 2000.
Dan L. Crippen,
Director, Congressional Budget Office, Washington, DC.
Dear Dr. Crippen: The Administration's Mid-Session Review
on the Budget for Fiscal Year 2001 contains a proposal
related to Social Security trust fund reserves.
Specifically, the Administration proposes to begin
transferring general revenues to the Social Security trust
fund in 2011 and continuing to 2050. These general revenue
transfers will add to the trust fund balances (in the form of
Treasury IOUs) and will generate additional interest income
(in the form of Treasury IOUs) for the trust fund as well.
I am attaching a June 26, 2000 memorandum from the SSA
actuaries which gives the exact size of these annual
transfers. Their data shows that $9.8 trillion in cumulative
annual transfers will have been made by 2050 under the
Administration's proposal. I would like CBO to estimate what
the cumulative interest on these transfers would be in the
years specified in the attached table. Secondly, could you
tell me the total amount of IOUs that will be deposited into
the SS trust fund as a result of the cumulative transfers
plus the cumulative interest on these transfers in each of
the specified years.
Thank you for your prompt consideration of this request.
Sincerely,
Pete V. Domenici,
Chairman.
[$ trillion]
------------------------------------------------------------------------
Cumulative
Cumulative Cumulative transfers +
Year transfers interest on interest on
(IOUs) transfers transfers
(IOUs) (IOUs)
------------------------------------------------------------------------
2015............................. 859.6
2020............................. 2144.6
2025............................. 3429.6
2030............................. 4714.6
2035............................. 5999.6
2040............................. 7284.6
2045............................. 8569.6
2050............................. 9854.6
------------------------------------------------------------------------
Mr. DOMENICI. I ask unanimous consent the June 26, 2000, memorandum
to Social Security chief actuary Harry C. Ballantyne, on long-range
OASDI financial effects of the President's proposal for strengthening
Social Security, be printed in the Record.
There being no objection, the material was ordered to be printed in
the Record, as follows:
Social Security Administration Memorandum, June 26, 2000
To: Harry C. Ballantyne, Chief Actuary
From: Stephen C. Goss, Deputy Chief Actuary
Subject: Long-Range OASDI Financial Effects of the
President's Proposal for Strengthening Social Security--
Information
This memorandum provides estimates of the financial effects
of the proposal presented in the President's Mid-Session
Review of the Fiscal Year 2001 Budget on June 20, 2000. This
proposal would require that transfers be made from the
General Fund of the Treasury of the United States to the Old-
Age and Survivors Insurance (OASI) and Disability Insurance
(DI) trust funds for each fiscal year 2011 through 2050. In
addition, the President proposes that a portion of the
transfers would be invested in corporate equities (stock), up
to a limited portion of the total assets of the trust funds.
If transfers were invested only in special interest-bearing
obligations (special issues) of the United States Treasury,
the date of exhaustion of the combined OASI and DI trust
funds would be extended by an estimated 20 years, from 2037
under present law to 2057 under the proposal. The estimated
size of the long-range actuarial deficit would be reduced
from 1.89 percent of effective taxable payroll under present
law to 0.86 percent of payroll under the proposal. All
estimates reflect the intermediate assumptions of the 2000
Trustees Report, adjusted to reflect the recent enactment of
the retirement earnings test beginning in the year 2000 for
persons who have attained their normal retirement age.
In addition to the transfers, the President proposes that
up to 15 percent of trust fund assets would eventually be
invested in stock. With both the transfers and the investment
in stock, the date of exhaustion of the combined OASI and DI
trust funds would be extended by an estimated 26 years, from
2037 under present law to 2063 under the proposal. The
estimated size of the long-range actuarial deficit would be
reduced from 1.89 percent of effective taxable payroll under
present law to 0.48 percent of payroll under the proposal.
(Due to interaction among provisions, a complete elimination
of the actuarial deficit would require additional OASDI
changes that would reduce the present law deficit by up to
about 0.75 percent of taxable payroll.) These estimates are
based on the intermediate assumptions of the 2000 Trustees
Report (adjusted for elimination of the earnings test at the
normal retirement age) and other assumptions described below.
