[Congressional Record Volume 149, Number 38 (Monday, March 10, 2003)]
[Senate]
[Pages S3402-S3403]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                         SOCIAL SECURITY REFORM

  Mr. BUNNING. Mr. President, in the upcoming days of the 108th 
Congress, this legislative body may be called upon to tackle the very 
important and very difficult issue of Social Security reform. As it 
currently stands, the Social Security System needs strengthening for 
the sake of our children and grandchildren. I recently read an article, 
written by Mises Institute Scholar John Attarian, which takes us back 
to December 1981, when President Ronald Reagan, alone with House 
Speaker Tip O'Neill and Senate Majority Leader Howard Baker, created a 
bipartisan commission to study Social Security and recommend reforms. 
Alan Greenspan was picked by President Reagan to head-up this 
commission. This article will provide my fellow colleagues with 
insightful information regarding past experience with Social Security 
reform. If we refuse to learn from our previous mistakes and mishaps, 
we are doomed to travel down the same erroneous and errant path. We 
can't just kick the can down the road. Raising taxes on benefits and 
reducing benefits are not an option for Social Security reform.
  I ask unanimous consent that the article be printed in the Record.
  There being no objection, the article was ordered to be printed in 
the Record, as follows:

               Another Greenspan Social Security Reform?

                           (By John Attarian)

       On Thursday, February 27, Federal Reserve Chairman Alan 
     Greenspan told the Senate's Special Committee on Aging that 
     we should tackle Social Security sooner rather than later, so 
     as to avoid ``abrupt and painful'' revisions of the program 
     when the baby boomers start retiring. Congress should, he 
     said, consider things like raising the retirement age and 
     changing the annual benefit Cost of Living Adjustment (COLA), 
     before raising the payroll tax, because a payroll tax hike 
     discourages hiring.
       ``Early initiatives to address the economic effects of 
     baby-boom retirements could smooth the transition to a new 
     balance between workers and retirees. If we delay, the 
     adjustments could be abrupt and painful,'' Greenspan said. He 
     added that Congress should consider switching to a lower 
     inflation rate for the annual COLA, which could save billions 
     in benefit outlays.
       Greenspan's words should set off alarm bells in well-
     informed minds. Almost exactly ten years ago, a National 
     Commission on Social Security Reform headed by Greenspan 
     proposed a package of benefit cuts and tax increases, which 
     Congress enacted with little change, and which turned out to 
     be one of the most oppressive--and underhanded--things 
     Congress ever did to younger Americans over Social Security. 
     It also failed to solve Social Security's long-term problems.


                 background to the greenspan commission

       The 1972 amendments to the Social Security Act not only 
     greatly increased benefits, and created the annual COLA to 
     increase benefits to compensate for inflation, but included 
     an overly generous formula for the COLA which in effect 
     adjusted benefits twice. This plus the inflationary 
     stagnation of the 1970s created Social Security's first 
     funding crisis. To cure it, Congress passed in December 1977, 
     and President Jimmy Carter signed into law, amendments which 
     both undid the overadjustment of benefits and mandated the 
     largest tax increase in American history up till them. 
     Supposedly this would solve the problem permanently.
       It didn't. The long-term actuarial deficit fell from a 
     frightening -8.20 percent of taxable payroll to a still-
     troubling -1.46 percent. Moreover, thanks to inflationary 
     recession, the short-term outlook was calamitous; in 1980, 
     Social Security's Board of Trustees reported a deficit of 
     almost $2 billion in 1979, that by 1982 at the latest, Old-
     Age and Survivors Insurance (OASI) would be unable to pay 
     benefits on time, and that by calendar 1985 Social Security's 
     trust fund would be exhausted.
       So in May 1981, Ronald Reagan's Secretary of Health and 
     Human Services, Richard Schweiker, sent Congress Reagan's 
     proposals for restoring Social Security's solvency.
       Instead of another tax hike, Reagan proposed benefit cuts--
     most importantly, cutting early retirement benefits from 80 
     percent of the full benefit to 55 percent, and increasing the 
     dollar ``bend points'' in the Average Indexed Monthly Wage 
     formula, which break up income into intervals upon which 
     benefit calculations are based), by 50 percent of the average 
     annual wage increase, not 100 percent.
       Reagan walked into a buzz saw. Congressional Democrats, 
     seniors' groups, Social Security architects such as Wilbur 
     Cohen, unions, and others blasted him for ``breaking the 
     social contract,'' and he suffered his first defeat in 
     Congress. In December 1981, he recommended creation of a 
     bipartisan commission to study Social Security and recommend 
     reforms. Reagan picked five members, including economist 
     Greenspan as chairman; House Speaker Thomas ``Tip'' O'Neill 
     picked five; and Senate Majority Leader Howard Baker picked 
     five more. The Greenspan Commission quarrelled bitterly over 
     what to do, missing its December 1982 deadline, and did not 
     issue its report until January 15, 1983.


