U.S. GOVERNMENT PRINTING OFFICE

56–323 CC WASHINGTON : 1999

USE OF AN EXPERT PANEL TO DESIGN LONGRANGE SOCIAL SECURITY REFORM

HEARING

BEFORE THE

COMMITTEE ON WAYS AND MEANS

HOUSE OF REPRESENTATIVES

ONE HUNDRED FIFTH CONGRESS

SECOND SESSION

APRIL 1, 1998

Serial 105–70

Printed for the use of the Committee on Ways and Means

(
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COMMITTEE ON WAYS AND MEANS

BILL ARCHER, Texas, Chairman

PHILIP M. CRANE, Illinois

BILL THOMAS, California

E. CLAY SHAW, JR., Florida

NANCY L. JOHNSON, Connecticut

JIM BUNNING, Kentucky

AMO HOUGHTON, New York

WALLY HERGER, California

JIM MCCRERY, Louisiana

DAVE CAMP, Michigan

JIM RAMSTAD, Minnesota

JIM NUSSLE, Iowa

SAM JOHNSON, Texas

JENNIFER DUNN, Washington

MAC COLLINS, Georgia

ROB PORTMAN, Ohio

PHILIP S. ENGLISH, Pennsylvania

JOHN ENSIGN, Nevada

JON CHRISTENSEN, Nebraska

WES WATKINS, Oklahoma

J.D. HAYWORTH, Arizona

JERRY WELLER, Illinois

KENNY HULSHOF, Missouri

CHARLES B. RANGEL, New York

FORTNEY PETE STARK, California

ROBERT T. MATSUI, California

BARBARA B. KENNELLY, Connecticut

WILLIAM J. COYNE, Pennsylvania

SANDER M. LEVIN, Michigan

BENJAMIN L. CARDIN, Maryland

JIM MCDERMOTT, Washington

GERALD D. KLECZKA, Wisconsin

JOHN LEWIS, Georgia

RICHARD E. NEAL, Massachusetts

MICHAEL R. MCNULTY, New York

WILLIAM J. JEFFERSON, Louisiana

JOHN S. TANNER, Tennessee

XAVIER BECERRA, California

KAREN L. THURMAN, Florida

A.L. SINGLETON, Chief of Staff

JANICE MAYS, Minority Chief Counsel

Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public hearing records

of the Committee on Ways and Means are also published in electronic form. The printed

hearing record remains the official version. Because electronic submissions are used to

prepare both printed and electronic versions of the hearing record, the process of converting

between various electronic formats may introduce unintentional errors or omissions. Such occurrences are inherent in the current publication process and should diminish as the process

is further refined.
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C O N T E N T S

Page

Advisory of March 25, 1998, announcing the hearing .......................................... 2

American Association of Retired Persons, Otto Schultz ....................................... 73

Center on Budget and Policy Priorities, Wendell E. Primus ............................... 77

Dole, Hon. Robert, Verner, Liipfert, Bernhard, McPherson, and Hand .............. 12

Gingrich, Hon. Newt, a Representative in Congress from the State of Georgia,

and Speaker of the House of Representatives ................................................... 25

Kolbe, Hon. Jim, a Representative in Congress from the State of Arizona,

and House Public Pension Reform Caucus ........................................................ 47

Myers, Robert J., Silver Spring, MD ...................................................................... 84

Nadler, Hon. Jerrold, a Representative in Congress from the State of New

York ....................................................................................................................... 56

Pomeroy, Hon. Earl, a Representative in Congress from the State of North

Dakota ................................................................................................................... 60

Third Millennium, Melissa Hieger ......................................................................... 17

SUBMISSIONS FOR THE RECORD

Association of Private Pension and Welfare Plans, James A. Klein, letter ........ 94

Center for the Study of Economics, Columbia, MD, statement ........................... 95

Council for Government Reform, Charles G. Hardin, statement ........................ 95

National Association of Manufacturers, Paul R. Huard, letter and

attachments .......................................................................................................... 97

Porter, Hon. John Edward, a Representative in Congress from the State

of Illinois, statement ............................................................................................ 105

60 Plus Association, Arlington, VA, James L. Martin, statement ....................... 107
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USE OF AN EXPERT PANEL TO DESIGN LONGRANGE SOCIAL SECURITY REFORM

WEDNESDAY, APRIL 1, 1998

HOUSE OF REPRESENTATIVES,

COMMITTEE ON WAYS AND MEANS,

Washington, DC.

The Committee met, pursuant to notice, at 10:10 a.m., in room

1100, Longworth House Office Building, Hon. Bill Archer (Chairman of the Committee) presiding.

[The advisory announcing the hearing follows:]
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ADVISORY

FROM THE COMMITTEE ON WAYS AND MEANS

FOR IMMEDIATE RELEASE Contact: (202) 225–1721

March 25, 1998

No. FC–12

Archer Announces Hearing on the Use of an

Expert Panel to Design Long-Range Social

Security Reform

Congressman Bill Archer (R–TX), Chairman of the Committee on Ways and

Means, today announced that the Committee will hold a hearing on the merits of

establishing a bipartisan panel of experts to design long-range Social Security reform and how best to engage the American public in the process. The hearing will

take place on Wednesday, April 1, 1998, in the main Committee hearing room, 1100

Longworth House Office Building, beginning at 10:00 a.m.

In view of the limited time available to hear witnesses, oral testimony at this

hearing will be from invited witnesses only. However, any individual or organization

not scheduled for an oral appearance may submit a written statement for consideration by the Committee and for inclusion in the printed record of the hearing.

BACKGROUND:

The Social Security program impacts the lives of nearly all Americans. This year,

the Social Security Administration will pay benefits to nearly 50 million retired and

disabled workers and to their dependents and survivors. Nearly every worker and

his or her employer pays Social Security taxes. Yet in the future, this vital program

will start to run short of benefit demands.

The problem of Social Security insolvency is not unprecedented. In 1983, Congress

enacted a variety of measures to address similar problems that the program was

facing. These measures, in large part, were developed by a National Commission on

Social Security Reform. Historically, the Congress has often relied on expert panels

to thoughtfully and carefully deliberate over complex issues and report back to the

Congress with a single set of recommendations for a solution. Forecasts of future

Social Security insolvency and suggested remedies are being discussed more and

more in the media and at kitchen tables all across the country. Americans want to

learn more and share their views with their elected officials.

FOCUS OF THE HEARING:

The Committee will receive the views of Members of Congress, along with Social

Security experts, on the merits of establishing a bipartisan panel of experts to design long-range Social Security reform and how best to engage the American public

in the process.

DETAILS FOR SUBMISSION OF WRITTEN COMMENTS:

Any person or organization wishing to submit a written statement for the printed

record of the hearing should submit at least six (6) single-space legal-size copies of

their statement, along with an IBM compatible 3.5-inch diskette in ASCII DOS Text

or WordPerfect 5.1 format only, with their name, address, and hearing date noted
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on a label, by the close of business, Wednesday, April 15, 1998, to A.L. Singleton,

Chief of Staff, Committee on Ways and Means, U.S. House of Representatives, 1102

Longworth House Office Building, Washington, D.C. 20515. If those filing written

statements wish to have their statements distributed to the press and interested

public at the hearing, they may deliver 300 additional copies for this purpose to the

Committee office, room 1102 Longworth House Office Building, at least one hour before the hearing begins.

FORMATTING REQUIREMENTS:

Each statement presented for printing to the Committee by a witness, any written statement

or exhibit submitted for the printed record or any written comments in response to a request

for written comments must conform to the guidelines listed below. Any statement or exhibit not

in compliance with these guidelines will not be printed, but will be maintained in the Committee

files for review and use by the Committee.

1. All statements and any accompanying exhibits for printing must be typed in single space

on legal-size paper and may not exceed a total of 10 pages including attachments. At the same

time written statements are submitted to the Committee, witnesses are now requested to submit

their statements on an IBM compatible 3.5-inch diskette in ASCII DOS Text or WordPerfect

5.1 format. Witnesses are advised that the Committee will rely on electronic submissions for

printing the official hearing record.

2. Copies of whole documents submitted as exhibit material will not be accepted for printing.

Instead, exhibit material should be referenced and quoted or paraphrased. All exhibit material

not meeting these specifications will be maintained in the Committee files for review and use

by the Committee.

3. A witness appearing at a public hearing, or submitting a statement for the record of a public hearing, or submitting written comments in response to a published request for comments

by the Committee, must include on his statement or submission a list of all clients, persons,

or organizations on whose behalf the witness appears.

4. A supplemental sheet must accompany each statement listing the name, full address, a

telephone number where the witness or the designated representative may be reached and a

topical outline or summary of the comments and recommendations in the full statement. This

supplemental sheet will not be included in the printed record.

The above restrictions and limitations apply only to material being submitted for printing.

Statements and exhibits or supplementary material submitted solely for distribution to the

Members, the press and the public during the course of a public hearing may be submitted in

other forms.

Note: All Committee advisories and news releases are available on the World

Wide Web at ‘‘http://www.house.gov/wayslmeans/’’.

The Committee seeks to make its facilities accessible to persons with disabilities.

If you are in need of special accommodations, please call 202–225–1721 or 202–226–

3411 TTD/TTY in advance of the event (four business days notice is requested).

Questions with regard to special accommodation needs in general (including availability of Committee materials in alternative formats) may be directed to the Comorder.

mittee as noted above.

Good morning. Today’s hearing has been called to begin a naChairman ARCHER [presiding]. The Committee will come to

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tional dialog on saving Social Security and to discuss the creation

of an eight-member, expert, bipartisan panel that will recommend

to the Congress solutions to save Social Security. The panel would

report back to Congress on February 1, next year, so I intend to

pass this bill through Committee and through the House early this

spring so the panel can begin its work.

[The National Dialogue on Social Security Act of 1998 follows:]
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A Summary of Provisions—The ‘‘National Dialogue on Social Security Act

of 1998’’—Introduced by Mr. Archer, Mr. Kasich, and Mr. Bunning

TITLE I:

Establishment of National Dialogue

a. A National Dialogue on Social Security will be convened jointly by the President, the Speaker, and the Senate Majority Leader. The purpose of the National

Dialogue is to engage the American public, through regional conferences, and national Internet exchanges, in understanding the current program, the problems it

faces, and the need to find solutions that will be workable for all generations.

b. The Dialogue will be coordinated through two Facilitators (one appointed by the

President and one appointed jointly by the Speaker and Senate Majority Leader),

who will be appointed within 30 days of enactment. After consultation with the

President and the Congress, final plans for the development and operations of the

National Dialogue will be submitted to the President and the Congress no later than

60 days after the date of enactment.

c. A Dialogue Council is established to advise the Facilitators in the development

and operations of the National Dialogue. The Dialogue Council will be composed of

36 members, 9 of whom shall be appointed by the Speaker, 9 by the Majority Leader

of the Senate, and 18 by the President.

Those who are appointed shall be selected from a group of 54 individuals—consisting of 3 individuals nominated by each of the following 18 organizations; the American Association of Retired Persons, the United Seniors Association, the American

Federation of Labor and Congress of Industrial Organizations, the National Hispanic Council on Aging, the Older Women’s League, the Association of Private Pension and Welfare Plans, the Cato Institute, the Employee Benefit Research Institute, Americans Discuss Social Security, the Third Millennium, the U.S. Junior

Chamber of Commerce, Americans for Hope, Growth, and Opportunity, the National

Federation of Independent Businesses, the Concord Coalition, the National Caucus

and Center on Black Aged, the Campaign for America’s Future, the Heritage Foundation, and the Brookings Institution.

Members of the Dialogue Council shall include both men and women and will be

selected to ensure that 12 members were born before 1946, 12 members were born

in or after 1946 and before 1961, and 12 members were born in or after 1961. The

Dialogue Council will meet at the call of the Facilitators.

d. In order to assure that the widest possible degree of opinion is received, to the

extent practicable and as soon as possible after the date of enactment, each Member

of Congress will develop ongoing systems of communications through the use of the

Internet and other available electronic capabilities. These systems will be developed

with grassroots organizations and other constituency groups within Members’ districts. Such groups shall include, but not be limited to, key opinion leaders, journalists, business representatives, union members, and students of all age groups. The

Facilitators shall appoint an Internet Dialogue Coordinator to assist Members in establishing systems of communication in their districts. The Coordinator will assist

Members’ offices in establishing local web sites, moderated chat rooms, and threaded news groups; assist Members in coordinating a national electronic town hall

meeting on the future of Social Security; advise Members regarding the most effective technological means for reaching out to constituent groups; and work with other

Internet-oriented groups to broaden the reach of Internet capability.

An Internet Advisory Board is established to advise the Internet Dialogue Coordinator in the most appropriate and effective means of employing the Internet. The

Board will consist of 3 members, appointed by the Facilitators. Board members shall

receive no pay, but shall be reimbursed for travel expenses.

The Internet Dialogue Coordinator shall periodically report to the Facilitators the

results of the systems of communications.

e. The National Dialogue will operate by means of sponsorship by private, nonpartisan organizations of conferences. These conferences shall be convened in localities which are geographically representative of the Nation as a whole, and which

shall provide for participation representative of all age groups.

f. The National Dialogue Facilitators will summarize their findings and submit

these to the Bipartisan Panel to Design Long-Range Social Security Reform on an

ongoing basis, based on information generated by participants in conferences conducted and constituent input received from Members’ offices. The Dialogue will terminate January 1, 1999.

g. General revenues are authorized to be appropriated for the compensation of the

Facilitators and the activities related to the Internet Dialogue.
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TITLE II

The Bipartisan Panel to Design Long-Range Social Security Reform

Duties:

a. It will be the duty of the Panel to design a single package of long-range Social

Security reforms for restoring the solvency of the Social Security system and maintaining retirement income security acceptable to six of its members and including

the agreement of both Co-Chairs.

Membership:

a. Eight members; with four appointed jointly by the Speaker of the House and

the Majority Leader of the Senate, two appointed by the President, two appointed

jointly by the Minority Leader of the Senate and the Minority Leader of the House.

These officials will designate two members of the Panel to serve as Co-Chairs. This

arrangement results in equal representation of the two major political parties.

b. The members of the Panel will consist of individuals of recognized standing and

distinction, who can represent the multiple generations with a stake in the viability

of the system, and who possess a demonstrated capacity to discharge the duties imposed on the Panel. At least one of the members will be appointed from individuals

representing the interests of employees, and at least one of the members will be appointed from individuals representing the interests of employers.

c. It will be the role of the Co-Chairs to provide leadership to the Panel and to

determine the duties of and oversee the Panel staff.

d. A vacancy in the Panel will not affect its powers, but will be filled in the same

manner as the original members of the Panel.

Procedures:

a. The Panel will meet at the call of its Co-Chairs or a majority of its members.

A majority of the members will constitute a quorum, but a lesser number may conduct hearings. The Panel may hold hearings and undertake other activities as necessary to carry out their duties. Meetings, as determined by the Co-Chairs, held in

order to conduct fact finding will be open to the public. Meetings, as determined by

the Co-Chairs, held in order to determine policy, may be held in executive session,

not withstanding any other provisions of the law.

Administration:

a. Members of the Panel will serve without compensation, except that members

of the Panel who are private citizens of the United States will be reimbursed for

travel, subsistence, and other necessary expenses incurred in the performance of

their duties as members of the Panel.

b. The Panel will, without regard to the provisions of title 5, United States Code,

relating to the competitive service, appoint a Staff Director who will be paid at a

rate not to exceed the rate established for level III of the Executive Schedule.

c. In addition to the Staff Director, the Panel will appoint such additional personnel as the Panel determines to be necessary and may compensate such additional

personnel without regard to the provisions of title 5, United States Code, relating

to competitive service.

d. The Panel will incur other additional expenses, including, if necessary, contractual expenses as may be necessary to carry out its duties.

e. The Commissioner of Social Security will make such data and information necessary to the Panel to enable it to carry out its duties. The Panel may secure from

any other department or agency of the United States such data and information as

may be necessary to enable it to carry out its duties.

The Architect of the Capitol, in consultation with the appropriate entities in the

legislative branch, will locate and provide suitable office space, necessary equipment, and such administrative support services as the Panel may request on a reimbursable basis.

g. The Panel will make its report to the President, the Senate Committee on Finance and the House Committee on Ways and Means no later than February 1,

1999. The Panel will terminate March 31, 1999.

h. Funds, not to exceed $2 million, are authorized to be appropriated from the

Security has been a wonderful success. Written in 1935, Social SeOld-Age and Survivors Insurance Trust Fund to carry out the purposes of this title.

Chairman ARCHER. For tens of millions of senior citizens, Social

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curity has protected our seniors, reduced poverty, and strengthened

our families. If ever there was a depression-era program that has

done good work for citizens, it is Social Security.

But Social Security faces a long-term crisis. To solve it, politicians in Washington must begin now, and we must put partisanship aside. This may be the biggest test of our democracy since its

inception. Can a democracy come to grips with a long-term problem

and make difficult political decisions before we reach the cliff of

desperation? And the jury is still out on that. We must bring the

jury back with a positive answer because we’re all in this together.

From 116-year-old Esteller Jones of Waynesborough, Georgia—reportedly the oldest living American—to little Dillon Paul Keever

who was born at 8:04 a.m. this morning at Memorial Southwest

Hospital in Houston, Texas, as one of my newest constituents.

As we proceed, we must do two things: We must honor our commitments to today’s seniors and those who will retire soon, and we

must also protect young people so Social Security works well for

them. Social Security must be intergenerationally fair.

At my request, the nonpartisan Congressional Research Service

analyzed for retirees this year the amount of time it takes to recover the value of their taxes paid plus interest. The information

demonstrates that Social Security has been a fabulous program to

date, but for baby boomers and everyone younger there are major

problems. For average earners who retired in 1980, they got back

the retirement portion of their Social Security taxes and their employer’s share of the taxes plus interest in just 3 years. When they

turned 68, they had recovered everything. By any standards, that

is a good deal.

But the same average earner today is 65 years old, making $25,000 a year, will live an average of 15 years; that is, they’ll have

to turn 80 before they get their money back. For most people, that’s

still a reasonably good deal.

But I’m afraid the good deal ends right around this year. For

tens of millions of working people younger than 65, Social Security’s problems have already begun. Average earning 48-year-olds

will have to live to 89 to get their money back, and average 38-

year-olds will have to make it to 91. And you should be aware that

I have said average because if you are above average as a wage

earner, it will take even longer as the benefits are reduced for

those in higher income relative to the benefits for those in the

lower income. If you are younger than 91, Social Security’s message

seems to be: eat well and get plenty of exercise because you will

have to live into the hundreds to get a return on the Social Security money that’s taken out of your paycheck.

We can’t raise taxes to solve this problem because someone making more than $65,000 a year can really forget about it. Fortyeight-year-olds making $65,000—the maximum taxable wage

base—will have to reach 104 years old to get their money back and

38-year-olds have to live to 117.

Now there is more to Social Security than money. There’s family

security, family protection, and peace of mind. However, each generation must be treated fairly, and that’s the challenge that we

face.

[The opening statement follows:]
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Opening Statement of Hon. Bill Archer, a Representative in Congress from

the State of Texas

Good morning.

Today’s hearing has been called to begin a national dialogue on saving Social Security, and to discuss the creation of an eight-member, expert, bi-partisan panel

that will recommend to the Congress solutions that save Social Security. The panel

would report back to Congress on February 1st next year, so I intend to pass this

bill through Committee and through the House early this Spring so the panel can

begin its work.

For tens of millions of senior citizens, Social Security is a wonderful success. Written in 1935, Social Security has protected our seniors, reduced poverty, and

strengthened our families. If ever there was a depression era program we can be

proud of, Social Security is it.

But Social Security faces a long-term crisis. To solve it, politicians in Washington

must begin work now and we must put partisanship aside. We’re all in this together, from 116-year old Esteller Jones of Waynesboro, Georgia, reportedly the oldest living American, to little Dillon Paul Keever, who was born at 8:04 this morning

at the Memorial Southwest Hospital in Houston, Texas.

As we proceed, we must do two things. We must honor our commitments to today’s seniors and to those who will retire soon. We must also protect young people

so Social Security works for them as well.

At my request, the non-partisan Congressional Research Service analyzed, for retirees this year, the amount of time it takes to recover the value of their taxes paid

plus interest. The information demonstrates that Social Security has been a fabulous program to date...but for baby boomers and everyone younger, there are major

problems.

For average earners who retired in 1980, they got back the retirement portion of

their Social Security taxes and their employer’s share of the taxes, plus interest, in

just three years, when they turned sixty-eight. That’s a good deal.

The same average earner who today is 65-years old, making $25,000 a year, will

have to live 15 years, that is, they’ll have to turn 80, before they get their money

back. For most people, that’s also a pretty good deal.

But I’m afraid the good deal ends right around this year. For tens of millions of

working people younger than sixty-five, Social Security’s problems have already

begun.

Average earning 48-year olds will have to live to 89 to get their money back. Average 38-year olds will have to make it to 91.

If you’re younger than that, Social Security’s message seems to be eat well and

get plenty of exercise, because you’ll have to live into the hundreds to get a fair return on the Social Security money that’s taken out of your paycheck.

We can’t raise taxes to solve this problem because someone making more than

$65,000 a year can really forget about it. Forty-eight year olds making $65,000, the

maximum taxable wage base, will have to reach 104 years old to get their money

back and thirty-eight year olds will have to live to 117.

Now, there’s more to Social Security than money. There’s family security, family

protection, and peace of mind. However, each generation must be treated fairly and

that’s the challenge we face.

This morning, we’re honored to be joined by three particularly distinguished

guests representing three generations of Americans. Our nation’s youngest senior

citizen, Bob Dole; a baby boomer, Newt Gingrich; and Melissa Hieger, a generation

Xer from the non-partisan Third Millennium. We also have a panel of experts from

several organizations dedicated to saving Social Security.

My colleagues, the American people have never retreated from a crisis, and we

must not do so on this issue. Our task is to solve this problem so when little Dillon

Keever grows up and starts working, he’ll never even know Social Security was in

a crisis.

When it comes to Social Security, I suspect the American people are well ahead

of us. We now must catch up with the people and do so in a bi-partisan spirit, remembering that young people have grandparents they love, and senior citizens have

grandchildren they adore. We are 

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in this together.

Chairman ARCHER. This morning, we’re honored to be joined by

three particularly distinguished guests representing three genera-
8

tions of Americans. Our Nation’s youngest senior citizen—is that

really true, you’re our youngest senior citizen——

Senator DOLE. I think so. [Laughter.]

Me and Strom.

Chairman ARCHER [continuing]. Bob Dole; and a baby boomer,

Newt Gingrich; and Melissa Hieger, a generation Xer from the nonpartisan Third Millennium.

We also have a panel of experts from several organizations dedicated to saving Social Security.

My colleagues, the American people have never retreated from a

crisis and we must not do so on this issue. Our task is to solve this

problem so that when little Dillon Keever grows up and starts

working, he’ll never know Social Security was a crisis.

When it comes to Social Security, I suspect the American people

are well ahead of us. We now must catch up with the people and

do so in a bipartisan spirit remembering that young people have

grandparents that they love, and senior citizens have grandchildren that they adore. We’re all in this together.

And I now yield to Mr. Stark for any statement that he might

like to make on behalf of the Minority. And without objection, all

Members will have the right to insert written statements in the

record at this point.

Chairman ARCHER. Mr. Stark.

Mr. STARK. Thank you, Mr. Chairman.

Thank you for calling this hearing on the use of an expert panel

to design a long-range Social Security reform. Your timing is excellent. We have a budget surplus. We can rather accurately anticipate the level of shortfall for the trust funds, and we actually have

a good bit of time to proceed methodically. So, while I don’t dispute

your need for action, I’m baffled by your suggestion that this Committee delegate to another panel, at this point in time, this matter

of utmost importance to our Nation. We basically have more experience in Social Security matters than any other panel that you could

possibly assemble, and what better combination of policy expertise

and political judgment could there be in this House than the Committee on Ways and Means.

I understand and I recall that a few of us, Mr. Chairman, were

here in 1983 when we had this problem before, and we ended up

with a commission because there was a political stall. But first the

politicians tried to tackle the issue, then the commission came back

with a solution, and we ended up again with Pickle v. Pepper, as

you recall. And Pickle won—our colleague from Texas; Texans always win I suspect in this round. Mr. Chairman, we know there

will be something that comes up in this whole resolution to Social

Security that will be politically tough for us. We’ve got time. Why

don’t we find out what that tough decision is?

As we like to say oftentimes when you and I and Senator Dole

in the past—we kind of go and get the chaff when we were having

conference committees—let the staff deal with the majority of the

technical issues; let’s find out the issues surrounding the tough political votes. And we don’t have to get into a fight over it, but those

issues will certainly rise to the surface rather quickly. And let a

panel then come back to us, if that will help us all, politically, to

do the right thing. I just think that we’re starting too soon to dele-
9

gate our responsibility to people who don’t nearly have our staff experts, don’t have our personal expertise, and don’t go to our town

meetings. I am confident there isn’t any Member of this panel that

doesn’t go home every other weekend and hear from the seniors in

our districts, and doesn’t have dedicated staff people working almost full time on solving Social Security problems for our constituents. There is no other group in this country that has our collective

ability to understand the problems and the benefits of this system.

So I would urge you, Mr. Chairman, to let our Committee work

on this at least for the rest of this year. And we can come back,

let’s say after the election, literally, work in November and December when we won’t have the pressures of an election facing us; at

that time we can get our work done, and then hand the ball off to

a commission, if it is still needed.

[The opening statement follows:]

Opening Statement of Hon. Pete Stark, a Representative in Congress from

the State of California

Mr. Chairman:

Thank you for calling this hearing on the use of an expert panel to design long

range Social Security Reform.

The timing is excellent. We have a budget surplus and we can rather accurately

anticipate the level of shortfall for the trust funds. We have time to proceed methodically.

So, while I don’t dispute the need for action, I am baffled by your suggestion that

this Committee delegate to another panel this matter of utmost importance to our

nation.

This Committee collectively has more experience in Social Security matters than

any other panel that could possibly be assembled. What better combination of policy

expertise and political judgment could there be than Committee on Ways and

Means?

Through our hearing process, we can hear from the best thinkers of our day what

the problems are and the ramifications of possible solutions.

Through our Town Meetings, we continue the national dialogue. Is there any one

of us who doesn’t frequently go home to their constituents to discuss Social Security

coverage and solvency concerns?

Mr. Chairman, I’m ready to roll up my sleeves and start today. We don’t need

a commission or panel to do our work first. I recognize the Mrs. Kennelly, the ranking Democrat on the Social Security subcommittee for the balance of my time.

the balance of my time. She’s the Ranking Democrat on the Social

Security Subcommittee.

Mr. STARK. I’d like to yield now, if I may, to Mrs. Kennelly for

f

Ms. KENNELLY. Thank you, Mr. Stark; thank you, Chairman Archer.

I think it’s very important that we spend this year having a national dialog on the future of Social Security. Social Security has

been our most successful program. Without it, one out of two elderly people would live in poverty, and so would millions who’s parents have died or become disabled.

But the country is facing some serious demographic changes and

we all know it. Life expectancy has increased significantly, and the

large baby boom generation is nearing retirement. Changes clearly

have to be made.

The American public has begun to engage in this debate. On

April 7, in Kansas City, a bipartisan forum will be held to discuss

Social Security. The forum is being organized by the American As-
10

sociation of Retired People and the Concord Coalition. In addition,

the Pew Charitable Trust recently held a bipartisan national electronic townhall meeting linking 10 cities. Numerous other organizations—think tanks, citizens groups—are holding meetings across

the city. Many Members of Congress, as Mr. Stark said, are having

their own meetings. The Social Security Subcommittee already has

had eight hearings. It’s encouraging to see the range and the depth

of the debate.

I question whether we need another mechanism, one which is expensive and complex, layered on top of this blossoming debate. For

its part, the Congress needs to keep its pledge to save Social Security first. We must not spend the budget surplus, and we have to

reform Social Security. As Alan Greenspan has said: We must resist the temptation to commit future budget surpluses prematurely.

Acting now to spend the projected budget surpluses will damage

our ability to protect Social Security for the future.

In contrast, drawing down the debt will clearly enhance economic

growth. That is what we should be talking about. The result would

be a rapidly improving standard of living for both future workers

and retirees.

I look forward to this debate. We thank Mr. Gingrich and Senator Dole for being here.

[The opening statement follows:]

Opening Statement of Hon. Barbara Kennelly, a Representative in

Congress from the State of Connecticut

Mr. Chairman, I think it is very important that we spend this year having a national dialogue on the future of the Social Security program. Social Security has

been our most successful national program. Without it, one out of two elderly people

would live in poverty. So would nearly a million children whose parents have died

or become disabled.

But the country is facing some serious demographic changes. Life expectancy has

increased significantly and the large Baby Boom generation is nearing retirement.

Thus, changes clearly have to be made.

The American public has already begun to engage in this debate.

On April 7th in Kansas City, a bipartisan forum will be held to discuss the future

of Social Security. That forum in being organized by the American Association of

Retired Persons and the Concord Coalition. In addition, the Pew Charitable Trust

has recently held a bipartisan national electronic town hall meeting linking 10 US

cities—and has plans to do more. Numerous other organizations, think tanks, and

citizen groups are holding meetings across the country. Many Members of Congress

are convening town hall meetings in their districts. The Social Security Subcommittee has already held eight hearings. It is encouraging to see the range and depth

of the debate. I question whether we need another mechanism—one which is expensive and complex—layered on top of this blossoming debate.

For its part, the Congress needs to keep its pledge to ‘‘Save Social Security First.’’

We must not spend the budget surplus until we have acted to reform Social Security. As Alan Greenspan has said—we must resist the temptation to commit future

budget surpluses ‘‘prematurely.’’ Acting now to spend the projected budget surpluses

will damage our ability to protect Social Security for the future. In contrast, drawing down the debt will clearly enhance economic growth—in a way that other commitments will not—and result in a more rapidly expanding standard of living for

both future workers and retirees.

the gentleman from Kentucky, Mr. Bunning, the Chairman of the

Social Security Subcommittee for his statement.

I look forward to today’s discussion.

Chairman ARCHER. The Chair yields the balance of his time to

f
11

Mr. BUNNING. I thank the Chairman for yielding. I’d like to just

say a few words—not too much time.

First of all, Social Security, as everybody knows in this room, affects almost every American, and each of us has a stake in the future of this vital program. Forecasts of future Social Security insolvency and suggested fixes have made their way out of the beltway

onto the kitchen tables all over this country. Americans are often

well ahead of Washington when it comes to knowing what needs

to really be done. Real Social Security reform cannot take place

without Americans weighing in.

The fact that today we have a balanced budget and now see the

potential significant budget surpluses for the next 10 years, gives

us a golden window of opportunity to strengthen Social Security.

We should not let that opportunity pass.

That’s why I’m proud to join with Chairman Archer and Mr. Kasich as an original cosponsor of H.R. 3546, the National Dialogue

on Social Security Act of 1998. This is just one more step—creating

this national dialog—to getting all people talking about solutions.

It is through people talking that consensus can be reached to find

real solutions that will work for all our generations.

The next step is to put together a bipartisan panel of experts to

actually design long-range Social Security reform. These individuals will hammer out a plan that will work for all of us. Of course,

we have the ultimate responsibility for passing or not passing the

real reforms in the Ways and Means Committee, the Social Security Subcommittee, but we need the dialog so that we have a consensus built up from the American people.

I’m looking forward to hearing from our panels today on their

input on this very, very important bill, and look forward to working

with each and every one on the Ways and Means Committee to

craft a bill that will be acceptable to all generations.

[The opening statements of Mr. Bunning and Mr. Ramstad follow:]

Opening Statement of Hon. Jim Bunning, a Representative in Congress

from the State of Kentucky

Social Security affects the lives of nearly every American and each of us has a

stake in the future of this vital program. Forecasts of future Social Security insolvency and suggested fixes have made their way out of the beltway and onto kitchen

tables all over the country. Americans are often well ahead of Washington when it

comes to knowing what needs to be done. Real Social Security reform cannot take

place without Americans ‘‘weighing in.’’

The fact that, today, we have balanced the budget—-and now see the potential

of significant budget surpluses for the next ten years—-gives us a golden window

of opportunity to strengthen Social Security. We should not let that opportunity

pass us by.

That’s why I’m proud to join Mr. Archer and Mr. Kasich as an original cosponsor

of H.R. 3546, the ‘‘National Dialogue on Social Security Act of 1998.’’

Creating a National Dialogue is the first step to getting people talking. It is

through people talking that consensus can be reached to find solutions that will

work for all generations.

The next step is to put together a bipartisan panel of experts to actually design

long-range Social Security reform. These individuals will hammer out a plan that

will work for all of us. This Panel will help to focus our efforts so that we can get

the job done for the American people.

I look forward to hearing the views and recommendations of our witnesses today.
f

12

Opening Statement of Hon. Jim Ramstad, a Representative in Congress

from the State of Minnesota

Mr. Chairman, thank you for calling today’s hearing to discuss H.R. 3546, the National Dialogue on Social Security Act.

A national dialogue on this important issue is long overdue. My constituents

began this dialogue with me long ago at town meetings and through letters and

calls. My constituents know the facts: the Social Security Trust Fund is nothing but

a drawer full of IOUs and the ratio of workers paying into this magical trust fund

to beneficiaries drawing out benefits is getting smaller every year.

As we all know, Social Security was originally designed to supplement individual

retirement savings and pensions to allow seniors to live comfortably throughout

their retirement years. For the most part, this has been a success and it is for this

reason that Social Security must be protected and preserved.

