[Congressional Record Volume 148, Number 73 (Thursday, June 6, 2002)]
[Senate]
[Pages S5108-S5111]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
SOCIAL SECURITY
Mr. CORZINE. Madam President, this morning I would like to take a few
moments to talk about one of my favorite subjects: Social Security and
the privatization plans that have been developed by President Bush's
Social Security Commission.
As I have discussed in the past, I, like many Members, have serious
concerns about these privatization plans, primarily because they
involve deep cuts in guaranteed benefits. Those cuts would exceed 25
percent for many current workers and would exceed 45 percent for
seniors in the future. The cuts would apply even to those who choose
not to participate in these privatized accounts. In effect, they would
force many Americans to delay their retirement.
Over the past few weeks, I have engaged in an ongoing dialogue with
privatization supporters, including the Cato Institute and a few of the
members of the Bush Commission. The Cato Institute criticized the
national radio address I gave on April 27 describing the privatization
program the Bush Commission proposed. I then responded with a critique
of their critique. And then, most recently, I received a letter from 6
of the 16 members of the President's Commission with a critique of my
critique of the Cato critique.
Unfortunately, their critique also is flawed, as I have outlined in a
letter back to the six Commissioners, and as I want to discuss today.
The most fundamental disagreement I have with the six Commissioners
concerns the deep cuts in guaranteed benefits included in the
Commission's report. The Commissioners state:
The Commission proposals do not ``cut benefits'' for
anyone.
I am troubled by this statement, which, at best, is highly
misleading. Essentially, the Commissioners are arguing that reductions
in benefit levels, relative to those proposed under current law, should
not be considered cuts. That is just wrong on its face.
The Commissioners reach this conclusion by assuming that the assets
in the Social Security trust fund will be deleted in the future and
Congress will refuse to take the steps necessary to honor the promises
made to workers who now are paying into the system. They make this
assumption even though they also assume that massive amounts of general
revenue will be available to subsidize privatized accounts.
In effect, the Commissioners are arguing that Congress, having used
Social Security funds for other purposes, now should be able to break
its promise to retirees because there is not enough money in the trust
fund.
To me, this is tantamount to a borrower telling a lender: I haven't
saved enough, and therefore I have a right to default on your loan.
And, moreover, the reduction in my payments to you should not be
considered a cut or a loss to your income.
I do not think that adds up. Surely the lender in such a situation
would experience the loss and view it as a real cut--just as seniors
would experience a reduction in their promised benefits as a cut.
In my view, it is a distortion of the English language to claim that
changing the law in order to reduce benefit levels, as the Commission
has proposed, should not be considered a cut. This claim is especially
problematic because the Commission's proposed cuts would be so deep for
many beneficiaries--exceeding 25 percent for many current workers, and
exceeding 45 percent in the future. By the way, these numbers are
confirmed by the nonpartisan Social Security actuaries. The Commission
should be open and honest about this. The numbers are in the report.
It also is important to emphasize, as I noted earlier, that the
benefit cuts proposed by the Commission apply even to those who choose
not to participate in privatized accounts. This belies claims that the
Commission's plan is based on voluntary choice. It's not. Even those
who do not choose to use privatized accounts will get cuts.
Supporters of privatization may believe that income from privatized
accounts will offset the cuts in guaranteed benefits. That is the
argument they make. However, this is problematic for at least two
reasons.
First, the combination of reduced guaranteed benefits and income from
private accounts in many cases would be less than the benefits under
current law, even under the assumptions used in the Commission's
report.
That is certainly one of the possibilities. And that is particularly
true if one takes into account the administrative costs which are going
to accompany these private accounts. In Great
[[Page S5109]]
Britain up to 40 percent of the returns in private accounts are used
just to pay for administering the accounts. This takes away from income
and really does undermine the ability to maintain the same levels of
benefits.
Second, relying on the whims of the market is inconsistent with the
principal goal of Social Security--guaranteeing a basic level of
security, even when private investments fail.