The amount of transfer for each year would be based on a
calculation of the increase in the combined OASI and DI trust
fund assets that would have occurred during fiscal years 2001
through 2015 if all trust-fund assets had been invested in
obligations of the United States Treasury. However, actual
transfer amounts would be limited to dollar amounts specified
in the law, based on projected on-budget surpluses in the
President's Mid-Session Review of the FY 2001 Budget.
Base transfer amounts are intended to be equal to the
amount by which interest on publicly-held Federal debt would
be lower as a result of the OASDI ``surplus'' during fiscal
years 2001 through 2015 than if there had been no such
surplus, assuming that all transfers had been invested solely
in special issues of the Treasury.
Beginning in the year 2011, 50 percent of the amount
transferred would be used to purchase stock and 50 percent
would be used to purchase special issues of the Treasury. All
dividends would be reinvested in stock. This procedure would
continue until the market value of all stock held by the
OASDI trust funds reaches 15 percent of total OASDI trust
fund assets. Thereafter, the percentage of total trust fund
assets that is held in stock would be maintained at 15
percent by buying and selling stock as necessary.
Stock investments would be managed by the private sector.
Stock investments would be required to reflect the
composition of all publicly-traded stock in the United States
(for example, the composition of the Wilshire 5000 index).
transfer amounts from the general fund of the treasury to the oasi and
di trust funds
The proposal would provide for transfers in each fiscal
year 2011 through 2050 with the amount based on the following
procedure:
(1) A base amount would be computed for each fiscal year
2011 through 2016 equal to:
(a) the calculated increase in the amount of assets in the
combined OASI and DI trust funds that would have occurred
from September 30, 2000 to the September 30 immediately prior
to the start of the fiscal year, if all assets had been
invested only in special issues of the Treasury, multiplied
by,
(b) an interest rate based on the average market yield on
all marketable interest-bearing obligations of the United
States forming a part of the publicly-held debt in the month
prior to the fiscal year.
(2) The actual transfer amount for each fiscal year 2011
through 2016 would be equal to the base transfer amount for
the year, subject to a dollar-specified limit in the law.
This limit, computed by the Office of Management and Budget,
represents the amount
[[Page S11051]]
of on-budget surplus that was projected to be available for
transfers to the OASDI trust funds under the assumptions and
policy of the President's Mid-Session Review of the FY 2001
Budget.
(3) The actual transfer amount for fiscal years 2017
through 2050 would be equal to the actual transfer amount
computer for fiscal year 2016.
Under (1)(b), calculation of the interest rate would be
based on yields on corporate bonds if there is no publicly-
held debt. In this case, the interest rate would be based on
the current market yield of investment-grade corporate
obligations, less an adjustment to account for the estimated
difference between yields of such corporate obligations and
``obligations of comparable maturities issued by risk-free
government issuers selected by the Secretary of the
Treasury.''
ESTIMATED TRANSFER AMOUNTS AND LIMITS UNDER THE PROPOSAL
[Billions of current dollars]
------------------------------------------------------------------------
Estimated Dollar- Estimated
Fiscal year base specified transfer
amount limit \2\ amount
--------------------------------------------\1\-------------------------
2011................................... $122.4 $123 $122.4
2012................................... 145.0 147 145.0
2013................................... 169.8 172 169.8
2014................................... 196.7 200 196.7
2015................................... 225.7 230 225.7
2016 and later......................... 257.0 263 257.0
------------------------------------------------------------------------
\1\ Based on the intermediate assumptions of the 2000 Trustees Report
(adjusted for elimination of the earnings test at the normal
retirement age).
\2\ Specified in law, computed by the Office of Management and Budget
based on the President's Mid-Session Review of the FY 2001 Budget.
It should be noted that the ``base'' amounts that would be
computed for transfers in years 2011 through 2016 may be
higher or lower than the estimates provided above based on
the intermediate assumptions of the 2000 Trustees Report. For
example, if price inflation (increase in the CPI) turns out
to be higher or lower than assumed by the Trustees between
now and 2015, with real rates of growth as currently assumed,
the based transfer amounts could differ substantially.