Yet, this programmatic ‘‘safety net’’ also led many Americans to falsely believe Social Security alone was sufficient to support them through retirement. Today, far

too many seniors do not have personal retirement sources to supplement Social Security benefits and find it hard to meet all their personal and medical needs.

And looking at the bigger picture, our country’s savings rate is abysmally low

across all age groups and compares miserably to that of our partners in the Group

of Seven industrialized nations (G–7).

That’s why I hope that our national debate will also address the related issue of

personal savings. I am not only talking about the proposals to direct payroll taxes

into special voluntary Personal Retirement Accounts, but also individual initiatives

to save through mutual funds, IRAs or participate in 401k plans.

The demands on the Social Security system grow larger by the hour, but by addressing this issue now—before it is an overwhelming crisis—just may give us the

time and flexibility to make changes that will actually protect and preserve the program for generations to come.

Thank you again, Mr. Chairman, for calling this hearing. I look forward to heargoing to start off with Senator Dole who was a member of the

Reagan Commission on Social Security Reform in 1982 and has

ing from today’s witnesses about designing long-range social security reform.

Chairman ARCHER. We do have a distinguished panel, and we’re

f

enormous knowledge and background and experience, and besides

that represents, I suppose, the senior citizens of today. So, Senator

Dole, we’re delighted to have you with us, and we’d be pleased to

hear from you and your ideas on Social Security.

STATEMENT OF HON. ROBERT DOLE, SPECIAL COUNSEL,

VERNER, LIIPFERT, BERNHARD, MCPHERSON, AND HAND;

AND FORMER U.S. SENATOR AND FORMER SENATE

MAJORITY LEADER

Senator DOLE. Thank you, Mr. Chairman, and Members of the

Committee. It’s good to be back in the Ways and Means Committee

hearing room again.

I would say at the outset that this is an important issue, and

when I look back over my legislative career I’ve been asked what

was I proudest of, and I’ve picked out this effort in 1983 to rescue

Social Security. When I look back over my period of 351⁄2 years in

the Congress, I just sort of picked that one out as one I thought

was very important.

I appreciate the opportunity to address this group about my personal experience with the use of a panel of experts to address Social Security reform. And it’s rather hard to believe that just over

15 years ago, on January 26, 1983, I introduced S.1, a bill to implement the consensus recommendations of the National Commission
13

on Social Security Reform. It was my view that the consensus

reached by the Commission held the potential for marking the end

of a bitter period of political partisanship. And I can tell you that

it was very, very bitter, and I don’t think it’s going to change that

much in a year or two. It was at that time that Republicans and

Democrats, the House and Senate, the Congress and the executive

branch, all demonstrated the degree of cooperation so essential for

enacting a responsible Social Security financing bill.

Now, I never liked the line of the argument that said: Let’s take

the politics out of the process. Name a commission and let the wise

men decide. I don’t like that line of argument because I’ve always

believed the American people have already selected a commission

to deal with these things; it’s called the Congress of the United

States. But on rare occasions, as we found out in 1983, a commission can get the job done. And I would like to note that Chairman

Roth and Senator Moynihan have a little different idea that they

were all talking about, but it’s time to begin Social Security reform.

And as you know, the long-term deficit today is actually greater

than it was in 1982 and 1983. The Social Security crisis of the

early eighties was actually more imminent because we were told in

January if we didn’t do something, the checks were going to be late

in July. We were up against it; we had to do something. And I

think now you probably have 10 years, but it’s time to start.

The National Commission on Social Security Reform, of which I

was a member, had been created by executive order 1 year earlier.

And at that time, the Social Security Program had been embroiled

in political controversy for months. The system moved closer and

closer and closer toward insolvency as proposals for financial reform were subject to political attack and prospects for any bipartisanship seemed remote.

I think we started down the path to compromise, as I look back

on it, largely due to just a happenstance in the U.S. Senate—and

I’m certain there are others who played just as prominent a role.

But I remember, I’d written an op-ed piece for the New York

Times, which was published the day Congress opened on January

3, 1983, and I mentioned one of the challenges we had was Social

Security. And I remember on that same day Senator Moynihan

walking over to me and saying are you serious about that. I was

then Chairman of the Finance Committee, and I said, ‘‘Yes, I’m serious,’’ because our Commission had just about collapsed; we’d just

about given up on getting anything done. So the two of us started,

and we brought in more and more and finally we had the whole

Commission back on track. And in a matter of 15 days we’d resolved our differences and proceeded to vote in the Commission.

The vote was 12 to 3, which I thought was a pretty good vote.

We had a series of meetings. We brought in White House representatives, we had Democrats and Republicans. We made every

effort to keep in close contact with all the members of the Commission. As we neared a compromise, we also kept in touch with every

other group that obviously had an interest in this.

And so, on January 15, as I have said, we did what some thought

was impossible: we took the politics out of Social Security for the

first time in my memory. And it hasn’t changed much since then.

So we had the cooperation of the President. We had the cooperation
14

of Speaker O’Neill; we had the cooperation of the Majority Leader

at that time—Senator Baker in the Senate. And so we put this consensus package together.

It wasn’t the only accomplishment of the Commission I might

add—and I’ll ask that my entire statement be made a part of the

record. We also reached an agreement—a unanimous agreement—

on the size of the short- and long-term deficits in the Social Security Cash Benefits Program. In concrete terms, the Commission

quantified the seriousness and the urgency of the financing program. Only 1 year earlier, we’d drawn these partisan lines between

those who did not believe there was any financing problem at all

until the year 2000—they were totally wrong. The Commission also

provided a valuable forum for the diverse views on Social Security.

With the able leadership of then-Chairman Alan Greenspan, and

with the expert assistance of Executive Director Robert Myers, we

also had Bob Ball a member of the Commission—both he and Bob

Myers have worked together—members of both political parties

were able to work together in studying the Social Security financing problems and options for financial reform. In the final weeks

before legislation was introduced, we engaged in very intensive negotiations—you know what those amount to. They were sort of free

of political partisanship. I remember meeting in the Blair House.

I remember working with Claude Pepper, among others, and we

were all in there trying to get it done because we knew we were

going to be responsible—we were going to be letting down about 40

million seniors—if we didn’t do something. So I think the Commission, at that time, was the cornerstone to our success in reaching

a consensus package.

Ultimately, workable legislation requires concessions from all of

the parties who have a stake in Social Security. And I remember

on this particular package, nobody liked it, which meant to me it

was probably a pretty good package. And it passed by a good vote

in both the House and the Senate. Not every Member was happy;

some couldn’t bring themselves to vote for it, which was fine. There

were some things that obviously we all objected to, but overall we

thought the system worked fairly well.

So, I think you are facing a different challenge now from the one

we faced. Over the short term, as I said, the next 10 years or so,

Social Security can continue to pay benefits. Over the long term,

however, and the Chairman just alluded to this, it will not be able

to honor the benefit commitments, and there is widespread recognition that impending demographic shifts may significantly raise

Federal entitlement spending early in the next century. And I

think you’ve got to make the change sooner than later. I don’t

know if you have 10 years, you may waste 91⁄2 years, as we did;

but I would hope that there would be some impetus to start on the

program now and to get it done.

Then, as now, a balanced solution—an intergenerationally fair

solution—will involve bringing the cost of Social Security into line

with the willingness and the ability of our working population to

finance the system. The tax burden is already heavy and the confidence of young people is critically low. There is growing sentiment

that the value of Social Security needs to be improved for younger

workers. There are a lot of proposals out there to let people invest
15

a portion of their payroll taxes privately. These proposals have benefits and risks that will have to be weighed carefully. And I think

you have this very rare window of opportunity to make something

happen in that area.

So, I’d say finally, we thought we had fixed the problem for 75

years. Obviously, we didn’t fix it for 75 years, it was closer to 25

years. So, it didn’t turn out to be the case because it’s a very complex program—very complex problem—and a shift in only one variable over the long run can affect the long-term projections.

Yet, over the past 15 years, I think it’s fair to say that two things

have not changed: the importance of retirement security to this

country and politics. They haven’t changed. And I don’t think

they’re going to change. Even though I call this my proudest

achievement, I got beat up pretty well in 1996 on Social Security.

We thought we had probably rescued the program at that time. So,

I don’t see the politics changing. But I see a number of Members

of this Committee on both sides of the aisle who I think can work

together, and perhaps this will be a step in that direction.

So, Mr. Chairman, there are 44 million Americans receiving benefits, and there are 148 million working people who support the

system, and they deserve more than another quick fix. We’ve gone

through all that process, too, that holds the system together until

we have the next crisis which could be 5 or 10 years. And confidence in the long-term viability of Social Security will be restored

only by enacting measures which reinforce personal responsibility,

put the system on sound financial footing, and do so without imposing an unrealistic tax burden on present and future workers.

So I, Mr. Chairman, applaud your efforts. And I hope the efforts

will be bipartisan. And I know sometimes that’s difficult to do, particularly with an issue like Social Security. But the bottom line is,

my experience with senior citizens—and now that I’m in that category—I don’t think they are looking for solutions. I think they dismiss a lot of the political charges, and I think this would be a good

step in the right direction.

Thank you.

[The prepared statement follows:]

Statement of Hon. Robert Dole, Special Counsel, Verner, Liipfert,

Bernhard, McPherson, and Hand; and Former U.S. Senator and Former

Senate Majority Leader

I appreciate the opportunity to be here today to talk about my personal experience

with the use of a panel of experts to address Social Security reform. It’s hard to

believe that just over 15 years ago, on January 26, 1983, I introduced S.1, a bill

to implement the consensus recommendations of the National Commission on Social

Security Reform. It was my view that the consensus reached by the Commission

held the potential for marking the end of a bitter period of political partisanship.

It was at that time that Republicans and Democrats, the House and the Senate,

Congress and the Executive, all demonstrated the degree of cooperation so essential

for enacting a responsible Social Security financing bill.

Now, I never liked the line of argument that said, ‘‘Let’s take the politics out of

the process. Name a commission and let the wise men decide.’’ I don’t like that line

of argument because I’ve always believed the American people have already selected

a commission to deal with these things: its’s called the Congress of the United

States.

But on rare occasions, a commission can get the job done. And I would like to

note that Chairman Roth and Senator Moynihan have each proposed a somewhat

different way of getting the job done through legislation. However, the bottom line

remains: it is time to begin Social Security reform.
16

Although the long-range deficit today is actually greater than it was in 1982–

1983, the Social Security crisis of the early eighties was actually more imminent.

The Social Security program was not going to be able to pay benefits on time beginning that summer. The National Commission on Social Security Reform, of which

I was a member, had been created by Executive Order a year earlier, and at that

time, the Social Security program had been embroiled in political controversy for

months. The system moved closer to insolvency as proposals for financial reform

were subject to political attack. Prospects for a bipartisan consensus seemed remote.

We started down the path of compromise largely due to a conversation Senator

Moynihan and I had on the Senate Floor on the day the new members were being

sworn in—January 3, 1983.

That started a series of meetings among Commission members, and eventually

those meetings were enlarged to bring in White House representatives and representatives of the Speaker and others. We made every effort to keep in close contact with all the members of the Commission, and as we neared a compromise, we

consulted with all who had a direct interest.

On January 15, 1983, the 15 member National Commission on Social Security Reform accomplished what some had said was impossible. With the cooperation and

approval of President Reagan and House Speaker O’Neill, the Commission forged

a consensus reform package with bipartisan support.

Agreeing to the essential provisions of a Social Security solution was not the only

accomplishment of the National Commission. The Commission also reached unanimous agreement on the size of the short and long term deficits in the Social Security cash benefit programs. In concrete terms, the Commission quantified the seriousness and the urgency of the financing program. Only a year earlier, partisan

lines had been drawn between those who did not believe there was any financing

problem at all before the year 2000. The Commission also provided a valuable forum

for diverse views on Social Security. With the able leadership of then Chairman

Alan Greenspan and with the expert assistance of Executive Director Robert Myers,

members of both political parties were able to work together in studying the Social

Security financing problem and options for financial reform. In the final weeks before legislation was introduced, we engaged in intensive negotiations, which were,

to a large extent, free of political partisanship that so seriously damaged efforts for

responsible reform in 1981.

In my view, the National Commission was the cornerstone to our success in reaching a consensus package. Ultimately, workable legislation requires concessions from

all of the parties who have a stake in Social Security, cue no one Member was

happy with every specific recommendation, the important fact is that consensus was

reached on how to save the system.

Today, the Social Security system is facing a different challenge from the one you

and I faced, Mr. Chairman. Over the short term, the next 10 years or so, Social Security can continue to pay benefits. Over the long term, however, the system will

not be able to honor its benefit commitments and there is widespread recognition

that impending demographic shifts may significantly raise federal entitlement

spending early in the next century. Change must be made sooner rather than later,

to avoid more serious impacts on future beneficiaries as baby boomers begin to retire.

Then, as now, a balanced solution—an intergenerationally fair solution—will involve bringing the cost of Social Security into line with the willingness and ability

of our working population to finance the system. The tax burden is already heavy

and the confidence of young people is critically low. There is growing sentiment that

the value of Social Security needs to be improved for younger workers. There are

a lot of proposals out there to let people invest a portion of their payroll taxes privately. These proposals have benefits and risks that will have to be weighed carefully. You have a rare window of opportunity.

Back in 1983, we figured we had the problem solved for the next 75 years. Unfortunately, that didn’t turn out to be the case. Social Security is extremely complex

and a shift in only one variable over the long-run can significantly affect the long

term projections. Yet, over the past 15 years, two things haven’t changed: the importance of retirement security to this country—and politics. A panel of experts, such

as you have proposed, can provide real solutions, which will serve as a lighthouse

to help weather any political storm.

The American people, the 44 million receiving benefits and the 148 million working people who support the system, deserve more than another quick fix that holds

the system together until the next crisis comes along. Confidence in the long term

viability of Social Security will be restored only by enacting measures which reinforce personal responsibility, put the system on sound financial footing, and do so
17

without imposing an unrealistic tax burden on present and future workers. I apyounger generation that has a strong, strong interest in a program

plaud your efforts in moving the process forward, and wish you every success.

Our next witness is Melissa Hieger who is here to speak for the

Chairman ARCHER. Thank you, Senator Dole.

f

that is intergenerationally fair. Ms. Hieger, we’re glad to have you

with us and we would pleased to receive your testimony.

STATEMENT OF MELISSA HIEGER, NATIONAL BOARD

MEMBER, THIRD MILLENNIUM

Ms. HIEGER. Thank you.

Good morning, ladies and gentleman. Thank you, Mr. Chairman,

for including Third Millennium in this dialog about Social Security,

the largest program in the Federal Government. We greatly appreciate the fact that you have chosen to include voices from all generations in this critically important debate today.

My name is Melissa Hieger, and I am a board member of the

New York-based Third Millennium, a national, nonpartisan organization launched in 1993 by young adults offering solutions to longterm problems facing the United States. I am also a Ph.D. candidate in economics at Boston University. My research focuses on

public pension reform and retirement policy.

Today you have asked me to address two issues: the merits of establishing a bipartisan panel to design long-range Social Security

reform, and the best way to engage the American public in the

process of this reform. I will address these issues one at a time.

Regarding the proposed panel, it is fair to ask: Is it really necessary? After all, the 32-member Kerrey-Danforth Commission in

1994 effectively laid out the options for reform, and that panel’s cochairman made reasonable recommendations that are still under

consideration today. Then 15 months ago, the President’s 13-

member Social Security Advisory Council issued a report that presented three divergent paths for Social Security. Clearly, we know

what our reform options are.

After reading your proposal, Mr. Chairman, you have convinced

me and my colleagues that your approach would help achieve Social Security reform. For example, we agree that members of the

panel should be named by the administration as well as by Congress so that both branches have stake in the outcome. You have

wisely set the deadline at exactly 10 months hence so the panel

must move expeditiously. And you have designed the panel to be

small so that building support will likely be simpler. Clearly, you

are trying to bring the process of Social Security reform to successful completion.

But I do have one question. Have you considered modeling this

new panel after the Base Closure Commission? As you will recall,

in that instance, Members of Congress took an up or down vote on

the Commission’s full package of recommendations rather than

evaluating them through a series of congressional Committees that

would likely have rendered them unacceptable. Isn’t it possible

that in the case of Social Security, an equally contentious political

issue, the House Ways and Means Committee and the Senate Fi-
18

nance Committee would want to amend whatever the bipartisan

panel proposes and in the end undo their fragile agreement? This

is our main concern, since long-overdue Social Security reform has

been delayed time and time again.

Regarding the composition of this proposed bipartisan panel, I

would suggest that the bill mandate that two panel members, one

from each party, be Americans born after 1960. If this panel is

comprised exclusively of white males over the age of 50, it will

have great difficulty gaining the support of the majority of American people who do not fit that category. Indeed, in your proposal,

you consciously and wisely designed a Dialog Council with a

generational perspective in mind, including one-third of its members from my generation born after 1960. Why not use the same

standard to allocate positions on the bipartisan panel, the group

that actually would be devising the Social Security reform plan? As

you know, the bipartisan panel’s proposals stand to affect the lives

of people in younger generations as much as, if not more than, the

lives of today’s older Americans.

Speaking of the Dialog Council, I must commend you not only on

the creation of such a group, but the emphasis you place on the

Internet as a channel for political discussion. Clearly, there is a

role for young adults to play in the proposed Internet Advisory

Board. We hope if it is created, Third Millennium will be called

upon to offer its knowledge and leadership.

Finally, I should make the Ways the Means Committee aware

that Third Millennium is already working to foster a national discussion about Social Security. In conjunction with three other organizations—the United States Student Association, the Foundation

for Individual Responsibility, and Social Trust, and the 2030 Center—and with the generous support of Americans Discuss Social

Security Project of the Pew Charitable Trust, we have just

launched the Social Security Challenge. Starting in late-February,

our groups began issuing a call to college and graduate students

nationwide. We are saying the following: If you had $100,000 to

spend to make Social Security a hot topic of conversation among

college students nationwide, how would you spend the money? Tell

us your plan in 1,000 words or less and submit a budget. The winning team of between two and four students will win two prizes:

One, the ability to spend the $100,000 to implement their project;

and two, each member of the team will win $10,000 toward college

expenses.

We would ask that Members of this Committee inform their constituents about the Social Security Challenge. And I do have brochures with me today, so if you would like to have one, please ask.

The deadline for entries is April 28. We have mailed a promotional

brochure to the chairs of every economics and political science department in the country, as well as to key administrators at every

college and university. We have also been aggressively promoting

the Social Security Challenge via banner advertising on the world

wide web, and directing viewers to the Web site:

www.sschallenge.org, and also callers to the program’s headquarters.

Mr. Chairman, we have a major task ahead of us. In the absence

of an immediate crisis, reforming Social Security remains a
19

daunting task. But you and Members of your Committee should

know that Third Millennium is in this for the long haul. We intend

to stimulate public discussion about Social Security until the program is fixed and dignified retirements can be assured not only for

today’s seniors, but also for the people of my generation and those

that follow.

Thank you.

[The prepared statement and attachment follow:]

Statement of Melissa Hieger, National Board Member, Third Millennium

Good morning, ladies and gentlemen. Thank you, Mr. Chairman, for including

Third Millennium in this dialogue about Social Security, the largest program in the

federal government. We greatly appreciate the fact that you have chosen to include

voices from all generations in this critically important discussion today.

My name is Melissa Hieger, and I am a board member of New York-based Third

Millennium, a national, non-partisan organization launched in 1993 by young adults

offering solutions to long-term problems facing the United States. I am also a graduate student earning a Ph.D. in economics from Boston University, and my area of

expertise is retirement policy. My faculty advisor is Dr. Lawrence Kotlikoff, the creator of ‘‘generational accounting’’ and a member of Third Millennium’s board of advisors. Today you asked me to address two issues: the merits of establishing a bipartisan

panel to design long-range Social Security reform, and the best way to engage the

American public in the process of reform. I will address these issues one at a time.

Regarding the proposed panel, it is fair to ask: Is it really necessary? After all,

the 32-member Kerrey-Danforth Commission in 1994 effectively laid out the options

for reform, and that panel’s co-chairmen made reasonable recommendations that are

still under consideration today. Then, 15 months ago, the President’s 13-member Social Security Advisory Council issued a report that presented three divergent paths

for Social Security. Clearly we know what our reform choices are.

After reading your proposal, Mr. Chairman, you have convinced me and my colleagues that your approach would help achieve Social Security reform. For example,

we agree that members of the panel should be named by the Administration as well

as by Congress, so that both branches have a stake in the outcome. You have wisely

set the deadline at exactly 10 months hence, so the panel must move expeditiously.

And you’ve designed the panel to be small, so that building support will likely be

simpler. Clearly you seek to bring the process of Social Security reform to successful

completion.

But I have one question: Have you considered modeling this new panel after the

Base Closure Commission? As you’ll recall, in that instance Members of Congress

took an up or down vote on the Commission’s full package of recommendations,

rather than evaluating them through a series of Congressional committees that likely would have rendered them unacceptable. Isn’t it possible that in the case of Social

Security, an equally contentious political issue, the House Ways and Means Committee and the Senate Finance Committee would want to amend whatever the Bipartisan Panel proposes and, in the end, undo their fragile agreement? This is our

main concern, since long-overdue Social Security reform has been delayed time and

time again.

On another issue, the composition of this proposed Bipartisan Panel, I ask you,

Mr. Chairman: please incorporate wording in your bill that mandates that two panel

members, one from each party, be Americans born after 1960. If this panel is comprised exclusively of white males over the age of 50, it will have great difficulty

gaining the support of the majority of the American people who do not fit that category.

Indeed, in your proposal you consciously and wisely designed the Dialogue Council

with a generational perspective in mind, including one-third of its members from

my generation, born after 1960. Why not use that same standard to allocate positions on the Bipartisan Panel, the group that actually would be devising the Social

Security reform plan? As you know, the Bipartisan Panel’s proposals stand to affect

the lives of people in younger generations as much as, if not more than, the lives

of today’s older Americans.

Speaking of the Dialogue Council, I must commend you not only on the creation

of such a group, but the emphasis you place on the Internet as a channel for political discussion. Clearly there is a role for young adults to play in the proposed Internet Advisory Board, and we hope that if it is created that Third Millennium is

called upon to offer its knowledge and leadership.
20

Finally, I should make the Ways and Means Committee aware that Third Millennium is already working to foster a national discussion about Social Security. In

conjunction with three other organizations (the United States Student Association,

the Foundation for Individual Responsibility and Social Trust and the 2030 Center)

and with the generous support of the Americans Discuss Social Security project of

the Pew Charitable Trusts, we have just launched the ‘‘Social Security Challenge.’’

Starting in late February, our groups began issuing a call to college and graduate

students nationwide. We are saying the following: ‘‘If you had $100,000 to spend to

make Social Security a hot topic of conversation among college students nationwide,

how would you spend the money?’’ Tell us your plan in 1,000 words or less, and submit a budget. The winning team of between two and four students will win two

prizes: 1) the ability to spend the $100,000 to implement their project and 2) each

member of the team will win $10,000 toward college expenses.

We would ask that members of this Committee inform their constituents about

the Social Security Challenge. The deadline for entries is April 28th. We have

mailed a promotional brochure to the chairs of every economics and political science

department in the country, as well as to key administrators at every college and

university. We have also been aggressively promoting the Social Security Challenge

via banner advertising on the World Wide Web, and directing viewers to the web

site www.sschallenge.org, and callers to the program’s headquarters at 212–625–

0403.

Mr. Chairman, we have a major task ahead of us. In the absence of an immediate

crisis, reforming Social Security remains a daunting task. But you and members of

your Committee should know that Third Millennium is in this for the long haul. We

intend to stimulate public discussion about Social Security until the program is

fixed and dignified retirements can be assured not only for today’s seniors, but also

for the people of my generation and those that follow. Thank you.

f
21
22
23
24
f

25

Chairman ARCHER. Thank you, Ms. Hieger.

Our last witness today representing the baby boomers, our own

congressional baby boomer, the Speaker of the House of Representatives, Newt Gingrich. Mr. Speaker, we would be pleased to receive

your testimony.

STATEMENT OF HON. NEWT GINGRICH, SPEAKER OF THE

HOUSE OF REPRESENTATIVES, AND A REPRESENTATIVE IN

CONGRESS FROM THE STATE OF GEORGIA

Mr. GINGRICH. Thank you, Chairman Archer.

Let me first of all thank you and Chairman Bunning for the

work you have already done in establishing this base, and let me

commend to any interested citizen that they look at the hearings

Chairman Bunning has already had in Subcommittee on the variety of reforms occurring around the world. I also want to commend

Chairman John Kasich of the Budget Committee for some very innovative ideas in trying to solve the problem with action this year.

And I want to mention some of our colleagues: John Porter, Nick

Smith, Mark Sanford, and Mark Neumann who have been particularly aggressive in trying to develop answers and solutions to stabilize Social Security and create a better future.

Although America’s Social Security system is not currently in crisis, the signs are clear that we are rapidly approaching one. Early

in the next millennium, the Social Security trust funds will begin

to dwindle as wave after wave of baby boomers surge into retirement. Within 15 years, the system will begin to pay out more than

it takes in. Unless we act soon, within roughly 30 years, the system

will be bankrupt and the retirement security and happiness of millions of Americans will be placed in grave danger.

I think that’s why President Clinton in the State of the Union

and in other comments has called again and again for a bipartisan

effort to create a dialog. I believe that’s why on April 7, he is going

to a bipartisan event in Kansas City. And so, I see what this Committee is doing today is a very bipartisan effort to work with the

President in developing an approach to have the country educate

itself and then help make wise decisions.

When you look at the facts about Social Security, it is little wonder that more young people believe in UFOs than that they will receive a Social Security check. The system is in trouble and the time

to act is now.

We can and we will save Social Security. I want to repeat this.

As the Speaker of the House of a team that reformed welfare; balanced the budget for the first time in 30 years; passed the tax cut

we promised, which is $400 per child this year and $500 next year;

saved Medicare without raising taxes by increasing choice for senior citizens, let me emphasize the positive—we can and we will

save Social Security.

Today, I am proud to introduce the initial steps in the plan that

will permanently save Social Security while increasing the amount

of retirement income available for virtually every American. Most

importantly, the plan I am about to outline will not take a penny

from our current Social Security system. It protects and fulfills the
26

obligations of the U.S. Government and the American people to

current and future retirees.

Let me emphasize this point: This plan will not touch the FICA

tax; this plan will not touch the trust funds; this plan will not raise

taxes on the American people; and this plan will not cut a single

persons’ Social Security benefits now or ever. We will guarantee

every American, whether you are 17 or 70, that you will get every

scheduled payment, including future cost of living increases, on

time and in full from the current system.

Our goal should be the creation of a dramatically better, modern,

personal Social Security system for the information age while protecting all the benefits in the current system. We can reach that

goal in three stages.

Stage one involves the legislation this Committee is meeting to

discuss today. I believe we must launch a national dialog on retirement security to help Americans understand the issues and the

choices we face. We must bring together baby boomers with older

and younger Americans, and we should link them via the Internet

to local task forces in every congressional district to examine the

range of reform ideas. Let me mention: The goal here is not necessarily to find the perfect solution, it is to engage all of the American people, so all of the American people believe they have access

to the information and they have a right to participate in thinking

through and discussing their economic future.

On January 5, I called for a commission to lead such a dialog,

and I am very pleased that Chairman Archer has introduced legislation to advance that idea. I also would like to commend Rick

White for all the outstanding work he has done in helping show us

how to use the Internet as a tool to advance this dialog. And with

Chairman Archer’s help, I think this is the first commission ever

designed with the Internet as an integral part of its involvement

of the American people.

In stage two, we should lock in the surplus so it truly saves Social Security by using it to fund new, personal, market-based retirement accounts for 130 million Americans—those that pay the

FICA tax. We must plant a flag in the ground that says, this surplus belongs to the American people and should be returned to the

American people. Every time someone proposes spending this

money on something else, they are spending our children’s future.

We know that if we don’t lock in the surplus and guarantee it can’t

be used for other programs, it will be spent. The strongest force in

the universe is the attraction between a politician and a pot of

unspent money.

That is why I support the President’s call to save every penny

of the surplus to save Social Security. We can do so by using the

surplus to fund these new, supplemental, personal retirement accounts for working Americans. Through these Social Security plus

accounts, we can add to the existing Social Security system without

taking any money from it. Under this plan, Social Security would

be strengthened and preserved. It will be safe, intact, and secure

for future retirees. We will use the opportunity presented by the

surplus to create a huge new pool of private capital that will lower

interest rates, strengthen economic growth, and increase the personal control of the baby boomers and their children over their own
27

savings. So even if a person made a terrible investment, or the

stock market went into a dive, that person would always have Social Security to fall back on. There will be zero risk of ever falling

below the benefit level of the Social Security system. The safety net

would be strong and unbroken.

But this plan would also give every American the opportunity to

rise above the status quo. In addition, these new Social Security

plus accounts would painlessly create the framework for a new,

modern, personal retirement system without putting any senior

citizens or current benefits at risk. They would begin the transition

to a better more effective system for our children and grandchildren without taking any money away from our parents and

grandparents.

Best of all, these accounts would compliment ongoing Republican

tax-cutting efforts. Creating Social Security plus accounts would be

the equivalent of giving the American people a $671 billion tax cut

over the next 10 years, plus hundreds of billions more in interest

in investment returns.

Through this surplus bonus, we would simultaneously strengthen

Social Security, cut taxes, harness the power of compound interest,

and give Americans a choice of how best to plan for their retirement.

In stage three, after the Commission reports back next year, we

will work with the President to implement the most effective longterm reforms to the Social Security Program. In his State of the

Union, President Clinton said that he would ‘‘convene the leaders

of Congress next year to craft historic bipartisan legislation to

achieve a landmark for our generation: a Social Security system

that is strong in the 21st century.’’ Mr. President, we, as leaders

of Congress, accept your invitation. We look forward to shaping bipartisan legislation that is based on the recommendations of the

Commission and fits into the framework of personal retirement accounts we create this year. Working together, we can ensure that

no American will have to worry about his or her financial security

in retirement.

By contrast, there is one prominent Democrat proposal that also

claims to save Social Security. And while Democrats have recognized the problem, and I think on a bipartisan basis deserve a lot

of support, I particularly commend the President and Senator Moynihan for having said: There is a problem and we have to solve it.

One solution depends on the false medicine of tax increases and

benefit cuts. Under that proposal, a single 62-year-old retiree, with

a $19,000 annual income, could face a tax increase of nearly $1,700

next year. A married couple the same age earning $27,000 could

see their retirement income hacked by more than $2,000. That is

totally unacceptable. By the way, the source for both of those is the

Joint Tax Committee analysis of the proposal.

Now, I just want to suggest the opposite of what Chairman Archer said: that would launch generational warfare in its most bitter

form. That would pit grandparents against grandchildren. And it is

exactly wrong. We need a solution where the grandparents are safe

and secure and know it; where the children are doing better and

know it; and where the grandchildren have a chance to have a re-
28

tirement plan they trust and believe will be real and uses the

power of compound interest to increase their retirement.

We must save Social Security, but we cannot do it by taxing

older Americans into deeper poverty. We must enhance the current

system, not eviscerate it. Over this upcoming recess, I urge every

Member to return to their district and begin this important dialog.

And the best way to begin this process is not by talking, but by listening. I urge every Member to ask your constituents what they

think. And let me suggest just a few questions to start that conversation.

First, how important do you think it is for us to save Social Security? Second, do you think we should use the surplus to save Social

Security? Third, would you like to have a personal investment account that you control for retirement? And finally, do you think you

can invest your money more wisely than the government can invest

your money?

This dialog must begin at the grassroots, around kitchen tables

and living rooms across America. Through this dialog and this

plan, we will protect every current and future retirement and start

the transition for younger Americans toward a modern, personal,

market-oriented retirement system.

Thank you for your time.

[The prepared statement follows:]

Statement of Hon. Newt Gingrich, Speaker of the House of Representatives,

and a Representative in Congress from the State of Georgia

Although America’s Social Security system is not currently in crisis, the signs are

clear that we are rapidly approaching one. Early in the next millennium, the Social

Security trust funds will begin to dwindle as wave after wave of baby boomers

surges into retirement.

Within fifteen years, the system will begin to pay out more than it takes in. Unless we act soon, within roughly thirty years the system will be bankrupt, and the

retirement security and happiness of millions of Americans will be placed in grave

danger.

Little wonder that more young people believe they will see a UFO than a Social

Security check when they retire. The system is in trouble, and the time to act is

now.

We can—and we will—save Social Security.

Today I am proud to introduce the initial steps in a plan that will permanently

save Social Security while increasing the amount of retirement income available for

virtually every American.

Most importantly, the plan I am about to outline will not take a penny from our

current Social Security system. It protects and fulfills all of the obligations of the

United States government to current and future retirees.

Let me emphasize that point: This plan will not touch the FICA tax. This plan

will not touch the trust funds. This plan will not raise taxes on the American people.

And this plan will not cut a single person’s Social Security benefits—now or ever.

We will guarantee every American—whether you’re 17 or 70 that you will get

every scheduled payment, including future cost-of-living increases, on-time and infull from the current system.

Our goal should be the creation of a dramatically-better, modern, personal Social

Security system for the Information Age while protecting all of the benefits in the

current system.

We can reach that goal in three stages.

