[Congressional Record (Bound Edition), Volume 146 (2000), Part 7]
[House]
[Pages 9160-9163]
[From the U.S. Government Publishing Office, www.gpo.gov]



FEARS OVER CHANGES IN SOCIAL SECURITY SYSTEM PROPOSED BY GOVERNOR BUSH 
                                OF TEXAS

  The SPEAKER pro tempore (Mr. King). Under the Speaker's announced 
policy of January 6, 1999, the gentleman from New Jersey (Mr. Pallone) 
is recognized for 60 minutes as the designee of the minority leader.
  Mr. PALLONE. Mr. Speaker, I do not intend to use the entire hour this 
evening, but I want to take what time I have to discuss my fears, and I 
stress fears, this evening over the changes in the Social Security 
system that have been proposed by Governor Bush of Texas.
  Mr. Speaker, Social Security has lifted millions of seniors out of 
poverty. It is, by far, the most successful economic program ever 
passed by Congress, and the reasons for the success are simple. It 
offers a guaranteed, and I stress guaranteed, benefit for every 
American retiree. More than half of all Americans, especially working 
families, have no retirement savings beyond Social Security.
  Without the guaranteed income provided by Social Security, millions 
of seniors could fall through the cracks left to live out their lives 
in poverty. Recently, Governor George Bush proposed a Social Security 
plan that would undermine Social Security, in my opinion, and 
simultaneously threaten our thriving economy.

[[Page 9161]]

