[Congressional Record (Bound Edition), Volume 151 (2005), Part 11]
[Senate]
[Pages 14659-14660]
[From the U.S. Government Publishing Office, www.gpo.gov]




                       PROGRESSIVE PRICE INDEXING

  Mr. REED. Mr. President, I rise today to express my deep concern 
about the President's proposal to peg initial Social Security benefits 
to the growth in prices rather than wages, and the negative impact this 
so-called progressive price indexing scheme would have on future 
retirees.
  The current method of calculating retirees' Social Security benefits 
was first put into place in 1979. Since then, the initial benefit level 
has risen with the growth in wages, ensuring that benefits reflect 
increases in living standards over time. Wages tend to grow faster than 
prices, so the effect of the President's proposed change would be a 
substantial reduction over time in initial benefit levels to people 
making more than $20,000 per year.
  Two recent reports by the Democratic staff of the Joint Economic 
Committee indicate the extent of the benefit cuts that future retirees 
would face under the President's proposal. The first report, entitled 
``What If President Bush's Plan For Cuts In Social Security Benefits 
Were Already In Place?'' finds that if a price indexing approach like 
President Bush's had gone into effect in 1979 instead of the current 
method, middle-class workers retiring this year would receive a benefit 
9 percent smaller than they will get under current law.
  This chart illustrates that for 65-year-olds, if we had adopted in 
1979 this indexing proposal, they would be receiving roughly $1,400 
less per year than they would under the current system. The current 
system replaces wages. It keeps up with a growing standard of living. 
It keeps seniors out of poverty and able to afford all their expenses. 
This chart illustrates the fact that these cuts would have been very 
real and very significant.
  This second chart indicates that Social Security under the 
President's plan will replace a smaller percentage of wages because it 
would be tied to prices, not wages. This chart also shows that if in 
1979 we had adopted progressive price indexing rather than wage 
indexing--for 65-year-olds, they would be receiving upon retirement 4 
percent less than under current law, but for the 45-year-olds, the drop 
is significant. In effect, we are not keeping up with the cost of 
living. We are not keeping up with the standard of living. That is the 
essence of the President's proposal.
  What we are seeing with this proposal is another way to cut benefit 
levels for seniors. It will affect, if it is put in place, not just the 
seniors who are retiring after that date, the 65-year-olds, but the 
whole generation of Americans who will follow.
  Price indexing would also hit middle-income workers much harder than 
upper income workers because middle-income workers rely on Social 
Security for a much larger percentage of their retirement income than 
do upper income workers. While the highest earners retiring until 2045 
would experience a bigger benefit cut, their total retirement income 
would fall by less.
  This chart shows what would happen to a 25-year-old if the 
President's proposal had been adopted in 1979. For the medium earner, 
they would see a 26-percent reduction in Social Security benefits, but 
it would translate into a 17-percent reduction in their overall 
retirement income because they don't have many alternate sources to 
Social Security to rely on when they retire. Upper income workers would 
see a cut in benefits that is larger, but again their overall 
retirement income and benefits would be cut much less. So the impact 
really hits the medium worker if this scheme is advanced.
  There is a second report the Democratic staff of the Joint Economic 
Committee has done, entitled ``How President Bush's Social Security 
Proposals Would Affect Late Baby Boomers.'' There has been a lot of 
talk about how the President's proposal would not affect those 55 and 
above, but there is a whole large group of Americans--ages 40 to 45, 
sometimes called the late baby boomers--who would be significantly 
impaired by the proposal.
  This chart shows the impact on benefits for today's 40-year-olds, 
those who are at the beginning of this late baby boom period. Under 
current law, they could expect retirement--these are medium-income 
earners, making $36,600 in 2005--they could expect annual benefits of 
$17,000. The President's plan cuts it to $15,450 if his benefit 
indexing plan alone is adopted.
  With private accounts, it is further reduced to $12,470, if you adopt 
a very safe Treasury security investment approach--which, again, for 
the 40 and 45-year-olds, just 20 years or so from retirement, is 
probably the best, safest approach--you would still get less money than 
the current law benefit. The impact of progressive indexing, even with 
the private accounts, would be to reduce the benefits middle-income 
workers would receive.
  Over all, this whole approach is one that will reduce benefits for 
middle Americans. It is one that, if it had been placed in effect in 
1979, we would already see significant cuts in benefits to our seniors. 
I don't think there is any senior out there complaining they are 
receiving too much in their Social Security check. If this approach was 
adopted in 1979, they would be receiving on the order of 10 percent 
less, and their financial constraints would be even more severe.
  There is another aspect to this whole issue of pension benefits and 
Social Security. In the past 25 years, there has been a major shift 
away from traditional defined benefit plans to defined contribution 
plans. This chart shows the late baby boomers are already assuming more 
of the risk in investing their own retirement assets than older 
generations. This line of the chart represents all pension plans, which 
this line shows defined benefit plans that essentially have been flat 
over many years, going back to 1980, to 1998, and beyond. The third 
line of the chart we see is the rise of defined contribution plans.
  Most plans are offered to newer workers as they come into the 
workforce. These younger workers are assuming more of the risk of their 
retirement. They are assuming it under the defined contribution plans. 
As a result, they do not have the certainty that older generations of 
Americans had. They had the certainty of two defined benefit plans--one 
from their factory workplace, office place, their private defined 
benefit plan; and the second, of course, is from Social Security.
  As we consider cutting benefits from the defined benefit plans, we 
are putting additional pressure on young Americans and middle-aged 
Americans who now see most of their assets tied up in defined 
contribution plans. The middle-income workers, the middle-aged workers 
of today, and the younger workers of today will face a future with less 
certainty and less security than other generations have enjoyed. That 
is another strong argument against using a progressive index to cut the 
one defined benefit plan most Americans can still count on--Social 
Security.
  In addition, the President's price indexing proposal does not close 
the 75-year gap between promised Social Security benefits and the taxes 
expected to be paid into the system. It falls short by about 25 
percent. Adding on private accounts would worsen Social Security 
solvency and increase the Federal debt enormously. If price indexed 
benefits were combined with private accounts, future generations would 
face the double burden of large cuts in their guaranteed Social 
Security benefits and paying down a much higher debt.
  We all want to work with President Bush to promote a system of Social 
Security that is solvent, that will encourage savings throughout the 
United

