[Congressional Record (Bound Edition), Volume 148 (2002), Part 8]
[Senate]
[Pages 10752-10755]
[From the U.S. Government Publishing Office, www.gpo.gov]




                            SOCIAL SECURITY

  Mr. CORZINE. Madam President, I appreciate this opportunity to, once 
again, speak on a topic I believe needs to be debated fully in front of 
the American public and before this fall's elections. That topic is 
Social Security and the proposals circulating with regard to 
privatization of Social Security and the reduction in guaranteed 
benefits for future generations.
  Yesterday two of our Nation's top experts on Social Security issued a 
thoughtful and detailed new study on the recommendations of the Bush 
Social Security Commission to privatize Social Security. The report was 
prepared by Dr. Peter Orszag of the Brookings Institution and Dr. Peter 
Diamond of the Massachusetts Institute of Technology, who is the 
incoming president of the American Economic Association--two credible, 
thoughtful researchers who bring objectivity to their work in this 
area.
  The report by Drs. Orszag and Diamond objectively confirmed what I 
and many Democrats in the House and Senate have been trying to say on a 
regular basis on the floor for some time: The Bush Social Security 
Commission has developed privatization plans that would force deep cuts 
in guaranteed benefits. Those cuts for many current workers could 
exceed 25 percent and for some future retirees up to 45 percent.
  These cuts would apply to everyone, even those who choose not to risk 
their benefits in privatized accounts. Cuts would be even deeper for 
those who do invest in privatized accounts. In fact, actual cuts are 
likely to be deeper than current estimates, as the Commission's plans 
depend on substantial infusions of revenues from the General Treasury.
  Given the current state of our Federal budgetary policies, it is 
pretty hard to expect that we will put $2.5 to $3 trillion into the 
Social Security fund from the general revenues over the next 40 years 
or so, with the major demands we have on our general revenues.
  Remember, what we actually will be doing is spending Social Security 
trust fund moneys for those general purposes, as opposed to infusing 
money into the Social Security trust fund.
  This year we will run roughly a $300 billion deficit, if you include 
expenditures out of the Social Security trust fund, taking every penny 
of that to spend on other things, some quite responsible with regard to 
national security and homeland security. The fact is, we are using 
Social Security funds for everything but Social Security.
  With respect to the basic elements of the Orszag and Diamond report, 
they spell out in great detail all of the cuts in guaranteed benefits. 
I urge my colleagues to take a look at it. This is not just political 
rhetoric. This is about the facts of what this Commission's report is 
proposing. It is noteworthy. In fact, it is newsworthy.
  The New York Times today--and I will include the article for the 
Record--gives a good summary of the report and relates the fact that 
guaranteed benefits are going to be cut if we follow the propositions 
included in that report.
  First, the Orszag and Diamond report provides a lot of detail about 
how these deep benefit cuts will come about. It finds that, even if you 
add income that can be derived from the privatized accounts, many 
seniors would be substantially worse off under the Bush Commission 
plans than under current law.
  Let me repeat that, because this is one of the arguments I hear 
coming back all the time when we talk about Social Security. Even if 
you add the income that can be derived from privatized accounts, many 
seniors would be substantially worse off under the Bush Commission 
plans than the current system.
  Take, for example, a two-earner couple who claims benefits at age 65 
in 2075. Their guaranteed benefits would be reduced by 46 percent. 
Since the whole point of Social Security is to provide guaranteed 
benefits, this 46-percent cut is what actually matters. They go through 
the detail of itemizing how you get to that, but that is the bottom 
line. There is no argument with the numbers. In fact, they are verified 
by the Social Security actuaries themselves in the Bush Commission 
report.
  Having said that, I recognize it is possible that cuts in guaranteed 
benefits will be offset in some part by income from privatized 
accounts. It is possible, but it may not even be likely. The Orszag-
Diamond report actually makes that quite clear.
  As their report explains, if you go back to the couple whose 
guaranteed benefits would be cut by 46 percent and use assumptions 
adopted by the Social Security Administration, this couple, on average, 
would be able to offset about a quarter of their benefits with income 
from an annuity purchased with the proceeds from their privatized 
account. However, if my arithmetic is right, that still leaves them 
with a 21-percent cut in benefits compared to current law.
  This 21-percent net cut in benefits is not the end of the story 
because projected income from privatized accounts also comes from 
increased risk. In the world I came from, we used to assign 
probabilities about whether events would happen. It is called the risk-
adjusted view of what returns would be. These alternative proposals are 
not guaranteed. They are not locked in. Sometimes they can be great; 
sometimes they can be poor. Markets move sideways for long periods of 
time.