Stage One involves the legislation this committee is meeting to discuss today. I

believe we must launch a national dialogue on retirement security to help Americans understand the issues and the choices we face. We must bring together baby

boomers with older and younger Americans, and we should link them via the Internet to local task forces in every congressional district to examine the range of reform

ideas.

On January 5th, I called for a commission to lead such a dialogue, and I’m very

pleased that Chairman Archer has introduced legislation to advance that idea. I also
29

would like to commend Rick White for all of the outstanding work he has done in

helping show us how to use the Internet as a tool to advance this dialogue.

Stage Two—We should lock in the surplus so it truly saves Social Security by

using it to fund new, personal, market-based retirement accounts for 130 million

Americans.

We must plant a flag in the ground that says this surplus belongs to the American people and should be returned to the American people. Every time someone

proposes spending this money on something else, they’re spending our children’s future.

We know that if we don’t lock in the surplus and guarantee it can’t be used for

other programs, it will be spent. The strongest force in the universe is the attraction

between a politician and a pot of unspent money. That is why I support the President’s call to use ‘‘every penny’’ of the surplus to save Social Security.

We can do so by using the surplus to fund these new supplemental personal retirement accounts for working Americans. Through these Social Security Plus accounts, we can add to the existing Social Security system without taking any money

from it.

Under this plan, Social Security would be strengthened and preserved. It will be

safe, intact, and secure for future retirees. We will use the opportunity presented

by the surplus to create a huge new pool of private capital that will lower interest

rates, strengthen economic growth, and increase the personal control the baby

boomers and their children have over their savings.

So even if a person makes a terrible investment, or the stock market goes into

a dive, that person will always have Social Security to fall back on. There would

be a zero risk of ever falling below the benefit level of the Social Security system

the safety net would be strong and unbroken. But this plan would also give every

American the opportunity to rise above the status quo.

In addition, these new Social Security Plus accounts would painlessly create the

framework for a new modern personal retirement system without putting any senior

citizen or current benefits at risk. They would begin the transition to a better, more

effective system for our children and grandchildren without taking any money away

from our parents and grandparents.

Best of all, these accounts would complement ongoing Republican tax cutting efforts. Creating Social Security Plus accounts would be the equivalent of giving the

American people a $671 billion tax cut over the next ten years—plus hundreds of

billions more in interest and investment returns.

Through this surplus bonus, we would simultaneously strengthen Social Security,

cut taxes, harness the power of compound interest, and give Americans a choice of

how best to plan for their retirement.

Stage Three—After the Commission reports back next year, we will work with the

President to implement the most effective long-term reforms to the Social Security

program. In his State of the Union, President Clinton said that he would ‘‘convene

the leaders of Congress [next year] to craft historic, bipartisan legislation to achieve

a landmark for our generation—a Social Security system that is strong in the 21st

century.’’

Mr. President, we—as leaders of Congress—accept your invitation.

We look forward to shaping bipartisan legislation that is based on the recommendations of the Commission and fits into the framework of personal retirement accounts we create this year. Working together, we can ensure that no American will have to worry about his or her financial security in retirement.

By contrast, there is a prominent Democrat proposal that also claims to save Social Security. While Democrats have also recognized the problem, their solution depends on the false medicine of tax increases and benefit cuts.

Under the leading Democrat proposal, a single 62-year-old retiree with a $19,000

annual income could face a tax increase of nearly $1,700. A married couple of the

same age earning $27,000 could see their retirement income hacked by more than

$2,000. That is totally unacceptable. (source: Joint Tax Committee)

We must save Social Security, but we cannot do it by taxing older Americans into

deeper poverty. We must enhance the current system, not eviscerate it.

Over this upcoming recess, I urge every member to return to their district and

begin this important dialogue. And the best way to begin this process is not by talking, but by listening.

I urge every member to ask your constituents what they think. And let me suggest a few questions to start that conversation.

First, how important do you think it is for us to save Social Security?

Second, do you think we should use the surplus to save Social Security?

Third, would you like to have a personal investment account that you control for

retirement?
30

And finally, do you think you can invest your money more wisely than the government?

This dialogue must begin at the grassroots around kitchen tables and living rooms

across America.

Through this dialogue and this plan, we will protect every current and future retiree, and start the transition for younger Americans toward a modern, personal,

market-oriented retirement system.

over many, many years of serving in the Congress, and with your

Thank you for your time.

Let me very briefly inquire of Senator Dole. With your experience

Chairman ARCHER. Thank you, Mr. Speaker.

f

experience on the Social Security issue, which you mentioned in

your comments, do you believe that it is possible within this body,

both Senate and House, that this issue can stay above the temptation of individual Members to attempt to gain partisan political advantage if you simply turn the Congress on this issue without a

driving force of a bipartisan nature, which is intergenerationally

determined, such as the Commission that is being recommended in

the legislation on which we’re having a hearing today?

Senator DOLE. Well, as I said in my statement, I think it’s only

on rare occasions you would want a commission—maybe campaign

finance reform, maybe Social Security; there may be another one

or two out there, base closings.

But I must say, I was on the Social Security Subcommittee, the

Chairman of the Finance Committee. We had a lot of partisan

wrangles, even though people I think generally with well intention—we had different views. And I must say as a Republican, we

suffered a great deal because of the politics of Social Security over

the years. And we thought we were trying to fix it. We thought we

were offering good legislation that would make the trust fund secure, and all these things.

I don’t believe anything has changed that much. Obviously, I

think there’s still some partisanship in the Congress. I don’t notice

as much as I used to, because I’m not up here, but if I were here

I’d probably notice it. But I read about it and I watch C-Span, and

I see all the harmony, and I occasionally see disharmony. But I

don’t generally stay up that late.

So, having said that, I don’t see how you do it. You’re all friends

here, Democrats and Republicans. You may have different views,

but in the final analysis I don’t see how you get it done. Now

maybe if somebody can put together a package that everybody will

rally around, but there’s just too much involved.

And if you’re a widow, and your only income is Social Security,

and maybe Medicare, you’re concerned about it. And if we start

playing politics, in my view that person and millions of others are

going to have nothing but uncertainty, and they’re going to lose

more confidence in those of you who have the present responsibility

for making the system work.

Chairman ARCHER. Mr. Stark.

Mr. STARK. Thank you, Mr. Chairman.

A comment, and particularly on Senator Dole’s last statement: I

just returned from a meeting in Germany with the U.S. Government, Japanese Government, and the German Government, all dis-
31

cussing this same problem. The Germans and the Japanese have

a far older population than we do, and the crux of 2 days was looking around the table in three languages, and looking, wondering,

‘‘who’s going to pay for it?’’ And nobody wanted to pay for it. And

they were looking around for 2 days for this magic bullet, and I

suspect that’s where we’re going to end up.

Chairman Archer, in his minority views in the last Commission,

was against any increase in taxes. The Speaker, I believe, had instructed some members of the Medicare Commission not to support

increases in taxes.

So if that comes off the table, you certainly limit your options for

reform—now the Speaker has suggested private pensions.

If you took 80 percent of the budget surplus, and distributed among 148 million qualified workers, you’d be giving them $4 a

month to invest in a plan, running up to a magnificent $33 a

month by the year 2004. That would barely accumulate over 30

years accumulate $4,000 at 8 percent, and I don’t know that you

can offer people this as an alternative for us doing the responsible

thing for Social Security. Maybe you’ve got a better idea, but I

don’t think that sells.

Are we going to get more money in there?

Mr. GINGRICH. Would you yield for 1 minute?

Mr. STARK. Surely, I’d be happy to. It was your plan that I’m trying to outline.

Mr. GINGRICH. Again, I’m suggesting a general principle as a

step. You’ll notice I said there are three steps here. One is the

Commission, so we get the whole country engaged in the dialog; the

second is the principle that the surplus should go into a private

personal account; and the third is, that we look at the future of Social Security within the context of those two steps. I’m not here

today to say this is a panacea, but I want to make two observations

that are startling.

The first is, the Congressional Budget Office has had to refigure the outyear debt in the last 15 months by $2 trillion. That is, 15

months ago they were projecting a debt over the next decade that

is $2 trillion higher than they’re currently projecting.

This year we were supposed to run a $229 billion deficit, which

means we’d borrow from Melissa’s generation $229 billion. Instead,

the minimum surplus is $10 billion and our most accurate estimator, Mark Newman of Wisconsin, estimates it will be at least

$40 billion, and the CBO will once again be wrong when the numbers come out.

If you take just the current, very low, very timid, Congressional

Budget Office projection, it is about a $670 billion number over the

next 10 years. That for the FICA taxpayers turns out to be about

$3,500 to $4,000 in a savings account, at no cost to anybody. It simply means government can’t spend the money in Washington.

If you have a tax-free buildup of that money, and you’re a 20-

year-old, you have in fact—a 20-year-old today, if that program

were set up today, and you didn’t extend the surpluses beyond 10

years; you only said there’s a 10-year window, they would still have

a significantly larger amount of money than they have today.

But let me go a step further. Marten Feldstein, who is fairly reputable, who was the chairman of the Council of Economic Advisors,
32

the record suggests that this program, if you deliberately work to

have a surplus that allowed you to return the equivalent of 2 percent of FICA, that this program could ultimately basically provide

a sufficiently large asset; that you would not only guarantee the

stability of the system, but——

Mr. STARK. But Mr. Speaker——

Mr. GINGRICH. Yes?

Mr. STARK [continuing]. If we increase FICA by 2 percent the Social Security problem would be resolved?

Mr. GINGRICH. I didn’t say that; I said something very different.

I said the surplus.

Mr. STARK. I’m just saying, all we have to do is increase the Social Security tax 2 percent, 1 percent for you and 1 percent for the

government, to resolve the problem.

Mr. GINGRICH. Can I just state my point? Mr. Stark, you just

made my point about the difference in our two approaches.

I would control government spending to have a surplus large

enough to equal 2 percent of FICA, and give people the money by

not having it spent; you’d raise the taxes. I believe there’s a nontax increase approach, and the key’s very simple.

The power of compound interest, if you are young enough, allows

you to offset the demographics of an aging population. You give

young people enough savings to have compound interest buildup

without taxation, and they will be in a position to save the system

without a tax increase. If we don’t act in the next year or two, and

don’t have time for the compound interest, you are either by 2012

going to have to radically cut benefits or raise the FICA maybe as

high as 18 percent.

Now I am opposed to a solution which has us raise the FICA tax

to an 18-percent-per-person FICA for a program that my daughters

may never see the money from. And I think it’s much better for us

to find a solution that locks in the surplus, returns it as a bonus,

gives the American people the chance to invest that money, and

gives them the chance to have that kind of compound interest work

for them, rather than work against them.

Chairman ARCHER. The gentleman’s time has expired.

Mr. Crane.

Mr. CRANE. Thank you, Mr. Chairman.

Chairman ARCHER. Yes.

I want to express appreciation to Senator Dole and Ms. Hieger,

and to our distinguished Speaker, Mr. Gingrich, for their participation. And I don’t know whether Ms. Hieger is a registered voter

yet, but I am assuming that with this bipartisanship here that it’s

irrelevant whether you registered and whether you have cast votes

for the other side. We’re working in a joint effort to save the program that touches all American’s welfare. One of the concerns I’ve

had is that, relatively speaking, the rate of return under the Social

Security Program is such a rip off in contrast to the return rate if

you had invested your own money. How we make the transition

into mandated investments into your own savings account as opposed to the current Social Security Program, is the question of the

day.

I led a Trade Subcommittee trip down to Chile in 1995, and

while there, we had an interesting opportunity to meet with their
33

former labor secretary who had privatized Social Security down

there. Under the Chilean system, individuals were given options.

In 1995 over 90 percent of Chileans had chosen the private alternative, and that was understandable, because the returns were so

significantly better than under the existing program.

And I thought about it afterward, and it’s just tragic that when

the Social Security Program was first established, it wasn’t established that way.

I think the same principle applies to our Medicare Program. Had

it been set up as a medical savings account at its inception, we

wouldn’t be going through the crisis we’ll be going through again

in another decade with respect to Medicare.

But let me ask a question from a third millennium perspective,

and that question is, you talk about having analyses being made

by panels involving people who were born after 1960. You don’t

trust any of us older folks?

Ms. HIEGER. In my discussions with younger people, it just seems

that there are very diverse views on solutions, and possible solutions, and in particular the investment option. And I think younger

people tend to have more experience with 401(k) plans, they like

the portability, and in general see that as a more realistic option

than staying with the pay-as-you-go structure. We don’t see that as

being such a large risk as somebody from the older generations

that maybe lived through the Great Depression.

Mr. CRANE. Well, let me simply comment, that as a parent of

eight children, I’m infinitely more concerned about their welfare

than I am about my own. I think there is perspective that can be

brought into the whole discussion by grandparents; even folks that

are current beneficiaries and recipients of Social Security benefits

who are aware at least of the potential threat, not to their own

benefits, but to yours and your children, too. I would hope you

might soften your position in opposition to some of us older folks.

And one of the things I’m interested in, Bob, from your comments, and that is the differences between the people who were

pessimistic about reform really working in 1983 in contrast to

today.

Do you see any significant differences in the pessimism on the

part of those folks who think this program isn’t going to survive?

Senator DOLE. I don’t see a great deal of change. And I might

point out one thing; it has only been 15 years, but we never considered any personal investment possibilities. It shows how far its

moved in just 15 years. It’s going to happen one of these days. You

can still protect those in the pipeline and let young people, like Melissa, give them opportunities, too.

But I think you go out to the average group of people, wherever

you go—Kansas, Illinois, wherever, and they think it’s going to be

gone; it’s not going to be there. And that’s why I think it’s very important. I think another exception for a commission would be Medicare, which you’ve already done.

When you have the Commission it shouldn’t be all Members of

Congress, because then you’re right back in the same partisan

problem. You need a few outsiders to not only referee, but to help

bring some outside information, some outside wisdom to the prob-
34

lem, even though there’s a great deal of expertise in this Committee and on the Senate Finance Committee.

Mr. CRANE. Well, again, I express my appreciation to all of you.

Keep the faith, fight the good fight; we shall prevail. And I think

we can solve this problem too.

Thank you.

Mr. BUNNING. Thank you.

Mr. Speaker, you say our goal should include the creation of a

personal Social Security account and a system for the information

age.

How do you see Social Security unfolding in an information age,

and how do you answer the critics that say, in a personal savings

account that you use the market forces, what happens if the market is negative? In other words, if we have the late sixties, early

1970 market as these accounts are starting to be formed?

Mr. GINGRICH. Let me start and point out, Mr. Bunning, I appreciate your question; that what I am suggesting today is a very

timid, very cautious approach, which simply says, create the Social

Security Plus accounts with the surplus. Keep the entire current

system as a safety net. So if the market tomorrow morning crashed

and we had a zeroed out, you would still have the current safety

net. From that standpoint, it is a very low risk system.

Mr. BUNNING. Excuse me. You’re not suggesting that those on retirement or those that have already secured Social Security and are

on it, would then have a Plus account on top of that?

Mr. GINGRICH. They could have a Plus account if they were FICA

taxpayers. But again——

Mr. BUNNING. Only FICA tax.

Mr. GINGRICH [continuing]. That’s something for this Committee

to look at, and I’d like the Committee to think it through. But I

don’t know why you’d want to discriminate against FICA taxpayers

who are over 65, as long as they’re paying FICA tax.

Mr. BUNNING. Oh, I certainly wouldn’t want to discriminate

against—

Mr. GINGRICH. Right. So seniors would have their exact current

system. Those who were working would get a Social Security Plus

account; everybody else who’s working and paying FICA tax gets

a Social Security Plus account.

But here is the other half of that answer. When I said an information age, virtually everybody in this room has credit cards. Virtually everybody in this room has used credit cards in foreign countries. Virtually everyone has seen a level of information handling

that allows your credit card to be validated in real time while

you’re standing in a store overseas. You’ve then seen your credit

card company capture all the data of all your purchases, even if

you’re in five different countries, organize them, and send them to

your home address, along with a bill asking you to pay for them.

Now that’s the level of information handling outside the Federal

Government, which is normal.

Today we have a 1935 paper-based, bureaucratic, Social Security

information system, which cannot tell you what taxes you paid,

cannot tell you what interest you earned, cannot tell you what’s in

your account, and can’t track you as an individual. It is a highly

obsolete, precomputer, preinformation age model.
35

Now I’m simply suggesting for the Commission to look at how

you could design a personal account that followed you all your life,

that handled all the information, that allowed you to earn 5, 6, or

7 percent a year. And I would suggest as a historian, that if you

look at the historic long-term track record, the stock market average returns since 1920, including the Great Depression, are 7 percent a year. The third millennium generation is going to have a

minus return; minus 1.19 is one example, but it’s going to be a

minus.

So the gap in compound interest: between paying into a system

that has a negative return rate and paying into a system that has

7 percent average over time. So let’s say you’re unlucky. You end

up with the generation where you only have 4 percent a year or

more. At 4 percent a year or more, you’re still compounding out at

about 21⁄2 times the amount of money you get out of the current

system.

Now I’m not suggesting in any way that we take a big leap this

year. This year we should only do two things: Establish Social Security Plus accounts which do not touch anything in the Social Security system, not a penny, doesn’t change anything, it’s all positive; it’s all improvement; and second, have a commission to look

at the current system and see whether or not over time we could

make a transition.

And you’ve held the hearings, you know more than anybody else

here I think, about how many different countries are understanding this and how—Great Britain for example, Sweden. This is not

just a Chilean model. There are lots of countries that are saying

exactly as Mr. Stark said, the current demographic pattern of the

industrial world will not survive massive retirements with longevity without significant reform.

Mr. BUNNING. Ms. Hieger, I want to ask, To what do you attribute the fact that your generation, and my kids, and my

grandkids, have such a lack of confidence that the Social Security

system will be there for them?

Ms. HIEGER. Well, I think that Social Security has been a very

successful program in the past, but we understand the demographic situation and we understand that most of us can expect,

as the Speaker said, negative returns from Social Security. It’s a

bad deal.

We can expect upon retirement approximately 70 percent of our

promised benefits. Many times we are told that we should be happy

that we’re getting that much, and that scares us.

The average Social Security benefit in 1998 is $765 a month. If

we cut that by 30 percent, that leaves only $535 a month. That’s

not much for the many people in this country who exist only on Social Security. We need more.

And the last thing I think that creates the cynicism is that we

have been looking for leadership on this issue, and we are just beginning to see it. This problem has been around, and we’ve known

about it, and we don’t see a lot of action, and we definitely want

to see more of that to regain our confidence.

Mr. BUNNING. Thank you.

Senator Dole, thank you for your testimony.

Chairman ARCHER. Ms. Kennelly.
36

Ms. KENNELLY. Thank you, Mr. Chairman. Regarding the discussion with the Speaker and Mr. Stark, I’d like to say for the record

that there is a difference between the plan Mr. Gingrich is talking

about and the plan that I and the President have discussed. We

think it’s more important to draw down the Federal debt and to

really reduce debt for the future, as represented by this young

woman who’s appearing before us, and I thank her very much.

I think this is a much more certain way of making sure we create

new savings than to go immediately into small, private savings accounts. And I’d like to ask Ms. Hieger, Do you think it is better

to keep the budget surplus to reduce the debt, rather than immediately getting into these individual accounts; that we really don’t

know how they will work out?

Ms. HIEGER. Last weekend I attended—sorry, the weekend before

last, The Americans Discuss Social Security, 10-City Teleconference, and in general there was a lot of anger from the individuals

participating in this; that the surpluses from Social Security are

currently being used to finance the general budget. And I think

people see that as money that belongs to Social Security, and they

would like to see that set aside.

It is also very important to reduce the long-term debt in this

country. We realize these are future taxes that we’re going to have

to pay. In general, we would like you to tackle both problems.

Ms. KENNELLY. Yes, and I’d just like to mention that what we’re

really doing is a bookkeeping issue. We’re reducing the amount of

the debt by having a surplus, and it’s not that we are spending to

reduce that surplus; it’s making our debt look smaller than it really

is.

But you do agree that we should hold back on this so-called surplus until we decide how we’re going to save Social Security?

Ms. HIEGER. I would agree with that.

Ms. KENNELLY. How was the reception with that booklet? I read

that booklet before the hearing, about the colleges competing to get

involved in this dialog. What was the reception you found last

weekend?

Ms. HIEGER. We’ve had over 30,000 hits on our website. Do you

mean from the ADSS teleconference——

Ms. KENNELLY. Yes.

Ms. HIEGER [continuing]. Or from our Social Security challenge?

They’re two separate things.

Ms. KENNELLY. The challenge.

Ms. HIEGER. The challenge, we’ve had many hits on the website,

as I said, and the deadline is not until April 28, and we are beginning to see proposals come in, but we expect we’ll see many more

in the next couple of weeks.

Ms. KENNELLY. Thank you. And thank you for your work toward

this, because it is very important.

Senator Dole, I remember when you had the 1983 Social Security

Reform Commission, and I remember when the Commission didn’t

complete its recommendations, and it had to be extended twice by

President Reagan. Once was January 15, and then again January

20, 1983.

And then the Commission finally reached agreement, due to the

yeoman’s effort of you and others, and I well remember it, and I
37

thank you very much. And at that time the Social Security Trust

Fund had about 6 months left in it.

We’re trying to begin a dialog now. Mr. Bunning and I have had

eight hearings. We’ve had a young woman who’s gone out in the

country, we’ve had the Pew Group being very, very active. We’ve

had the AARP and the Concord Coalition being extremely active.

What do you think it’s going to take to bring us together in a bipartisan fashion to resolve this, without getting into what happened when you had the Commission, when there was an immediate crisis situation.

Senator DOLE. Well, no doubt about it, we had a gun at our head

in 1983. Had we not acted, payments would have been delayed in

July, so we had about a 6-month period. And then it was difficult,

and we had a 16-member Commission. I think there were 7 Members of Congress out of the 15, as I recall, and the vote was finally

12 to 3.

But you have 10 years I think before you have a real crisis. But

it seems to me the one advantage of what the Chairman talks

about is the fact this Committee is going to have the final jurisdiction, and I assume whoever’s on the Commission will include

Democrats and Republicans from this Committee and also from the

Senate Finance Committee, which will be, I think, some considerable help to the other Members in both parties.

But I’m a little concerned about having so much time. Ten years

is a long time; why vote on it now? Let’s wait until the next election. Let’s wait until 2000. Well, let’s wait until 2004. And that’s

something we went through a number of times, and perhaps based

on the experience of 1983 and the subsequent studies that have

been made, and the commissions that have been appointed, this effort will be more helpful. I don’t know for certain what will happen.

Ms. KENNELLY. Do you think we can resolve it without waiting

for the crisis?

Senator DOLE. Pardon?

Ms. KENNELLY. Do you think we will be able to resolve it without

waiting for the crisis, which often happens around here?

Senator DOLE. I hope so. I hope things have changed enough that

you could do that. Certainly, there are people on this Committee

who could sit down—Republicans, Democrats—and come up with a

package I think would pass the House and pass the Senate. And

I think the same is true on the Senate side. But there are some

very—I’m only talking about process. I won’t get into all the specifics of different plans, but I think it can be done.

Ms. KENNELLY. Thank you, Senator.

Chairman ARCHER. Mr. Houghton.

Mr. HOUGHTON. Thank you, Mr. Chairman.

Just one quick question of Senator Dole. But before I ask that

question, I think it’s a wonderful, timely issue that you bring up

that we’ve got a problem. We’ve got the will to fix it. We’ve got creative financing that we can work with. And also we have this extraordinary surplus. I really appreciate what you’re doing, Mr.

Chairman, in bringing this to a fine point.

Senator, you’ve heard the proposal of Social Security Plus by Mr.

Gingrich. Do you think that does the thing that you were alluding
38

to in terms of the final paragraph of your statement? You talk

about personal responsibility and a variety of other things.

Does that get at the things which you’re most concerned with?

Senator DOLE. Well, it may. Again, I don’t know if I want to comment on different pieces of legislation; they’re plenty of them

around. I may have a little different view than Newt has. But I

think the important thing is that they are taking a look at how we

can have this intergenerational security for both younger people

and the seniors, who are already eligible or will be eligible in the

next 10, 15, 20 years.

I think there you make senior citizens nervous when you start

talking about personal savings accounts. There’s got to be a lot of

education done, and maybe that’s part—that’s what the dialog

group would do between now and next January, as I understand

it; disseminate information. Let seniors know about the program.

Let young people know about proposed programs. But I think it’s

a step in the right direction.

Mr. HOUGHTON. Thanks very much. Thank you, Mr. Chairman.

Chairman ARCHER. Mr. McCrery.

Mr. MCCRERY. Thank you, Mr. Chairman. Welcome, Senator

Dole. It’s nice to have you back with us.

Ms. Hieger—is that how you pronounce your name?

Ms. HIEGER. That’s correct.

Mr. MCCRERY. OK, thanks.

If we were able to construct a plan for Social Security that would

allow people in your generation to establish an individual investment account and would guarantee you at least 100 percent of the

current Social Security benefit, and would likely allow you to receive more than the current Social Security benefit, would that be

a plan you could sign on to?

Ms. HIEGER. I think we would definitely sign on to any plan that

could do that.

Mr. MCCRERY. And let me go further, make it even better. If we

could come up with a plan that would do those things, and would

not involve any increase in your payroll taxes, you’d like that too?

Ms. HIEGER. I’d like to see that plan.

Mr. MCCRERY. Well, we’re working on one. We’re not quite there

yet. But I think Mr. Chairman, what we have is a unique opportunity, a window in time, if you will, with the surplus that we are

going to enjoy if all the projections are accurate for the next 10

years or so.

It gives us a unique opportunity, Mr. Chairman, to provide a

transition from the current Social Security system, which is basically a pay as you go, dependent on payroll taxes from the current

working generation, to a system which relies more on investment

in the private sector and builds on the dynamics of that investment, compounded interest, all those things that the Speaker

talked about.

And Mr. Chairman, contrary to our colleague, Ms. Kennelly, I

think if we do nothing with the surplus but buy down the debt and

in effect rely on government investment, rather than freeing that

money for private investment, we are missing a huge opportunity.

We ought to take advantage of this, not only for Ms. Hieger’s sake,
39

but for my two children’s sake, and for future generations of Americans.

I commend the Chairman, the Speaker, and others for not being

afraid to think outside the box on this; look at how we can use the

surplus in imaginative ways to get us to a system that Ms. Hieger

can sign on to.

Thank you, Mr. Chairman.

Chairman ARCHER. Mr. Levin.

Mr. LEVIN. There’s going to be a hopefully bipartisan dialog on

April 7—that’s in less than a week—sponsored by AARP and the

Concord Coalition in Kansas City, and then they’re going to be

three more.

I’m hopeful that both parties will actively participate. I was

going to ask the Speaker whether he might be there, and I hope

some of you in the media will ask the Speaker if he’s going to participate.

And I don’t know, Mr. Chairman, if you’re planning on participating in any of these fora. They’re going to be four of them, in addition to those sponsored by the Pew Foundation. And then the expectation is, after these four bipartisan hearings in the next

months and the Pew-sponsored dialogs, the President intends to

have a full-fledged session in December to see if we can work out

a bipartisan approach on Social Security.

And essentially what is being suggested here, is that we have a

second mechanism put in place, that overlaps or competes with a

process that has already begun. I’m afraid that can undermine the

very hope that we can have a bipartisan approach here. I don’t understand it. I guess a test will be the level of participation in the

April 7 meeting and in these others.

I hope, Senator Dole, that you’ll use your prestige to try to help

make these meetings work. You have among us, from me personally, the highest respect. You describe the need for a commission

in 1983. It was embroiled in political controversy for months. The

system moved closer to insolvency and prospect for a bipartisan

consensus seemed remote.

I don’t know how that really fits exactly where we are today, and

it would seem to me the prudent thing to do is to see in these next

months whether the dialog can be meaningful, and then after the

election whether a White House bipartisan session fails or not. If

it fails, then we go to the next step.

So, I don’t know, Senator Dole, if you want to comment on that.

You know from our personal relationship my respect for you. I’m

just afraid setting up competing mechanisms sends the very opposite message of bipartisanship. I don’t see how else people read

this.

Senator DOLE. I think the one big difference of course is that

Congress has no responsibility in the other—Concord and AARP.

And as I recall back in the early eighties, when we knew we were

going to have to face up to this issue sooner or later. We had

Interfund—and we did everything we could to avoid facing up to

it, and many people thought nothing’s going to happen until the

Year 2000. We had a number of groups then, and advisory councils

and commissions were trying to be helpful, and they were helpful

to some extent. But it wasn’t until we got into this crisis stage that
40

we knew if we didn’t produce, it might be another extension of the

Commission. And I think both parties then understood it would be

a very difficult thing to go back home and say, well, we couldn’t

solve Social Security, so your July 1 check will arrive July 10, or

whatever.

So I think it’s a different time, but hopefully better bipartisan

spirit prevails now.

Mr. LEVIN. So, the question is, Why not see if this effort can’t

work the next 7 or 8 months. The members of Concord are being

invited to participate on a bipartisan basis in these AARP-Concord

coalition sessions. It’s up to us to make those work.

Senator DOLE. Well, I’ll let the Committee make that judgment.

Mr. LEVIN. OK, thank you.

Senator DOLE. Thank you, Senator.

Chairman ARCHER. Mr. Ramstad.

Mr. RAMSTAD. Thank you, Mr. Chairman. Thank you for initiating this important national dialog on the crucial issue of preserving

Social Security. Nothing’s more important to the American people,

as it’s been pointed out here today. And I share some of the concerns that have been raised.

If ever a situation called for a bipartisan, pragmatic approach,

it’s the current situation involving the future of Social Security. I

think we started on a good foot here today, and certainly appreciate the three witnesses here, all three very distinguished, very

appropriate, representing the three generations.

As the Speaker said, ‘‘I support the President’s proposal to save

every penny of the surplus to preserve Social Security,’’ and that

certainly indicates a desire to work in a bipartisan, pragmatic way.

I was intrigued, Ms. Hieger, by your proposal to put Social Security reform on a fast track, if you will. That is, we give fast track

authority to Social Security reform. We take the consensus recommendation of this bipartisan commission, have an up or down

vote, and depoliticize the issue as we did with respect to the Base

Closure Commission.

Senator Dole, what’s your opinion of that recommendation by Ms.

Hieger?

Senator DOLE. Well, I think on the surface, with all due respect,

it might appear to be a remedy, but I don’t think it will work. You

couldn’t extend the Base Closure Commission the last time

around—you, the Congress. There’s no enforcing mechanism enforcing the bill, that’s one thing that you know immediately. But I’m

not certain I would pursue that policy.

I think if the Commission or the Dialogue Council, whatever dialog it may have, does its work well and has outstanding members

on the Commission, and keep it out of politics as much as you can,

it’s going to have so much momentum when it comes into Congress,

you’re going to have a lot of bipartisan support. And if you don’t

have bipartisan support, it’s not going to go anywhere, and you’re

going to wait, as I said, you’ve got 1 year to go or 6 months to go,

or don’t get the checks out on time, and then something will happen.

I think some of the surplus, we ought to pay off the debt. We’re

paying about a $1 billion a day in interest, and that also affects

the younger generation.
41

Mr. RAMSTAD. Ms. Hieger, did you want to comment further on

that idea?

Ms. HIEGER. I think our idea that we model it after the Base Closure Commission was just to expedite the entire process. One thing

that this bill does have in it that we do like, that if the Commission

does come about there’s a 10-month deadline, and we feel that

that’s very quick, but we know that these things can get extended.

Mr. RAMSTAD. Well, I have already begun this dialog back home

by listening to my constituents. And the American people are

smarter than many politicians give them credit. They understand

that if we don’t make some significant reform to Social Security,

the trust fund will be insolvent by the year 2029. They understand

that when the first of my generation, the Speaker’s generation, the

so-called baby boomers, start collecting Social Security in another

10 years, that more people are going to be collecting than paying

in through FICA taxes.

The American people are going to hold us accountable and responsible whether or not we have an up or down vote, or we bring

it into the legislative process, in the normal course of the process.

So, I appreciate again the input from the three witnesses today,

and would yield back the balance of my time. I look forward to

working with you in the future.

Chairman ARCHER. Ms. Dunn.

Ms. DUNN. Thank you very much, Mr. Chairman, and I commend

the Chairman for calling this hearing today. I think it’s very important that we begin this public first step in the Congress to debating

the important issues surrounding the continuation and the protection of Social Security. I, as Mr. Ramstad has done, have started

this debate in my district and have held several townhall meetings

on it. And, in fact, after joining Mr. Crane on his trip to Chile, did

invite and was lucky enough to secure Jose ́ Pin ̃ era, the former

labor minister, brought him to Seattle. And we were able to put

him in a situation with reporters and with young people who are

part of my youth congress, and with other members of our community to talk about Chile’s remarkable success. And so many of us

are learning about the Social Security issue with that as a premise,

and I think it’s a very exciting plan.

What I have discovered, Mr. Chairman, is that it may be very

good to start a national dialog but there are some first steps that

have to be taken and we must assure, first of all, that all the participants in this dialog are informed and in a position to have a

meaningful debate through information. So I just want to bring to

your attention the fact that today I introduced the Social Security

Sunshine Act which I think will contribute to a very strong, genuine, and informed dialog about Social Security.

As we look at the ways we can personalize and modernize the

current system, we’ve got to include those who are most affected

by the program: the current beneficiaries. And so the legislation

I’m proposing will supplement the Chairman’s legislation by helping Americans to understand the problem that they system faces,

and it will help to design a long-range program to modernize Social

Security.