                    the 1983 social security rescue

       It was just in time. Exhaustion of the Old-Age and 
     Survivors Insurance trust fund was now projected for July 
     1983, meaning benefit checks wouldn't go out on time. Reagan 
     and Congress moved fast. The Commission's proposals were 
     introduced on January 26; both houses of Congress passed the 
     final version of the rescue legislation on March 25; and 
     Reagan signed it into law on April 20, 1983.
       Supposedly, the Greenspan Commission gave politicians a 
     political cover enabling them to bite the bullet on Social 
     Security and even do the unthinkable: cut benefits. 
     Supposedly, the Greenspan Commission's reforms were a 
     compromise between the Republicans, who wanted to cut 
     benefits, and the Democrats, who wanted to raise taxes 
     instead. Supposedly, they therefore spread the pain widely, 
     cutting current benefits, raising current and future taxes, 
     cutting future benefits, and dragging previously exempted 
     persons into Social Security's revenue pool.
       Superficially considered, they did. Current beneficiaries 
     had their July 1983 COLA delayed six months, until January 
     1984, and all beneficiaries would have COLAs paid in January 
     thereafter. For the first time, Social Security benefits were 
     subject to taxation. Beginning in 1984, up to 50 percent of 
     Social Security benefits would be included in taxable income 
     for persons whose sum of adjusted gross income plus taxable 
     interest income plus one-half of Social Security benefits 
     exceeded $25,000 for single beneficiaries and $32,000 for 
     married beneficiaries.
       The future tax increases mandated in 1977 were accelerated; 
     the payroll tax rate increase scheduled for 1985 kicked in in 
     1984 instead, and part of the 1990 increase went into effect 
     in 1988. In addition, the self-employment tax rate, which the 
     1977 law would have increased to 75 percent of the sum of the 
     employer and employee shares of the Federal Insurance 
     Contributions Act (FICA) tax, was raised to 100 percent of 
     this sum.
       Many additional categories of employees were brought under 
     Social Security, including the President, members of 
     Congress, federal judges, federal employees newly hired on or 
     after January 1, 1984, and present and future employees of 
     tax-exempt nonprofit organizations. State and local 
     government employees, who previously were able to opt out of 
     Social Security, no longer could as of April 20, 1983.
       The retirement age (the age at which one could qualify for 
     full Social Security benefits) was gradually raised, to reach 
     sixty-six in 2009 and sixty-seven in 2027. One could still 
     retire early and start collecting early retirement benefits 
     at age sixty-two, but the early retirement benefit would be 
     trimmed from 80 percent of the full benefit in 1983, to 75 
     percent in 2009 and 70 percent in 2027.


                        the 1983 rescue unmasked

       But although the pain was indeed spread widely, it was 
     certainly not spread evenly. The distribution of sacrifice 
     was incredibly lopsided, falling least heavily on current 
     beneficiaries and most heavily on current taxpayers, future 
     taxpayers, and future beneficiaries. In other words, the 
     elderly of 1983 were spared any real hardship, and the bulk 
     of the burden was put on those who were young in 1983 and of 
     Americans yet unborn.
       In the short-run period of 1983-1989, the majority of the 
     pain was borne by taxpayers, not current beneficiaries. Using 
     its intermediate actuarial assumptions, the Office of the 
     Actuary estimated that the amendments would raise an 
     additional $39.4 billion in this period from the higher FICA 
     tax rates, $18.5 billion from the higher self-employment tax 
     rate, and $21.8 billion form extending Social