As one who worked personally as a trader and as the head of a major
financial firm, I understand that stocks can move down, or sideways,
for extended periods. While all workers should save on their own in
private accounts, the purpose of Social Security is to establish a
floor below which they will not be allowed to fall. The Commission's
proposals would drastically lower that floor.
This would be a mistake, especially when one considers that average
benefit levels are now only about $10,000 a year--hardly enough to live
on in many parts of the country. As I pointed out to the Chair on a
number of occasions, the average benefit for women is closer to $9,000.
That is not sufficient to provide a secure retirement in most parts of
the country--certainly not in New Jersey and I suspect not in Michigan.
Another argument in the letter I received from the six Commissioners
focused on what some people have referred to as the ``clawback''
provisions in their proposals. The Commissioners don't like the term
``clawback,'' and I am not going to get into a semantic debate with
them about it. But my main point here is undisputed: each of the
Commission's plans--there are three of them--would reduce guaranteed
benefits based on amounts workers contribute to privatized accounts.
These cuts would be in addition to the direct cuts in guaranteed
benefits that would apply to all seniors, even those who do not
contribute to privatized accounts.
I think many Americans would see this as political sleight of hand--
giving with one hand, and taking away with another.
Another issue addressed in the Commissioner's letter is whether this
automatic benefit cut proposal would apply to ``near retirees.'' The
six Commissioners argued that the Commission's plans ban persons older
than 55 from participating in privatized accounts. However, this
actually isn't clear from the text of the report. Nor have the
Commissioners explained why older Americans should be banned from
participating in privatized accounts if that is such a great idea. Why
are they being left out of such a wonderful opportunity to reduce their
guaranteed benefit?
Next, the Commissioners dispute my point that the Commission's plans
would force many Americans to delay their retirement. On this point, I
acknowledge that their proposal does not explicitly raise the legal
retirement age. And I have never claimed otherwise. But my point is
that their proposals cut benefits so drastically that the effect is the
same.
Many people would be forced to work longer to build up more assets,
in order to maintain the same level of retirement security. In fact,
one of the Commission's plans would directly target benefit cuts at
those who retire at 62. It seems clear that, as a practical matter,
this will force many seniors to delay their retirement.
Another point in the letter from the six Commissioners is that their
proposals would reduce the amount of general revenues that would be
required to maintain the solvency of the Social Security trust fund. To
the extent that they are calling for deep cuts in guaranteed benefits,
that's right. But, by that logic, we could eliminate the need for any
general revenues by eliminating guaranteed benefits altogether.
To me, this just isn't a good argument for the deep cuts in benefits.
I will not go into each and every argument raised by the six
Commission members. But I ask unanimous consent that a copy of my
written response to the Commissioners be printed in the Record at the
end of my statement.
The ACTING PRESIDENT pro tempore. Without objection, it is so
ordered.
(See Exhibit I)
Mr. CORZINE. Madam President, I have been very critical of the letter
written by the six Commissioners, as I have been critical of materials
prepared by the CATO Institute in the past. But I know they reflect
deeply held beliefs, and I sincerely want to thank them for engaging in
the debate. In my view, the debate that has begun here with the CATO
Institute and the six Commissioners is a good thing because it
highlights our differences for the American people. Every American has
a stake in the future of Social Security.
It is disappointing that the Bush administration is trying to push
this matter under the rug, and seems to want to defer the debate until
after the November election. That would be wrong. The American people
have a right to be part of this process.
Let me close and again emphasize the important points that Americans
need to understand. The Bush Commission's privatization plans involve
cuts in guaranteed benefits for many current workers of 25 percent, and
future benefits for seniors could be cut as much as 45 percent. These
cuts would apply even to those who choose not to invest in privatized
accounts. And they would have the effect of forcing Americans to delay
their retirement.
For these reasons, I strongly oppose these proposals, and I look
forward to continuing this dialogue with those who are supporters of
privatization. The future of Social Security is too important to be
left out of the limelight and negotiated behind closed doors. We need
to have an open discussion.
I thank the Presiding Officer for this opportunity to speak about
privatization.