The legislation, the Sunshine Act, is much like a pilot program

that I introduced into law in the 104th Congress. Two experiments
42

are being conducted right now on groups of 250 people, and the results and analysis of that experimental program will be presented

by the Commissioner, and the survey responses that we receive

back from those folks will come to Congress very soon.

The point of it is to assist people, and seniors in particular, to

better understand their contributions and the benefits under the

Social Security system. What I’ve discovered through townhall

meetings, in talking with seniors in my district, is that it’s very

ironic that other retirement benefit programs like mutual funds or

IRAs do provide this sort of information in writing on a quarterly

basis, and many provide access by 24-hour-a-day telephone lines.

We will request this information be given annually to people who

are eligible for Social Security: Number one, the total wages and

self-employment income the individual has earned; number two,

the total contributions of the employer, the employee, and selfemployment from wages; number three, the total amount paid to

the individual as benefits; number four, an explanation of this

statement in terms that are easy to understand.

So, by bringing this to your attention today, Mr. Chairman, I

would like to request that as the Committee moves forward with

consideration of your bill, you consider inclusion of the Social Security Sunshine Act into your base bill.

Thank you, Mr. Chairman.

Chairman ARCHER. Thank you, Ms. Dunn. Mr. McNulty. Is he

here?

Mr. Collins.

Mr. COLLINS. Thank you, Mr. Chairman. I’ll be very brief. I just

want to thank the two panelists who appeared for the presentation.

Ms. Hieger, as a father of four, I hear your echoes at home quite

often, too, that my children are very frustrated with the fact that

we take money out of their paychecks and bring it to Washington

for a program that they’re very doubtful about. They feel if they

had those funds, they could invest them themselves. Of course, I

often wonder if they would have the discipline to do that, and

that’s one of the reasons we have such a program.

But it is a program that has to be addressed. We want to ensure

that our seniors today, and those of us who are going into the system in the very near future, will receive our benefits. I think that

if we put in place a program that will allow the compounded interest to be accrued to your account, you will be far ahead when you

reach the age of retirement.

I would hope we would be able to put together a program to enhance those benefits to a point, for your age, that would also allow

us to reduce the payroll tax on you as time goes, so that you have

more funds to direct in your way rather than through our way.

Thanks again for coming. Senator Dole, it’s always a pleasure to

be in your company.

Thank you, Mr. Chairman.

Chairman ARCHER. Mr. Becerra.

Mr. BECERRA. Thank you, Mr. Chairman. Actually, before I ask

any questions, if I could just add a few comments with regard to

Chile.

Everyone seems to focus on the example of Chile and making a

comparison with the United States. I think we should not forget
43

that 10 or 15 years ago, this was a dictatorship and an authoritarian government that provided few rights to its workers, let alone

benefits including private pension opportunities. And chances are

that if there were pension plans there in Chile for some of its workers, they were either not solvent or not funded for those who

reached retirement age.

We should also remember that the demographics of Chile are

much different from the demographics of this country. They have

a much younger population that has not had this social contract

with Social Security as we have had here. We have a baby boomer

generation that is getting very close to retirement age which must

be addressed. Chile does not have that situation, where it must

deal with a large retirement population.

If I could ask—and it’s Hieger, is that correct?

Ms. HIEGER. That’s correct.

Mr. BECERRA. A quick question for you. You mentioned, and I

read with some humor part of your testimony, where you mention

in regard to your discussion of the Dialog Council, the overseeing

body for this legislation, that, if I’m quoting correctly, it says, ‘‘If

this panel is comprised exclusively of white males over the age of

50, it will have great difficulty gaining the support of the majority

of the American people who do not fit this category.’’

Would you urge that the Dialog Council be as reflective as possible of the American people that you mention?

Ms. HIEGER. Well, I believe the way that the Dialog Council is

set up is that is reflective of that. It’s the expert panel, the bipartisan panel, that would come up with the actual reform, that only

mandates that employees be represented and employers be represented by one member each. And we want that to have this

intergenerational diversity as well.

Mr. BECERRA. What about some of the other demographics of the

country, for example, male, female: the majority of this country is

female. Too often, as you mention, white male over 50, we don’t

find in these bodies that get to make decisions that we have a representative sample of the population, whether female or in the case

of ethnic or racial minorities. Is that something that would be important to have in any body that makes decisions that affect all of

America?

Ms. HIEGER. I think it’s something that should be considered. I

think what you’re saying is accurate. These groups don’t tend to be

represented on groups like this.

Mr. BECERRA. And I’m also disappointed the Speaker is not here,

but perhaps I could ask both Senator Dole and you, Ms. Hieger,

this question: We are right now in the process today of debating

legislation on the floor of the House that deals with authorizing

moneys for all of our transportation projects nationwide, whether

it’s a highway or a mass transit system on rail, or it’s busses. That

proposal, it’s H.R. 2400, proposes to spend about $218 billion over

the next 5 or 6 years for transportation projects. That’s about $26

billion over what the balanced budget deal of last year said we

should provide for that type of spending, highway and mass transit

spending. So it’s above the cap set by the balanced budget deal.

We know we’ve been told there will be a budget surplus of about

$8 or 9 billion for this year. Would you recommend that Members
44

of Congress support legislation that would overspend by $26 billion

in the area of transportation rather than, as the Speaker had mentioned, and others had mentioned, we preserve that budget surplus

for purposes of Social Security?

Ms. HIEGER. I would rather not comment on that legislation, I’m

not familiar enough with it. But I do think one of the things that

we worry about in reforming Social Security is that we don’t come

up with a plan that gives every district in the country something

so that we end up with a plan that doesn’t fix the system. We have

to be very careful about that, and get a plan that is fair to everyone

and is cost effective.

Mr. BECERRA. Senator, I don’t know if you wish to comment on

that question.

Senator DOLE. No, I think I’ll limit my comments to the process

here. I’d get into a debate with all my colleagues, but it’s a good

question. [Laughter.]

Mr. BECERRA. One last question. The legislation creates these

councils and commissions, but it doesn’t require that they live

under the standards that most public bodies would live under

which require full disclosure and openness. Would you recommend

that whatever panels are created, that they live under the same

rules that require openness and disclosure, that we currently have

for most bodies that provide public input?

Senator DOLE. I would.

Mr. BECERRA. I’m sorry, Senator, I don’t think your comments

were captured by the mike.

Senator DOLE. I said I would. I don’t know what—I read the bill,

but I don’t know what disclosure you’re talking about, but——

Mr. BECERRA. The Federal Advisory Committee Act requires that

meetings be open to the public, and the stated purpose of the council in this legislation is to encourage the American public in understanding the current Social Security Programs and to generate

comments——

Senator DOLE. I think you need to be a little careful there because I can recall back in 1983 when we got down to the nitty gritty, and we had everyone else in the room, we never would have

gotten it done. I think that’s an exception, obviously, if you get into

the second phase as I understand H.R. 3546 does.

Mr. BECERRA. Thank you.

Chairman ARCHER. The gentleman’s time has expired.

Mr. Portman.

I would like very much to release this panel when we go to vote

so that they don’t have to stick around, and I hope that will be acceptable to the Members of the Committee, but we will return after

the vote. And the Chair would announce also that I would encourage Members to get a bite of lunch, and we’ll come back here at

12:15 with the next panel, after Mr. Portman completes his inquiry.

Mr. PORTMAN. Thank you, Mr. Chairman. We’re down to the

hard core now, and not much time left. I want to thank you both

for being here and for the Speaker. I think this is very exciting.

This is really the next step in the process. I’m on the Social Security Subcommittee, and we’ve heard from Third Millennium and a
45

lot of other good outside groups, as well as from Members of Congress.

This takes it to the Full Committee level, and now we have a

specific proposal for a process to actually come up with a bipartisan

and fair solution to, as Senator Dole said earlier, one of the most

pressing problems in our Nation. One that you indicated, of your

long and distinguished career, you take great pride in working on,

from your 1983 experience. I’ve got a couple of specific questions,

but let me also say, in response to Sandy Levin’s question, and Mr.

Levin is not here now, there are a lot of groups out there who are

trying to encourage dialog on this. I have in my district next

month, what I think is going to be a very important exercise—it’s

called an ‘‘Exercise in Hard Choices,’’ and the Third Millennium is

involved in it, as is AARP, as is the Concord Coalition, and a number of other groups. I understand that they’re having 10 town

meetings around the country, and I am participating.

I encourage other Members to do that. I think most of them are,

as we’ve heard today. And I think, the more the merrier. Let’s encourage all this. But it’s different than the process that Senator

Dole talked about in 1983 which is actually having Members of

Congress involved and drafting legislation.

I just went through this process with the IRS Commission, as

you know, Senator Dole, and in that instance we had 17 Commissioners, 4 of whom were Members of Congress, and we often said

that was good because we had real world experience and not just

politicians. But on the other hand, it was helpful, I think, to have

the four Members of Congress to be able to push the process

through.

We actually passed legislation recommended by the Commission

in the House within 3 or 4 months. It’s now in the Senate and

probably will be enacted into law within the next month or so. So

my question to you is, having looked at the Dialog Council and the

bipartisan panel, and the legislation that’s proposed, it would

imply, perhaps, that there might not be Members of Congress. I

think it would be possible on the bipartisan panel to have some

Members of Congress, although it’s not stated. Do you think it’s important to have some Members of Congress involved in the process?

Senator DOLE. No doubt about it. That’s the difference between

this and all the other groups that have been mentioned here.

You’ve got Members of Congress who are going to be responsible

to their colleagues on both sides of the aisle, there are going to be

Members of the Committees of jurisdiction. I think it’s very important.

Mr. PORTMAN. OK. Ms. Hieger, do you have any thoughts on

that, this would be in regard to the bipartisan panel, which I think

is limited under the legislation to eight members. I know you earlier indicated you had seen the draft of legislation and that you

would support the general concept. Do you think there should be

Members represented on that panel?

Ms. HIEGER. Yes, I do. I think that holds the Members accountable and it gets Congress involved in the reform process, and I

think that’s very important at this stage.

Mr. PORTMAN. OK, thank you. The other quick question I would

have is with regard to Ms. Hieger’s suggestion that we follow the
46

base closure model where it’s an up or down vote, which worked

well with regard to base closure, in my view, and my question is

whether that would apply to this situation. I’m not sure it would,

but I wonder, Senator Dole, given your experience in 1983, if you

would have some thoughts on that.

Senator DOLE. I think I’d want to think about that very carefully, but it just seemed to me, based on my experience, there are

probably—when you cast votes on Medicare, Social Security, or pay

raises, they’re about the most sensitive votes you can cast around

here, and that’s why I think this bipartisan effort by the Chairman

and others is off on the right foot. But I’m not certain I would go

as far as Melissa does on the base closing. It might work there, it

might work with certain other things that I’ve recommended over

the years, but I’m not certain about Social Security.

Mr. PORTMAN. You think having the Ways and Means Committee

and the Finance Committee and the House and Senate more involved might be helpful to come up with a solution?

Senator DOLE. They have to be involved. It would be very helpful. It doesn’t mean you’re going to have success. It may not work.

You may have to go back and extend it again. But it seems to me

it has a greater possibility of working now than it did in 1983.

Mr. PORTMAN. Well, again, thanks very much for the input. And,

again, I think this is an exciting development, and we’re moving

forward. I appreciate your input and look forward to continuing to

work with both of you.

Thank you, Mr. Chairman.

Chairman ARCHER. Ms. Thurman is recognized for inquiry. At

the conclusion of her inquiry, the Committee will stand in recess

until 12:20, for the next panel.

Ms. THURMAN. Mr. Chairman, I appreciate that and I am particularly pleased to have both of you here. Senator, let me commend you for the prior work you did on the Commission.

I want to make a statement here, very briefly. In the district that

I represent, I have the second oldest population in the State of

Florida, and the second poorest district, so you can see the makeup

and many of these live month to month on their Social Security.

And just a statement that I know is going to be made in the

next, or one of the next panels, by AARP, that says, Social Security

faces a long-term challenge but is not a crisis. I think to start this

debate in this country, we should not put fear into people, but we

should let them understand that we are looking at a time of 2029,

potentially. And even in that, we’re looking at the fact that incoming revenue, at this point, will finance three out of four of our benefit dollars.

But I do think this dialog has to take place. I think we’ve been

given an opportunity because we have been given long term. But

I do not want to see this debate turn into somebody being scared

or to think about people there today are worried that tomorrow

that safety net might not be available to them.

And I would say, also, the reason I left is because I was talking

to the chancellor of my university system in Florida. I also have

the University of Florida. I’m going to make sure they get this

pamphlet, and see if we can’t help you get some ideas for some of

these things.
47

Senator DOLE. I agree with your statement, we shouldn’t frighten

people. We have time now to do this in a deliberate way and get

it done, hopefully in a bipartisan way.

Thank you.

Ms. THURMAN. And I thank you both.

[Recess.]

Chairman SHAW [presiding]. We’re going to go ahead and start

the hearing. The Chairman will be back shortly. For our next

panel, we’ve got Jim Kolbe, a Member from Arizona. He’ll be joined

by Jerry Nadler, a Member from New York, and Earl Pomeroy, a

Member from North Dakota.

Mr. Kolbe is recognized. We, of course, have your full statement,

as you’re well aware, which will be made part of the record. We invite you to summarize in any way you see fit.

STATEMENT OF HON. JIM KOLBE, A REPRESENTATIVE IN

CONGRESS FROM THE STATE OF ARIZONA; AND COCHAIR,

HOUSE PUBLIC PENSION REFORM CAUCUS

Mr. KOLBE. Thank you, Mr. Chairman, and, yes, I will summarize my statement since the full statement is in the record. I want

to thank you, Chairman Archer, and the other Members of this

Committee, for having this very important hearing, and also for the

work that several Members of the Committee are doing on the Social Security front.

There’s no doubt that Social Security has been, and continues to

be, one of America’s most successful social programs. I think we

look to that as the principle reason that poverty among the elderly

has declined dramatically. However, it’s time to face the underlying

challenge, the fiscal challenge to Social Security. The United

States, like a lot of other nations, is about to embark on an unprecedented demographic transformation which is going to place a really heavy burden on the Federal Government to pay Social Security

benefits.

Looking at this 3 years ago, Charlie Stenholm and I cofounded

the House Public Pension Reform Caucus. Together, with now more

than 70 other Members, almost equally split between both parties,

we spent the last 3 years researching, discussing, examining problems that plague the Social Security Program, and looking at various options for reform of it. We know, as anybody in this body

knows, that bipartisanship is the only path that’s going to lead to

a resolution of the Social Security challenges that are before us.

I’m here today to talk about an idea of using a bipartisan panel

or commission to develop a Social Security reform proposal. Before

I comment on the desirability of a commission to formulate a Social

Security reform proposal, let me briefly highlight some of the work

that has already been done in the area of Social Security.

The President’s participation in Social Security reform debate in

his State of the Union announcement has given the issue a very

high, national profile, but it’s certainly not a new one. We didn’t

just figure out in 1998 that baby boomers are going to start to retire in the year 2012.

A lot of Members of Congress, Democrats and Republicans alike,

have helped to lay the groundwork for reform. They’ve begun the

discussion with the American people. They’ve made it possible for
48

the President and other Members of Congress to discuss what has

been always called, affectionately, the third rail of politics.

There’s a lot of different information in my statement. I have a

list of the various commissions that have worked in the past on the

Social Security issue, but let just take a moment to highlight a couple of those and the key things they have done. First there was,

in 1994, the President’s Bipartisan Commission on Entitlement and

Tax Reform, cochaired by Senators Bob Kerry and John Danforth.

And it brought to light, certainly made the public aware, and I

think Members of Congress aware for the first time, of the longrange, the alarming long-range budget impact of entitlement programs as they are currently designed under law.

Then in 1994 to 1996, we have the Advisory Council on Social

Security. It broke ground in a number of ways, with the completion

of their package. It dealt not only with the long-term financing of

the program, but with equity and adequacy of rates of return between generations. Second, the council included Social Security reform, three reform proposals, rather than one. Some criticized it for

not proposing one unified reform proposal, but I think it made a

major step forward by being the first to talk about using the marketplace to help solve some of the problems, and creating the national dialog. Even though they didn’t come, as I said, to one uniform proposal, all three of the proposals they had, each utilizes the

private market in some way to help ensure the long-term solvency

of the program, provide a more equitable rate of return across generations.

So the groundwork is being laid. The public is ready, the Congress, I think, the public is ready to get—go forward with this.

Last, we have the work of the Center for Strategic and International Studies National Commission on Retirement Policy. The

NCRP is a bipartisan, bicameral, public-private sector Commission,

cochaired by my self, Congressman Stenholm, Senators Judd Gregg

and John Breaux. It’s a Commission that is special and includes

representation from both the public and private sectors, including

such places as IBM, Fidelity, Paine-Webber, Exxon, the World

Bank, the Urban Institute, and the Third Millennium. We’ve had

a lot of hearings, and we expect to have a comprehensive recommendation for reforms in May 1998.

Why do I mention all of these Commissions? It’s not to suggest

that the bipartisan panel that the Speaker spoke about earlier

today doesn’t have merit. I strongly believe there is a need to develop a mechanism for Members of Congress to join together to develop comprehensive reform legislation. But the key word in this

statement is Congress. We don’t need another expert, external commission operating outside of the realities of the legislative process,

and that’s why Congressman Stenholm and I have introduced legislation which would create a supercommittee.

It would establish the process for elected Representatives in the

Congress to review all of these reform proposals, develop a consensus that can be enacted into law. It’s important that the supercommittee is like a commission in that it will develop a bipartisan,

bicameral Social Security reform proposal. If we’re going to create

another commission, we ought not to begin at ground zero. The expert groups of the past years have diagnosed the problems, they’ve
49

offered solutions. We need to look at these options and continue to

move forward. There are a lot of other grassroots programs that

are out there.

And my time is up, Mr. Chairman, and I won’t go into those. But

I think it’s worth noting there is a tremendous effort being spent

at the grassroots level, just let me mention one. The Pew Charitable Trust is spending $12.5 million this year to educate the

American public on the problem of Social Security. That’s a good

deal of money that can be spent in this area.

I think we have the will, I think we have the tools to move ahead

with Social Security reform. I don’t think we should delay it. I hope

we will do so. Saving Social Security first should not be rhetoric;

it has to be our plan of action, and we should put that plan into

place now.

Thank you, Mr. Chairman.

[The prepared statement and attachments follow:]

Statement of Hon. Jim Kolbe, a Representative in Congress from the State

of Arizona; and Cochair, House Public Pension Reform Caucus

Mr. Chairman, and members of the Committee, I am pleased to be here this

morning to discuss the very important issue of Social Security reform.

DEMOGRAPHIC REALITIES:

It’s time to face the facts underlying Social Security’s fiscal challenge. The United

States, like so many other nations, is about to embark on an unprecedented demographic transformation. Social Security beneficiaries are destined to grow five times

faster than workers. As Baby Boomers begin to retire in 2010, this country will have

a greater proportion of elderly citizens than it ever has in the past.

Exacerbating the situation is the fact we are now living a great deal longer than

our grandparents. The framers of the Social Security system designed it with contemporary life spans in mind. When created in 1935, 65 was the benchmark retirement age. However, the average life expectancy of a child born in that year was only

64. Today, men and women are living well into their late 70s and early 80s.

We must be certain that we do not take our eye off the end goal of short-term

gains. Social Security is one of America’s most successful social programs. It has

been a principal reason that elderly poverty has declined dramatically. The Social

Security program is credited with reducing the proportion of senior households with

incomes at or below poverty level to 13 percent.

Social Security deserves to be saved. The data and statistics generated both in

the private sector and the Administration show that the program is headed toward

bankruptcy. Knowing the facts is the only way to cut through the half-truths and

distortions that stifle change. The Social Security and Medicare Board of Trustees

reported that the Social Security trust fund will be bankrupt in the year 2029. And,

even more alarming, in 2012 the government will begin paying out more in benefits

than is collected in payroll taxes.

In 2012, Members of Congress will have to begin to make the hard choices in

order to continue paying retirees’ benefits. Some of the hard choices will be to increase workers’ payroll taxes, decrease retirees’ benefits, or force deeper cuts in discretionary spending on other federal programs including, but not limited to, defense,

medical research, park maintenance, and education in order to redeem the Treasury

bonds held by the Social Security Trust Fund.

But, we do not have to wait until 2012! Rather, we can be bold and proactive and

look for ways to reform Social Security today. Currently, we have a strong economy,

the Social Security trust fund is in surplus, and the American people understand

that the program will begin to experience problems in the very near future.

A poll conducted by the Washington Post and ABC News found that 88 percent

of Americans polled believe that Social Security stability should be a major goal of

the government. Social Security stability topped the agenda for Americans nudging

the fight against crime and drugs into the 2nd priority slot.
50

PUBLIC PENSION REFORM CAUCUS:

If we do nothing now we will leave the hard work for future generations to sort

out. Due to the many changes in Social Security benefits since its inception and the

demographic realities that face our country, today and tomorrow’s workers will pay

for our inability to act today. We can do something now.

For the past three years, as co-chair of the House Public Pension Reform Caucus,

I have worked with my Democratic co-chair, Congressman Stenholm, and the 70

other Public Pension Reform Caucus members to discuss, research, and examine the

problems plaguing the Social Security program and the various options for reform.

The interesting fact about the Public Pension Reform Caucus is that membership

is divided evenly amongst Democrats and Republicans and includes representation

from all over the political spectrum within both parties. We recognize that bipartisanship is the only path that will lead us to resolution of the Social Security

challenges will face.

I welcome the President’s participation in the Social Security reform debate and

am pleased that his State of the Union announcement has given this issue a national profile. However, I would like to congratulate all the members of Congress

who have been a part of this debate for many years. Members that have had the

courage to discuss this issue at home with their constituents; and made it possible

for the President and other members of Congress to discuss the third rail of politics.

These leaders include: Senators Bob Kerrey, Patrick Moynihan, Judd Gregg and

John Breaux, Congressmen John Porter, Mark Sanford, Tom Barrett, Nick Smith,

my PPRC co-chair Charlie Stenholm, and all 70 PPRC members.

A number of ideas have been developed on how best to proceed with the Social

Security reform discussion. Some have advocated saving budget surpluses for Social

Security: thus, creating yet another trust fund. Others advocate the creation of a

Commission or Bi-partisan panel—the focus of today’s hearing. I believe the Kolbe/

Stenholm Super Committee legislation is the route we should take.

COMMISSIONS:

It is important to note that a lot of work has already been done to help set the

stage for Social Security reform. The legislative process is moving in the direction

of reform. Many of the previously mentioned members of Congress have already introduced comprehensive Social Security reform legislation. For the review of the

Committee, attached is a complete list of these Social Security reform bills—Attachment A: Social Security Reform Legislation. Additionally, a number of past commissions have also begun to set the stage for

Social Security reform. These commissions have explored the long-range budget impact of entitlement programs, the financial solvency of the Social Security trust

fund, the equity and adequacy of Social Security benefits across generations, and

have developed various Social Security reform solutions. Attached is a brief listing

of the past commissions that have worked on the Social Security issue—Attachment

B: Social Security Reform Policy Commissions.

Bi-partisan Commission on Entitlement and Tax Reform:

The President’s 1994 Bi-partisan Commission on Entitlement and Tax Reform, cochaired by Senators Bob Kerrey and John Danforth, brought to light the alarming

long-range budget impact of entitlement programs as designed under current law.

The Commission found that the long-term entitlement problems hinge on the impending retirement of the 76 million Baby Boomers beginning around 2010. The retirement of the baby boom population will place an enormous strain on the federal

government’s ability to pay 100% of retirees benefits. Currently, the Social Security

program accounts for nearly 22% of federal expenditures. In 2010, when the Baby

Boom generation begins to retire the cost of the Social Security program is projected

to balloon enormously.

Advisory Council on Social Security:

While the Bi-partisan Commission on Entitlement and Tax Reform was defining

the impact of the baby boom generation’s retirement on the federal government, the

President’s 1994–1996 Advisory Council on Social Security was examining the longrange financial status of the Social Security program, and making reform recommendations which took into consideration equity and adequacy of benefits between generations.

The Advisory Council broke ground in a number of ways with completion of their

package. First, the Council dealt with not only the long-term financing of the program but the equity and adequacy of rates of return between generations. Second,

the Council included three Social Security reform proposals rather than one. Some
51

criticized the Advisory Council for not proposing one unified reform proposal; however, I was pleased with the package since it took a meaningful first step to stimulate a national dialogue on the issue of Social Security.

Finally, it is important to note that although the Commission was unable to issue

a unified reform proposal the one common element in all three proposals is that

each plan utilizes the private market to help ensure the long-term solvency of the

program and provide a more equitable rate of return across generations.

Center for Strategic & International Studies: National Commission on Retirement

Policy

In 1997, the Center for Strategic and International Studies convened the National

Commission on Retirement Policy. The NCRP is bi-partisan bi-cameral public/private sector Commission which is co-chaired by myself, Congressman Stenholm, Senators Judd Gregg and John Breaux. Outside expert Commission members include

representation from the following organizations, The Urban Institute, EBRI, IBM,

Fidelity, Paine Webber, EXXON, and the World Bank, to name a few. The Commission has conducted hearings on the various reform proposals and will complete its

work on a bi-partisan solution to the problems plaguing our Social Security program

in May, 1998. The Commission will also be conducting education forums throughout

the country over the next year.

Why do I mention all of these Commissions? It is not to suggest that the Bipartisan panel concept does not have merit. I strongly believe there is a need to develop a mechanism for members of Congress to join together and develop comprehensive Social Security reform legislation. The key word in this statement is

Congress. We do not need still another expert, external commission operating outside of the realities of the legislative process developing yet another list of recommendations. What we do need is movement toward actual legislation which can

be passed by Congress and signed into law.

Super Committee Legislation:

Congressman Charlie Stenholm and I have introduced legislation which will create a bi-partisan bi-cameral Super Committee. The Super Committee will establish

the process for the elected Representatives in Congress to review all of the Social

Security reform proposals and develop a consensus proposal that can be enacted into

law. By establishing the framework necessary to analyze the numerous Social Security reform recommendations previously proposed, we can ensure that Congress will

not delay in reforming Social Security.

It is time for Congress to step up to the plate and take the next important step

and formulate Social Security reform legislation. Specifically, the ‘‘Super Committee’’ will look at the Advisory Council proposals, the CSIS Commission work, other

members legislation, and conduct hearings on other issues to help formulate a solution that will ensure the most viable Social Security program for the American people.

The ‘‘Super Committee’’ will include 16 House members and 16 Senators and it

will be divided evenly between Republicans and Democrats. It is important to note,

like a Commission, the Super committee will develop Social Security reform recommendations, but in the final analysis the Committees of jurisdiction would have

final review of the legislation. After completion of the legislation, it would be referred to all House and Senate Committees with jurisdiction over the Social Security

and then brought to the floor for consideration.

We do not need to begin at ground zero, again. The expert groups of the past several years have diagnosed the problems facing Social Security and many of these

groups have also offered options to reform these problems. We need to look at these

reform options and continue to move forward. During a recent Senate Budget Committee hearing, Alan Greenspan, the chairman of the 1986 Greenspan Commission

on Social Security recognized the work of these groups, and stated, ‘‘that we don’t

start at square one. We are far beyond square one at this point.’’

If we are planning to move forward with a Commission or Bi-partisan panel we

must make certain that it does not take us a step back. Members of Congress were

elected to make tough choices. Our constituents expect their elected representatives

to make the decisions on changes to a program of this importance in their lives.

GRASSROOTS CAMPAIGN:

There has also been a call for a national campaign which would devise methods

of informing and engaging Americans—from all walks of life—and invite them to assist as members of Congress begin to formulate a Social Security reform proposal.

However, it is important to note that many grassroots organizations have already
52

begun an intense national campaign. Please review attachment C which outlines all

of the grassroots organizations—Attachment C: Social Security Reform Grassroots

Activities.

I would like to mention one of these organizations. The Pew Foundation’s Americans Discuss Social Security is an unprecedented nationwide initiative to advance

public understanding of Social Security and engage Americans to participate more

actively in determining its future. The Pew Charitable Trust grant of $12.5 million

has created this two-year non-partisan effort. It will use a series of forums and

round tables in all 50 states designed to create a national conversation about the

future of Social Security and provide a framework in which millions of citizens from

all walks of life can help America’s policy makers resolve this issue.

The first ADSS event was a huge success with over 1,200 citizens participating

in an interactive video teleconference linking citizens in 10 cities throughout the

country. ADSS is already working on their next educational series. ADSS will host

five citizen engagement forums to give 500 to 700 citizens in each location the opportunity to engage in an informed discussion about the future of Social Security.

One of these events will be in Phoenix, Arizona which neighbors my district, and

I intend to participate. ADSS will not stop with these five forums; it is their strategy to convene an educational forum in every state during this two-year campaign.

Please review attachment D, which provides further details on the ADSS campaign— Attachment D Americans Discuss Social Security.

Kolbe Task Force on Retirement Savings:

Members of Congress can also develop their own Social Security reform dialogue

in their districts. Recently, I have convened a group of 30 Tucsonans to participate

in the Kolbe Task Force on Retirement Savings. The Task Force will meet quarterly

and will coordinate Social Security reform discussions and information exchanges in

conjunction with National Social Security events such as those convened by ADSS

and the Concord and AARP forums.

Specifically, the Task Force will: assist in coordinating education campaigns in

Congressional District 5 in conjunction with national forums; evaluate various Social Security reform options; disseminate information regarding retirement savings

to Tucsonans; and share information with peers and report information to the Task

Force.

CONCLUSION:

There is no doubt that we need to develop a campaign to engage the American

people in the Social Security reform discussion; however, we should not repeat work

that is already being done. We should work with existing educational efforts that

prove effective in the communities. And, we need to give members of Congress the

information necessary to discuss this information at home with their constituents.

Each Member of Congress can and should develop task forces in their districts to

engage their constituents in this discussion.

Mr. Chairman, the last point I would like to make is to urge Congress to move

ahead with Social Security reform. If we convene a panel or create a national campaign, we must do so today. We cannot and should not delay reform. Saving Social

Security should not be rhetoric, we must put the mechanisms in place to truly save

Social Security first.

Let me reiterate; reform must happen today. Democrats and Republicans have

both stated the need to reform Social Security today rather than tomorrow. In a letter from the Bi-partisan Commission on Entitlement and Tax Reform co-chairs, Senators Kerrey and Danforth stated ‘‘America is at a fiscal crossroads—if we act, we

can help ensure continued growth and prosperity, but if we fail to act, we threaten

the financial future of our children and our Nation.’’

And, although the Advisory Council on Social Security was unable to devise a unified Social Security reform proposal, in a hearing before the Ways and Means Social

Security Subcommittee last year, the authors of the three Council options concurred

on one point: reform is needed sooner rather than later. Ignoring the impending Social Security problems will harm the American people. If we delay reform we shorten the time needed by the American people to accumulate savings and adjust their

plans for retirement. Any changes should be made while the baby boomer generation is still in the work force and have time to make adjustments.
f

53

ATTACHMENT A.—SOCIAL SECURITY REFORM LEGISLATION, PUBLIC PENSION REFORM

CAUCUS, CO-CHAIRS CONGRESSMEN JIM KOLBE & CHARLES STENHOLM

104th Congress—Senators Alan Simpson & Bob Kerrey—S. 824—The Personal Investment Plan Act of 1995—Would allow taxpayers to reduce their Social Security

payroll tax payments by 2 percentage points and direct this money into a Personal

Investment Plan (PIP) of their own choice. Workers who choose this option would

have their future benefits reduced by a corresponding amount, but this reduction

would be offset with earnings form their PIP.

1994–1995 Advisory Council on Social Security—Option One—Maintenance of

Benefits: Maintains benefits and increases revenues—increase benefit taxation, expand coverage, and increase taxes in distant future. Also, require government to

begin investing large portion (35%–40%) of trust fund assets in private equity. Supported (as of Dec 14, 1995) by 6 of 13 members.

1994–1995 Advisory Council on Social Security—Option Two—Publicly-Held Individual Accounts: Maintain tax rate and scale back benefits plus mandatory individual account add-on-increase retirement age (and index longevity), and slow the

growth of benefits for middle-and high-wage workers. Also, create mandatory individual accounts funded by 1%–2% increase in the payroll tax. These accounts would

be held by the federal government, which would offer a narrow range of investment

options. Supported by 2 of 13 members.

1994–1995 Advisory Council on Social Security—Option Three—Two-Tiered System with Privately-Held Individual Accounts: Transition to a Two-tiered system,

with half of the retirement program privatized. The first tier would be comprised

of a flat benefit for full-career workers and second tier would be compromised of

fully funded, privately managed, individual accounts. These accounts would be funded with 5% of the current payroll tax, and the balance of the payroll tax (7.4%)

would ultimately finance tier benefits on a pay-as-you-go basis. Additional transition

costs would be absorbed by a consumption tax and additional federal borrowing.

Congressmen Jim Kolbe & Charlie Stenholm—H.J. Res. 112—Super Committee

Legislation: This legislation establishes the process for the elected representatives

in Congress to take all of the suggestions and develop a consensus Social Security

reform proposal that can be enacted into law. The joint committee would have membership evenly divided between the parties. Legislation would be reported by the

Joint Committee to the Committees of jurisdiction for review and modification.

Congressmen Bill Archer & John Kasich—H.R. 3095—Bipartisan Panel to design

Long-Range Social Security Reform Act of 1998. The Panel would be deemed with

the responsibility of designing a single set of reforms for restoring the solvency of

the Social Security system for maintaining retirement income security in the United

States.

