[Congressional Record (Bound Edition), Volume 146 (2000), Part 17]
[Senate]
[Pages 24761-24765]
[From the U.S. 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, 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.

[[Page 24762]]

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 eliminating the national debt by 2016. Gore

[[Page 24763]]

     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

[[Page 24764]]

     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 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 24765]]



    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.

                          ____________________