  By diverting funds from the Social Security Trust Fund to set up 
individual retirement accounts, as Bush proposed, the plan would hasten 
the insolvency of the Social Security Trust Fund. It would also force 
seniors to question rather than count on their Social Security 
benefits.
  Now, Governor Bush has also proposed a tax cut that would cost an 
estimated $1.7 trillion. When combined with the cost of his individual 
retirement accounts that he has mentioned with regard to Social 
Security, Governor Bush's plan would spend more than three times the 
projected surplus over the next 10 years. That money would come 
directly out of the Social Security Trust Fund, weakening the program 
even further and leaving little room in the budget for other priorities 
like a prescription drug benefit for Medicare.
  No plan that would endanger the guarantees of Social Security, rob 
the trust fund, and leave other priorities unfunded can possibly be 
taken seriously, and that is why I refer to the Bush plan as extremely 
radical. Democrats have pretty much said that we are going to fight 
this dangerous ill-conceived proposal, and I think we need to fight it 
every step of the way.
  Mr. Speaker, I want to discuss three of my concerns about the Bush 
Social Security plan in a little more detail this evening. First of 
all, I would like to express my concern that ultimately Governor Bush's 
plan would lead to complete privatization of Social Security. Right now 
the governor is saying only 2 percent of the money would be invested by 
individuals in retirement accounts.
  But in an Associated Press story on May 17, just a week or so ago, 
Governor Bush said it was possible workers would eventually be allowed 
to invest their entire Social Security tax, not just a portion of it.
  The Houston Chronicle reported on the same day, and I quote, ``Bush 
on Tuesday said his plan to create private savings accounts could be 
the first step toward a complete privatization of Social Security.''
  And I want to stress this: the Social Security program was began 
under Franklin Roosevelt. The Republican leadership for many years 
totally opposed it being started, and I think that this is part of a 
historical trend essentially that what Governor Bush is saying, I do 
not like a government program, Social Security is a government program. 
Ultimately, I think it is best if it is privatized completely.
  The second concern I have is this question of whether or not there 
will be a guaranteed income, because that is what Social Security is 
about to most seniors. They know that when they retire they will have a 
guaranteed income every month, and a certain amount over the course of 
the year.
  Well, when asked on May 15 whether or not there would be a guaranteed 
income, basically Governor Bush said this, and this is from the Dallas 
Morning News of May 15, ``maybe or maybe not.'' Asked whether he 
envisions a system in which future beneficiaries would receive no less 
than they would have under the current system, Mr. Bush said ``maybe, 
maybe not.''
  Well, what he was essentially admitting was that it was conceivable 
that a worker taking advantage of these private investment accounts 
would get a lower guaranteed benefit from Social Security, and we know 
that that obviously is the case, because it would depend how that 
worker invested the money since it is an individual decision.
  The New York Times reported on May 17, and I quote, ``Bush also 
refused to say how much benefits might be reduced for workers who 
created private investment accounts. That is all up for discussion,'' 
Mr. Bush said.
  When I say that this is a radical proposal, it is radical because 
most Americans think that they are going to have a certain guaranteed 
income from their Social Security. It is clear that with the private 
investment accounts and the further privatization that Governor Bush 
has been talking about, there is no guaranteed income.
  The third major concern that I have and would like to focus on in a 
little more detail this evening is what I call the transition costs, 
the trillion dollars in transition costs that might not be accounted 
for or that Bush is really not accounting for. Bush acknowledged in 
this same Associated Press story that I mentioned on May 17 that he has 
not fully accounted for the cost of moving from the current Social 
Security system to his proposed one.
  Now, Vice President Al Gore says that the cost of that transition 
could be something like $900 billion, almost $1 trillion. The plan laid 
out by Governor Bush leaves out the most important factor, and that is 
the cost. According to a new report published by the Center for Budget 
and Policy Priorities, Bush's privatization plan would cost $900 
billion over the first 10 years. These costs occur because the Social 
Security system must simultaneously pay out current benefits while 
privatization drains over 16 percent of the amount of money coming into 
the system. That is assuming the 2 percent point diversion that Bush 
has talked about. If we combine this with the cost of Bush's nearly $2 
trillion tax cut, the Bush plan will leave multitrillion dollar debts 
as far as the eye can see. This is basically from the Center for Budget 
and Policy Priorities.
  I want to talk a little further about some of the other impacts that 
Governor Bush's privatization plan with regard to Social Security would 
have. Here I would like to raise three issues, three impacts, if you 
will, from this Bush Social Security privatization plan.
  First, it would weaken our economy by eliminating our chance to pay 
down the debt, which we have started to do ever since the surplus 
occurred. Second, it would place at risk the secure retirement benefit 
that Social Security provides. Third, and this is something that I 
think a lot of people have not thought about but we have to think 
about, the Bush Social Security privatization plan would force a 
massive S&L, savings and loan-style bailout if people's investments 
failed.
  Let me talk, Mr. Speaker, in a little more detail about these three 
impacts from this privatization plan.
  First, let me go back to the fact that the Bush plan will eliminate 
the chance to pay down the debt. This goes back to this $1 trillion in 
transition cost that I mentioned before. According to the Center for 
Budget and Policy Priorities, Bush's privatization plan would cost the 
$900 billion I mentioned over 10 years. The reason these costs occur is 
because the Social Security system has to pay out the current benefits, 
as I mentioned, while the privatization drains this other 16 percent. 
But the bottom line is that Bush's own aides acknowledge that these 
transition costs would siphon away the money that could be used to pay 
down the debt. Less debt reduction would translate into higher interest 
payments on the debt over the same 10-year period, which in turn would 
reduce the budget surplus.
  If I could talk about this in a little more detail, I would like to 
contrast it with what Vice President Gore not only has proposed but 
what he is doing. Under Mr. Gore's plan, all of the Social Security 
surplus will go to reducing the national debt held by the public. Some 
of this is already happening. Some of the debt is actually being paid 
down now. What Gore is saying, that he would take all of the Social 
Security surplus and use it essentially to reduce the national debt. 
There would not be that opportunity with Bush's plan. The money simply 
would not be there to exercise that option.
  As I said, not only Vice President Gore but President Clinton and the 
administration's deficit and debt reduction that they have already done 
has already helped the economy and families. Seven years ago, the 
budget deficit was nearly $300 billion and growing; and as a result, 
interest rates were high and growth was slow. By the year 2012, it was 
projected that 25 cents on every tax dollar would be needed to pay 
interest on the debt. Because of this administration, the Clinton-Gore 
administration's commitment to fiscal discipline, deficits have turned 
into surpluses and the Nation's debt is already $1.7 trillion lower 
than it was projected to be this year. Because of

[[Page 9162]]