Congressmen Bill Archer & John Kasich—H.R. 3546—Bipartisan Panel to design

Long-Range Social Security Reform Act of 1998. The Panel would be deemed with

the responsibility of designing a single set of reforms for restoring the solvency of

the Social Security system for maintaining retirement income security in the United

States. Additionally, the legislation would provide for the development of a National

Dialogue on Social Security.

Senator Judd Gregg—S.321 Strengthening Social Security Act of 1997—Refunds

1 percentage point of each employee’s current SS payroll tax into a personal savings

account which may be invested in an IRA, or in a combination of funds (like the

Thrift Savings Plan).

Senator Patrick Moynihan—S. 1792—cuts the payroll tax from 12.4 to 10.4 percent between 2001 and 2024. After 2024, the payroll would slowly increase and

would top out at 13.4 percent in 2060. The proposal also allows individuals to invest

in personal retirement accounts and increases the amount of wages subject to payroll tax. It also reduces the CPI by 1.0%.

Congressman Tom Petri—H.R. 1611 Retirement Security Act of 1997—Adds a

new part B (Individual Retirement Investment Program—IRIP) to SSA which establishes a Personal Social Security Investment Account (PSSIA) with an initial onetime balance of $1,000 for each newborn after enactment.

Congressman John Porter—H.R. 2929 Individual Social Security Retirement Accounts Act of 1997—Workers stay in current system or choose voluntary Individual

Private Investment Retirement Accounts (ISSRA). ISSRA accounts funded by diverting 5% of current 6.2% tax paid by both workers and employers resulting in 10%

total contribution. A portion of the ISSRA account contribution will be used to purchase private disability and life insurance.
54

Congressman Mark Sanford—H.R. 2782 Strengthening Social Security Act of

1997—All individuals would maintain a Private Retirement Account (PRA). 6% is

automatically deducted from each paycheck, which is matched by the employer for

total contribution of 12%. Of that, 8% goes into the individual’s PRA.

Congressman Nick Smith—H.R. 3082 Social Security Solvency Act of 1997—

Worker’s receive 2.8% of the 12.4% currently paid into SS starting in 1999 to put

into an individually owned investment account, over time contribution rate will rise

to 10.2%.

Congressmen Jim Kolbe & Charlie Stenholm—H.R.—May 1998—Congressmen

Kolbe & Stenholm will be revealing their bi-partisan Social Security reform legislation.

Pension Reform Caucus, Congressmen Jim Kolbe & Charlie Stenholm

Attachment B.—Social Security Reform Policy Commissions, Public

f

1994 Bi-Partisan Commission on Entitlement and Tax Reform: The Bi-partisan

Commission was chaired by Senators Bob Kerrey (D–NB) and John Danforth (R–

MS). The Commission assessed the need for and recommended long-term budget

savings entitlement reform proposals. The Commission’s findings specifically describe the economic future that will confront Americans and federal entitlement programs such as Medicare and Social Security with the retirement of the baby boom

generation.

1994–96 Advisory Council on Social Security: The Advisory Council was deemed

with the responsibility of formulating policy recommendations to address the longrange financial status of the OASDI program. After two years of meetings, the 13

member council, which included Social Security experts from both sides of the aisle,

for the first time developed three different Social Security reform proposals. The one

common element in all three plans is that each plan utilizes the private market to

help ensure long-term solvency of the program.

Council—Option One: Maintains benefits and increases revenues—increase benefit taxation, expand coverage, and increase taxes in distant future. Also, require government to begin investing large portion (35%–40%) of trust fund assets in private

equity. Supported (as of Dec 14, 1995) by 6 of 13 members.

Council—Option Two: Maintain tax rate and scale back benefits plus mandatory

individual account add-on-increase retirement age (and index longevity), and slow

the growth of benefits for middle-and high-wage workers. Also, create mandatory individual accounts funded by 1%–2% increase in the payroll tax. These accounts

would be held by the federal government, which would offer a narrow range of investment options. Supported by 2 of 13 members.

Council—Option Three: Transition to a Two-tiered system, with half of the retirement program privatized. The first tier would be comprised of a flat benefit for fullcareer workers and second tier would be compromised of fully funded, privately

managed, individual accounts. These accounts would be funded with 5% of the current payroll tax, and the balance of the payroll tax (7.4%) would ultimately finance

tier benefits on a pay-as-you-go basis. Additional transition costs would be absorbed

by a consumption tax and additional federal borrowing.

1997–98—Center for Strategic and International Studies (CSIS) National Commission on Retirement Policy: A bi-partisan bi-cameral public/private sector Commission. The Commission will conduct hearings throughout the country to educate

and engage the American people in the debate. The Commission, which includes Social Security experts from the private sector, is developing a bi-partisan fix to the

problems plaguing our Social Security program.

1996–98 House Public Pension Reform Caucus: the caucus provides Members of

Congress and their staff a bi-partisan forum to discuss, research, and examine the

problems plaguing the Social Security program and the various options for reform.

1997–1998 National Academy of Social Insurance: Academy on Privatization of

Social Security. The Academy’s Panel on Social Security Privatization is analyzing

all Social Security reform options, including all three Advisory Council on Social Security options. The Panel is conducting extensive research in all areas of Social Security reform, including administrative costs and feasibility, generation equity and

public private arrangements.
f

55

Attachment C.—Social Security Reform Grassroot Activities, Public

Pension Reform Caucus, Congressmen Jim Kolbe & Charlie Stenholm

March 1997—Kolbe Forum—Social Security Reform: Putting Market Forces to

Work & May 1997—Stenholm Summit—Strengthening Social Security For Today

And Tomorrow The purpose of each conference was to provide an opportunity for

constituents to personally participate in a discussion with policy-makers, and to inform as many as possible about the problems and solutions for Social Security.

The PEW Foundation—Americans to Discuss Social Security: The mission of the

ADSS campaign is to engage Americans from all walks of life in a country-wide debate about the future of Social Security, and to provide a framework within which

these citizens can help America’s policy makers to resolve this issue. The campaign

is planning the following:

• A 10-city interactive teleconference linking people from across the country.

• Sponsor a college outreach program called the ‘‘Social Security Challenge.’’

• Public opinion surveys on 1) Images of Aging, 2) Public Attentiveness, and 3)

Intergenerational Issues.

Executive Director Carolyn Luckensmeyer

2001 Pennsylvania Avenue, NW, Suite 825

Washington, DC 20006

Tel: 202.955.9000

Fx: 202.955.3011

www.adss.org

Cato Institute: Cato will continue to publish research papers and host forums and

conferences on how to move to a Chilean-style system of personal retirement accounts. In May will be a forum on the Hill on women and Social Security reform,

and a major conference will be held at Cato in June. Jose Pinera, the architect of

the Chilean system, is the co-chairman of Cato’s project and visits regularly. Cato’s

social security website, www.socialsecurity.org, includes all published materials and

an interactive calculator.

Lea Abdnor/Michael Tanner

1000 Massachusetts Avenue, NW

Washington, D.C. 20001

Tel: 202–842–0200

Fax: 202–842–3490

www.socialsecurity.org

Committee for Responsible Federal Budget & American Express Building a Better

Future—The Graying of America: A year-long ten-city tour which combines an educational program on the budgetary impact of the aging population with an Exercise

in Hard Choices, utilizing electronic polling to test pre-and post-program perspectives.

President Carol Cox Wait

220 E Street, N.E.

Washington, D.C. 20002

Tel 202–547–4484

Concord Coalition & American Association For Retired Persons: In conjunction

with the White House the AARP & Concord will coordinate four forums throughout

1998 discussing the problems and solutions to Social Security.

AARP Executive Director—Horace B. Deets

601 E Street, NW

Washington, D.C. 20049

Tel: 202.434.2277

Fx: 202.434.3714

www.aarp.org

Concord Coalition: Concord will be coordinating at least one forum a month as

part of its Paul Tsongs Project on Generational Responsibility. In addition, Concord

will be hosting its new public education exercise, ‘‘Just Generations’’ in which small

groups work together as their own entitlement reform commission.
56

Martha Phillips

1019 19th Street NW, Suite 810

Washington, D.C. 20036

Tel: 202.467.6222

Fx: 202.467.6333

www.concordcoalition.org

Economic Security 2000: Economic Security 2000 is a nationwide, grassroots organization dedicated to saving and reforming Social Security. ES 2000 seeks to focus

the Social Security debate on the need to create savings, and wealth, specifically,

for those middle and lower income workers currently cut out of the chance to save.

President Sam Beard

1522 K Street NW, Suite 634

Washington, D.C. 20005

Tel: 202–408–5556

Fax: 202–408–5352

www.economicsecurity2000.org

The Heritage Foundation: Heritage has developed reports analyzing social security/retirement savings reform efforts in Great Britain and Australia. Heritage has

also created a program to perform rate of return analyses. It allows individuals to

compare rates of returns for benefits under the current Social Security program and

on investments in the market for both current and future retirees.

Bob Moffit/Dan Mitchell/Bill Beach

214 Massachusetts Avenue, NE

Washington, DC 20002–4999

Tel: 202.546.4400

Fx: 202.544.5421

www.heritage.org

House Public Pension Reform Caucus: The PPRC will continue its educational

briefings, informational papers and exchange of ideas with members of Congress

the work you have done over the years on what is really a significant, major, long-term problem for this country.

and their staff throughout 1998.

Chairman ARCHER [presiding]. And my congratulations to you for

f

Mr. KOLBE. Thank you.

Chairman ARCHER. And we have two other Members who are

also very interested in this issue, and have worked on it. And our

next witness is Congressman Nadler from New York, and we’re

happy to have you before the Committee, and I think maybe that

Chairman Shaw mentioned we’d like for you, if you could, to keep

your oral testimony within 5 minutes, and your entire written

statement, without objection, will be inserted in the record. And

you may proceed.

STATEMENT OF HON. JERROLD NADLER, A REPRESENTATIVE

IN CONGRESS FROM THE STATE OF NEW YORK

Mr. NADLER. Thank you, Mr. Chairman. Thank you for your invitation to testify here and for holding these hearings.

Maintaining the Social Security system on a sound financial footing is a pressing issue of great importance, and I appreciate the opportunity to be involved in the debate. Only a few months have

passed since the President’s State of the Union Address in which

he called for Congress to dedicate the upcoming budget surplus to

strengthening Social Security. In that short time, however, the entire Nation seems to have begun a national dialog about what to

do about Social Security. From the dining room table, to the shop
57

floor, to Washington think tanks, people all over the country are

talking about Social Security.

On the national level, the dialog is growing as well. In addition

to the President’s townhalls, there is Americans Discuss Social Security, and the AARP is planning to hold a series of national meetings. Along with these meetings, every major group involved in Social Security, including those listed in H.R. 3546, has plans for national outreach and dialog efforts. This groundswell of democratic

debate is cause for celebration. It shows that our political system

is alive and well, and capable of holding meaningful, large-scale debates.

But it does raise a question: Why do we need to empanel yet another deliberative body to talk about Social Security? We already

have the means at hand to determine how various constituencies

and groups feel about Social Security. We also have the mechanism

of the democratic process: hearings, testimony, townhall meetings,

and public forums. While I respect the desire to create a bipartisan

body to help devise a comprehensive bipartisan solution, I do not

think we need a new blue-ribbon panel or commission to come between the American people and its elected representatives.

I support the spirit behind this resolution, but I disagree with its

approach. If Congress wants more input from the American people

and from the groups that represent them, more than we’re getting

from our normal relations with our constituents and from all these

other groups and dialogs that are happening, let’s have a direct dialog. We don’t need another middleman.

I also have more than a little suspicion that one of the unstated

purposes of the resolution is to create a commission to serve as a

panel from which to give an official blessing to the real, and from

my point of view, pernicious goal of the exercise: privatizing the Social Security system.

After all, Social Security has long been considered the third rail

of American politics: Touch it and you die. So if you want to rob

the American people of the security they have long been guaranteed by the Social Security system, and subject each of them instead to the uncertainties of the stock market, it’s difficult to admit

what is being done. First you whip up hysteria based on the false

notion that the Social Security system is in crisis, that it’s going

bankrupt, and then you hide behind a commission.

I would like to take a moment to remind the Committee that Social Security is not bankrupt and it is not in crisis. In fact, the Social Security trustees tell us that the Social Security system is not

very sick at all. The trustees’ 1997 report estimates that Social Security is fully funded to pay all benefits for the next 30 years, and

it is funded to pay at least 75 percent of benefits due for 45 years

after that. This does not describe a crisis, and certainly not an imminent crisis.

The trustees tell us that the system faces a long-term, that is 75-

year shortfall, of 2.2 percent of taxable payroll, or 1.1 percent each

for employers and employees each over that 75-year period. This is

a problem of modest dimensions that can be managed and should

be managed with modest measures while completely protecting Social Security beneficiaries, past and future, from risk and from poverty.
58

This Committee should also be aware that there is a major body

of responsible economic opinion that believes even this 2-percent

estimate over 75 years is substantially overstated. The estimated

shortfall is based on long-term average economic growth projections

of only 1.7 percent annually for the next 30 years, and a 1.3-

percent annually averaged over 75 years, rates of growth this country has experienced in its history only for a few years during the

Great Depression.

For perspective, I would remind the Committee that we are currently experiencing not 1.3 or 1.7-percent growth, but 3.8 percent—

3.8 percent growth. The administration projects long-term growth

of 2.4 percent, a rate of growth that, if sustained, would generate

Social Security surpluses for at least the next 75 years and for, in

fact, as far into the future as we can foresee.

This should be the starting point for future Social Security discussions: that what is essentially a worst-case scenario, projecting

wildly pessimistic growth rates of 1.3 percent, still projects a longterm shortfall of only a manageable 2 percent. We should avoid

taking drastic and radical actions such as privatization or increasing the retirement age or similar measures to deal with this modest long-term problem. Privatization, in particular, is not necessary

and would expose millions of American families to substantial economic risks.

We are told that the stock market enjoys an average return over

the long term of 7-point-something percent, and that we should

take advantage of this. There are several problems with this, three

problems.

First, studies have shown that the stock market goes in 20 year

spurts. You may have a high rate of growth for 20 years, then a

low rate for 20 years, and so forth, and that means that if you have

a privatized system, whether you do very well with your account

on average or not, depends on whether you start your working career at the beginning of a high 20-year period or a low 20-year period.

Second, when the baby boomers start to take their money out of

the market when we retire—I’m a baby boomer—when we start retiring and taking our money out of the market to spend during our

retirement, that’s going to be a tremendous downward pressure on

the stock market. Right now it’s all going in, a lot of it is going to

be coming out then, so we can’t assume that kind of growth in the

market over the long term.

And, finally, all of these—even if you’re talking about long-term

growth at high rates—are averages. Averages are very deceptive.

If someone were standing in front of us with one leg in a caldron

of boiling water, and the other leg in a vat of liquid hydrogen at

¥400 degrees, on average, he’d be doing fine. He would have severe problems with both legs, but on average, he’d be doing fine because one leg would be boiling and the other freezing.

Millions of Americans under a privatized system, even if the average were fine or very good, millions of Americans would do very

well, and millions of Americans who guessed wrong or didn’t invest

wisely would be in abject poverty. We allow for risks for people’s

private savings and private IRAs and so forth, because we say the

third leg of that stool—we always said that there should be three
59

legs on the retirement stool: private savings, private pensions, and

Social Security, which should be almost risk free or entirely risk

free. And this would put a huge risk into it.

It would shift the risk. A privatization scheme shifts the risk

from the government. The worst risk that you have under the current Social Security is maybe you run short of money and the government has to run a deficit to pay the benefits due which is a

legal entitlement. It’s a far-fetched risk but it’s there. Under a

privatized system, the risk is on the individuals, and for all these

reasons, we shouldn’t consider it.

Returning to the resolution at hand, we should have faith that

the ongoing debate will yield the information we need to forge

sound legislation to enable Social Security to meet the challenges,

the mild challenges, of the 21st century as admirably as it has met

the challenges of this century. We should also take steps to ensure

the debate starts with a sound assessment of the problems facing

Social Security. If we do not, and we allow the current mood of

hysteria to rule the debate, we will wind up administering a cure

worse than the disease, and there’s not a family in America that

would not stand a real chance of feeling the pain.

Thank you, Mr. Chairman.

[The prepared statement follows:]

Statement of Hon. Jerrold Nadler, a Representative in Congress from the

State of New York

Thank you Mr. Chairman for inviting me to speak here today. Maintaining the

Social Security system on a sound financial footing is a pressing issue of great importance to the country and to my constituents, and I appreciate the opportunity

to be involved in the debate.

Only a few months have passed since the President’s State of the Union Address—in which he called for Congress to dedicate the upcoming budget surplus to

strengthening Social Security. In that short time, however, the entire nation seems

to have begun a national dialogue about what to do about Social Security. From the

dining room table to the shop floor to Washington think tanks, people all over the

country are talking about Social Security. On a national level, the dialogue is growing as well. In addition to the President’s town halls, there is Americans Discuss

Social Security, and the AARP is planning to hold a series of national meetings.

Along with these meetings, every major group involved in Social Security—including

those listed in HR 3546—has plans for national outreach and dialogue efforts.

This groundswell of democratic debate is cause for celebration—it shows that our

political system is alive and well and capable of holding meaningful, large-scale debates.

But it does raise a question: why do we need to empanel yet another deliberative

body to talk about Social Security? We already have the means at hand to determine how various constituencies and groups feel about Social Security. We also have

the democratic processes: hearings, testimony, town hall meetings, and public forums. While I respect the desire to create a bi-partisan body to help devise a comprehensive bi-partisan solution, I don’t think we need a new blue ribbon panel or

commission to come between the American people and its elected officials. I support

the spirit behind this resolution, but disagree with its approach. If Congress wants

more input from the American people and from groups that represent them, let’s

have a direct dialogue. We don’t need another middleman. I also have more than

a little suspicion that the unstated purpose of this resolution is to create a commission that will give an official blessing to the real—and I believe, pernicious and destructive, goal of the exercise—privatizing the Social Security system.

After all, Social Security has long been considered the ‘‘third rail of American politics’’—touch it and you die. So, if you want to rob the American people of the security they have long been guaranteed by the Social Security system, and subject each

of them, instead, to the uncertainties of the stock market, you had better not admit

what you are doing. First, you whip up hysteria based on the false notion that the

Social Security system is in crisis—that it is going bankrupt—and then you hide behind a commission.
60

I would like to take a moment to remind the Committee that Social Security is

not bankrupt, and it is not in crisis.

In fact, the Social Security Trustees tell us that the Social Security system is not

very sick at all. The Trustees’ 1997 report estimates that Social Security faces a

long-term shortfall of 2.2 percent of payroll—or 1.1 percent each for employers and

employees. This is a problem of very modest dimensions that can be managed with

modest measures—while completely protecting Social Security beneficiaries, past

and future, from risk and from poverty.

This Committee should also be aware that there is a major body of responsible

economic opinion that believes even this 2 percent estimate to be substantially overstated. This estimated shortfall is based on long-term economic growth projections

of only 1.3% annually—a rate of growth this country has experienced only during

the Great Depression. For perspective, I would remind the committee that we are

currently experiencing 3.8 percent growth. The Administration projects long-term

growth of 2.4 percent—a rate of growth that—if sustained—would generate Social

Security surpluses for at least the next seventy-five years.

This should be the starting point for future Social Security discussions—what is

essentially a worst case scenario, projecting wildly pessimistic growth rates of 1.3%,

and still arriving at a long-term shortfall of only a manageable 2 percent. We should

avoid taking drastic and radical actions such as privatization, increasing the retirement age, decreasing benefits, or similar measures. Privatization, in particular, is

not necessary, and would expose millions of American families to substantial economic risks. In the end, privatizing Social Security will most certainly cost the

American people far more than would modifying the system within its current structure.

Returning to the resolution at hand, we should have faith that the ongoing debate

will yield the information we need to forge sound legislation to enable Social Security to meet the challenges of the twenty-first century as admirably as it has met

the challenges of this century.

We should also take steps to ensure that the debate starts with a sound assessment of the problems facing Social Security. If we don’t—and we allow the current

mood of hysteria to rule the debate—we will wind up administering a cure worse

than the disease—and there’s not a single family in America that won’t feel the

this panel is Mr. Pomeroy. We’re pleased to have you before our

Committee, and you may proceed.

pain.

Chairman ARCHER. Thank you, Mr. Nadler. Our last witness on

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STATEMENT OF HON. EARL POMEROY, A REPRESENTATIVE IN

CONGRESS FROM THE STATE OF NORTH DAKOTA

Mr. POMEROY. Thank you, Mr. Chairman and colleagues. I appreciate very much the opportunity to testify before you today on what

I believe is the most important issue we’ll ever have the responsibility to address: preserving Social Security for future generations

of Americans.

I think our work on this topic in this session should address

three goals. First, we must set aside the budget surplus for use in

assuring Social Security’s long-term financial health. Second, we

must stop legislative proposals that would spend the surplus to

make piecemeal changes under the guise of Social Security reform.

And, third, we must advance a public discussion of Social Security’s

future, leading to the development of comprehensive, bipartisan reform to preserve the program.

I believe the American people understand that Social Security is

more than an individual investment plan. It’s a comprehensive program that protects against the unforeseen risks presented in life

and provides a guaranteed, dependable benefit for as long as each

of us may live.
61

The experiences in my own family are representative of the critical role Social Security has played in the lives of millions over the

last six decades. My father died while my brother and I were minors. Social Security provided vital income for my newly widowed

mother and survivor benefits to my brother and myself. We absolutely depended on this support while we pulled ourselves together

and moved on. My mother is now 77, lives independently, thanks

to the Social Security check. As long as she’s healthy, be it 87, 97,

or 107, she’ll be able to live independently, provided her health allows, thanks to the guarantee of lifetime Social Security benefits.

As a result, Social Security is simply the most important, most

successful program every undertaken by the Federal Government,

and saving the budget surplus to preserve this program must be

our highest priority.

Our second goal should be to stop legislative proposals that run

counter to the save Social Security first pledge and the aim of comprehensive, bipartisan reform. Unfortunately, the Personal Retirement Savings Account Act of 1998, introduced by Budget Chairman

John Kasich, and endorsed this morning by the Speaker, is a proposal that I believe is inconsistent with saving Social Security first.

Rather than saving the budget surplus to be used as part of a

long-term Social Security plan, the proposal would spend the surplus now in a piecemeal way when we have barely begun the public

discussions and bipartisan deliberations we all know will be necessary. The budget surplus the Speaker proposes to spend this year

comes from excess reserves in the Social Security trust fund. Make

no mistake: the surplus is 100 percent from Social Security. So

what he’s really proposing is to take money from the current Social

Security program, with all its strengths for American families, to

initiate an untested experiment in individual accounts.

This plan is quite simply the beginning of the end of Social Security as we know it. Funding individual accounts this year out of the

Social Security surplus makes the solvency challenge to Social Security worse, not better. It makes our job of shoring up the program for the long haul even more difficult. The Speaker’s plan

sounded wonderful this morning, but think about it a minute.

There’s no free lunch. Money directed from the existing Social Security Program into individual accounts is money not available to

support the Social Security Program. And what does this critical

tradeoff bring the American people? A weaker Social Security Program in exchange for an individual account containing an amount

estimated to be a whopping $44 this year. Now such a sum will do

nothing, almost nothing to advance the retirement security of

American families. It’ll barely buy them dinner. And the sum is

certainly not worth the high price of undermining the goals of saving Social Security first and developing a comprehensive, long-term

plan for Social Security’s future.

In my remaining moments, Mr. Chairman, I’ll specifically address your bill. I think we need to think long and hard before deciding that a commission rather than Congress itself led by this

able Committee is the best place to being developing bipartisan recommendations on saving Social Security’s future. I’m not automatically opposed, but I believe that probably we’d be better served

keeping that function within the halls of Congress itself.
62

On the part of the bill that involves a national dialog, I think we

should address three aspects—or answer three questions. The dialog should not duplicate or detract from the nonpartisan national

discussions already underway by the AARP, Concord Coalition, and

by Americans Discuss Social Security. Second, I’d hope that the organizations that would nominate the participants to the dialog provided for under the bill would be fully representative of the broad

perspective of views on this issue. And third, I think the source of

funding should be also identified for this dialog function.

The final point of concern regarding the legislation—I think the

legislation advances a positive effort: developing national dialog,

advancing a bipartisan solution. That’s very, very good. The final

concern I have about it, however, is that the timetables provided

in the bill would actually delay the timetables advanced by the

President of leading to a White House summit in December of this

year, 1998, and on to negotiations between the administration and

Congress in early 1999.

I desperately want to get this done within the next Congress and

before the new millennium. And I fear that any sliding on those

timelines will make it difficult to accomplish this before the Presidential election in the year 2000 overtakes all else.

Thank you very much for listening.

[The prepared statement follows:]

Statement of Hon. Earl Pomeroy, a Representative in Congress from the

State of North Dakota

Mr. Chairman, Mr. Rangel, Members of the Committee, thank you for the opportunity to appear before you this morning to discuss what I believe is the foremost

policy imperative facing our nation and this Congress—preserving Social Security

for the baby-boom generation and beyond.

As we begin this task in earnest, I believe our goals must be three-fold. First, we

must set aside the budget surplus for use in assuring Social Security’s long-term

financial health. Second, we must advance the public discussion of Social Security’s

future with an eye toward development of a comprehensive bipartisan plan to preserve the program. And third, we must resist legislative proposals that would undercut these first two goals by using the surplus to make piecemeal changes under

the guise of Social Security reform.

SAVE SOCIAL SECURITY FIRST

Like Americans throughout our country, I have been extremely heartened by the

high priority placed on this issue by President Clinton and his entire Administration. In making his State of the Union declaration to ‘‘Save Social Security First,’’

President Clinton challenged the Congress to resist the temptation to use the surpluses for tax cuts or spending increases and set forth a process for national discussions followed by bipartisan legislative reform.

The President’s pledge to Save Social Security First has resonated with the people

of my home state of North Dakota and with families throughout our nation. Americans understand that far from being a mere pension plan, Social Security protects

families against the unforeseen risks of life. The experiences in my own family are

representative of the critical role Social Security has played in the lives of millions

over the last six decades. My father died while my brother and I were still minors.

Social Security provided vital income for my newly widowed mother and survivor

benefits to my brother and myself. We absolutely depended on Social Security support while we pulled ourselves together and moved on. My mother is now 77 years

old and lives independently, free from the fear of poverty and dependence in old age.

Without Social Security, this would not be possible. Social Security is simply the

most important and most successful program ever undertaken by the federal government. Saving the budget surplus to preserve this program must be our highest priority.

Mr. Chairman, I have been encouraged not only by the President’s words but also

by the statements and initiatives put forward in recent weeks by the Republican
63

leadership that express a commitment to Saving Social Security First and working

together to preserve the program for future generations. I welcome these developments and believe firmly that only a comprehensive and bipartisan approach to reform will result in success.

COMPREHENSIVE, RESPONSIBLE, BIPARTISAN REFORM

With this second goal of comprehensive, responsible, bipartisan reform in mind,

Mr. Chairman, I welcome all proposals that move us in that direction. A bipartisan

commission of experts such as would be authorized under your National Dialogue

on Social Security Act—H.R. 3546—is certainly one way to move toward this shared

goal and I applaud its emphasis on development of long-term solutions. I do believe,

however, that we must think long and hard before deciding that a commission, rather than the Congress itself led by this able Committee, is the best body to develop

bipartisan recommendations on Social Security’s future.

As we all recognize, public discussion and input will be critical to the success of

any Social Security plan, and I am pleased to see that Title I of H.R. 3546 will establish a formal National Dialogue on Social Security. I have three suggestions with

respect to this portion of the bill. First, I urge you to ensure that this Dialogue will

not duplicate or detract from the non-partisan national discussions already undertaken by AARP and the Concord Coalition and by Americans Discuss Social Security. Second, I hope you will work to see that the organizations that will nominate

the participants in this Dialogue represent the full and broad spectrum of views on

Social Security. And third, I hope you will soon specify the source of private funding

for the Dialogue. Resolving each of these issues will help ensure that the National

Dialogue you have proposed will advance the second goal of an open and honest

public conversation leading to comprehensive, responsible, bipartisan reform.

NO PIECEMEAL EXPERIMENTS

Mr. Chairman, I have stated that our third goal must be to steadfastly oppose

legislative proposals that run counter to the Save Social Security First pledge and

the aim of comprehensive reform. Unfortunately, the Personal Retirement Savings

Account Act of 1998, H.R. 3456, recently introduced by Chairman Kasich is just

such a proposal. Rather than saving the budget surplus to be used as part of a longterm Social Security plan, Mr. Kasich’s legislation would spend the surplus now in

a piecemeal way—when we have barely even begun the public discussions and bipartisan deliberations we all know will be necessary.

We must also remember where the budget surplus Mr. Kasich would spend this

year will come from—from excess reserves in the Social Security Trust Fund. So

what he is really proposing to do is to take money out of the current Social Security

program—with all its strengths for American families—to initiate an untested experiment in individual accounts. This plan is quite simply the beginning of the end

of Social Security as we know it.

While the dangers of Mr. Kasich’s piecemeal retirement account legislation are

thus clear, the benefits for the American worker are not. Under H.R. 3456, each eligible employee would be entitled to a retirement account worth a whopping 44 dollars this year. Such a sum will do almost nothing to advance the retirement security

of American families. And such a sum is certainly not worth the high price of undermining the goals of Saving Social Security First and developing a comprehensive,

long-term plan for Social Security’s future.

I should also note that Chairman Kasich has expressed interest in a fundamentally redesigned Social Security system based on individual accounts. He may well

see his Personal Retirement Savings Account legislation as a means toward that

end. Yet such an individual account redesign involves monumental transition

costs—literally trillions of dollars—and no one has yet explained how these costs

would be paid for. In addition, a Social Security system based on individual accounts

will entail greater retirement risk for workers, insufficient survivor and disability

coverage, a loss of progressivity, and higher administrative costs. We must be very

cautious about heading in that direction. At the very least, we must not adopt such

an individual account plan before we have had the opportunity for a full and open

national debate.

Thank you, Mr. Chairman, for the opportunity to appear before you this morning.

I look forward to continued cooperation with you and the Members of the Committee

in advancing the public discussion and in enacting a bipartisan solution that will

preserve Social Security for the baby-boomer generation and beyond. The American

people deserve nothing less.
f

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Chairman ARCHER. Thank you, Mr. Pomeroy. I find myself a wee

bit confused as I listen to your comments and I happen to listen

to those of Mr. Nadler. Mr. Nadler said we really don’t need to

worry about doing anything between now and the next millennium,

as I understood it. That this is not a pressing problem. That it’s

30 years off, and why should we be attempting to move so rapidly?

Did I misunderstand you?

Mr. NADLER. Yes, you did. What I said was, and let me clarify,

I appreciate the question. What I said was, we have a problem. It’s

not a problem we should wait 30 years to deal with. The problem

won’t manifest itself for 30 years, but we should deal with it now.

The Social Security system, according to the Trustees’ Reports, and

no one has disagreed with them, is fully funded for 30 years——

Chairman ARCHER. You have not heard the Chairman’s view on

that yet, but go ahead.

Mr. NADLER. OK, well, I haven’t read any disagreements. I’m not

a Member of this Committee. I haven’t read—the Social Security,

what I said was, according to the trustees, the system is fully funded to pay all benefits due until the year 2029. It’s 77 percent funded, that is, it’s funded to pay 77 percent of all benefits for the next

40 years after that. So there is an imbalance over the 75-year forecast period. There’s a shortfall, according to the trustees, equal to

2.23 percent, 2.2 percent of taxable income. That is a problem, but

it’s a manageable problem. It may not be manageable if you wait

30 years to deal with it. It’s a manageable problem if we deal with

it now. We don’t need radical solutions. There are a menu of things

you could do, easily, in the next year or two, without privatizing,

without raising, you know, without raising the retirement age.

There are a number of things you could do to cover that 2.2-percent

problem, as long as you do it fairly soon.

In addition that is a very pessimistic outlook. There’s a body of

economic opinion that points out, well, it’s a fact. It’s not debatable.

It’s a fact that that projection of the 2.2-percent problem, is based

on assumptions of an economic growth rate, average economic

growth rate for the next 30 years annually of 1.7 percent, an average over 75 years of 1.3 percent, far lower than we’ve ever done in

our history. We’re now doing about 3.8. Historically, we’ve done between 2.5 and 3.5 percent. If you make an assumption—if you assume a 2.4-percent economic growth average, which the administration does in its budget projection in the next 10 years, if you assume that you maintain that rate, you have no problem at all. I’m

not urging that we should make that assumption, I’m simply saying that even what amounts to a pessimistic assessment says we

have a small manageable problem which we ought to deal with

now. But that if we don’t deal with it, it will hit us over the head,

but it won’t hit us over the head for quite a while.

Chairman ARCHER. I’m glad you were able to clarify because I

think then we’re all in agreement that we need to address this——

Mr. NADLER. Yes.

Chairman ARCHER [continuing]. Problem now. It is very important that we be in bipartisan agreement on that. I’m curious about

the idea that the Congress should simply act on this, without hav-
65

ing the benefit of any recommendations from a bipartisan

intergenerational Committee designed in such a way to where

there is equal input from all generations.

Number one, I’m not sure the Congress represents that equally.

But perhaps the Congress in its infinite wisdom can override the

fact that it is not representative of all of the various age groups

that need to be considered. But if we were to follow your suggestion

and not have a commission, you fully believe that no individual in

the Congress would attempt to get partisan political advantage out

of the issues as they begin to emerge and be debated?