[[Page S3403]]

     Security coverage to those not then in the system. Total 
     estimated additional revenues from current and newly-created 
     taxpayers: $79.7 billion.
       The new benefit taxation, which would affect only a 
     minority of the current beneficiaries--only the richest ten 
     percent, according to Phillip Longman's 1987 book Born to 
     Pay: The New Politics of Aging in America--would bring in 
     another $26.6 billion. The only major hit taken by all the 
     current beneficiaries, the delay in COLAs, would cut benefits 
     by $39.4 billion over this six-year period, for total current 
     beneficiary losses of $66.0 billion.
       The inequity was even worse in the long run. In 1983, 
     Social Security's actuaries put the long-range actuarial 
     deficit at -2.09 percent of taxable payroll under 
     intermediate assumptions. Raising the retirement age made the 
     largest single contribution to eliminating this deficit, 
     wiping out about a third of it, 0.71 percent of taxable 
     payroll; and this fell entirely upon future beneficiaries.
       Benefit taxation increased the long-term income rate by 
     0.61 percent of taxable payroll--the second-largest 
     contribution to erasing the deficit; it fell somewhat on the 
     (richest) current beneficiaries, but mostly on future ones. 
     These two measures accounted for 1.32 percent of taxable 
     payroll, or almost two-thirds of the long-term actuarial 
     deficit. Most of the rest was eliminated by brining new 
     people (who would initially participate as taxpayers) under 
     Social Security (0.38 percent of taxable payroll), and 
     accelerating the phasing-in of the 1977 tax increase and 
     increasing the self-employment tax rate (0.22 percent).
       It turns out, then, that the allegedly broad sharing of 
     sacrifice was in fact engineered to injure, and provoke, the 
     politically powerful current beneficiaries, who with their 
     allies had routed the Reagan Administration in 1981, the 
     least, and put the lion's share of the hurt on the young, 
     including those not even born yet.
       Moreover, when we examine how the sacrifice broke down 
     between benefit cuts and tax increases, we see that the 
     broad-based rescue was, in reality, disproportionately based 
     on tax increases. The measures to increase revenues--benefit 
     taxation, accelerated tax increases, the higher self-
     employment tax rate, and augmenting the revenue base with new 
     participants--reduced the long-term acturial deficit by 1.21 
     percent of taxable payroll, or almost 58 percent of the 
     total.
       Not only that, the Greesnpan Commission's reforms were shot 
     through with serpentine underhandedness. For one thing, the 
     graudal ramping up of the retirement age and cutting of the 
     early retirement benefit were scheduled so as to bite worst 
     in 2027, 44 years after enactment--in other words long after 
     the politicians who had enacted them had left Congress and 
     were safe from retaliation by angry baby boomers on Election 
     Day.
       For another, the benefit taxation will hit future 
     generations far harder than it hit the current beneficiaries 
     of the 1980s, because the income thresholds which trigger the 
     taxation, $25,000 and $32,000, were not adjusted for 
     inflation (and still aren't). This means that over time, 
     thanks to inflation, more and more beneficiaries will hit 
     these tax tripwires, just as inflation shoved Americans into 
     higher tax brackets before income tax indexing was enacted in 
     1981.
       Phillip Longman maintained that of all the features of the 
     1981 rescue, benefit taxation ``most reduces the benefits 
     promised to baby boomers and their children.'' While benefit 
     taxation hit only the richest beneficiaries when enacted, 
     Longman noted, even with the modest rates of inflation which 
     the Social Security actuaries' intermediate analysis assumed, 
     a $25,000 income in 2030 would have less purchasing power 
     than an income of $4,000 in the mid-1980s! ``So by the time 
     the baby boomers qualify for Social Security pensions, the 
     program will be effectively means tested, if it survives at 
     all. Under current law, i.e., including the 1983 amendments, 
     only the poorest baby boomers are even promised a fair return 
     on their contributions to the system.''
       How's that for a piece of Byzantine cunning?
       Yet for all its heavy burdens, which it imposed with such 
     inequity and insidiousness, the 1983 rescue of Social 
     Security turned out to be only temporarily effective. The 
     1983 Annual Report of Social Security's Board of Trustees 
     projected long-term actuarial balance for Social Security.
       Just five years later, the long-term balance was in deficit 
     again, -0.58 percent of taxable payroll. In 1993, ten years 
     after the great rescue legislation, the long-term actuarial 
     deficit was -1.46 percent. In 1994, thanks to various changes 
     in actuarial assumptions, the Board of Trustees reported a 
     deficit of -2,13 percent--worse than the deficit which the 
     1983 rescue had erased. The long-term actuarial deficit 
     continued to grow, hitting -2.23 percent of taxable payroll 
     in the 1997 Annual Report.
       An improved economic outlook due to the late-1990s 
     prosperity and productivity growth led to optimistic revision 
     of various economic assumptions, and the long-term actuarial 
     deficit began dropping as a result, to -1.87 percent of 
     taxable payroll in the 2002 Annual Report. Nevertheless, the 
     trustees continue to point out that Social Security is not in 
     long-term close actuarial balance and that corrective action 
     is necessary.
       To sum up, the 1983 rescue legislation embodying the 
     recommendations of Greenspan's Commission substantially 
     injured the baby boomers and their younger siblings on the 
     sly--and it didn't help.