[[Page 10753]]

Sometimes they go up; sometimes they go down.
  Not only are you getting real cuts that the Orszag-Diamond report 
itemizes, but you are also taking on the risk with these privatized 
accounts that you won't have the resources to buy that actuarially 
presumed annuity that is going to make up for those benefits.
  After all, the promise of a dollar backed by the full faith and 
credit of the U.S. Government in your Social Security is a lot better 
than those risk-adjusted returns in the stock market. That is what the 
American people are looking for.
  Drs. Orszag and Diamond decided to make such an adjustment using the 
risk adjustment approach as advocated by the Bush Office of Management 
and Budget so they could actually make these things on comparisons that 
are real. They found, if you adjust those benefits, as I suggested, for 
the levels of risk, the same two-couple wage earner would face a 40-
percent cut in benefits. That is using these statistical adjustments 
that are reasonable.
  Madam President, this puts the lie to those who claim it is worth 
cutting guaranteed benefits in return for a gamble in the stock market. 
It just doesn't work out. The truth is, even using the assumptions of 
the administration, privatized accounts are a risky, bad deal and are 
not likely to compensate for the deep cuts in guaranteed benefits they 
would require.
  The next point I want to bring out from this Orszag-Diamond study 
relates to one of the assumptions of the Bush Social Security 
Commission--the assumption of large infusions of general revenues from 
the rest of the budget. They suggest you put that in conjunction with 
where we are in our budgetary status in the country today, and we have 
trouble to start with just on a fundamental basis. But the Orszag-
Diamond report finds that under model 3--there are three different 
models the Commission talks about--the present value of the general 
revenue transfers in 2001 dollars, to flush up the Social Security 
trust fund and make it actuarially sound, is $2.8 trillion. That is a 
lot of dough. I have a hard time even understanding what $2.8 trillion 
is, but I don't think we have that kind of money laying around in our 
general revenues.
  If you protect disabled individuals from cuts, since they generally 
cannot work and make contributions to privatized accounts, you would 
need $3.1 trillion in general revenues. The totals for model 2 are 
almost as high.
  Madam President, $3.1 trillion is such a huge number that I am sure 
many Americans don't have an idea of what that really means. But it is 
almost as large as the entire publicly held debt we have, which we have 
accumulated over 225 years, which is now $3.4 trillion. In fact, it is 
almost as large as the entire Social Security shortfall, which we are 
trying to correct in the first place, which is $3.7 trillion over the 
next 75 years.
  In other words, if we really will have $3.1 trillion in extra general 
revenues sitting around doing nothing, we could solve this Social 
Security problem just flatout. We would not have to move to 
privatization, or adding risk adjustments to individual accounts to try 
to get this done; and certainly we would not have to move to these 
kinds of significant cuts in benefits that are proposed in the 
commission's suggestions.
  That sounds pretty good and pretty easy, but is it realistic to 
assume that we would have that extra $3.1 trillion just available to 
subsidize privatized accounts? The Bush commission obviously thinks so. 
But they are hard pressed to find many others who would agree. In fact, 
now that the Bush tax cuts have been enacted, which by themselves will 
cost $8.7 trillion in that same period, we are now looking at 
projections of deficits for years to come.
  So long as those tax breaks remain in place, the Commission's 
assumption of large general revenue transfers is pretty much in the 
world of fantasy.
  Another point made by the Orszag-Diamond study is that the privatized 
accounts proposed by the Commission don't just drain money from the 
Social Security trust fund over the next 75 years; they drain the trust 
fund permanently. This may surprise some people who think privatization 
would involve some short-term transition costs.
  We often hear about a $1 trillion transition cost. But the fact is 
that these drains are self-sustaining because they have created a 
program that subsidizes these personal accounts, these privatized 
accounts.
  The Orszag-Diamond report makes this clear. This should come as no 
surprise when you remember that people are trading a risk account for 
one that is guaranteed. So they are going to have to do something to 
encourage people to do that, and they are draining money from the 
Social Security trust fund to encourage making that happen. I think 
that is very dangerous. I really do believe it is a misrepresentation 
of how this whole process works. I think the study makes this very 
clear in very detailed, objective language.
  Finally, I want to highlight the Orszag-Diamond study's conclusions 
about the depth of the cuts that would be required in benefits for the 
disabled and for family members who survive the loss of a loved one 
because these would be especially severe. There would be little 
recourse for most victims of these cuts.
  According to the Orszag-Diamond report, disabled individuals would 
face cuts of up to 48 percent by 2075. These same reductions would 
apply to the younger children of workers who die prematurely.
  These are the cuts that would apply to all beneficiaries, even those 
who do not risk their benefits in privatized accounts. So I think it is 
important the American people understand that this isn't just political 
rhetoric. We have an objective study using the numbers of the Social 
Security actuaries to show that we are talking about real cuts, real 
cuts in guaranteed benefits, and that we are subsidizing privatized 
personal accounts to try to encourage something that is going to 
require a huge infusion of general revenues from the general accounts 
of the Government. Where that will come from is a mystery to me and to 
most who look at it.
  So I think we have a real serious cause for debate in front of this 
election this fall to make sure that people understand what they are 
buying into if we go to this Social Security privatization scheme. 
Personally, I think it is a disaster for our country.
  I hope, as do the 50 Members of this body who wrote a letter to the 
President last week urging him to publicly reject these cuts in 
guaranteed Social Security benefits, we can have this debate before 
this election so that when we bring this topic to the floor, it will be 
something the voters have expressed themselves on before we express 
ourselves. I think it is very productive that we have serious, 
thoughtful, objective evidence such as the Orszag-Diamond report to 
help bring light on this debate.
  I am going to make sure my colleagues have a chance to review this, 
make sure it is circulated. I thank my colleagues.
  I ask unanimous consent that the executive summary of the Orszag-
Diamond report and the New York Times article be printed in the Record 
at this point.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