Mr. NADLER. I think, sir, if you’re asking me a question, sir?

Chairman ARCHER. Right, yes.

Mr. NADLER. First of all, let me say, that I think we’ve had a

number of commissions that Congressman Kolbe mentioned several

of them, the advisory commission, there have already been a number of commissions. There are a number of dialogs and commissions functioning out there right now. The Pew, the Americans Discuss Social Security, the AARP is doing them, the President’s series of panelists, all of these are going on. I’m not sure we need another one.

Second, do I believe that a Member of Congress—that no Member of Congress, or anybody else for that matter, no candidate for

Congress, will seek to make political hay out of this? Of course not.

People are going to make political hay out of anything, and certainly on issues as important as this. Some people are going to be

demagogs, and some people are going to be more responsible.

What I think, though, is ultimately we have to make that decision. We’re the elected representatives of the American people.

What I don’t want to see is a commission represented by age

groups, or otherwise, that—I don’t want a situation structured

whereby that commission, bipartisan, and so forth, comes in with

a report that has such momentum behind it that Congress can’t

really change it. That the people who really make the decision are

the people on that commission, and that Congress, which is the

representative body of the American people, is sort of steamrolled

into accepting whatever they propose, where they make a proposal

in March, and we’re going to enact a bill in June. That bothers me.

I think there is plenty of wisdom and plenty of responsibility in

the elected representatives of the American people, in both parties

represented in the House, and in the other body. If we need more

information, go out and get it. We’ve been informed by a number

of commissions. There are others that are working now. I don’t

think we’re going to suffer from a dearth of information.

I do think that dialogs and more publicity, and hearing people,

and so forth, as are being done in several different forums now,

and are starting to be done in the townhall meetings, and so forth,

is useful and necessary. But I don’t see that we need a commission.

I wouldn’t mind a commission if I were assured, if I were confident,

I should say, that it wouldn’t be—that the situation wouldn’t be

structured in such a way that for all practical purposes, they would

make the decision which would then be rammed through Congress,

essentially unchanged.

Chairman ARCHER. Number one, the legislation that is before the

Committee now, which can be changed, obviously, in a markup
66

process, in no way authorized a commission to take over the role

of the Congress, and that the Congress will be bound precisely by

what the commission recommends. Clearly, that is not the intention of the Chairman, or the intention of the legislation. So, I would

disabuse you of those fears.

But, let me I compliment you on what you clearly have done,

which is to inform yourself, and to study, and to learn a lot about

Social Security. And that comes through in your testimony today.

And since this information, all kinds of information, as you say,

has been developed, and is out there in the public sector for anybody that wants to read it, do you have a specific proposal you

would like to put before the Committee to resolve this problem?

Mr. NADLER. Some of us are developing a proposal. It’s not ready

yet. There is a menu, one could just off the top of one’s head, recite

a menu of proposals that would solve the problem, that would——

Chairman ARCHER. But Mr. Nadler, we’re not looking for menu

right now——

Mr. NADLER. Right.

Chairman ARCHER [continuing]. If we are to make this decision

congressionally, we need to have a specific minority proposal, and

if you have one, then we would be more than pleased to receive

it——

Mr. NADLER. Right.

Chairman ARCHER [continuing]. So we could look at it and then

determine whether if it’s worth having a commission, or whether

it’s worth going with your proposal.

Mr. NADLER. Well, I appreciate that, Mr. Chairman. I am working with a number of groups now trying to come up with a consensus proposal. We’re not ready yet, but it will be certainly within

this Congress that we will have a proposal.

Chairman ARCHER. Well, we’d be more than happy to receive it,

and to look at it. If the commission is set up, then the commission

would, of course, look at your proposal, whatever it might be. We’ll

move in that direction.

Mr. NADLER. Mr. Chairman, if I may comment on, or answer

something you said a moment ago. Obviously, the legislation

doesn’t call for the commission to displace the role of the Congress,

and I did not mean to suggest that it did, my concern is not the

legislation, is not what the legislation says about the commission,

it’s a situation that perhaps is being set up. The rhetoric we hear,

and I don’t mean to suggest it’s only rhetoric, the concern we hear,

and we’ve heard this for decades, it’s such a volatile issue, such an

important situation, such a volatile issue, that we can’t trust Congress, or we can’t rely on Congress to come up with a responsible

bipartisan solution, because everybody is afraid that if somebody—

if sacrifice on the part of somebody is called for, don’t blame me

for suggesting it. Blame the other guy, and nobody in Congress

wants to be in the position of taking that responsibility.

Therefore, what happened in 1983, as I recall, a bipartisan commission was set up. It made what in retrospect were, I think, quite

good recommendations. And they were pushed through Congress. I

wasn’t here, but what I understand is, they were pushed through

Congress rather quickly, and pretty substantially what was recommended, and it essentially did the work that Congress should
67

have done. And, frankly, that’s not what I would like to see repeated.

Chairman ARCHER. Well, Mr. Nadler, I was on that Commission

with Senator Dole, and I lived through all of those deliberations.

I sat on this Committee when the recommendations of the Commission came back, and they were very seriously deliberated and considered by this Committee. I myself offered a complete substitute

in this Committee which was also debated and considered by this

Committee. Nothing was rammed through the Congress simply because the commission made its recommendations.

But the Congress had been unable to come together, certainly not

on a bipartisan basis, because a number of Members demagogued

the entire issue, and poisoned the entire environment for those who

did want to work together cooperatively, and made it impossible for

the Congress to come together and to reach a solution. The Commission then did come forward, it was debated thoroughly.

I happened to be one of the three that was on the minority and

did not approve of the Commission’s recommendations, primarily

for one reason, as I analyze the actuarial projections, I believed it

did not save Social Security for 75 years. And we were instructed

to reform Social Security so that it would be stable for 75 years.

The Commission did not do that. It fell woefully short, and that’s

why we’re here today. Had it done its job, and had the recommendations provided the solution for 75 years, we wouldn’t be

here today.

Now part of the rationale for that was that the actuaries were

off in their projections. But I didn’t wait until this last year to say

they were off. I said they were off when the Commission met. I said

we cannot rely on this. They are not valid. It is clear from a commonsense standpoint that they will not hold up.

Now once again, and this is inherent in your testimony, and I’m

not trying to put it down because it’s what you have to rely on, we

are relying on actuarial projections, and those projections may be

better this time than they were before because I haven’t looked at

them, but I can tell you the ones that were relied on in 1982 were

woefully wrong, and clear on their face that they would be woefully

wrong. And so in the end, the bottom line was that the Congress

did adopt almost everything in the commission’s recommendations,

and then also added some other things to it. But we could not come

together on a bipartisan basis in the Congress at that time.

I lived through the budget summit which also dealt with longterm difficult issues before the Congress. And the budget summit

was an effort on the part of the administration and a Democrat

Congress to come together to try to get the deficit down, and in the

end for political purposes leaks came out of that over and over

again. Those were Members of Congress together. No outside individuals from the private sector, deliberately released for political

advantage, and frankly, I doubt that in this sensitive an issue that

the Congress will come together and do something on a bipartisan

basis without those trying to take political advantage of it, poisoning the entire environment. I’ve been through that too many times

and what we seem to learn from history is we never seem to learn

from history.
68

Mr. NADLER. Mr. Chairman, I think there’s one other thing we

might learn from history in light of your remarks. You may very

well be right about most of what you’re saying. I think that one,

I think we should learn at least one other thing from history. The

Commission in 1983, and the Congress in 1983 did a good job, ultimately. And they didn’t make the system actuarially sound for 75

years, if we can believe the current actuarial estimates they made

it sound for 47 or 48 years, which is not bad given the inherent

risks of projections.

I suspect, frankly, that it is unrealistic to expect that you can

make anything actuarially sound or project anything for 75 years.

Imagine at the end of the Civil War in 1865 trying to project the

state of the economy at the beginning of World War II in 1940,

that’s 75 years. And, frankly, the job that was done in 1983 that

we now believe will keep the system perfectly sound through 2029

is a good long run, and it’s a system that, like any other system,

needs midcourse corrections from time to time.

And by the way, it might be, I don’t want to suggest this, but

it might be that a more realistic thing should say we should look

in 50 year increments, instead of 75, because I don’t think anybody

can have any idea now what the economy is going to be like, what

the economic growth rate is going to be in 2065.

Chairman ARCHER. Well, I personally believe we can do it. I

think where you’re dealing with Social Security, in contrast to

Medicare which has all kinds of variables and subjectivity in them,

you can adequately predict demographics for 75 years, barring

some of cataclysm or world war or something of that nature, but

I think you can. And I predicted in 1982 what we were going to

face over 75 years and I was pooh-poohed. And I was right. It can

be done much better. If we want to take a Pollyanna approach so

we don’t have to make the tough decisions, of course, you can say,

‘‘Well, let’s only do it for 30 years. Let’s only do it for 40 years.’’

But if you want to err on the side of being safe, you can do it for

75 years and I think we should because young people in this country today are totally disillusioned by this system, and we need to

restore the confidence on the part of young people that there will

be something there in 75 years. I think that’s our responsibility

but, I guess we’ve belabored that long enough.

Mr. Pomeroy, you made a comment about the Social Security

money being used to pay other government expenses. What would

you do with the Social Security money that is not being done with

it today? How would you’ve handled it differently than it’s being

handled today?

Mr. POMEROY. I would love to see this Congress commit itself on

a course that ultimately has, takes this unified budget concept,

where we complain that we’ve got to balance——

Chairman ARCHER. No, I’m not talking about the budget. You

said the money is being used to pay other benefits, other General

Treasury expenditures. And I think the record will show that that’s

what you said. What would you do with that money differently

than what we’re doing with it today?

Mr. POMEROY. But, Mr. Chairman, what essentially——

Chairman ARCHER. So that you could ensure the American people that that money is not being used to pay other General Treas-
69

ury expenses, what would you do with the extra money coming into

the Social Security fund, over and above what’s necessary to pay

benefits?

Mr. POMEROY. Mr. Chairman, I think with a result of a comprehensive bipartisan study and discussion, we could end up with

a proposal where we have——

Chairman ARCHER. Mr. Pomeroy, I’m asking you what you would

do, not what would be the result of some big global study. What

would you personally suggest that we do with the money?

Mr. POMEROY. Mr. Chairman, I’d like to see a portion of the Social Security Trust fund privately invested, probably not in an individual account structure, but that would be directly responsive to

your question in terms of where——

Chairman ARCHER. OK.

Mr. POMEROY [continuing]. The proceeds would go other——

Chairman ARCHER. OK.

Mr. POMEROY [continuing]. Than to fund other functions of government in the way that they presently are doing.

Chairman ARCHER. So you would take the $70 billion of excess

money expected to come in this year, over and above the cost of the

benefits, and you would put what percent of that into private securities?

Mr. POMEROY. I don’t have a fully developed proposal, Mr. Chairman, but I would associate myself this year with the positions

taken by Members Bunning, Rangel, and Kennelly, in locking up

that surplus, having it available so that when we move toward this

bipartisan reform of Social Security, the solvency hole we have to

dig out of isn’t quite as deep.

Chairman ARCHER. OK, specifically what would you do with that

extra money, that’s the question? You said a while ago that you

would put some of it into private securities. What would you do

with the rest of it?

Mr. POMEROY. Some of the rest of it, Mr. Chairman, the bulk of

it, the balance of it would be invested in treasuries similar to——

Chairman ARCHER. Well, so that’s exactly what we’re doing

today.

Mr. POMEROY. Correct.

Chairman ARCHER. So you would continue with the bulk of it to

do exactly what we’re doing today which would not change anything except that you would take part of it and put it at risk in

private securities as I understand it, is that correct?

Mr. POMEROY. Mr. Chairman, I’m not, I’m not entirely certain

about whether we have disagreement or not here. What I’m trying

to suggest to you is that the action I believe that this Congress

should take this year is not to commit the surplus in any other way

other than toward the saving of Social Security first goal. Bipartisan proposals from this Committee itself have advanced the same

proposition.

As we move on to reform, Mr. Chairman, I believe a portion of

the reform that I’ll be inclined to support would involve a portion

of private investment of the trust fund proceeds, while continuing,

of course, to have a public investment mixed in there as well.

Chairman ARCHER. Well, there’s such—I just hate for the public

to get the wrong idea of what’s happening with Social Security.
70

And I fear that your testimony puts it in a light that is not accurate. The money that’s in the Social Security fund, from FICA

taxes, is already committed totally to paying Social Security benefits. It has never been used for anything else. It will never be used

for anything else. And to create any sort of impression on the part

of the American people that it is being used to pay other government bills, outside of benefits, is just not true. It is not true.

Mr. POMEROY. Mr. Chairman——

Chairman ARCHER. It is being invested, as you said, in treasury

securities which, when cashed in, can only be used to pay Social

Security benefits. So we have already by law walled off the ‘‘surplus in the Social Security fund’’ so that it cannot be spent for anything other than Social Security benefits.

Now, it is true that some, like Senator Moynihan, want to go

back to a pay-as-you-go basis to where we don’t buildup any money

in the trust fund, and don’t wall it off, and secure the fact that it

will be payable in the future for benefits. And strictly to have

enough to pay the current benefits every year. Now we went

through that back in the seventies, and it became a disaster for the

fund.

Mr. POMEROY. I believe the Moynihan proposal is ill advised, Mr.

Chairman, and I agree with you on that. What I was responding

to specifically, with the remarks in my testimony, is that I believe

the proposal advanced by Budget Chairman Kasich, and endorsed

by the Speaker this morning, would take the budget surplus, establish individual accounts, making the money unavailable for comprehensive reform. That money represents Social Security surplus.

It is not, therefore, available as we tackle the long-term solvency

questions of Social Security.

Chairman ARCHER. Well, none of those programs, as I understand them, touch the bonds that Social Security holds that are

committed to pay benefits—bonds which represent the surplus in

Social Security. None of those programs touches any of those treasury bonds. They are kept intact. They are roped off. They can only

be used to pay Social Security benefits. And, I’m sad to say, that

an awful lot of American people get very misled by those, and on

the right and the left, get misled by those who say, ‘‘Well, the

money is gone, it’s been spent on other treasury programs.’’ And it

hasn’t, it’s been invested in government bonds that are the same

as Series EE bonds in the safest investment in the world. And can

never be used for anything else, and we should continue to let the

American people know that and I see——

Mr. POMEROY. Mr. Chairman——

Chairman ARCHER [continuing]. Both of you nodding, and I appreciate that. I’ve belabored this too long and I’m going to yield to

Mr. Cardin for input.

Mr. CARDIN. Thank you, Mr. Chairman. Let me just follow up

with Mr. Pomeroy for one moment. If I understood your testimony

and what you have advocated on the Social Security surplus, under

our current budget rules it would not be difficult for Congress to

figure out a way to spend the projected surplus on other programs.

That would be something that we could do, or we could use it as

a tax cut. And if I understand your statement, you want to see that

money held, not spent, not used for any specific purpose on the So-
71

cial Security system, but not used as a way to expand government

spending or to reduce government revenues until we first have figured out a game plan to deal with the Social Security system. It’s

not that you feel that money will evaporate or that the Social Security money will evaporate. We have problems. We’ve all acknowledged it. Let’s figure out a way to deal with Social Security before

we talk about other priorities. Is that what——

Mr. POMEROY. That’s precisely correct. It’s absolutely precisely

correct. The deeper the debt situation of this country, the more

challenge we’re going to have meeting those—retiring those Social

Security bonds. We need to save the surplus for Social Security

first, precisely as you suggested in our question.

Mr. CARDIN. And let me also compliment your work on private

pensions and savings because one of the areas that we’re going to

need to take a look at, is how we can get more private savings and

retirement in our community to deal with the retirement security

of Americans. And, Mr. Pomeroy, you have brought forward many

suggestions in that area that have been very helpful to this Committee, and I hope that you’ll work with us in figuring out a way

to deal with the Social Security system.

Mr. Chairman, I must tell you, I’m optimistic that we’re going to

deal with this issue because there’s been acknowledgment by both

the Democrats, the Republicans, the White House, and Congress,

that we need to deal with Social Security. There’s a long-term problem, there’s no question about it. We need to deal with those

issues. And I must tell you I agree with Senator Dole, that we’re

not going to get it done unless we figure out a mechanism in a bipartisan way to get it done. I think there’s an acknowledgment of

that.

I really do applaud President Clinton for bringing this issue up,

for starting a national dialog, for getting people talking about the

demographic changes in this country, and what we’re going to need

to do about income security in the future, and that we need to take

a look at a variety of options.

I congratulate you, Mr. Chairman, this is a good proposal that

you’ve brought forward. It brings us together in a bipartisan way.

But let me just caution everyone here. If we in Congress come

up with a good proposal on which the White House goes in a different direction, or the White House moves on this issue in a positive way, and we don’t join, then we’re not going to have a bipartisan approach. So I would hope our efforts in the next several weeks

focus on figuring out a way that we can get the White House, along

with Congress, together in a bipartisan mechanism that will have

the confidence of the American people and of our colleagues in Congress. We must have a mechanism that can work in a bipartisan

way. Senator Dole is absolutely right. The only way that this is

going to succeed if we move forward in a bipartisan way. And I

know that the Democrats and Republicans in Congress want to do

that. Sure, there’ll be some of us who may politicize the issue, but

the leadership here wants the decision done. And I’m confident

that we can find a way to do it.

And I really do applaud you, Mr. Chairman, for bringing forward

your suggestion. I just hope we can get forward a process that we

all can sign off on soon that will use the expertise of the Members
72

of Congress, the three Members we have, Mr. Kolbe, Mr. Nadler,

and Mr. Pomeroy, are certainly going to be very helpful to us in

coming forward with those solutions. We need to figure out a way

to do it. The sooner rather than later, and I just really wanted to

compliment all three of you on your testimony.

Chairman ARCHER. I thank the gentleman from Maryland. I certainly agree that we’ve got to come together on a bipartisan basis

to solve this long-range problem.

Mr. Shaw.

Mr. SHAW. Thank you, Mr. Chairman. I know two of our witnesses gave a very fine testimony that made reference to the remark of the President and, Earl, you quoted him almost exactly a

moment ago in regard to any surplus and save Social Security first.

When the President said that we all leaped to our feet on both

sides of the aisle. All of us have some very strong feelings about

that. But when you sit down and start to analyze what that statement really means, or what it did mean, then you begin to scratch

your head, because the surplus is whatever you have left after you

have gone through your budget. So that surplus isn’t a fixed figure

of something that’s going to happen automatically. We’ve got to

have constraints in spending so that we do come up with a surplus.

But then you look at it further—and this is what bothers me most

of all.

I think you gentleman may agree with me on this. In arriving

at the surplus, and looking at the unified budget, the excess that

the Chairman just referred to. The surplus that’s in the Social Security system which this year is over $70 billion may actually be

used to show that we have a surplus. When, in fact, if you use

truth in accounting and take out the Social Security money, we are

in the red for over $70 billion.

In my opinion, and I feel very strongly about this, if we are serious about using our surplus to save Social Security, then we must

be very careful in defining that surplus, and take Social Security

out of the equation. As the Chairman just said, this money is in

there. It is committed. It’s fully committed. And it should not be

used to show a false figure. I think the Republicans and the Democrats and the President need to come together and come forth with

a budget that has truth in accounting, which shows that we aren’t

near a surplus condition at this time. We should wall off Social Security, not only by saying that it’s going to be there for everybody,

but agree that the Congress and the President cannot use the surplus in Social Security to support new spending plans. What do you

all think about that?

Mr. NADLER. Well, I have a couple of comments on that. First of

all, how you define the surplus. Under the current accounting system we’ve been using since 1967, Social Security is part of the unified budget, as is the transportation trust funds, and everything

else.

Mr. SHAW. I will say, though, that some of us thought we had

taken it out of the budget a few years ago——

Mr. NADLER. Well——

Mr. SHAW [continuing]. And we voted on that but evidently——

Mr. NADLER. Apparently not.

Mr. SHAW. We didn’t cross enough ‘‘t’s’’ there.
73

Mr. NADLER. In any event, that’s the way the accounting is done

now. I think we ought to solve the Social Security problem. I think

they’re really two questions. One, solve the Social Security problem. Until we do that, which should be in the next Congress, wall

off the current surplus from anything else, so that if we need it,

it’s available for that. But I don’t think we mean to say that Congress can spend no money of the surplus on anything else except

Social Security. We should figure out what we’re doing about Social

Security, and then look at the other question. If you talk about

truth in accounting, which is a different question, what does your

budget really mean. Should you keep Social Security in there?

I agree with you to the following extent: Social Security should

not be in the budget, either now when it’s masking a deficit by having a surplus, or 20 years from now when it may be the opposite.

But to have a really accurate budget, you have to create a capital

budget like any company, any State or local government.

Mr. SHAW. We don’t have capital. We do not have capital.

Mr. NADLER. Well, I know that but if you want an accurate budget, we should have to change it to have a capital budget.

Mr. POMEROY. We have a vote imminent, so I will agree with

you. I agree with every word you said.

Mr. SHAW. Thank you very much.

Chairman ARCHER. Gentleman, thank you, we have a vote on

now and only a couple of minutes to get over there so I think it’d

be best for us to excuse you, and we’ll get to the next panel when

we get back after the vote.

Mr. NADLER. Thank you.

Chairman ARCHER. Thank you very much.

[Recess.]

Mrs. JOHNSON [presiding]. The hearing will resume. Welcome

back, Wendell, from the other side of the dias here.

Let us start with Mr. Schultz, a member of the board of directors

of the American Association of Retired Persons.

Mr. Schultz.

STATEMENT OF OTTO SCHULTZ, MEMBER, BOARD OF

DIRECTORS, AMERICAN ASSOCIATION OF RETIRED PERSONS

Mr. SCHULTZ. Good afternoon. I’m Otto Schultz, a member of

AARP’s board of directors. For 2 years AARP has been calling on

Congress and the administration to engage the American people in

a national dialog regarding Social Security and the options to ensure its long-term financing.

AARP believes this is a critical first step toward making changes

to strengthen Social Security. Social Security has provided essential income protection for generations of American workers and

their families. It replaces a portion of the wages lost when a breadwinner retires, becomes disabled, or dies. We must find a way to

maintain this firm income foundation for tomorrow’s beneficiaries.

That is why AARP has launched its own nationwide effort to encourage all Americans to discuss Social Security and its future, and

that is why we accepted the President’s invitation to cohost a series

of national forums on the issue. Social Security faces a long-term

challenge, but it is not a crisis. Without any changes, the program

can continue paying full benefits until 2029. After that, incoming
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revenue will cover three out of every four benefit dollars currently

promised.

A dialog with the American people about Social Security is a necessary precursor to enacting legislation in the next few years that

addresses the program’s long-term financial condition. A national

dialog can help lay the groundwork for the legislative process and

personalize the stake all Americans have in the future of Social Security.

This does not mean we should delay action into the distant future. If we enact legislation sooner rather than later, the changes

will be more modest and will give those affected more opportunity

to adjust their plans.

The National Dialogue on Social Security Act outlines a twopronged approach for the discussion. One part would take place

electronically, and the other through local forums. All Members of

Congress are encouraged to engage their constituents via electronic

methods. Forums sponsored by private, nonpartisan organizations

would take place in geographically representative locations

throughout the country.

In our written testimony, we describe some goals regarding the

local events. We believe every effort must be made to ensure that

Americans from all walks of life can and do attend, that varying

viewpoints are represented in a balanced fashion, and that no organization is excluded because of limited finances. The results of this

dialog would be presented to a 36-member National Dialogue Council. It would represent different age groups and different points of

view.

The legislation also creates an eight-member bipartisan panel to

design long-term Social Security reform. Appointed by all the congressional leaders and the administration, the panel is charged

with reporting by next February 1 a solvency proposal acceptable

to six of its eight members. In the last year or so, many solvency

proposals have been put forth. AARP welcomes this exchange of

ideas. All options should be put on the table, and they deserve to

be thoroughly examined with regard to their impact on individuals

and on the program.

While there are many factors that go into making this bipartisan

panel successful, three are particularly important. First, in order to

ensure consideration of the widest range of options, we believe

panel members should be selected based on their knowledge, abilities, and openmindedness, not their adherence to particular ideas.

We believe it is important that no member come to the panel with

preconditions or other limits.

Second, whether through formal or informal means, it is critical

that the work of this panel yield a product that will be useful to

the congressional Committees of jurisdiction—the stewards of the

Social Security Program. The challenge for the panel is to develop

a framework or a set of recommendations that reflect our collective

best thinking—not just options or bold proposals—with which the

Congress and the administration can work and which will ultimately lead to legislation.

Third, and most importantly, the panel must, as a part of its explicit role, involve the American people. The American people have
75

to be involved. They need to understand the problems, the tradeoffs, and how they will be affected in order to support the solution.

Mr. Chairman, I would be glad to answer any questions that you

or other Members of the Committee may have.

Thank you.

[The prepared statement follows:]

Statement of Otto Schultz, Member, Board of Directors, American

Association of Retired Persons

AARP appreciates the opportunity to present its views on H.R. 3546, the National

Dialogue on Social Security Act of 1998. For two years, the Association has been

calling upon Congress and the President to engage in a dialogue with the American

people regarding the Social Security program and the options that would strengthen

its long-term financing. Social Security has provided essential income protection for

generations of American workers and their families. It replaces a portion of wages

lost when a breadwinner retires, becomes disabled, or dies. Given Social Security’s

critical role in providing income security, we must find a way to maintain that firm

economic foundation for tomorrow’s beneficiaries.

A dialogue with the American people about Social Security is a necessary precursor to enacting legislation in the next few years that addresses the program’s longterm financial condition. A national dialogue can help lay the groundwork for the

legislative process and personalize the stake all Americans have in the future of Social Security. This does not mean we should delay action into the distant future.

If we enact legislation sooner rather than later, the changes will be more modest,

and we will give those affected more opportunity to adjust their plans.

Social Security faces a long-term challenge, but it is not a crisis. The current debate stands in stark contrast to the debate which led to the 1983 Social Security

Amendments when the trust funds could finance benefits for only a short time. The

Social Security trustees report that without a single change in current law, the program can continue paying full benefits on time until 2029. After that, incoming revenue will finance 3 out of 4 benefit dollars.

In order for this dialogue to be instructive, it must begin from a solid base of information about Social Security and its financial condition. Wherever possible the

dialogue should allow the American people to examine options and work through the

trade-offs involved. But this dialogue should not focus on Social Security alone. The

broader framework of retirement income security, including the role of individuals,

employers, and government programs, must all be part of this debate. We believe

the dialogue should stress Social Security’s role within the overall retirement income framework—that Social Security is the solid base of retirement income to

which workers can and should add pensions and individual savings. Such a comprehensive approach will send a strong signal to today’s workers about the need to

save for their own retirement as a supplement to Social Security.

I. THE NATIONAL DIALOGUE ON SOCIAL SECURITY

H.R. 3546 would create a National Dialogue Council (hereafter referred to as ‘‘the

council’’) composed of 36 representatives, one-quarter selected by the Speaker of the

House, one-quarter by the Majority Leader of the Senate, and half by the president.

The legislation identifies 18 organizations that will submit 3 nominees each for the

36 positions on the council. The organizations include representatives of older Americans, younger Americans, labor, business as well as other groups and think tanks

involved in the Social Security issue. One-third of the council members would be

born after 1961, another third would be born from 1946 through 1961, and the remainder would be born before 1946. Without commenting on specific organizations,

casting a broad net is a positive feature.

Since the legislation specifies a bipartisan, bicameral appointment procedure for

appointing the solvency panel, we believe a similar approach should be used to determine the members of the dialogue council. (The allocation of ‘‘slots’’ that was used

in the appointment of the Medicare Commission is an example.) Involving the congressional leadership of both parties in this process will help ensure broad, bipartisan participation by our elected officials in this very important phase of the national

discussion.

The national dialogue would have two components: electronic discussions sponsored by Members of Congress and local conferences convened by nonpartisan, private organizations in geographically representative areas throughout the nation.

The results would be forwarded to a bipartisan panel that will recommend a solvency plan for Social Security.
76

Sponsorship of local forums by private, nonpartisan organizations would reduce

federal costs. It could lead, however, to unanticipated problems unless the extent

of a group’s involvement and the purpose of the forums are spelled out before the

events begin. Both are important in order to ensure that all viewpoints are represented. It is critical that the dialogue maintain the appropriate balance of ideas

and points of view. We must also ensure that organizations are not excluded simply

because of limited finances.

We hope event organizers will schedule activities at a time convenient to working

Americans and their families and at convenient locations that are accessible by public transportation. This will encourage attendance by a more representative group

of people.

These considerations are particularly important since there will be a limited number of local forums, whereas electronic discussions will take place within many congressional districts. Indeed, AARP believes that the face-to-face interaction in local

forums should be strongly encouraged. While a growing number of Americans are

comfortable in a ‘‘chat room’’ and navigating the electronic highway, many others

do not own or have access to a computer. Their voices deserve to be heard in the

dialogue as well.

AARP concurs with H.R. 3546’s intent to facilitate a national dialogue on Social

Security. In fact, we are engaged in our own nationwide effort to advance the current debate by fostering a constructive dialogue. We plan to conduct citizen forums,

distribute voter education guides and other education materials, and engage the

public. We will attempt to bring together the viewpoints of all age groups—from our

current members to our future members—to help ensure that the long-term needs

and interests of each group are addressed. We would be willing to share the results

of our activities when they become available. The Association believes that such a

dialogue is critical, especially when dealing with programs such as Social Security

that impact virtually every American. Proposals to modify Social Security cannot

simply spring from inside-the-beltway. Without the support and input of the American public, any reform effort is bound to fail. The public must have the opportunity

to hear about the proposals and work through potential trade-offs.

II. THE BIPARTISAN PANEL TO DESIGN LONG-TERM SOCIAL SECURITY REFORM

The legislation would create an eight member commission appointed by the bipartisan congressional leaders and the President. By March 31, 1999, the Bipartisan

Panel to Design Long-term Social Security Reform (the ‘‘panel’’) would report out a

solvency package acceptable to 6 of its 8 members. Their findings would be forwarded to the President, as well as the Senate Committee on Finance and the

House Committee on Ways and Means.

While there are many factors that go into making an initiative like this successful, three are particularly important. Obviously the first is the composition of the

panel itself, including the staff leadership. In order to ensure that the Social Security panel considers the widest range of options, we believe members should be selected based on their knowledge, abilities, and open-mindedness, not their adherence to particular ideas. We believe it is important that no member come to the

panel with pre-conditions or other limits.

Second, whether through formal or informal means, it is critical that the work of

this panel yield a product that will be useful to the congressional committees of jurisdiction—the stewards of the Social Security program. Ultimately, it is the committees and the Congress as a whole which bear the responsibility. The challenge

for the panel is to develop a framework or set of recommendations that reflect our

collective best thinking—not just options or ‘‘bold proposals"—with which the

Congress and the Administration can work and which will ultimately lead to legislation. No panel, regardless of how ‘‘blue ribbon’’ it may be, can or should provide

cover or a ‘‘fig leaf’’ on a matter of this importance.

Third, and perhaps most importantly, the panel must, as part of its explicit role,

involve the American people. If there is one thing that is clear from earlier major

efforts to reform health care and Social Security, it is that the American people have

to be involved—they need to understand the problems, the tradeoffs, and how they

will be affected. AARP does not suggest that the panel can do this alone. But, if

the American people don’t understand the problems, and the basic tradeoffs, they

won’t support the solutions.

A commission has been used before to resolve Social Security’s financing problems. In late December 1981, the 15 member National Commission on Social Security Reform, subsequently called the ‘‘Greenspan Commission,’’ was asked to analyze

the factors threatening the program’s long-term solvency and make recommendations to the President and Congress. Although the program faced a serious financing
77

crisis, the Greenspan Commission members could not reach consensus on a solvency

package. However, the Greenspan Commission’s deliberations provided a basis for

the solution that was eventually developed by key congressional leaders and the Administration—the ultimate decision-makers in the process. These decision-makers

resolved their differences, and that discussion led to the enactment of the Social Security Amendments of 1983.

The situation today is quite different than it was in the 1981–1983 period, largely

because Social Security does not face an immediate threat. While in 1983 the Social

Security Trustees projected the system could pay full benefits for only 6 months,

today that projection is for 31 years. This time-frame allows for a more thorough

dialogue. In order to ensure that both the Social Security panel and the recently

launched Medicare Commission can devote as much time as feasible to their respective tasks, we would recommend that an individual serve on only one of these panels.

In the last few years or so, a considerable number of solvency proposals have been

suggested, including the 3 approaches outlined by the Social Security Advisory

Council. AARP is hopeful that the bipartisan panel will thoroughly explore and carefully analyze a broad range of options. This analysis should examine the impact of

each proposal on individuals, as well as on the program. The panel should also carefully review the interaction between the different components of any proposal and

consider the impact on other parts (e.g., pensions, savings) of the retirement income

framework.

III. CONCLUSION

The discussion regarding the future of Social Security, our nation’s most popular

program, is moving gradually outside the ‘‘beltway’’ and into the living rooms of

America. This is encouraging. Americans continue to value a program that has directly or indirectly touched of all us, and they recognize its contribution to the economic well being of this nation. Changes will be needed, as they have been in the

past, to ensure that future generations continue receiving this secure and predictable base of income security. We must look at the choices available and confront the

face of retirement in the 21st century. While some contend that we can no longer

afford Social Security, AARP continues to believe that we cannot afford to be withciate your coming and appreciate your patience in waiting through

the other panels.

out Social Security.