If inflation is lower than expected through 2015, making
base amounts computed in years 2011 through 2016 lower than
those estimated above, the dollar-specified limits on
transfers would not affect these base amounts in the
determination of actual transfers. However, if inflation is
higher than expected through 2015, making base amounts
computed in years 2011 through 2016 higher than those
estimated above, the dollar-specified limits on transfers
would reduce the actual transfer amounts to levels below the
base amounts.
OASDI trust fund assets in stock
The 1994-96 Advisory Council on Social Security requested
estimates assuming that the total annual real yield on stock
investments would ultimately average about 7 percent,
approximately the average (geometric mean) total yield on
stocks since 1900 (or since 1926). Total yield includes
dividends as well as capital gains. Estimates for this
proposal are based on this assumption. (See section below for
analysis of the sensitivity of the estimates to variation in
the assumed real yield on stock.)
The 4-percentage-point difference between this assumed
ultimate real stock yield and the Trustees' 3.0-percent
assumed ultimate real yield on government bonds held by the
trust funds (the equity premium) is assumed to be maintained,
on average, throughout the 75-year projection period.
The table below provides the estimated percentage of OASDI
trust fund assets that would be held in stock at the end of
each calendar year 2010-17. The stock holdings are estimated
to reach the level of 15 percent of total trust fund assets
by the end of 2017, after which point this percentage would
be maintained under the proposal.
PERCENT OF OASDI TRUST FUND ASSETS IN STOCK, END OF YEAR
------------------------------------------------------------------------
Year Percent
------------------------------------------------------------------------
2010......................................................... 0.5
2011......................................................... 2.4
2012......................................................... 4.4
2013......................................................... 6.6
2014......................................................... 8.9
2015......................................................... 11.4
2016......................................................... 13.8
2017......................................................... 15.0
------------------------------------------------------------------------
The portion of the total value of publicly-traded stock in
the United States that is held by the OASDI trust funds will
depend not only on the yield achieved in the market, but also
on the rate of growth in the total market value of all stock.
The total value of stock represented in the Wilshire 5000
index (a fair representation of all publicly-traded stock in
the United States) was $9.3 trillion at the beginning of
1998.
Assuming that the total market value of publicly-traded
stock will rise on average by the rate of growth in GDP after
1998, the trust funds would be expected to hold about 3.7
percent of the total market value, on average, over the 30-
year period 2011 through 2040.
AVERAGE PERCENTAGE OF TOTAL STOCK MARKET VALUE HELD BY OASDI
------------------------------------------------------------------------
Years Percent
------------------------------------------------------------------------
2011-20...................................................... 2.3
2011-30...................................................... 3.5
2011-40...................................................... 3.7
2011-50...................................................... 3.6
------------------------------------------------------------------------
SENSITIVITY TO ASSUMED REAL YIELD ON STOCK
Due to the current, historically-high, level of stock
prices relative to corporate earnings, many analysts expect
that the total real yield on stock will average less than 7
percent over the next 75 years. For example, the 1999
Technical Panel appointed by the Social Security Advisory
Board recommended the assumption that the ultimate real yield
on stock would exceed the real yield on government bonds held
by the trust funds by 3 percentage points, on average, over
the next 75 years. In the context of the intermediate
assumptions of the 2000 Trustees Report, this would imply a
long-run average total real yield on stock of 6 percent (3
percentage points above the Trustees' assumption of an
average 3-percent real yield on government obligations held
by the trust funds).
Assuming a 6-percent average total real yield on stock over
the long-range (75-year) period, the estimated year of trust
fund exhaustion would be extended by 25 years, from 2037 to
2062 (one year sooner than with an assumed 7 percent real
stock yield). The estimated long-range OASDI actuarial
deficit would be reduced from 1.89 to 0.57 percent of taxable
payroll (0.09 percent of payroll higher than with an assumed
7 percent real stock yield).
Stephen C. Goss.
Mr. DOMENICI. This is the response to my letter, dated October 18,
which has an attachment to it. I will read a paragraph.