                [From The New York Times, June 19, 2002]

   Report Predicts Deep Benefit Cuts Under Bush Social Security Plan

                       (By Richard W. Stevenson)

       Washington, June 18.--Opponents of President Bush's plan to 
     create personal investment accounts within Social Security 
     released a report today concluding that the administration's 
     approach would lead to deep cuts in retirement benefits and 
     still require trillions of dollars in additional financing to 
     keep the system solvent.
       The report, by Peter A. Diamond, an economics professor at 
     the Massachusetts Institute of Technology, and Peter R. 
     Orszag, a senior fellow at the Brookings Institution, is sure 
     to provide material to Democrats for this fall's 
     Congressional elections.
       White House officials criticized the report as misleading 
     or wrong. They said the report exaggerated the cuts in 
     benefits by comparing them with what is available under 
     current law, rather than with what the system could afford to 
     pay if no changes were

[[Page 10754]]

     made to the system as the population ages in coming decades.
       Without any changes, Social Security will start paying out 
     more in benefits than it takes in from payroll tax revenues 
     and interest starting in 2027, leaving it increasingly 
     dependent on redeeming government bonds the system holds, 
     according to the system's trustees. By 2041, Social Security 
     would exhaust its ``trust fund'' of bonds, leaving it unable 
     to pay full benefits.
       The report concluded that under two of the commission's 
     three proposals, monthly benefits for each member of a two-
     earner couple retiring at 65 in 2075 would be well below 
     benefits promised under current law even after taking account 
     of the returns from a personal investment account. The report 
     did not analyze the commission's third proposal, which would 
     not seek to restore the system's long-term solvency.
       Under one of the commission's proposals, the report said, 
     total benefits would be 10 percent below current-law benefits 
     for low-income people, 21 percent below current-law benefits 
     for middle-income people and 25 percent below current-law 
     benefits for upper income people.
       Under the other proposal, the reductions in total benefits 
     would range from 21 percent to 27 percent, and would be even 
     larger if adjusted for the risk of investing in the stock 
     market, the report said. The benefit reductions would be 
     smaller for people who reach retirement age in the next three 
     or four decades.
       Charles P. Blahous, executive director of the president's 
     commission, said the study ``appears to have been 
     deliberately constructed to bias the discussion against 
     proposals that include personal accounts.''
       Mr. Blahous cited calculations showing that in most cases 
     retirees would receive larger benefits under the commission's 
     proposals than the current system can actually afford to pay, 
     and that in some cases beneficiaries would do as well as or 
     better than the current system promises.

         The Century Foundation, New York, NY; Center on Budget 
           and Policy Priorities, Washington, D.C.
                                                    June 18, 2002.