                      another stealth ``rescue''?

       The lurking menace in Greenspan's recent remarks is that he 
     may be floating a trial balloon for another stealth 
     ``rescue'' of Social Security which pushes the bulk of the 
     pain into the future and doesn't really accomplish much. It 
     is almost certain that any trimming of benefits by the 
     measures Greenspan advocates--raising the retirement age or 
     shifting to a lower inflation rate for the COLA--would 
     scrupulously avoid arousing the politically formidable 
     current elderly, who are not only organized into pressure 
     groups such as the American Association of Retired Persons 
     and the Seniors Coalition, but, as is well known, participate 
     in voting much more heavily than do the young.
       Notice that Greenspan wants ``[e]lderly initiatives to 
     address the economic effects of baby-boom retirements.'' 
     What's significant here is that he says nothing about cutting 
     current costs, which have exploded to extremely high levels. 
     Benefit outlays were $141 billion ($386 million a day) in 
     calendar 1981 and $268.2 billion ($735 million a day) in 
     calendar 1991, almost double the 1981 figure. In calendar 
     2001, Social Security paid $431.9 billion in benefits ($1.18 
     billion a day), over three times the 1981 cost.
       Moreover, this mushroom growth will continue even before 
     the baby boomers swamp Social Security. Under intermediate 
     actuarial assumptions, benefit outlays are projected at 
     $546.7 billion ($1.5 billion a day) for calendar 2006, before 
     any baby boomers retire, and $746.7 billion ($2.05 billion a 
     day), an increase of 72.9 percent over 2001's figure, for 
     calendar 2011, when boomer retirements have just begun.
       Then, too, just as the Greenspan Commission's 1983 benefit 
     taxation with trigger income levels unadjusted for inflation 
     is a stealth means test, tinkering with the price index for 
     the COLA is itself an intrinsically insidious way to cut 
     benefits. Rather than cut them directly, it finagles the 
     arithmetic on which their adjustment for inflation is based.
       Finally, fiddling with the inflation rate for the COLA may 
     in fact not make all that much difference. Buried toward the 
     end of the February 28 Washington Post piece on Greenspan's 
     remarks was the interesting news that whereas a 1996 
     commission found that the Consumer Price Index overstated 
     inflation by 1.1 percentage points a year, another study done 
     in 2000 found that improvements in the index made by the 
     Bureau of Labor Statistics had whittled the overstatement 
     down to 0.6 percentage points a year, an improvement of 
     almost 50 percent.
       Now, the Social Security actuaries have already factored in 
     the improvements in the Consumer Price Index. Both the 
     improvement in the long term actuarial deficit in recent 
     years and the projected explosion in outlays by 2011 already 
     take the more-accurate index into account. Which leads one to 
     wonder just how much we'd really gain by tinkering with the 
     CPI some more.
       So while Greenspan's recent testimony seems like a 
     courageous and tough-minded warning about Social Security, 
     under close scrutiny it looks like the makings of another 
     serpentine but ineffectual attempt to fend off disaster.

                          ____________________