Although the transfers (and the interest earned on them)
would improve the apparent solvency of the trust fund, they
would increase the liabilities in the rest of the budget at
the same time.
That is what I have been saying.
As a result, the proposed transfers would have no impact on
the Government's net indebtedness, nor would they directly
enhance Government's ability to meet promises to future
retirees. Indeed, the Government's revenues and expenditures
would be the same regardless of whether the transfers were
made.
I ask unanimous consent that Dan Crippen's letter be printed in the
Record.
There being no objection, the letter was ordered to be printed in the
Record, as follows:
U.S. Congress,
Congressional Budget Office,
Washington, DC, October 18, 2000.
Hon. Pete V. Domenici,
Chairman, Committee on the Budget, U.S. Senate, Washington,
DC.
Dear Mr. Chairman: In your letter of October 6, you asked
the Congressional Budget Office (CBO) to use data you
provided from the Social Security actuaries to estimate the
size of the cumulative impact, including interest, of the
President's proposal to make transfers from the general fund
of the Treasury to the Social Security trust funds.
Although the transfers (and the interest earned on them)
would improve the apparent solvency of the trust funds, they
would increase the liabilities in the rest of the budget at
the same time. As a result, the proposed transfers would have
no impact on the government's net indebtedness, not would
they directly enhance the government's ability to meet its
promises to future retirees. Indeed, the government's
revenues and expenditures would be the same regardless of
whether the transfers were made. Ultimately, the government's
ability to pay for future commitments, whether they are
Social Security benefits or some other payments, depends on
the total financial resources of the economy--not on the
balances in the trust funds.
As you requested, CBO prepared its estimates using
information about the proposal and the size of the transfers
from a June 26, 2000, memorandum issued by the actuaries of
the Social Security Administration. For its estimates, CBO
used the actuaries' assumptions about interest rates from the
2000 Annual Report of the Board of Trustees of the Federal
Old-Age and Survivors Insurance and Disability Insurance
Trust Funds and assumed that the transfers would be made in
the middle of the fiscal year. The estimates using these data
are listed in the enclosed table. CBO has not evaluated the
actuaries' assumptions.
Pleae feel free to call me if you have any questions, or
have your staff contact Douglas Hamilton at 202-226-2770.
Sincerely,
Dan L. Crippen,
Director.
Mr. DOMENICI. Mr. President, I ask unanimous consent that the
attached table be printed in the Record.
There being no objection, the material was ordered to be printed in
the Record, as follows:
[[Page S11052]]
EFFECTS OF PRESIDENT'S PROPOSED TRANSFERS FROM THE GENERAL FUND TO THE SOCIAL SECURITY TRUST FUNDS ON THE
CUMULATIVE INTEREST PAID TO THE SOCIAL SECURITY TRUST FUNDS
[In trillions of dollars]
----------------------------------------------------------------------------------------------------------------
2010 2015 2020 2025 2030 2035 2040 2045 2050
----------------------------------------------------------------------------------------------------------------
Cumulative Transfers........... 0 0.9 2.1 3.4 4.7 6.0 7.3 8.6 9.9
Cumulative Interest on 0 0.1 0.7 1.9 4.1 7.4 12.4 19.7 30.0
Transfers.....................
--------------------------------------------------------------------------------
Total.................... 0 1.0 2.8 5.3 8.8 13.4 19.7 28.3 39.9
----------------------------------------------------------------------------------------------------------------
Source: Completed using data from the actuaries of the Social Security Administration.
Note: Numbers may not add up to totals because of rounding.
Mr. DOMENICI. Mr. President, I will tell the Senate what it says. It
is attached to CBO's letter, and it goes 2010, 2015, 2020, right up to
2050, and it has the cumulative IOU transfers that were put in and then
the cumulative interest on the transfers.
I was shocked--maybe I should not have been; it is almost automatic,
it is almost arithmetic--but the total of the cumulative interest on
the IOUs and the cumulative transfers amount to $40 trillion by the
year 2050. That is the IOU that we give to the American people. They
will have to pay it in order to keep Social Security solvent, but
nobody is being told that. They are being told we have fixed the plan
for x number of years from now.
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