Exhibit I
U.S. Senate,
Washington, DC, June 6, 2002.
Ms. Leanne Abdnor, et al.,
Boulder, CO.
Dear Ms. Abdnor, Mr. Penny, Mr. Saving, Mr. Vargas, Mr.
Cogan and Ms. Mitchell: Thank you for your letter of May 23.
I appreciate your apparent willingness to engage in a
dialogue with respect to the report of the President's Social
Security commission, and trust you agree that the future of
Social Security deserves nothing less than a full public
debate. Although we obviously disagree strongly about the
merits of privatizing the program, I look forward to hearing
more from you as we seek to educate the public about the
plans you helped produce last December, along with the 10
other members of the Commission who did not sign your letter.
Having said that, I was disappointed by your letter and
believe it presents several arguments about the Commission's
report and my reactions to it that are, at best, misleading.
Perhaps our most fundamental disagreement concerns the deep
cuts in guaranteed benefits included in the Commission's
proposals. You attempt to obscure these cuts by arguing that
reductions in benefit levels, relative to those promised
under current law, should not be considered cuts. Instead,
you begin by assuming that the trust fund's assets will be
depleted and Congress will refuse to take the steps necessary
to honor these promises in the future (even though you also
assume that massive amounts of general revenue will be
available to subsidize privatized accounts). You then use
this assumption to claim that if Congress affirmatively
reduces benefits through a change in current law, this should
not be considered a ``cut.''
To me, this is tantamount to a borrower telling a lender: I
haven't saved enough, and therefore I have a right to default
on your loan--and, moreover, the reduction in my payments to
you should not be considered a ``cut'' in your income. Surely
the lender in such a situation would experience the loss of
income as a real cut--just as seniors would experience a
reduction in their promised benefits as a cut.
In my view, it is a distortion of the English language to
claim that a change in the law that intentionally reduces
benefit levels, as the Commission has proposed, should not be
considered a cut. This claim is especially problematic
because the Commission's proposed cuts would be so deep for
many beneficiaries--exceeding 25 percent for many current
workers, and exceeding 45 percent in the future. The
Commission should be open and honest about this.
Furthermore, it is important to emphasize that cuts
proposed by the Commission apply even to those who choose not
to participate in the option of privatized accounts. This
belies claims that the Commission's plan is based on
voluntary choice.
The Commission's report also includes proposals for deep
cuts in benefits for disabled individuals. These Americans
would not be able to save in privatized accounts when they
were disabled and not working. In any case, under the
Commission's proposals, such disabled individuals would not
have access to the privatized accounts until they reached
retirement age. The treatment of the disabled again belies
claims that the Commission's plan is based on voluntary
choice. While I understand that the Commission expressed
concern about the impact of its own proposals on the
disabled, it nevertheless relied on savings from these cuts
to make its numbers add up. Without these savings, the
Commission's plans would not restore the Trust Fund to long-
term solvency.
[[Page S5110]]
I recognize that you believe that privatized accounts will
offset the cuts in guaranteed benefits. However, this is
wrong for at least two reasons. First, the combination of
reduced guaranteed benefits and income from private accounts
in many cases would be less than the benefits under current
law, even under the assumptions used in the Commission's
report. Second, relying on the whims of the market is
inconsistent with the principal goal of Social Security--
guaranteeing a basic level of security, even when private
investments fail.
As one who worked personally as a trader and as the head of
a major financial firm, I understand that stocks can move
down, or sideways, for extended periods. While all workers
should save on their own in private accounts, such as 401(k)
plans and IRAs, the purpose of Social Security is to
establish a floor below which they will not be allowed to
fall. The Commission's proposals would drastically lower that
floor. This would be a mistake, especially when one considers
that average benefit levels are now only about $10,000 a
year--hardly enough to live on in many parts of the country.