Chairman ARCHER [presiding]. Thank you, Mr. Schultz. I appref

Mr. Primus is no stranger to the Ways and Means Committee.

He has been with us for many, many years, and we’re glad to have

you back before the Committee and we welcome your testimony.

STATEMENT OF WENDELL E. PRIMUS, DIRECTOR OF INCOME

SECURITY, CENTER ON BUDGET AND POLICY PRIORITIES

Mr. PRIMUS. Thank you, Mr. Chairman, and Members of the

Committee. I appreciate your invitation to testify on H.R. 3546.

Social Security reform can best be achieved by educating the

public about issues facing the program, involving them in the reform process through public forums, and then developing a bipartisan agreement through the regular legislative process. I applaud

the goals of this bill.

However, the bill would create a council that would duplicate initiatives already underway, rely on the Internet as a key means of

communication with the American public, a tool that will exclude

many low and moderate income households, and establish a panel

to conduct work that could best be carried out by this Committee.

I have great respect for this Committee, its expertise and role in

the legislative process. This Committee is in the best position to assist the Congress and the administration in reaching a political
78

consensus and a bipartisan agreement to restore the solvency of Social Security. The creation of yet another advisory panel seems unnecessary.

The circumstances we confront today are substantially different

from those in 1981, when the Senate voted down by a 96 to 0 vote

a plan by the administration to address Social Security financing.

The regular process had broken down. I would urge you to allow

the process outlined by the President and the regular legislative

procedures work before resorting to the creation of a new panel.

I would hope and presume that you, Mr. Chairman, and the

Ranking Member will engage the Committee in a series of events,

such as hearings, seminars, and retreats over the next year. You

are the key decisionmakers.

Social Security is one of the Nation’s most important programs.

Census data show that half of the population aged 65 and older

would be poor if not for the benefits of government programs. After

counting government benefits, the poverty rate among the elderly

drops to 9.2 percent. These same data show that government benefit programs lifted 13 million elderly out of poverty in 1996, and

out of this 13 million, 11.7 were lifted out by the Social Security

Program.

Social Security also plays an important role in the economic wellbeing of the nonelderly. Some 3.5 million nonelderly adults and

800,000 children were lifted out of poverty by Social Security in

1996.

In the opinion of myself and many other economists, the use of

the budget surplus that would serve best both the Social Security

Program and the U.S. economy is to reduce the national debt. This

has four effects. First, if the projected surplus in the unified budget

is used to pay down debt, national savings and investment will rise

and produce a somewhat larger economy over time. A larger economy would bring in more payroll tax revenue without raising the

payroll tax rate.

Second, using the surplus to reduce the debt will drive down Federal interest payments and free up funds as the baby boom generation retires. And third, under CBO projections, the budget surplus

is temporary. If the surplus is preserved, the point at which deficits

return and the debt begins to rise can be delayed. Social Security

and other programs will not need to be reduced as much in the

long term, nor will tax burdens on future generations need be as

great.

And, finally, shrinking the national debt will give us more room

to borrow in the future, when the baby boom generation retires, if

that should prove necessary.

President Clinton has called on the Nation to save Social Security first. The President has asked Congress not to spend the projected budget surpluses until Social Security is restored to longterm balance. Given the Nation’s demographics and its low savings

rate, that is a very wise and prudent course of action.

Social Security is only one part of our retirement security system. The fact that only 50 percent of individuals reaching retirement today have a pension is also a matter of concern. There is a

need to bolster other aspects of our retirement security system as

well.
79

The establishment of individual accounts is, however, a fundamental change and should be considered in the overall context

of eliminating the long-term imbalance that currently exists between income and benefits in the Social Security Program. Because

Social Security is so important to the lives of low and moderate income families, changes such as the establishment of individual accounts, or other efforts to strengthen individual savings or pensions, should be considered during or after the long-term funding

imbalance in the Social Security Program has been eliminated.

If individual accounts are established without addressing the

long-term imbalance in the Social Security Program, the nature of

the Social Security debate could shift from restoring solvency to

bolstering those accounts. Before any steps are taken to create

these individual accounts or make other structural changes in

other aspects of our retirement system, a bipartisan agreement

should be put in place to restore and maintain long-term solvency

in the Social Security Program.

Mr. Chairman, in conclusion, I would urge that you follow the

regular order and the process outlined by President Clinton in

reaching a bipartisan agreement on Social Security, and Members

of this Committee can assist greatly in reaching that consensus.

Social Security is our most important program, and because it is

so important, we should save Social Security first.

I want to thank you again for the opportunity to testify on this

important issue, and I look forward to working with this Committee as you move forward.

[The prepared statement follows:]

Statement of Wendell E. Primus, Director of Income Security, Center on

Budget and Policy Priorities

Social Security reform can best be achieved by educating the public about issues

facing the program, involving them in the reform process through public forums,

and then developing a bipartisan agreement through the regular legislative process.

While the goals of this bill are consistent with that, the process the bill would employ would create a council that would duplicate initiatives currently underway, rely

on the Internet as a key means of communication with constituents—a tool that

may exclude low- and moderate-income households—and develop a commission to

conduct work that could best be carried out by this Committee.

Members of this Committee already have at their disposal the means for establishing dialogues, including the legislative hearing process and town hall meetings

within your districts. Beyond hearing from your own districts, there are two bipartisan national dialogues underway. Bipartisan regional hearings are being organized

at the request of President Clinton by the American Association of Retired Persons

and the Concord Coalition. Additionally, the Pew Charitable Trust is sponsoring

nonpartisan hearings through its Americans Discuss Social Security initiative. Unlike the Internet, these approaches to engaging the public in the dialogue will create

access for individuals of all income levels to participate.

This Committee is also in the best position to put together a bipartisan agreement

to restore the solvency of Social Security. Although it is difficult to argue strongly

against forming a panel of experts, the creation of yet another advisory panel does

not appear necessary. This Committee is in the best position to access research and

information available or being generated on Social Security and to hear first-hand

from the American public. This is the regular legislative process that should be used

to address Social Security.

If the Committee proceeds with the creation of the Dialogue Council and Panel,

I would recommend some changes.

There are three additional points that need to be made concerning the importance

of Social Security and how best to preserve this system.

1. Social Security plays a crucial role in eliminating poverty among the elderly.

2. Congress can substantially enhance the long-term solvency of Social Security

by preserving the budget surplus and using these funds to pay down the debt.
80

3. We should adhere to the President’s call to ‘‘save Social Security first.’’

Mr. Chairmen and members of the Committee on Ways and Means, I appreciate

your invitation to testify on H.R. 3546, the National Dialogue on Social Security Act

of 1998. My name is Wendell Primus, and I am Director of Income Security at the

Center on Budget and Policy Priorities. The Center is a nonpartisan, nonprofit policy organization that conducts research and analysis on a wide range of issues affecting low- and moderate-income families. We are primarily funded by foundations

and receive no federal funding.

TITLE I—NATIONAL DIALOGUE ON SOCIAL SECURITY

Two important steps in achieving Social Security reform are to provide the public

with education on issues facing the program and to obtain their views through public discussions, debates, and hearings. The goals of Title I, to promote a national

dialogue and provide a forum for the American people to learn more about the program, are consistent with this view. I applaud these goals. However, this title would

create a council that would duplicate other initiatives currently underway. The title

also would instruct members of the Committee to develop ongoing systems of communication with constituency groups, a process in which I am sure every member

is already fully engaged. Additionally, members would be required to rely on the

Internet as a key tool for educating the public and means for communicating with

constituents. This approach may exclude many low- and moderate-income individuals for whom Social Security is an essential program.

The creation of a 36-member Dialogue Council adds a layer between members of

this Committee and the public when what is needed is direct access to the public

and individuals with expertise on Social Security. I have great respect for this Committee, its expertise and role in the legislative process. Thus, I really believe that

members of this Committee are in the best position to gather and weigh information

on Social Security reform, as well as to help stimulate discussions and debate on

the issue.

You have at your disposal existing mechanisms for creating dialogues in which

members of this Committee can participate directly and become informed on a firsthand basis. One is through the Congressional hearing process. Your position on this

powerful Committee gives you access to the most knowledgeable individuals on Social Security.

In addition to this system for holding hearings, you have ongoing access to the

general public residing in your districts. I know many, if not all, of you have been

holding town-hall meetings and similar sessions with your constituents to learn

their views and concerns. I am sure Social Security has been raised as an issue on

numerous occasions. Organizing town hall meetings in your districts that specifically address Social Security would be an excellent way for you to become that much

more knowledgeable about aspects of the program that are of particular concern to

the people you represent. It seems unnecessary to pass a law instructing members

to perform activities they currently conduct.

Beyond hearing from your own districts, there are two bipartisan national dialogues underway or in the finally planning stages. President Clinton called for four

regional meetings that would engage the general public in a discussion on Social

Security. They are being organized by the American Association of Retired Persons

and the Concord Coalition. These are organizations with differing views on how best

to reform Social Security. Consequently, their joint effort to bring people together

should lead to a full and open debate on the issues.

Similarly, Americans Discuss Social Security is holding a series of town meetings

and conferences, as well as developing strategies to stimulate dialogues on college

campuses. This initiative is nonpartisan and fully funded by the Pew Charitable

Trusts. The goal is to educate the public on Social Security. As recently as March

21, 1998, the organizers held a 10-city teleconference. Speaking time was allotted

for both President Clinton and Representative Nick Smith.

In light of work being done by these organizations, I do not think there is a need

for the Dialogue Council. If, however, this Committee chooses to pursue it, I would

suggest that the proposed method for creating this body is problematic. Eighteen

private organizations would be vested with the right to nominate Council members.

Controversy will undoubtedly be created about the process for selecting the 18 organizations and reasons why others were not included. For example, three important

organizations are not mentioned: the National Committee to Preserve Social Security and Medicare; the National Council of Senior Citizens and the 2030 Center.

While most of us would agree that these organizations should take part in the debate, it is less clear why they should be given the authority to designate members

of the Dialogue Council. Furthermore, a council comprised of representatives of such
81

a large number of organizations that hold very diverse opinions about Social Security could easily get bogged down. A number of these organizations have already

stated diametrically opposed positions on Social Security from which they will not

budge.

Title I also proposes to establish an Internet Advisory Board and Dialogue Coordinator to assist members in establishing a system of communications in their districts. The Internet, while widely available to many of us, is primarily available to

those who have access to computers at work or at home. Many of the people most

in need of Social Security have few resources available for accessing the Internet.

Consequently, they could easily be left out of the education and discussion process

if the Internet is relied upon as a primary vehicle for communication.

Research cited in several recent news article indicates that the ownership of personal computers is correlated with income. The March 10, 1998 issue of the ‘‘Wall

Street Journal’’ stated that 80 percent of households with income over $100,000

have personal computers, while only 25 percent of households with incomes under

$30,000 have them. (This research was conducted by Computer Intelligence.) The

New York Times described research by International Data Corporation in its March

8, 1998 issue. According to this study, the average income of Internet users is

$70,400. Thus, communication through the Internet can miss many households this

Committee should reach. On the other hand, the approaches I previously discussed

create opportunities for people of various means to have access to individuals who

are discussing and explaining the issues.

TITLE II—BIPARTISAN PANEL TO DESIGN LONG-RANGE SOCIAL SECURITY REFORM

Title II of the bill would create a third body—the Bipartisan Panel to Design

Long-Range Social Security Reform—that would be given responsibility for designing recommendations for reform. The creation of another advisory panel does not appear necessary.

The National Commission on Social Security Reform was appointed under substantially different circumstances. The regular legislative process had gone awry. In

early 1981, both the ranking member of this Committee and the Social Security

Subcommittee Chairman had introduced bills to restore the solvency of the Social

Security program. Congressman Pickle constantly urged the Administration to

present a Social Security plan. In May 1981, the Administration did produce a plan,

but it was rejected overwhelmingly by a 96–0 vote through a Senate resolution. The

regular process had broken down, and a Commission was needed to restore shortterm solvency to the Social Security program.

The circumstances we confront today are different from those in 1981. There is

no reason the regular legislative process should not work. And while it is important

to begin taking action now to address the financial status of Social Security, there

is time to work through this process to achieve a bipartisan solution. I would like

to think that the members of this Committee can reach a bipartisan agreement on

eliminating the long-term imbalance in Social Security. This Committee is composed

of bright, capable people. The first votes on Social Security will be made by this

body. You are the equivalent of a board of directors who will have to determine how

to reform the program. Rather than distance yourself from the process, I would hope

you and the ranking member would engage the Committee in a series of events such

as hearings, seminars, and retreats. You are in the best position to gain access to

research and other information that is being generated on Social Security and to

hear in person from the American public. I am confident that you can do this without creating a panel.

In addition to the remarks I have shared on H.R. 3546, there are three points

I would like to make concerning the importance of Social Security and how to proceed on restoring solvency to it.

1. Social Security plays a crucial role in eliminating poverty among the elderly.

2. Congress can enhance the long-term solvency of Social Security by preserving

the budget surplus and using these funds to pay down the debt.

3. We should adhere to the President’s call to ‘‘save Social Security first.’’

IMPORTANCE OF SOCIAL SECURITY TO PEOPLE’S LIVES

Social Security is one of the most important programs affecting your constituents.

That this is so is shown by recent Census data on income from earnings, Social Security and other government programs. These data show how many elderly people

(as well as people of other ages) are below the poverty line before receipt of government benefits and how many remain poor after receipt of various types of benefits.

These Census data show that of all age groups in the population, it is the elderly

who depend on government programs to the greatest degree. Half of the population
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aged 65 and older—50.1 percent in 1996—would be poor if not for the benefits of

government programs. After counting government benefits, the poverty rate among

elderly people dropped to 9.2 percent in 1996.

Social Security is the primary reason that government benefit programs have

such a large impact in reducing poverty among the elderly.

• The Census data show that government benefit programs lifted 13 million elderly people out of poverty in 1996. Of this 13 million, some 11.7 million—or nine of

every ten elderly people lifted out of poverty by government programs—were lifted

out by Social Security.

Poverty rates have dropped consistently over the past two decades among people

65 and older, largely because of the increased effect of Social Security.

• In each year since 1979 for which data are available, about half of the elderly

population was poor before counting government benefits.

• After counting social insurance benefits (mainly Social Security) but not other

government benefits, the poverty rate among elderly people was 17.4 percent in

1979. By 1996, the elderly poverty rate after social insurance benefits are counted

had dropped to 12.3 percent. In other words, the proportion of elderly people lifted

out of poverty by Social Security has increased in recent decades.

• In 1979, two-thirds of the elderly people who would otherwise be poor—68 percent—were lifted from poverty by social insurance programs, mainly Social Security.

In 1996, three-quarters of those who would otherwise be poor—75.6 percent—were

moved out of poverty by these programs.

Social Security also is important to low-income elderly people because it contributes a large portion of their income. In 1995, Social Security made up two-thirds

of the total incomes of elderly people who were poor under the official measure of

poverty.

Social Security plays an important role in the economic well-being of the nonelderly, too. Some 3.5 million non-elderly adults and 800,000 children were lifted out

of poverty by Social Security in 1996.

PRESERVING THE FEDERAL BUDGET SURPLUS IS THE BEST WAY TO STRENGTHEN OUR

RETIREMENT SYSTEM

Given the significance of Social Security to the lives of so many people, the budget

surplus should be used in a manner that helps to address the long-term solvency

of the program. The use of the surplus that would best serve both Social Security

and the U.S. economy is to reduce the national debt.

• If the projected surplus in the unified budget is used to pay down the debt, national saving and investment should rise and produce a somewhat larger economy

over time; a larger economy would bring in more Social Security payroll tax revenue

without raising the payroll tax rate. A bigger economy also would enable us better

to afford modifications in the Social Security benefit and/or revenue structure needed to restore the system to long-term balance.

• Using the surplus to reduce the debt will drive down federal interest payments.

Funds that would otherwise have been spent on interest will be available to meet

future fiscal policy challenges of the baby boom generation as it retires and requires

Social Security and Medicare benefits.

• The budget surplus is temporary. If the surplus is preserved, the point at which

deficits return and the debt begins to rise can be delayed. Social Security and other

programs will not need to be reduced as much in the long term nor will tax burdens

on future generations need to be as great as they would if the surplus were not used

to bring down the debt now. If the surplus is used for other purposes, deficits will

return sooner and rise to higher levels.

• Shrinking the national debt will give us more room to borrow in the future

when the baby boom generation retires, if that should prove necessary.

If a portion of the surplus is used now to cut taxes or increase government expenditures, some of the surplus will be used for current consumption rather than

investment that can boost economic growth and income. The national debt and the

interest paid on it will be larger than they would if the surplus were preserved.

Higher interest payments will mean fewer resources for meeting other needs. Deficits will return earlier and the debt will begin to rise sooner if the surplus is forfeited, ultimately creating greater pressure to cut programs or raise taxes. A large

national debt will place the government in a weaker economic position to borrow

in the future if necessary to meet pressing needs when the baby boomers retire.

There are important national priorities that need attention. Preserving the surplus does not imply ignoring those needs. It means that those national priorities

should be considered under the regular federal budgeting rules. If increased expend-
83

itures are required to address a national need, other expenditures should be lowered

or taxes increased to finance those expenditures, as the budget rules require.

‘‘SAVE SOCIAL SECURITY FIRST’’

President Clinton has called on the nation to ‘‘save Social Security first.’’ The

President has asked Congress not to spend the projected budget surpluses until Social Security is restored to long-term balance. His call is designed to ensure that

if Congress and the Administration decide to use some or all of the surplus to shore

up Social Security, that option has not been foreclosed by Congress having already

used the surplus for other purposes. And as I argued earlier, preserving the surplus

has important economic benefits.

Social Security is an important component of income for many individuals and

families when reaching retirement age. That only 50 percent of individuals reaching

retirement have a pension is also a matter of concern. There is a need to bolster

those aspects of retirement security as well.

The establishment of individual accounts is, however, a fundamental change and

should be considered in the overall context of eliminating the long-term imbalance

that currently exists between income and benefits in the Social Security program.

Because Social Security is so important to the lives of low- and moderate-income

families, changes such as the establishment of individual accounts or other efforts

to strengthen individual savings or the pensions should be considered while, or

after, the long-term funding imbalance in the Social Security program has been

eliminated.

Individual accounts are established without addressing this long-term imbalance,

the nature of the debate could shift from restoring solvency to bolstering these accounts. Before (or at the same time) any steps are taken to create individual accounts or make other structural changes in Social Security, a bipartisan agreement

should be put in place to restore long-term solvency.

Some specific proposals have been developed by members of Congress that would

use the surplus to establish individual accounts. Mr. Kasich recently introduced his

bill, and Mr. Roth intends to introduce a similar measure in the near future. As

noted here consideration of such proposals before considering overall Social Security

reform would be premature and could be counter-productive. An assessment of those

proposals is beyond the scope of this testimony, but I would note that we have examined them and have identified a number of concerns with them.

CONCLUSION

Mr. Chairman, rather than creating a Council and Commission, I would urge that

you follow the regular order and the process already underway to reach a bipartisan

agreement on Social Security. A Council and Commission have the potential of being

counter-productive. These entities may distance you from the process of hearing

from the public and gathering information on Social Security. They may distract

from the normal legislative process. Requiring that six of the eight members of the

Panel to reach agreement including both the co-chairs, may not be possible.

Instead, you and the Members of the Committee can assist greatly in reaching

consensus by participating directly in the national dialogues that already are underway. In addition, through the Committee process (bipartisan hearings, retreats, and

seminars), you can educate yourselves first-hand on the crucial issues facing Social

Security and the impact that various proposals would have upon working and retired individuals and families.

Social Security is one of the most important programs affecting the American public. It lifts millions of people out of poverty each year. Given its importance to the

economic well-being of so many, we need to ‘‘save Social Security first’’ by using the

surplus to pay down the debt and by restoring long-term actuarial balance before

today on the final panel is Bob Myers, and for the benefit of the

Committee, let me just briefly tell you that this gentleman has

any actions are taken prematurely to restructure the program.

Chairman ARCHER. Thank you, Mr. Primus. Our last witness

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probably more knowledge in his head about Social Security than

any other human being in the country. He was one of the original

actuaries when Social Security was first established back in the

thirties, and has been a great source of expertise for this Commit-
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tee over the years. So, Bob, we’re delighted to have you back again

with us, and we would be pleased to hear your testimony.

STATEMENT OF ROBERT J. MYERS, FORMER CHIEF ACTUARY

AND FORMER DEPUTY COMMISSIONER, SOCIAL SECURITY

ADMINISTRATION; AND FORMER EXECUTIVE DIRECTOR,

NATIONAL COMMISSION ON SOCIAL SECURITY REFORM

Mr. MYERS. Thank you very much for those very kind words, Mr.

Chairman. It’s always a great honor and pleasure to testify before

this distinguished Committee.

The two initiatives proposed in the bill, the National Dialogue on

Social Security and a Bipartisan Panel to Design Long-Range Social Security Reform, will be extremely helpful, if not even essential, to solving the likely long-range financing problems of the Social Security Program.

Mr. Chairman, as you noticed, I used the term ‘‘the likely longrange problem.’’ Certainly, the intermediate cost estimate shows

that in the year 2029 the trust funds will be exhausted and that

thereafter the revenues coming in can support only two-thirds to

three-fourths of the benefit costs.

Now, as you well know, and as you pointed out so eloquently, estimates are subject to variation. There is a low-cost estimate that

shows there’s no problem in the next 75 years, or even beyond. It’s

based on assumptions which are reasonable, but in my opinion it’s

very unlikely that they will all materialize. Likewise, there’s a

high-cost estimate that shows an even worse picture than the intermediate estimate.

Nonetheless, despite the fact that there might not be a problem,

I think it’s very unlikely, and I think it is only prudent to take action now on the basis of the intermediate cost estimate, which,

hopefully, is the best estimate for the future.

The first initiative is to establish a national dialog through regional conferences and national Internet exchanges. This is most

certainly an excellent step, and the plans therefor in the bill are

well designed, including the procedures for obtaining the cooperation of national organizations so as to assure balance and widespread participation. This procedure will have two advantages.

First, it will enable policymakers to know what the views of the

public are on this very important and complicated subject, and second, it’s a good opportunity to educate people about all the complexities involved.

Although the use of the Internet for dialog will produce valuable

results, it should be kept in mind that those who use the Internet

are a select class of citizens, and their views are not necessarily the

same as those of the citizenry at large.

The second initiative is to establish a panel which will operate

in much the same way as did the Greenspan Commission, which

Senator Dole described very eloquently this morning. The Greenspan Commission did have large elements of cooperation, and there

was a reasonable consensus of views, not quite on every subject.

But I think on the whole, as Senator Dole said, the results of the

Greenspan Commission have been quite good. Certainly, in the

past 15 years, there have been no financial crises in the way some
85

people predicted that there would be after the 1983 act was enacted.

Of course, it’s quite true, as the distinguished Chairman has

said, that the actuarial estimates made for the long range in 1983,

as viewed now, apparently, were too optimistic. However, in the

first 15 years, the actuarial estimates were quite closely on target.

But there are signs of deterioration, and I certainly think that consideration of the present intermediate estimates will be necessary.

Hopefully, they will be closer to the mark than the estimates made

in 1983, which I think were not made with a political approach, but

rather they were the best estimates that the actuaries could make,

and it just turned out that they were too low.

There are two important differences between the panel and the

Greenspan Commission—and both, I think, are advantages to the

proposed panel. For one thing, the panel will be truly, equally bipartisan, with completely equal representation of the two political

parties, whereas the Greenspan Commission did have a weighting

a bit toward one party, namely the Republicans. There were eight

Republican and seven Democratic Members, and two of the Democratic Members were named by President Reagan. Nonetheless, I

think that Chairman Greenspan ran the Commission in a very fair

and equitable way, and in the end there was good cooperation between all parties involved.

The second difference is that the mandate in the bill for the

panel is to come forth with a single set of recommendations. I think

this is highly desirable if it could be done. The Greenspan Commission almost had a complete concurrence. Many of the provisions everybody agreed on, even though they didn’t necessarily like them

all, and there were left two alternatives at the end. But it sought

to do this, although there was no mandate to do it.

So, in summary, Mr. Chairman, I think the bill that you have

developed along with two other Members of the House is an excellent beginning to solving this problem. I think that it probably is

essential to do this, and I most certainly hope that the bill will be

enacted, more or less in the form that you have introduced it.

Thank you, Mr. Chairman.

[The prepared statement follows:]

Statement of Robert J. Myers, Former Chief Actuary and Former Deputy

Commissioner, Social Security Administration; and Former Executive

Director, National Commission on Social Security Reform

Mr. Chairman and Members of the Committee: My name is Robert J. Myers. I

served in various actuarial capacities with the Social Security Administration and

its predecessor agencies during 1934–70, being Chief Actuary for the last 23 of those

years. In 1981–82, I was Deputy Commissioner of Social Security, and in 1982–83,

I was Executive Director of the National Commission on Social Security Reform

(Greenspan Commission).

The bill developed by the distinguished Chairman of this Committee, jointly with

the distinguished Chairman of its Subcommittee on Social Security, Mr. Bunning,

and Congressman Kasich, contains two initiatives which will be extremely helpful

in solving the likely long-range financial problem of the Social Security program

(Old-Age, Survivors, and Disability Insurance).

Digressing a moment you will notice that I said the ‘‘likely’’ problem. Despite the

prophets of gloom and doom who assert that the program as now constituted is absolutely financially unsupportable, I would point out that, although the intermediate-cost estimate shows serious problems 20–30 years from now, the low-cost estimate shows no problems in the next 75 years, and even beyond then. The low-cost

estimate is based on reasonable assumptions, but it is not very likely that they will
86

all occur. Thus, it is only prudent that program changes should be made soon, even

though they may be put into effect in a deferred, gradual manner beginning 10–15

years hence.

The first initiative is to establish a National Dialogue on Social Security through

regional conferences and national Internet exchanges. This is most certainly an excellent step, and the plans therefore in the bill are well-designed, including procedures for obtaining the cooperation of national organizations so as to assure balance

and widespread participation. This procedure will have the dual advantages of obtaining the views of the public on various aspects of the matter and, at the same

time, educating the public about this complex subject. Although the use of the Internet for a dialogue will produce valuable results, it should be kept in mind that those

who use the Internet are a select class of the citizenry, and their views are not necessarily typical of the population as a whole.

The second initiative is to establish a Bipartisan Panel to Design-Long-Range Social Security Reform. This Panel would operate, in many ways, in the same manner

as did the Greenspan Commission in 1982–83. The differences for the Panel are, in

my view, improvements. Digressing, I might say that the Greenspan Commission

was, to a considerable extent, a great success, as evidenced by the fact that the Social Security program has had very favorable operations in the past 15 years, just

about the same as had been estimated, and will likely have no cash-flow problems

in the next 15–20 years.

The major difference between the roles of the Panel and the Greenspan Commission is that the Panel is given the specific assignment of designing a single set of

recommendations to restore the long-range solvency of the program. With the cooperation and good will of its members, it should be able to accomplish this. It is

likely that any package of changes which is developed will contain some provisions

that some members will not like, but within the charge of designing a single set

of recommendations, all members will likely consider the aggregate result as the

ruling element.

The Greenspan Commission attempted to obtain such complete consensus, although this was not part of its charter, and came reasonably close. However, what

happened was that there was, in essence, complete agreement on all recommendations except on what might be said to be the balancing item. One group wanted to

raise the payroll tax rate over the long run, while the remainder wanted to reduce

benefit costs by increasing the Normal Retirement Age. So, all members agreed to

let the decision up to Congress (which chose the latter approach), and whichever

way that the decision went, they would support it. This procedure is in sharp contrast to the 1994–96 Advisory Council on Social Security, which broke up into three

irreconcilable groups, with only a few recommendations in common.

Another difference between the Panel and the Greenspan Commission is that the

Panel will have the advantage or the availability of the wealth of information as

to the views of the general public which are developed by the National Dialogue on

Social Security.

Still another difference between the Panel and the Greenspan Commission is that

the Panel is completely evenly bipartisanly divided. On the other hand, the Greenspan Commission had a slight excess of one party over the other (actually, 8 to 7).

However, I believe that it is fair to say that all members were equitably treated,

and there was a fine spirit of cooperation in seeking consensus to solve the problem.

Finally, I have suggestions of a minor nature as to how the bill might be changed

to improve the procedures with regard to both the National Dialogue and the Panel.

As to the National Dialogue, for which 36 individuals are to serve on the Dialogue

Council, selected from 54 individuals nominated by 18 designated private organizations, it is not clear whether there should be approximately equal numbers of men

and women (as there are to be equal numbers in each of three year-of-groups). Also,

it would appear that there will need to be informal cooperation between the private

organizations in advance and later between the three appointing persons so that no

individual is sought to be appointed more than once. Also, I believe that there

should be nominating private organizations from two more fields—farmers and students.

As to the Panel, it would seem that the two Co-Chairs should be of different political parties. Under the bill as now written, they are both to be appointed by a group

consisting of the Speaker, the Senate Majority Leader, the President, the House Minority Leader, and the Senate Minority Leader. The desired result would more

clearly be obtained if one Co-Chair were to be appointed jointly by the Speaker and

the Senate Majority Leader, and the other Co-Chair were to be appointed jointly by

the President, the House Minority Leader, and the Senate Minority Leader.
87

In summary, I strongly support this bill and hope that it will be enacted quickly.

If this occurs, it will be a most important element in the effort to restore long-range

grateful to all three of you for your contribution to this discussion.

financial soundness to the Social Security program.

I must admit there is no perfect way to get at this problem, and

Chairman ARCHER. Thank you, Mr. Myers, and the Chair is

f

so, understandably, people who are very genuine that want to resolve the problem may have disagreement as to how the best approach can be designed. I only hope we do not spend a long amount

of time arguing about the design of the table before we can begin

negotiations. So often that occurs, and it would be my desire that

we try to shorten discussions about the design of the table and

move on to the substance of trying to reach a bipartisan

intergenerationally fair solution to the Social Security situation.

And I yield to Mrs. Johnson.

Mrs. JOHNSON. Thank you, Mr. Chairman. I do think the bill

makes a very good proposal, because in today’s world you can’t—

the discussion has to be at a bigger table than the table of the Congress. While you could do that at the time the Greenspan Commission worked, and then come to a conclusion and educate people

about that, in controversial areas in today’s world you simply have

to find a way of stimulating a broader discussion in America where

more people have more input, where people of all ages and circumstances and points of view have a chance to listen to each

other. And from that discussion I believe we will develop a far better understanding in America of both the seriousness of the problem and of our ability to solve it, and I am absolutely confident we

can assure the future of Social Security.

But Wendell, one comment you made kind of interested me—

your concern about using the surplus for individual accounts.

You’re right when you say that 50 percent of retirees have no additional pension income, and if you’re retired on just Social Security,

and if you were a lower earner and you’re retired on the minimum

Social Security benefit or even slightly above that, you’re living in

New Britain, Connecticut, on $6,000 or $7,000 a year.

Now that’s a lot of women, and that’s going to continue to be a

problem because people are going to continue to retire on rather

low incomes. And it’s the very low-income people who worked for

small businesses who are unlikely to have additional pension benefits.

And so this idea of immediately starting accounts for everyone so

that through compounding they will have some additional benefit,

I think is very exciting. I don’t know yet whether it’s the right

thing to do, but compounding is so important that in a sense we

can’t afford to wait. Also, we do know that we cannot, even if we

shoreup Social Security and do everything that’s required to make

it a sound system that can deliver on its promises—and I believe

we’re going to do that—that’s still not enough. You can’t live on the

minimum Social Security benefit in today’s world, with medicines,

and so on that are really necessities in life.

I think to acknowledge that we have to solve the Social Security

problem, but that that isn’t going to be enough, is important, and
88

if we use these surplus funds to create these individual accounts

over and above Social Security and outside of Social Security, the

people they’re going to help the most are people who work for small

businesses that don’t provide any pension benefit plans.

And since government, frankly, has been a big actor in driving

out pension plans that small businesses could afford—and we all

know we did it, through super regulation—and we’re trying to get

it back in now. We passed the SIMPLE plan; we’re going to pass

the SAFE plan. We’re working on it. But this would immediately

inject into the system some retirement possibilities that aren’t

there now for the very people who need them the most, so I hope

you will help us think through this issue, rather than just rejecting

it.

Mr. PRIMUS. I didn’t mean to reject it. I’m very concerned about

the individual savings. You’re absolutely correct that these other

aspects of the retirement system ought to be bolstered as well, but

I was really making two points. The first point is that I really do

believe that reducing the national debt increases national savings

more than the establishment of the accounts. And the best thing

we can do right now, while we have this year of dialog and debate,

is that we use those surpluses for measuring our national savings.

Don’t spend the surplus, either on a tax cut or a spending increase.

And the second is a political point, not an economic point, and

that is that I think we should restore Social Security solvency first,

and maybe at the same time consider the establishment of individual accounts. I think that should be considered, but I don’t think

you should establish the accounts before you restore the solvency.

They go hand in hand.

Mrs. JOHNSON. Thank you.

Chairman ARCHER. Mr. Cardin.

Mr. CARDIN. Thank you, Mr. Chairman. First, let me thank all

three witnesses for their testimony. It’s certainly very helpful as we

start this National Dialogue on Social Security.