   Social Security Commission Plans Would Entail Substantial Benefit 
          Reductions and Large Subsidies for Private Accounts


  new study analyzes implications of commission plans for retirement 
          benefits, social security financing, and the budget

       The proposals that President Bush's Social Security 
     Commission issued in December would substantially reduce 
     benefits for future retirees and the disabled while requiring 
     multi-trillion dollar transfers from the rest of the budget 
     to finance private retirement accounts, according to a major 
     new study co-authored by the incoming president of the 
     American Economic Association and a Brookings Institution 
     expert on the economics of retirement. The study is being 
     published jointly by the Center on Budget and Policy 
     Priorities and the Century Foundation; a more technical 
     version of the study, also being released today, is available 
     as a Brookings institution working paper on the Brookings 
     website.
       The study finds that the private accounts the Commission 
     proposed would significantly worsen Social Security's 
     financial position, both in the short-term and permanently, 
     by drawing funds from Social Security to subsidize those who 
     elect the private accounts. The Commission proposals are able 
     to restore long-term solvency, the study shows, only through 
     very large transfers of tax revenues from the rest of the 
     budget to compensate for the losses the private accounts 
     would cause Social Security to incure. Under these proposals, 
     the rest of the American public would, through these 
     revenues, be required to subsidize those who elect to 
     participate in the private accounts.
       The study by Peter A. Diamond, Institute Professor of 
     Economics at the Massachusetts Institute of Technology, and 
     Peter R. Orszag, Senior Fellow in Economics at the Brookings 
     Institution, draws heavily on a technical analysis of the 
     Commission's proposals by the Office of the Chief Actuary at 
     the Social Security Administration. It is the first study to 
     examine a variety of effects implied, but not directly 
     stated, in the actuaries' analysis. The Diamond-Orszag study 
     of the two Commission proposals that are designed to restore 
     long-term Social Security solvency shows the Commission 
     proposals contain three principal components.
       First, the plans restore long-term balance to Social 
     Security either solely (under one of the plans) or primarily 
     (under the other plan) through Social Security benefit 
     reductions. These benefit reductions would be large and would 
     affect all beneficiaries, including disabled beneficiaries 
     and those who do not elect private accounts.
       Second, the plans would replace part of the scaled-back 
     Social Security system that would remain with a system of 
     private accounts. Those choosing the individual accounts 
     would have some of their payroll taxes diverted from Social 
     Security to the accounts; in return, their Social Security 
     benefits would be reduced further. The amount that Social 
     Security would lose because of the diversion of these payroll 
     tax revenues would, on a permanent basis, exceed the 
     additional Social Security benefit reductions to which these 
     beneficiaries would be subject. In addition, the accounts 
     would create a cash flow problem for Social Security because 
     funds would be diverted from Social Security decades before a 
     worker's Social Security benefits would be reduced in return. 
     The private accounts consequently would push the Social 
     Security Trust Fund back into insolvency and permanently 
     worsen Social Security's financial condition.
       To avoid insolvency and restore long-term balance, the 
     plans' third component consists of the transfer of extremely 
     large sums from the rest of the budget to make up for the 
     losses that Social Security would bear because of the private 
     accounts. The transfers would equal two-thirds of the entire 
     existing Social Security deficit over the next 75 years under 
     one of the Commission plans and 80 percent of the Social 
     Security deficit under the other plan. (The second plan 
     assumes additional transfers from the rest of the budget to 
     reduce the magnitude of the Social Security benefit 
     reductions it contains.)
       The Diamond-Orszag study raises questions about where the 
     trillion of dollars assumed to be transferred from the rest 
     of the budget to offset the costs of the private accounts 
     would come from, a matter on which the Commission is silent. 
     Noting that virtually all budget forecasts show budget 
     deficits outside Social Security for decades to come, with 
     these deficits mounting as the baby boom generation retires--
     which means there are no surpluses outside Social Security to 
     transfer--the study calls the Commission's reliance on large 
     unspecified transfers from the rest of the budget a serious 
     weakness of these plans. Financing the transfers would 
     require large tax increases or deep cuts in other programs, 
     but the Commission did not recommend any such changes.
       Without the assumed transfers of trillions of dollars, the 
     study shows, the Commission's numbers do not add up. ``The 
     assumed transfers in the Commission's plans effectively 
     constitute a large `magic asterisk' that serves to mask the 
     adverse financial impact of the individual accounts on Social 
     Security solvency,'' the study reports.


