[Congressional Record (Bound Edition), Volume 145 (1999), Part 4]
[Senate]
[Pages 4730-4731]
[From the U.S. Government Publishing Office, www.gpo.gov]




            FINANCING SOCIAL SECURITY WITH GENERAL REVENUES

  Mr. KERREY. Mr. President, I rise today to talk about the financing 
of the Social Security program. The President's plan to reserve the 
surpluses for Social Security has presented us with an opportunity to 
have a discussion about the way Social Security is currently financed--
and to have a debate about how we want to finance the Social Security 
system in the future.
  I want to say at the outset that some of my colleagues on both sides 
of the aisle have closely examined the President's proposal to infuse 
the Social Security system with general revenues--and decided not to 
support a financing reform mechanism that does not lead to structural 
reforms. For my colleagues on the Democratic side who have decided not 
to support general revenue transfers to Social Security, this is a 
politically difficult position to support--but a commendable one.
  With his plan to reserve the surpluses for Social Security, the 
President has helped me to understand for the first time that the 
Social Security program is facing a serious funding problem in the year 
2013. I now realize that in 2013, the payroll tax dollars flowing into 
the Social Security program will no longer be large enough to fund the 
current level of benefits. As a result, the Social Security 
Administration will start cashing in its trust fund assets--those 
special-issue Treasury bonds--to pay for Social Security benefits.
  The Treasury has to make good on these bonds by giving Social 
Security a portion of general revenues. This means that starting in 
2013, Social Security beneficiaries have a claim on not only the 
payroll tax dollars, but also the income tax dollars of working 
Americans. Let me say that again, Mr. President. Starting in 2013, 
Social Security beneficiaries have a claim on both the payroll tax 
dollars and the income tax dollars of working Americans. So as not to 
mislead, let me say that these beneficiaries will also have a claim on 
other general revenues, such as corporate income tax dollars. 
Furthermore, in order for the Treasury to make good on these 
obligations without cutting discretionary spending, it is likely 
Congress will either have to raise income taxes or return to deficit 
spending.
  Now under current law, this infusion of general revenues into Social 
Security is scheduled to end in 2032--at which point a future Congress 
will have to decide whether to raise payroll taxes or cut benefits. The 
President's proposal allows this Congress to pass the responsibility 
for enacting reform off to the Congress convening in 2055. Furthermore, 
what the President proposes to do is to fund a substantially larger 
portion of the program with income tax dollars. In fact, he is turning 
a funding problem into a funding virtue by guaranteeing that future 
income tax dollars will continue to fund Social Security benefits until 
2055. This means that the baby boomers will have an even larger claim 
on future tax dollars.
  On how many future income tax dollars do the boomers have a claim? 
Well, in fact, the Social Security actuaries have quantified for us 
exactly how many more general revenues will be given to the Social 
Security program as a result of the President's plan. According to the 
actuaries, Social Security beneficiaries already have a claim on 
general revenues worth $6.45 trillion in nominal dollars. President 
Clinton will commit an additional $24.765 trillion in general revenues 
to the Social Security program between the years of 2015 and 2055--for 
a total of $31.215 trillion in general revenues.
  You heard me correctly, the President's plan commits an additional 
$24.765 trillion of general revenues--$4.85 trillion in constant 1999 
dollars--to pay for Social Security benefits--above and beyond the 12.4 
percent payroll tax that is levied on all workers. This chart 
demonstrates that in any given year we will be committing up to $2 
trillion of general revenues for Social Security benefits. If you look 
at this in terms of constant 1999 dollars, we are talking about $200 to 
$300 billion of general revenues that will be committed to Social 
Security each year in the 2030s, 2040s, and 2050s. If you look at it in 
terms of a percentage of GDP, the Clinton plan will divert general 
revenues worth 1.5 percent of GDP to Social Security for each year from 
2032 through 2055. That is a general revenue transfer each year nearly 
as large as the entire defense budget.
  Now it may come as a surprise to my constituents watching this at 
home to hear that the President is committing massive amounts of future 
general revenues to Social Security. And the reason they aren't aware 
of this fact is because he has made no effort to inform them. He has 
cleverly hidden his proposal behind the rhetoric of ``saving the 
surplus for Social Security.'' If the President wants to openly make 
the case for funding more Social Security benefits through income tax 
dollars, let me be the first to encourage an open and honest debate on 
that very subject. In fact, it is a very Democratic argument to fund 
Social Security through the more progressive income tax rather than the 
regressive payroll tax. But I encourage him to enter this debate 
candidly and to explain to the American public the tradeoffs of 
infusing general revenues into the Social Security program.
  I have heard the group of us who are working on substantive Social 
Security reforms--Senators Moynihan, Breaux, Gregg, and Santorum--
referred to as the ``Pain Caucus'' because we advocate structural 
reforms to the system