You also argue that I wrongly accuse the Commission of
adopting a ``clawback'' proposal. But yours is a semantic
argument that rests on a very narrow and arguably incorrect
interpretation of this colloquial term. Your claim is that
this term applies only to reductions in privatized accounts,
not to reductions in guaranteed benefits. However, even if
one accepts this narrow definition, my basic point remains
undisputed. Each of the Commission's plans would reduce
guaranteed benefits based on amounts contributed to
privatized accounts. These cuts would be in addition to the
direct cuts in guaranteed benefits that would apply to all
seniors, even those who do not contribute to
privatized accounts. To many Americans, this will seem
like giving with one hand, but taking away with another.
To defend your proposal for automatic cuts, you cite a
quote from page 99 of the Commission's report that is highly
misleading as presented. That quote states that ``no
adjustments to traditional Social Security benefits would be
made as a function of the accumulations in [privatized]
accounts.'' This is technically true, but it obscures the
more important point: traditional guaranteed Social Security
benefits would be cut based on workers' contributions to
privatized accounts. Thus, regardless of whether the market
rises or falls, guaranteed benefits will be cut just as
deeply, undermining the value of Social Security as a
backstop against possible destitution.
Next, you argue that I was wrong to conclude that this
automatic benefit cut proposal would apply to ``near
retirees.'' More specifically, you argue that the
Commission's plans ban persons older than 55 from
participating in privatized accounts.
However, while the descriptions of two of the plans in the
Commission's report prominently include the ban, in the
description of Model 1, the ban is conspicuously absent. You
may want to check pages 110, 119, and 131 in the Commission's
report to see this clear difference in the descriptions of
the three plans. If one were to apply basic principles of
statutory construction to the text of the Commission's
report, the obvious conclusion would be that Model 1 does not
contain the same age limitation as do the other models.
I understand your claim that it was not the intent of the
signers of your letter to apply the automatic cuts to those
who contribute to privatized accounts under Model 1. However,
given the language of the Commission's report, this still
seems a reasonable interpretation of the intent of the
Commission as a whole. You may want to raise this with the
other members of the Commission and have the entire
Commission submit a modification of its report to the
Congress, if they share your intent. Such a submission might
include an explanation of why older Americans are banned from
participating in privatized accounts if, as you seem to
suggest in your letter, such accounts do not put the
guaranteed benefits of participants at risk.
You also dispute my point that the Commission's plans would
force many Americans to delay their retirement. To clarify, I
never said, nor did I mean to imply, that your proposal
explicitly raises the legal retirement age. My point is that
cutting the level of guaranteed benefits so drastically could
have the same effect. This is because individuals would be
forced to work longer to build up more assets, in order to
maintain the same level of retirement security. Note that one
of the Commission's plans would target benefit cuts at those
who retire at 62. It seems clear that, as a practical matter,
this will force many seniors to delay their retirement.
Another point you make in your letter is that the
Commission's proposals would reduce the amount of general
revenues that would be required to maintain the solvency of
the Social Security Trust Fund. To the extent that you are
calling for deep cuts in guaranteed benefits, I acknowledge
that your proposals would have this effect, and have never
argued otherwise. In fact, the benefit cuts associated with
the change in indexing are so substantial that, by
themselves, they would restore long-term balance. However,
the high cost of privatized accounts then forced the
Commission to rely on massive general revenue subsidies to
achieve long-term solvency.
Your letter also complains about critiques that ``count
`current law benefits' but not the taxes required to pay
them''. This complaint seems disingenuous, considering that
the Commission itself depends on substantial transfers from
the rest of the budget without making clear how those would
be financed. Under the Commission's plans, these transfers
would be necessary to fully fund privatized accounts and
partially address trust fund solvency. Yet given projections
of deficits outside of Social Security for the foreseeable
future, one might have expected the Commission to explain
whose taxes would be raised and whose services would be cut
to generate the need savings. The Commission's report
includes no such explanation. However, one way to reduce the
need for such taxes is to not subsidize privatized accounts
in the first place.
I do accept your point that investing in broadly
diversified funds reduces risks. That is true and, again, I
have never argued otherwise. However, while diversification
reduces risks, significant risks remain. The value of even a
diversified account can decline significantly at any time,
and can stay depressed for years. If this were to happen when
an individual is retiring, the consequences could be
catastrophic without Social Security's basic level of
guaranteed benefits.