                           benefit reductions

       The study also examines the effects the Commission plans 
     would have on the benefits that workers receive when they 
     retire. It finds that those who do not opt for the individual 
     accounts would face deep benefit reductions.
       Under the Commission plan (identified by the Commission as 
     ``Model 2''), workers aged 35 today who retire at age 65 in 
     2032 and do not choose the private accounts would have their 
     Social Security benefits reduced 17 percent, compared to the 
     benefits they would receive under the current benefit 
     structure. Benefits would be reduced 41 percent for those 
     born in 2001 who retire at age 65 in 2066.
       As a result, the percentage of pre-retirement wages that 
     Social Security replaces would decline substantially. For a 
     two-earner couple with average earnings that retires at age 
     65 in any year after 2025, Social Security is scheduled to 
     replace 36 percent of former earnings. Under the Commission's 
     Model 2 plan, by contrast, Social Security would replace 30 
     percent of former earnings for such a couple that is 35 today 
     and retires at age 65 in 2032, and just 22 percent of former 
     earnings for a future couple composed of two individuals born 
     in 2001 who retire in 2066. The study finds that under the 
     Commission plans, the role of Social Security in allowing the 
     elderly to maintain their standard of living in retirement 
     would decline rather sharply over time.


        Effects on the Disabled and Children of Deceased Workers

       Benefit reductions would be particularly severe for the 
     disabled and the young children of workers who die.
       For those who begin receiving disability benefits in 2050, 
     Social Security benefits would be reduced 33 percent under 
     one of the Commission's proposals and 19 percent under the 
     other. (The benefit reductions could be smaller under the 
     latter plan because it assumes the transfer of additional 
     sums from the rest of the budget.)
       For those who begin receiving disability benefits in 2075, 
     the benefit reductions would be 48 percent under one plan and 
     29 percent under the other.
       Equivalent benefit reductions would apply to the young 
     children of deceased workers.
       These reductions would disproportionately harm African-
     Americans. Both the proportion of workers who are disabled 
     and the proportion of young children whose parent or parents 
     have died are higher among African-Americans than among the 
     population as a whole.
       Diamond and Orszag warn that the disabled and the children 
     of deceased workers would have little ability to mitigate 
     these severe benefit cuts with income from individual 
     accounts, because many workers who become disabled would have 
     had fewer work-years during which to contribute to private 
     accounts, and also because the Commission plans would deny 
     all workers--including the

[[Page 10755]]

     disabled--access to their accounts until they reach 
     retirement age. The economists term the treatment of the 
     disabled under the Commission plan as ``draconian.''
       The Commission recognized its proposals would have such 
     effects and stated it was not recommending these reductions 
     in disability benefits. Diamond and Orszag show, however, 
     that the Commission counted all of the savings from these 
     disability benefit cuts to make its numbers add up. Without 
     these benefits cuts, none of the Commission plans would 
     restore long-term Social Security solvency (unless even 
     larger transfers of revenue were made from the rest of the 
     budget).


                      Impacts of Private Accounts

       The benefit reductions just described would apply to all 
     beneficiaries, including both those who do not opt for 
     private accounts and those who do. Workers who choose the 
     private-account option would be subject to additional 
     reductions in Social Security benefits, on top of the 
     reductions that would apply to all beneficiaries, in return 
     for the income they would receive from their accounts.
       For retired workers who received a return on their account 
     equal to the average expected return that the actuaries and 
     the Commission have forecast, the total reduction in benefits 
     (factoring in the income from individual accounts) would be 
     smaller. But many such workers still would face benefit 
     losses.
       Under Model 2, a medium-earning couple that retired at age 
     65 in 2075 and received the average expected rate of return 
     from a private account would receive a combined benefit--
     including a monthly annuity check from its account--that is 
     about 20 percent below the benefit the couple would receive 
     under the current Social Security benefit structure. Diamond 
     and Orszag observe that given the large infusion of revenue 
     from the rest of the budget under this plan, a 20 percent 
     benefit reduction is quite substantial.
       Moreover, if the stock market does not perform as well in 
     future decades as the actuaries and the Commission have 
     assumed, private accounts investments would do less well than 
     figures suggest and the benefit reductions would be larger.
       The study also explains that because of the risk associated 
     with investing in stocks, analysts generally agree that in 
     comparing returns from different types of investments, 
     adjustments for risk must be made. If the approach to ``risk 
     adjustment'' that the Office of Management and Budget 
     recently used in an analogous situation is applied here, the 
     combined benefits from Social Security and individual 
     accounts for the medium-earning couple retiring in 2075 are 
     estimated to be 40 percent lower than the Social Security 
     benefits the couple would receive under the current benefit 
     structure.
       The study warns that the large, unspecified revenues the 
     Commission counts on from the rest of the budget might not 
     materialize. If they did not fully materialize and payroll 
     taxes were not raised, the benefit reductions would have to 
     be still larger under these plans. Failure to identify a 
     source for these revenues leaves Social Security subject to a 
     substantial risk that the funding would not materialize.

  The PRESIDING OFFICER. The Senator from Alaska is recognized.

                          ____________________