[[Page 14660]]

States. But we have to find a plan that works, that does not penalize, 
particularly, the middle-income Americans.
  We have to also address not just the issue of Social Security but the 
issue of private pensions. We are seeing tremendous pressure on our 
private pension plans. When you have huge companies such as United 
Airlines trying to eliminate their pension obligations through the 
Pension Benefit Guaranty Corporation, that is a wakeup call. Twenty 
years ago, no one thought when they got a job at United they would have 
to worry about their pension. That would be the last thing on their 
minds. Today, United workers and many workers in many other fields 
worry desperately about their private pensions. We have to pay 
attention to that. I argue that is probably a more pressing problem 
than the solvency issues of Social Security.
  We hope to work with the President to devise a system to ensure the 
solvency of Social Security but a system that does not unduly penalize 
working middle-class Americans. I hope we can do that. From my 
perspective, it is incumbent, of course, that we move away from the 
issue of private accounts that certainly makes the system less solvent 
and does not provide sufficient benefits, particularly for Americans 40 
years and older, and that we move to looking at other issues. I hope we 
can do that. Our commitment should be to ensure we have a Social 
Security system that works for all Americans and provides that true 
sense of security: People can count on it, it will be there, and it 
will be sufficient to support them when they are old.
  I yield the floor.
  The PRESIDING OFFICER (Mr. VITTER). The Senator from Illinois is 
recognized.
  Mr. DURBIN. Mr. President, how much time is remaining in morning 
business?
  The PRESIDING OFFICER. There is approximately 19 minutes remaining.

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