the deficit and debt reduction that the Clinton administration has 
already done, it is estimated the typical family with a home mortgage 
might be expected to save roughly $2,000 per year in mortgage payments.
  Currently, about 13 cents on every Federal dollar is spent on net 
interest payments. These payments which were once projected to be 
nearly double that would be eliminated under Al Gore's plan. With the 
Government no longer draining resources from capital markets, interest 
rates are lower and businesses have more funds for productive 
investment. Paying off the debt will continue to help fuel investment 
and productivity growth.
  What I am trying to say, Mr. Speaker, is essentially this. Let us 
continue the policy of paying down the debt because ultimately that 
makes the economy grow and it saves money that would be available in 
the long run for Social Security. Let us not go down this risky, 
radical plan that Governor Bush has proposed where on the one hand he 
is spending trillions of dollars on tax cuts and on the other hand his 
transition costs to this privatization plan would use up a significant 
portion of the surplus as well.
  I talked about why my fear about how Bush's privatization plan places 
retirement funds at risk, but I would like to talk about that a little 
more in terms of the second point here on potential impacts of this 
risky Bush plan. For whatever reason, I guess it is because the stock 
market has done so well in the last 5, 10 years now that people do not 
even remember that there was a time when it was not doing that well. 
But the bottom line is that if you have privatization the way Governor 
Bush proposes, it puts individual retirement security at the whims of 
the stock market where people can lose.
  Throughout its history, Social Security has stood as a guaranteed 
secure retirement regardless of the fluctuations of the economy or the 
stock market. Investing these funds in the market means that some or 
all of that benefit could be lost. There was a GAO report that shows 
the risk of stock market investments with Social Security. This is from 
a statement by the associate director of income security issues for the 
GAO, April 22, 1998.
  The GAO report noted that caution is warranted in counting on future 
stock returns in designing Social Security reform. The report goes on. 
However, an average over nearly a century obscures the reality that 
stock returns fluctuate substantially from year to year. Over the past 
70 years or so, stock market returns were negative in nearly 1 out of 4 
years. There is no guarantee that investing in the stock market even 
over 2 or 3 decades will yield the long-term average return. The stock 
market could drop and stay depressed for a prolonged period of time. Of 
course it has. We know that historically it has stayed depressed for a 
long period of time.

                              {time}  1900

  Interestingly enough, in this same GAO report they point out that the 
Social Security Trust Fund actually outperformed nominal stock returns 
35 percent of the time from 1950 to 1996, over a period of 45 or so 
years. The 10-year moving average of the S&P 500 underperformed the 
Social Security Trust Fund's treasury returns at times. A long-term 
average does not reflect fluctuations in year-to-year stock returns. In 
fact, nominal stock returns were less than the Social Security Trust 
Fund's annual yield in 17 years from 1950 to 1996, more than 35 percent 
of the time, from that same GAO report.
  Sometimes I wonder why it is necessary to explain why the stock 
market is a risky business, because I would think that anybody who 
looks at the history of the market knows that that is the case, but I 
guess because the market has done so well in the last few years and the 
last decade there are people, particularly young people, who feel that 
it will always do well. But that is simply not true. It is not borne 
out by the historical facts.
  Let me mention the third impact that I would like to discuss in a 
little more detail this evening, and that is that privatization could 
result in massive government bailouts. The reason for that is simple, 
that if the people who take these private investment accounts do not 
succeed and actually lose money or the stock market goes bad, they are 
going to come back to the Government and ask the Government to bail 
them out, because everybody does that, the big corporations do, the 
savings & loan associations did, and obviously the average person is 
going to do that if they lose all their money and they cannot make ends 
meet.
  Bush and his advisers have indicated that his privatization plan for 
Social Security will have no downside risk and the Government will 
guarantee that future Social Security beneficiaries will receive no 
less than they would have under the current system. Thus, the risky 
nature of the stock market could force the Government to bail out 
Social Security during market downturns or for people who make poor 
investment choices.
  The Governor is saying, Don't worry. If you do these investments with 
your private accounts, don't worry, because we will make it good if you 
don't do well. How is he going to do that without a massive bailout, 
and where is the money going to come from? Ultimately the taxpayers. We 
would have a major problem.
  The other thing is that obviously privatization could make Social 
Security go insolvent a lot earlier. Plans to divert 2 percentage 
points of the payroll tax, or 16 percent of the money paid into the 
Social Security system, into private accounts, could make Social 
Security go insolvent 14 years sooner than it would if no action were 
taken at all. Under a 2 percentage point plan, Social Security could go 
bankrupt by 2023, according to a study again from the Center for Budget 
and Policy Priorities.
  Well, that is common sense. If this money is taken out of the system, 
then this system will go broke sooner; and that is, again, why it makes 
no sense to move with this very risky Bush privatization plan.
  Now, I want to talk a little bit, if I could, about what Vice 
President Gore has proposed and why his plan to shore up Social 
Security is much preferable to Governor Bush's, and certainly not 
risky, by any means.
  Because of the administration's commitment to fiscal discipline, as I 
have mentioned, the Nation's debt is already $1.7 trillion lower than 
it was projected to be this year. In fact, when the administration took 
office, by the year 2012 it was projected that 25 cents of every dollar 
would go to pay the interest on the national debt. That has not 
happened, because we are now paying down the national debt with the 
surplus that has been generated.
  Vice President Gore is basically saying that he is going to pay off 
the national debt and help maintain America's prosperity in a number of 
ways. But what I want to zero in on is how he would dedicate $2.1 
trillion for debt reduction, and this is basically to prepare the 
Nation for the retiring of the baby-boomers.
  He is proposing to use more than 95 percent of the Social Security 
surplus to pay down the debt, with the idea being, of course, that 
ultimately that will strengthen the economy and prepare for the fact 
that so many more senior citizens are going to be retiring as part of 
this baby-boom generation.
  After a decade of debt reduction, Gore transfers the interest savings 
that come from using the Social Security surplus to buy down the debt 
to strengthen the solvency of the Social Security program. By 2016, 
Gore will be adding about $250 billion annually to strengthen Social 
Security until at least 2050.
  He is investing $103 billion, less than 5 percent of the surplus, in 
strengthening Social Security's benefits for older women, because, as 
we know, poverty among elderly women is a major national challenge. In 
1997, poverty among elderly widows was 1 percent, compared to 5 percent 
for married women. Gore believes that we can and should strengthen 
benefits for widows and mothers that were penalized for years spent 
caring for children as part of the plan to extend the solvency of 
Social Security.