Finally, it is hard to argue that the Commission
represented a balanced forum for the open consideration of
differing points of view. After all, the membership of the
Commission was stacked from the beginning with those who
support a shift to privatized accounts, and the Commission
was specifically directed to promote such accounts. That is
not your fault, and I do not blame you for holding policy
beliefs in good faith. But it seems to many observers that
the basic recommendations of the Commission were largely
predetermined by President Bush when he selected such a one-
sided group of members and then limited the scope of options
they were allowed to consider.
In sum, I stand by my critique of the Commission's report
and believe that the benefit cuts it proposes would be a
serious mistake for our nation, and the millions of Americans
who will depend on Social Security in the future.
I look forward to continuing our dialogue in the months
ahead, and hope you will be able to convince the White House
and the Republican congressional leadership to join in the
discussion before this fall's elections.
Best regards,
Jon S. Corzine,
U.S. Senator.
(Mr. NELSON of Nebraska assumed the chair.)
Ms. STABENOW. Mr. President, will my colleague from New Jersey yield?
Mr. CORZINE. Yes.
Ms. STABENOW. I appreciate my colleague stepping in the Chair so I
might come down for a moment before my good friend from New Jersey
leaves.
I wanted to indicate my personal thanks to him--as well as my
colleagues whom I know share this gratitude--for his willingness to
come to the floor and articulate in such a precise way and an
understandable way what the challenge is to this whole question of
Social Security and privatization of Social Security; and the fact the
Senator has been willing to put the time in to really make it clear
what is at stake for people, I am very grateful. I thank him on behalf
of the people of Michigan for doing that.
I wanted to ask one question before the Senator left. I know one of
the things we talked about before is that Social Security is not just
retirement. It is also a disability policy. If you are a worker and
become disabled, your family is able to receive assistance, as a
disability policy. If you, unfortunately, lose your life on the job, it
is a life insurance policy.
Isn't it also true that we really have three parts to that system? I
know the Senator from New Jersey spoke to that as well. This is not
only a question of retirement, but it is a question of a security
system--disability, life insurance, and retirement. That is why it is
so critical that it remain in place.
I would appreciate it if the Senator might speak to that for a
moment.
Mr. CORZINE. Mr. President, I very much appreciate the comments of my
colleague from Michigan, whom I know has been so vocal about the need
for a prescription drug benefit and the cost containment issue.
Actually, we need a whole list of approaches to make sure our seniors
in America have access to the American promise, and we need to work to
make that happen. Prescription drugs must be part of that. Protecting
Social Security must be, as well.
As it relates to the disability benefits, the proposals in the
Commission's report would be even more devastating to disabled
individuals than to retirees. Disabled people would not be able to
build up assets in a privatized account if they are unable to work. And
to the extent that they have assets in such an
[[Page S5111]]
account, they would not be available until an individual retires. Even
the Commission expressed discomfort with their own cuts in disability
benefits, though in the end they relied on the savings from such cuts.
I very much appreciate the distinguished Senator from Michigan
speaking out on this aspect of the Bush Commission's cuts. Because, as
she suggests, these cuts do go beyond retirees, and also jeopardize the
disabled and those young people who lose a parent. That needs to be
understood by the American people.
Mr. President, privatized accounts can provide some benefits, if
trees grow to the sky and the market never goes down or sideways. But
if history is any guide, that is not really how the world works. In the
real world, privatization would put at serious risk Social Security's
floor level of support for the disabled, children, and our retirees.
Again, I thank the Senator for her question and for her support. I
hope she will also see that same kind of support with regard to her
efforts to contain the costs of prescription drugs, and to provide
prescription drug benefits, both of which are serious and important
issues for our country.
The PRESIDING OFFICER (Mrs. Murray). The Senator is recognized.
Mr. NELSON of Nebraska. Madam President, I ask unanimous consent that
I be able to speak until about 6 minutes after 10.
____________________