[[Page 4731]]

through benefit changes or future payroll tax adjustments. Well, we 
believe less in pain than in truth in advertising. The President also 
has a great deal of pain in his plan--a hidden pain in the form of 
income tax increases that will be borne by future generations of 
Americans. I strongly disapprove of a plan that provides a false sense 
of complacency that Social Security has been saved by this nebulous and 
vague idea of ``saving the surplus''--while failing to disclose the 
real pain that will be imposed on future generations.
  Let me talk for a moment about the history of the Social Security 
program and its financing. The idea of a Social Security program was 
first discussed by Frances Perkins as a means for providing the widows 
of coal miners a financial safety net. Today, the Social Security 
program provides an intergenerational financial safety net to retirees 
and the disabled, and their spouses, survivors, and dependents. Social 
Security has always been financed by a tax on payroll. When the program 
began, the total payroll tax was 1 percent of the first $3,000 of 
earnings--paid for by both the employer and employee. Today, all 
covered employees pay a Social Security payroll tax that is equal to 
6.2 percent of the first $72,600 of their annual wages. In addition, 
the employer must pay an additional 6.2 percent payroll tax on the 
first $72,600 of each employee's wages.
  The excess Social Security payroll tax income has always resided in a 
trust fund. Through the 1970s, this trust fund generally had only 
enough assets to pay for about one year's worth of benefits. The 1977 
Social Security amendments marked the first time that the trust funds 
were allowed to accrue substantial assets--though this accrual was not 
necessarily deliberate.
  During the 1983 reforms, Congress made this implicit accrual of 
assets explicit--and declared its goal to be the prefunding of the baby 
boom generation's Social Security benefits. Congress tried to pre-fund 
the baby boom generation by accelerating the payroll tax rate schedule 
increases that were agreed to in the 1977 amendments, by covering all 
federal government and non-profit employees, and by raising the payroll 
tax rate on the self-employed.
  Not surprisingly, several Presidential administrations took advantage 
of the overflowing Social Security coffers--and used an overlevy of the 
payroll tax to fund both the general operations of government and 
expensive income tax cuts. Many of the payroll tax dollars that flowed 
into the trust funds were immediately borrowed to pay for tanks, roads, 
and schools. Many of these payroll tax dollars were also used to offset 
major income tax breaks. Is it any surprise that Reagan was able to 
afford a reduction in the top marginal tax rate from 70 to 50 percent 
in 1981 and from 50 to 28 percent in 1986 in the wake of the payroll 
tax hikes of 1977 and 1983?
  The irony is that the story has now come full circle. While former 
Presidents financed income tax cuts with payroll tax hikes, Mr. Clinton 
now wants to maintain a lower-than-necessary payroll tax rate by 
increasing future income tax revenues.
  Mr. President, one of my goals today is to make clear my desire that 
this Congress and this President have an honest debate about how to 
finance Social Security. But one of my other goals today is to talk 
about the need to reform the program to improve the lives of our 
Nation's minimum wage workers. As many of my 206,278 Nebraska 
constituents collecting old-age Social Security benefits can attest--
Social Security is not a generous program. In fact, the average old-age 
benefit in Nebraska is under $750 a month. When you factor in rent, 
food, prescription drug benefits, and part B premiums, $750 is not a 
generous benefit.
  As many of my colleagues may know, the size of a retiree's Social 
Security check depends on a number of important factors--how much you 
worked, how much you earned, and at what age you retire. In order to 
determine your monthly benefit, the Social Security Administration 
takes all of this information and applies a complicated benefit formula 
designed to replace a portion of the monthly income to which you have 
become accustomed over the course of your life. This replacement 
formula is not very generous for low-wage, low-skill workers or for 
workers who have been in and out of the workforce sporadically. The way 
it works is that Social Security will replace 90 percent of the first 
$505 of average indexed monthly earnings (AIME) over your lifetime; 
plus 32 percent of the next $2,538 of earnings; and 15 percent of any 
earnings over $3,043 per month.
  Complicated? Yes. But what this means is that a worker who has been 
consistently in the workforce and has had lifetime annual earnings of 
$10,000 per year will receive a Social Security benefit check of about 
$564. This is not substantial--and barely livable. What I propose to do 
is change the benefit formula to replace a larger portion of the income 
of these low-income, low-skilled workers who play a very important role 
in our service economy. And I propose doing this in a cost neutral way. 
By simply changing the replacement formula, we can boost that workers' 
monthly income by 22 percent.
  What I have tried to show this morning is that we need to have an 
honest and open debate about the way we want to finance the Social 
Security program. We also need to have a candid and constructive 
discussion about Social Security reforms that will improve the 
retirement security of all working Americans--including those working 
Americans who are toiling away at low-paying service sector jobs. I 
believe that Congress and the President can and should work together to 
achieve real structural reforms in the program--and do so in a way that 
helps low-income Americans and that shares costs across all 
generations.
  Mr. President, Harry Truman had a sign on his desk which read: ``The 
buck stops here.'' Unfortunately, what this President's plan is saying 
is that the buck stops there--in 2055.
  Our generation has a historic opportunity to make some sacrifices 
now, so that our children and grandchildren may benefit from our having 
served this nation. The sacrifices we make may not be as dramatic as 
those of the generation that lived during Harry Truman's Presidency, 
but they will have a significant impact on the future of our Nation.
  I thank the Chair and yield the floor.

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