[[Page 9163]]

  Now, I could talk in more detail about how the Vice President's plan 
helps older women, but I just want to mention two things, if I could, 
about that before I conclude this evening. One point is to eliminate 
the motherhood penalty. The current Social Security formula is based on 
average earnings over 35 years of work. Because women take several 
years raising their children, the typical woman only works 27 years. 
However, those years raising children do not count towards Social 
Security earnings, effectively creating this motherhood penalty. Gore 
says that he would eliminate the motherhood penalty by allowing parents 
to take credit for up to 5 years of earnings, if they take that time to 
raise children. This would increase Social Security benefits for those 
women by about $600 a year.
  The second thing that Gore would do to strengthen benefits for women, 
under current law widows can have their combined benefits cut in half. 
Living costs such as rent and utilities often do not decrease with the 
death of a spouse, but then there is a cut in benefits to that widow. 
In fact, single elderly women are four times as likely to be poor as 
married women. Gore would fight to raise the widow's benefit to three-
quarters of the couple's combined benefit, helping more than 3 million 
elderly women receive a benefit that reflects their cost of living.
  I am not going to go in more detail tonight, but I know over the next 
few weeks, and certainly after the Memorial Day recess, you are going 
to see myself and other Democrats come to the floor and constantly talk 
about our concerns with regard to the Bush privatization Social 
Security plan, because I really believe it is a radical plan, and I do 
not think the average American or senior understands what it is all 
about.
  This plan, and this is how I want to conclude this evening, the 
greatest fault in it is the numbers simply do not add up. I think this 
goes back, again, to the fact that he has this $1 trillion tax cut, and 
then he is taking all this money out of the Social Security system.
  If you take the money out of the surplus for tax cuts, and then you 
put in effect this risky Social Security plan, it just has too much of 
a drain on the Federal budget. Taken together, the tax cut and Bush's 
privatization plan essentially would swallow the whole surplus for the 
next 10 years, and also use a significant portion of the surplus that 
is dedicated to Social Security.
  The combination of those two large $1 trillion plans and the impact 
that they would have on the budget would basically not leave any room 
for other vital priorities. I think, Mr. Speaker, you know that both 
the Democrats and the Republicans have talked about a Medicare drug 
benefit. There is no way that there would be any money left in this 
surplus to pay for a Medicare drug benefit for seniors if we 
implemented the Bush plan. The money would simply not be there. It just 
does not add up.
  That is not to mention other priorities. Governor Bush has talked 
about education. Where is the money going to come from to pay for our 
education priorities, such as money that goes back to the 
municipalities to pay for extra teachers to bring class size down, or 
money that would go back to the towns around the country for school 
construction and renovation? It just does not add up. The money simply 
is not going to be there.
  So that is why I think it is important for me and Democrats, and 
hopefully Republicans as well, to bring up the truth about this very 
risky privatization plan that Governor Bush has proposed, because it 
would not only have a negative impact on Social Security, but would 
have a negative impact basically on the economy and the Federal budget, 
and essentially I think what Americans see today as the reasons for our 
prosperity.

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