Mr. Primus, if I understood your point about the surplus, I think

we’re in agreement. The President has suggested that we do not

spend the surplus until we’ve come out with a proposal concerning

Social Security. You’re suggesting the surplus be used to pay down

the deficit. I think that’s the same idea; we just have a clarification. We’re saying——

Mr. PRIMUS. We’re saying the same thing.

Mr. CARDIN. And Mr. Myers, I particularly appreciated your observations about the 1983 reforms. They were successful. The system has been working well. Social Security has accomplished its

purpose of providing income security for our retirees. Not everything we hoped to do in 1983 was accomplished, but the program

has been working well and people have been protected under the

system.

And now we need to take a look at changes that are current

today that we didn’t know about in 1983. There are some people

entering the work force today that have retirement options available that weren’t present in 1983. The demographic changes in our

country make it very clear that the number of people in the work

force are going to continue to drop compared to the number of people receiving Social Security, so it seems to me that this is just a
89

continuation of the debate that took place in 1983 and that we are

looking for a way to make sure that the objective of the Social Security system to protect the income of the people who are retired

in this country is maintained. So, I just look at it as continuing the

work that you have been doing over your lifetime, and I really

thank you for that.

I think it’s key, as we look for the reforms that are going to be

needed in Social Security—and there are a lot of different suggestions that have been made—I agree with the Chairman. I think

right now it’s more important for us to figure out a bipartisan process than to look at any specific solution. I have my favorite, and

I’d be glad to review it with you and go over it, review it with the

Chairman and get his views on it, and maybe even get his support

for the changes that I would like to see in the Social Security system.

But I know that it’s going to need a lot more discussion and debate because it has a lot of rough edges on it, and I’m sure there

are going to be some problems that people are going to bring to my

attention. But it’s only through this type of debate and discussion

that we’re going to be able to continue to achieve the objectives of

Social Security and make sure that it’s going to be available for future generations, and that’s what this is about.

The President—and Mr. Primus, I agree with you—the President’s National Dialogue is good. We don’t want to do anything

that will compromise the national debate, getting people involved

around the Nation in this debate, particularly young people. It’s

their system that we need for the future. I will be having a forum

next week on a college campus on Social Security because that’s

where the debate really needs to be engaged, with our young people, so they understand what’s at stake.

But I think the Chairman has brought up a very good point. We

need a mechanism that ultimately will allow us in a bipartisan way

in Congress to deal with this issue. We can’t substitute the Committees. We can’t substitute the work of Congress, but it’s got to

come to us in a way that we can receive it in a bipartisan way, that

it has the credibility.

And although I’m sure that we can come up with improvements,

and so forth, to any mechanism that has been suggested, I would

just encourage all of you to work with us so that the good work

that the administration is going forward with, the good debate that

we’ve started, that we understand that Congress is a very political

body. And if we don’t figure out some way to hand off this issue

to Congress in a bipartisan way, then all this good work and all

this good debate may go for naught.

So, any suggestions that you have, I certainly—particularly Mr.

Primus. You’re very sensitive to the political environment here on

this Committee, so any suggestions you have that we could make

sure that we carry out those objectives, we certainly would appreciate it.

Mr. MYERS. Mr. Cardin, I most certainly agree with you that the

action that was taken in 1983 was quite successful. But no matter

what is done, if action is taken now to restore the apparent longrange solvency of the system, at some time in the future further

adjustments will be needed.
90

Mr. CARDIN. Right.

Mr. MYERS. And perhaps it will be in the other direction. We

may find that what we’re doing today would provide more financing

than needed. As I recall, back in 1983, people were willing to raise

the normal retirement age, not merely to 67; they would have been

willing to raise it to 68, but it didn’t seem to be needed at the time.

We knew then, of course, that the baby boomers were coming

along. That’s why cost estimates should be made for long periods

of years, like 75 years, as the distinguished Chairman said. It’s

quite possible that the future experience will be more favorable

than estimates made today, and in that case action can be taken.

For example, if for some reason longevity does not improve as

rapidly as the actuaries now assume, and if the retirement age is

raised, later it might be found that it will not need to be raised

that far. Of course, that’s much more pleasant, to freeze the retirement age or lower it some than to take steps going in the other direction. I think that over the years and for all time to come, adjustments will need to be made in this system.

Mr. CARDIN. The error that was made in 1983 was that we expected the change to last for 75 years. There’s nothing we could do

here in Congress, ever, that will allow a program to go without

modification or change for that long a period of time, nor is it

healthy for us to have changes that are so permanent in nature for

such a long period of time. We should have been more realistic in

1983, recognizing that by the end of the century we would need to

look at the system again, and that’s what we need to do.

Thank you, Mr. Chairman.

Mr. PRIMUS. Can I make one comment, and that is that I think

the task that confronts Chairman Archer and Chairman Bunning

is much more difficult than the task that confronted Chairman

Rostenkowski and Chairman Pickle. As you heard in testimony

earlier, we were 6 months away from the trust fund’s not having

sufficient dollars to pay in 1983.

Right now, regardless of what set of assumptions the actuaries

use to make their projections, it’s still a long time in the future,

and I think reaching the political consensus and bringing the two

parties together is going to be a much more difficult task. And I

think we need to stimulate the dialog; the American public has to

be involved in that.

And you, the Committee, are going to have to also engage in—

I would argue for retreats and some other—where you can bring

in experts and do all of those kinds of things to educate the Committee because there are only seven Members of this Committee

that were around during the 1983 debate.

Chairman ARCHER. Mr. Primus, I think your comments are exceedingly well taken, and from a practical standpoint, I agree completely with them. And that’s why I mentioned in my preliminary

remarks that this was going to be a real test of democracy, as to

whether we could make difficult decisions when we’re not staring

oblivion in the face, but where it is 30 years down the road.

It also is another reason why, after examining all of the alternatives, I decided that a commission—and a smaller commission

than what we had in 1983—would be the best opportunity to focus

on this issue and attempt to drive it in a way that would reach con-
91

sensus, that the Congress could—although not accepting automatically—be put in a position to where we at least would have to consider it.

It seems to me one of the difficulties we have today is that all

of the outside panels, all of the outside groups that have looked at

this issue have come forward with extremely diverse suggestions as

to what we ought to do. There is no consensus.

The recent Social Security Advisory Council was split almost onethird, one-third, one-third. Well, that doesn’t give very much direction to the Congress of the United States. It simply creates more

confusion and more opportunity for conflict within the political fabric of the Congress.

And one of the things we put into the legislation to create the

Commission is they would be charged with coming back with one

consensus recommendation. And it almost would be like a jury. A

jury cannot come back divided and have a verdict in a regular litigation case in this country, and they are put under a responsibility

to attempt to resolve their differences and come back with a uniform verdict. And I see this Commission as being under a similar

charge, if they need to work this out and come back with a strong

consensus, rather than divided one-third, one-third, one-third,

which I don’t think helps the process.

But I do agree with your views that this is not going to be easy

to do because we’re not right at the edge of the cliff.

Mr. McCrery.

Mr. MCCRERY. Thank you, Mr. Chairman, and thank all of you

for your testimony.

Mr. Chairman, I’d like to make a comment about the previous

panel, since we had to go vote before I had a chance to question

the panel, and it’s very simple. One of the members of the previous

panel had said that Speaker Gingrich had endorsed the Kasich bill

that was dropped today, and I don’t believe that’s the case. The

Speaker has not endorsed that bill, and so I just wanted to clear

that up.

Mr. Primus, when you say that we ought to use the surplus to

buy down the debt, what surplus are you talking about? Are you

talking about just this year’s surplus, or are you talking about the

next 5 years or the next 10 years as projected under current conditions? Just define for me what you mean by the surplus.

Mr. PRIMUS. Well, I would like to see you draw down the national debt for a long period of time. Gwen, the demographics of the

country right now and our low national savings rate—that really

is the best economic solution, if you will, to expanding and growing

our economy.

But I think at the same time I would like to see this Committee

and the administration and Congress come to a solution that would

restore solvency in the Social Security Program, as well as in the

Medicare Program. Right now, demographics is destiny. We know

that very soon a lot more people are going to be reaching age 62

and 65, and I think we should be taking a very prudent course

right now in recognizing that fact and drawing down—reducing our

national debt.

Mr. MCCRERY. Well, let me see if I understand you. Are you saying we should buy down the debt with the surplus until we figure
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out an overall solution for Social Security, and if necessary—then—

we could use the surplus to shoreup the Social Security system? Is

that what you’re saying?

Mr. PRIMUS. Yes. The surplus exists today because, as the Chairman said in front of the other panel, Social Security revenues exceed Social Security outgo and that excess is loaned back to the

general fund. The rest of government is currently not in balance.

We have not reached a balance in the rest of government, and I’m

basically saying you should continue to apply your budgetary rules.

While there are still important national priorities that need attention, you should still continue the pay-as-you-go process that was

established in the late eighties. And that’s a very good process in

terms of budget discipline.

Mr. MCCRERY. OK, so you’re not averse, then, to using any surplus for the next 10 years to shoreup the Social Security system,

to apply that surplus to a fix, a long-term fix for the Social Security

system. Is that correct?

Mr. PRIMUS. That’s correct. I have a little problem in the sense

that that surplus exists because Social Security is in surplus, and

so it’s kind of like double investing, if you will, if we took the surplus that exists because of Social Security and then use it to help

it again. It doesn’t sound quite right to me.

Mr. MCCRERY. Yes, I understand your discomfort there, but we

don’t know what the solution is to Social Security. As the Chairman pointed out, there are a variety of suggestions for fixing the

systems, and some of those, if not most of those, probably require

some sort of transition funding to get us from where we are now

to the new system.

So, while I share your discomfort with spending money that we

don’t really have in a sense, it seems to me we have an opportunity

now with the surplus being generated, thanks to the fiscal policies

that have been adopted for the last few years, that we have an opportunity to finance this transition from where we are now to a

new system, which we hope would, with the help of actuaries, be

sound for as far as the eye could see. And it seems to me that that

would be a reasonable investment to make as a society.

So, I think that if we can reach consensus—and that’s a big if—

but if we could reach consensus or even reach a majority and get

a President to sign a majority will of the Congress for an approach

to solving the problems in the Social Security system, then we

might ought to spend that surplus. Because in the long run, we

would make more than we would spend in the short run, if you get

my meaning.

Mr. PRIMUS. If I could comment on that, I guess I’m not quite

willing to buy the notion that Social Security is fundamentally

broke or unsound. We need to restore the imbalance between income and outgo. But it’s like, if I may use a sports analogy—since

we just got through March madness. There are different components to our retirement system. And Social Security as one component of that system has inflation protection, it’s universal, it’s a defined benefit, and so forth. You don’t need or expect each component of the system to have the same attributes. Just as we don’t

expect the same attributes of a point guard as the center, we do

not need each component of the retirement system to be extended.
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So, the fact that we have a lower rate of return in the Social Security system—we have other attributes that make up for that. For

each American there ought to be Social Security and individual

savings and pension, as well as Medicare—the health side of the

retirement system. And so because Social Security is so important

to low and moderate Americans, I think the imbalance that exists

in Social Security needs to be eliminated.

But when you say transition to a new system, I’m not convinced

we need a transition to a completely different system. I think we

can restore Social Security, work on those other components—try

to increase the coverage rate in the pension system, try to encourage Americans to save. Neither one of those components are completely broke and each one could use some incremental improvements.

Mr. MCCRERY. Well, if I might respond, Mr. Chairman, for just

a moment. I don’t mean to say a completely new system, vastly different from what we have now. But any change would be a new

system, and that could be anywhere from just a little tweaking

here to a completely new system. I don’t know where that’s going

to fall, but most of the suggestions, many of the suggestions that

have been made for changing the system require some kind of transitional funding.

And I think you will admit, Mr. Primus, that if we put every bit

of the surplus on paper into financing future Social Security benefits, it would not solve the actuarial problem that we have, at least

the surpluses that are now projected. Is that correct?

Mr. PRIMUS. I think that’s correct, yes; especially if you use the

Congressional Budget Office.

Mr. MCCRERY. So it doesn’t make much sense, does it, to stick

our heads in the sand and say, ‘‘Well, let’s just use the surpluses

to finance Social Security and not worry about making any changes

to the system.’’

Mr. PRIMUS. I’m not arguing for sticking our heads in the sand.

I’m saying——

Mr. MCCRERY. So you’re not against changing the system?

Mr. PRIMUS. No——

Mr. MCCRERY. OK.

Mr. PRIMUS [continuing]. It needs to be changed, and there are,

unfortunately, I think, only three big ways of doing that, and that

is reducing benefits, increasing taxes, and maybe investing some of

the balances in securities and trying to get a higher rate of return.

Those are really—there are permutations on that, but there really

isn’t any other way of solving this imbalance.

Mr. MCCRERY. I think you’ve got it. Thank you.

Chairman ARCHER. Any——

Mr. SCHULTZ. Mr. Chairman.

Chairman ARCHER. Yes, Mr. Schultz.

Mr. SCHULTZ. Just a general comment, maybe before closing. You

said Americans want to learn more and share their views with

their elected officials. And I think when you said Americans, you’re

talking all Americans, you’re talking all generations. I’m sure that

my 14 grandchildren and even my 4 great-grandchildren might

want to have a voice in what happens, and I think you have set

up a plan that will permit these things to happen.
94

I think we have to be sure we have all avenues open to them,

that we hold these meetings at times when they can get there, that

we use all means. I think it was pointed out by Mr. Primus that

the Internet will only provide an opportunity for certain segments

of the population. As we go forward, I want you to know that AARP

looks forward to working with the President and Members of Congress on a bipartisan basis to carry out this national dialog. And

as our own initiatives go forward, if there is any information that

we glean from them that might be useful to the Dialog Council or

to the bipartisan panel, we’d be very happy to share that with

them.

Chairman ARCHER. Mr. Schultz, thank you very much, and

thank you for your participation today. We look forward to working

with AARP and many other groups and sources of information and

expertise in trying to work through this problem.

Mr. Cardin, do you have any further questions?

Mrs. Johnson.

Thank you very much, gentlemen. Have a good day. The Committee will stand adjourned.

[Whereupon, at 2:26 p.m., the hearing was adjourned, subject to

the call of the Chair.]

[Submissions for the record follow:]

ASSOCIATION OF PRIVATE PENSION AND WELFARE PLANS

1212 NEW YORK AVENUE, N.W., SUITE 1250

Washington, D.C. 20005

The Honorable Bill Archer

Chairman

Committee on Ways & Means

U.S. House of Representatives

Washington, D.C. 20515

Dear Mr. Chairman:

The Association of Private Pension and Welfare Plans (APPWP) commends you

and Reps. Kasich and Bunning on the introduction of H.R. 3546, the ‘‘National Dialogue on Social Security Act of 1998.’’ APPWP is prepared to assist in any way in

the passage of this important legislation and, once enacted, to ensure the successful

implementation of of its provisions. As you know, APPWP is the national association

representing employers on the full range of employee benefit matters. Our members

either sponsor directly or administer retirement and health plans covering more

than 100 million Americans.

Certainly, Social Security reform is one of the most important issues facing the

nation. Accordingly, it is vital that as many Americans as possible be fully engaged

in the discussions and debate that will lead to the changes that Congress and the

President will consider. Your call for an official National Dialogue on Social Security

and for the establishment of a Bipartisan Panel to Design Long-Range Social Security Reform is precisely what must be undertaken before either the nation or lawmakers can make informed decisions that will enjoy the support of the American

public.

APPWP applauds your leadership and foresight in establishing both a structure

and a timetable for informed decision-making by the general public and those

charged with the responsibility for designing reform proposals.

Naturally, APPWP will gladly assume our responsibility under H.R. 3546 to nominate individuals for consideration for the Dialogue Council. In addition, throughout

the entire Social Security reform process, APPWP will provide whatever assistance

possible to you and your colleagues as you undertake this vital initiative.

Sincerely,

JAMES A. KLEIN

President
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Statement of Center for the Study of Economics

We need an expert panel to discuss the real problem posed by the coming tsunami

of Social Security claimants, and the Social Security payroll tax is already very high

(most Americans pay more in payroll tax than they do in income tax).

Social Security privatization is one way to go, but realistically it could only cover

part of the Social Security cost. Social Security will still have to find a tax source

for its revenue. Both payroll and income taxes are high and burden the economic

growth needed by poor people.

Rather than tax producers, Social Security should tax the locational value of land

instead.

(1) If Social Security taxes production, production is discouraged. But if Social Security taxes locations, there won’t be fewer locations (impossible) and we tax land

into fuller use, thereby creating jobs and economic growth.

(2) Most voters will pay less in taxes if Social Security taxes the locational value

of land rather than production. That’s because most voters (especially the poor) own

very little locational value (otherwise they wouldn’t be poor).

All studies have shown that a tax on the locational value of land fully substantiate the above benefits. It is endorsed by literally hundreds of urban experts and

by eight recent American Nobel Prize winners in economics.

The Center for the Study of Economics has had experience administering such a

tax and offers to help the panel pro bono if called upon.

tion’s federal retirement income security system: Social Security. I greatly appreStatement of Charles G. Hardin, President, Council for Government Reform

Mr. Chairman, thank you for allowing me to testify for the record about our naf

ciate this opportunity to share the views of our 350,000 members with the Committee.

My name is Charles G. Hardin and I am President of the Council for Government

Reform (CGR). CGR is a non-profit citizen lobbying organization that seeks to encourage greater responsiveness by, and an overall reduction in the size and scope

of, government at all levels. CGR advocates a lower tax burden, improved financial

security for our Senior Citizens, and a less costly system of government for ourselves and future generations.

CGR would like to thank Chairman Archer and the members of the Committee

on Ways and Means for turning their attention to the thorny problem of the longterm solvency of Social Security. Chairman Bunning of the Subcommittee on Social

Security deserves much credit too. Because of his leadership, the Subcommittee has

held eight important hearings discussing the long-term problems with Social Security. CGR believes that these hearings have contributed greatly to the public education process and looks forward to future hearings in the series.

For the more senior members of the Committee on Ways and Means, I am sure

that anytime the words ‘‘Social Security’’ and ‘‘reform’’ are mentioned in the same

sentence, you may have flashbacks to former Chairman Dan Rostenkowski and the

spot of trouble he had with some seniors over catastrophic coverage. It takes a special type of courage to brave the slings and arrows that will be fired over this issue

and I would like to make it clear that in taking up this cause, you are showing the

courage necessary to lead effectively. We thank you for that courage.

CGR would also like to thank Speaker Gingrich for coming to this panel today

and lending his powerful and eloquent voice to the proceedings. CGR is pleased that

he has joined the chorus calling for reform. The Speaker is well known for his vision

and his determination in fulfilling that vision. CGR is confident that in the absence

of partisan politics, the President, the Speaker, and the Majority Leader can work

together to craft a long-term solution to the Social Security crisis that will increase

rather than decrease the standard of living for all Americans.

As we are all aware, Social Security is a vital program for the millions of Americans who currently receive benefits and for the millions more who are counting on

Social Security income for a secure retirement. Therefore, when the current Social

Security structure is threatened by the increasing numbers of retirees, with fewer

workers to support them, and with stagnant wages to tax, it is a problem that Congress and the American people must address while there is still time to fashion a

pain-free and politically possible solution.
96

No one seriously denies Social Security’s lack of long-term viability. Estimates

range from the year 2006 to 2030 as to when the Trust Fund will exhaust its surplus and begin running at a deficit. At that time, we will face the Hobson’s choice

of massive benefit cuts or staggering tax hikes.

Benefit cuts would cripple millions of seniors who have not had the ability to save

for their own retirement because they trusted Social Security’s promises. And tax

hikes would hurt workers already burdened with the challenge to rear their families

while struggling to make enough after-tax income to support themselves, let alone

provide for their futures. Clearly, this scenario is a recipe for economic stagnation

and decay.

Fortunately, the avenue of escape from this dreary scenario lies readily at hand.

Congress must burst the old mold of tax hikes and benefit cuts and cast a new mold

by increasing the rate of return on dollars invested in Social Security. The exact details of any plan will require much discussion and debate over the next year, but

I would like to outline the most important principles necessary to save Social Security: • The federal government must stop raiding the Social Security Trust Fund to

pay for current spending. The feeding frenzy on the temporary Social Security surplus simply creates more debt. Congress should also dedicate a substantial portion

of any federal budgetary surplus to repay the money owed to the Trust Fund. • Any Social Security reform must not increase payroll taxes and must not cut

benefits. These traditional solutions have only deepened the problem by slowing economic growth and fueling the federal government’s free-spending ways. • Congress must facilitate an increased rate of return on Social Security investment dollars. We need to create wealth through investment, not subsistence through

the indebtedness of our grandchildren. The best strategy would require individuals

to place Social Security taxes directly into some form of personal retirement savings

accounts (PRSAs). From these accounts, individuals would then invest their savings

in various investment vehicles, such as stocks, bonds, and mutual funds which will

return enough income to ensure a safe and secure retirement for most Americans.

Not only would individuals benefit directly, but so too would the entire economy.

Regarding the aforementioned principles, CGR is pleased that Speaker Gingrich

endorsed the reforms embodied in Representative John Kasich’s H.R. 3456, ‘‘The

Personal Retirement Savings Account Act of 1998.’’

H.R. 3456 allocates 80% of any general fund surplus to Personal Social Security

Plus Accounts for all covered workers in that year. This is a step in the right direction and I applaud Rep. Kasich’s ingenuity and courage in offering a workable bill

that would give every working American some ownership and control over their retirement income.

H.R. 3456 would ensure that most of the surplus money raised by the current

payroll tax is spent on retirement programs, as was originally intended. When Congress reformed Social Security in 1983, it increased payroll taxes. But Congress

overestimated the money it needed to pay to retirees and the Social Security Trust

Fund began to run a large surplus. Instead of returning this money to the taxpayers

or investing it, Congress spent it and replaced it with non-negotiable U.S. Treasury

Bonds that can only be repaid with tax dollars. As of 1998, the U.S. Government

will owe the Social Security Trust Fund more than $700 billion.

For Fiscal Year 1998, the unified budget could run a surplus as high as $40 billion. But the calculation of this surplus includes nearly $100 billion taken from the

Social Security Trust Fund. In a sense, H.R. 3456 repays some of the money owed

to Social Security Trust Fund because that money is used for retirement purposes.

Also, H.R. 3456 uses the remaining 20 percent of the unified budget surplus to pay

down the national debt which also helps to repay the Social Security Trust Fund.

But notwithstanding my praise for Representative Kasich=s proposal, CGR views

H.R. 3456 only as a small part of the solution to the overall problem with Social

Security. Clearly, H.R. 3456 would improve the Social Security long-term deficit situation. But it is only a supplement, not a solution.

American taxpayers cannot continue to pour 12.4 percent of their earnings into

a public investment program that already provides a negative rate of return for far

too many future retirees. Undoubtedly, maintaining the status quo will lead to a

lower standard of living. To reverse this course, Congress must allow Americans to

invest more of their FICA tax dollars in investment instruments where they can

achieve greater rates of return.

That is why CGR supports H.R. 3546, The National Dialogue on Social Security

Act of 1998 and is pleased that the Committee on Ways and Means is holding this

hearing on the bill. Because a plethora of options purport to solve the long-term

problems associated with Social Security, CGR sees great value for members of Congress, and for the public at large, for a blue-ribbon panel of experts to distill the
97

best portions of these plans into a working model for Congress and the public to

consider. Presumably this model would then serve as the consensus starting point

to craft final legislation for the House Committee on Ways and Means and the Senate Committee on Finance.

Inevitably, in the give and take of legislative politics, this plan, like any other

plan, would be modified to reflect the needs of practical politics. Establishing a baseline to start the dialogue seems like as good a place to begin this daunting task.

CGR also believes that the panel and the national dialogue established by H.R.

3546 is more representative of the debate at large than the dialogue hosted by the

American Association of Retired Persons and the Concord Coalition. The townhall

meetings in which President Clinton will participate have the potential, given the

weight of his office, for focusing public attention on the debate. For this we commend him. However, CGR is very concerned that some of the more thoughtful privatization proposals will not receive a fair hearing in the dialogue they sponsor. On

the other hand, the dialogue established by H.R. 3546 would include all points of

the political spectrum, from those who advocate an expansion of the current Social

Security program to others who advocate 100 percent privatization.

Mr. Chairman, thank you for this opportunity to discuss long-term Social Security

reform. On behalf of our 350,000 members, I look forward to working with you and

all the other members of the Committee on Ways and Means during the next several months to ensure a fair and equitable retirement and safety net for all Americans in the future.

NATIONAL

f

ASSOCIATION OF MANUFACTURERS

1331 PENNSYLVANIA AVENUE, N.W.

Washington, DC 20004–1740

The Honorable Bill Archer

Chairman

Committee on Ways and Means

1236 Longworth House Office Building

Washington, D.C. 20515–4307

RE: STATEMENT FOR THE RECORD

Dear Chairman Archer:

The National Association of Manufacturers commends the Ways and Means Committee for scheduling a hearing on the merits of establishing a bipartisan panel of

experts to design Social Security reform. In addition, the NAM applauds the attention that the Committee is giving to the vital issue of engaging the American public

in discussion of the problems facing Social Security and of equitable solutions.

The NAM has taken a lead among trade associations in calling for fundamental

reform of the Social Security system. We recognize that the system directly affects

all working Americans, their dependents, and those in or approaching retirement.

To this effect, an open and thorough discussion of the economic and demographic

issues is entirely appropriate, and cannot begin too soon.

The NAM also recognizes that an unreformed Social Security system would cripple the American economy. American workers and businesses could no longer compete successfully in the global market for goods and services. Indeed, the U.S. is

well behind several other nations in Europe, South America and the Pacific Rim in

addressing the problems of their unfunded public retirement systems. Unless the

U.S. steps up to these issues quickly, we can anticipate a stagnant domestic economy, with a reduced standard of living and lowered expectations for all Americans.

Based on the work of a NAM Task Force on Social Security reform, we believe

that two issues are at the heart of any successful program of reform. First the ‘‘safety net’’ of social insurance must be maintained, so as to allay fears of old-age poverty. Secondly, reform must result in creation of funded retirement accounts that

represent real savings and wealth creation for individual members of the U.S. workforce.

We request that this letter be made a part of the public record. Also for the

record, we attach a ‘‘Statement of Principles’’ for Social Security reform, approved

the NAM Board in 1997. In addition, we include for the record a recent Issue Brief

that describes in detail the position of the White House, the Chairman of the Fed-
98

eral Reserve, and explains the methodology of significant pieces of Social Security

reform legislation currently before the Congress.

Sincerely,

PAUL R. HUARD

f

Senior Vice President

A Public Policy Summary Issue Brief, April 1998

SOCIAL SECURITY REFORM AND ECONOMIC GROWTH, THE SECOND IN A SERIES

LEGISLATIVE PROPOSALS AND POLICY PRESCRIPTIONS

An April 1997 NAM Issue Brief identified the relationship between economic

growth and reform of federal entitlements programs. The issues examined in that

document,’’An Overview of Issues and Terminology,’’ remain relevant, even as lawmakers introduce new legislative proposals. In addition to introduction of several

bills, the White House, congressional leaders and the chairman of the Federal Reserve System have made major policy statements on reform.

Issue

As Congress and the Administration move toward a consensus on reform,

what legislative proposals and policy prescriptions form the basis for debate on

Social Security reform?

NAM Position

During the past several months, the NAM has retained its leadership among

trade associations in addressing structural imbalance of the Social Security system

and in calling for early enactment of fundamental reform. Although the NAM has

not endorsed any specific reform proposal, it continues to evaluate bills and policy

proposals according to the ‘‘Statement of Principles’’ for reform approved by the

NAM Board in April 1997. A summary of those principles, which appeared in the

April 1997 Issue Brief, includes: (1) separation of the accumulation of retirement

savings from the provision of a needs-based ‘‘safety-net’’ of retirement income security; (2) individuals’ ownership of retirement savings account, with contributions

and accrued earnings available upon retirement, or transferable to survivors and

heirs; (3) investment of assets free of government control or influence, in such a

manner as to produce market rates of return; (4) recognition that fundamental reform is closely related to issues of federal tax policy and rules affecting private pension plans; and (5) recognition that changes must be implemented as soon as possible.

Policy Proposals

Legislative and policy proposals currently under discussion for reform or restructuring of the Social Security retirement system include the following:

The White House Policy Proposal

In his State of the Union message on January 27, President Clinton advocated

using federal budget surpluses to support the existing Social Security retirement

system. Gene Sperling, director of the President’s National Economic Council, described the White House initiative as a ‘‘Social Security First’’ strategy.

According to the President, the budget surplus should be ‘‘reserved’’ and not expended for either tax cuts or new spending until the Social Security system is

brought into fiscal balance. The President, however, failed to specify how to achieve

this balance.

At a meeting of the Center for Strategic and International Studies held two days

after the State of the Union address, Sperling noted that now, with projected tax

receipts exceeding earlier expectations, there is a ‘‘unique opportunity’’ for Social Security reform. He explained that ‘‘reservation’’ of any budget surplus to reform or

restructure the system creates a mechanism for fiscal discipline by both the Congress and the White House. Responding to a question from the NAM, Sperling declined to state whether the Administration would consider a reform proposal based

in part on individual accounts.

Subsequent testimony by Treasury Secretary Robert Rubin and Office of Management and Budget director Frank Raines before the House and Senate Budget Committees produced no further clarification. Aside from the stated strategy of ‘‘Social
99

Security First,’’ the Administration has been cautious in revealing publicly its preferred mechanism for reform.

Individual Accounts. In a February 9 speech before students at Georgetown University, President Clinton reiterated the importance of Social Security reform, and—

in a manner consistent with reform advocates—stressed the significance of early attention to the issue, in order to avoid a financial crisis. Beyond this, the President

made few specific policy recommendations. He emphasized the importance of individuals putting their retirement savings individuals in a variety of vehicles (an

issue previously discussed at a NAM Employee Benefits Committee meeting by

Mark Irwy, benefits tax counsel at the Treasury Department). According to the

President, these savings vehicles would include IRAs and 401(k) plans.

The following day at a hearing before the Senate Special Aging Committee, Social

Security Commissioner Kenneth Apfel indicated that items ‘‘on the table’’ at the

White House is use of individual accounts as a possible means of addressing structural problems of the current system. Economic advisor Gene Sperling, in remarks

on the following day, voiced similar comments.

Reform Strategy/Timetable. In his testimony before the Senate Special Aging

Committee, Apfel provided a timetable for Administration efforts on Social Security

reform. President Clinton himself will participate in at least four public forums that

will address the issue. The forums will be held in conjunction with the American

Association of Retired Persons and the Concord Coalition—organizations identified

with opposing poles of the debate over fundamental reform. The first forum is scheduled for April 7, in Kansas City. (The NAM already participates, with the Concord

Coalition, in a program of public forums throughout the nation, and in related educational efforts.) Following the public forums, the Administration will sponsor a

White House conference on Social Security in December 1998. Apfel also stated that

the Administration will work with the House and Senate leadership on a legislative

proposal during the first session of the 106th Congress.

Compatibility With NAM Principles. The White House is concerned both with the

‘‘philosophy’’ and the ‘‘mechanism’’ of achieving reform or restructuring of Social Security. During an NAM policy forum last fall, Raines clearly showed the Administration’s reluctance to consider individual accounts in any reform mechanism. Apfel’s

recent testimony and comments by Gene Sperling indicate a possible change in philosophy.

Individually owned accounts are central to the NAM principles, and the NAM

would oppose any ‘‘reform plan’’ that did not provide for such accounts. Early implementation of a reform plan, as called for by President Clinton in his Georgetown

speech, is quite consistent with the NAM principles.

Senate Testimony by Alan Greenspan

Federal Reserve chairman Alan Greenspan testified before the Social Security

Task Force of the Senate Budget Committee on November 20. He acknowledged that

a financial imbalance exists in the current Social Security system, such that, ‘‘... the

[Social Security] system as a whole [is] badly underfunded.’’ According to Greenspan, funding remains the critical element in any debate over reform, because of the

obvious fact that any retirement system requires an accumulation of real resources

over working lifetimes sufficient to fund the retirees’ consumption. Because the current system is underfunded, additional resources can be accumulated only through

increased taxes (with negative effects on growth), through reduced benefits, increased private savings, or government surpluses.

Increased National Savings. The crux of Greenspan’s testimony was that only increased national savings can provide the additional national productive capacity

necessary to fund liabilities to future retirees. He suggested reforming the existing

‘‘defined benefit’’ (DB) Social Security model in favor of a funded ‘‘defined contribution’’ (DC) system of accounts for individuals. Regardless of a DB or DC model, a

funded retirement system would require increased national savings—merely shifting

current trust fund investments from federal debt securities to private equity securities would fail.

Recognition Bonds. Greenspan also suggested using ‘‘recognition bonds’’ to bring

unfunded liabilities of the Social Security system ‘‘on budget.’’ The government

would distribute such bonds to individuals, in recognition of prior contributions to

Social Security in the form of FICA taxes paid.

Out of the Blue. The candor and specificity of Chairman Greenspan’s testimony

took the Senate Task Force and the financial press by surprise. As a result, his observations on the state of the Social Security retirement system and proposed remedies have yet to receive substantial attention. Despite this, Greenspan’s testimony

and his continuing observations are likely to encourage a consensus in favor of a

funded, DC model.
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Compatibility With NAM Principles. Greenspan’s suggestions for funded DC accounts is fully in keeping with NAM principles. Although the principles do not address recognition bonds or creation of new federal debt as a means of satisfying existing liabilities, the NAM advocates a reform plan under which neither debt nor

taxes increase.

Legislative Proposals

Members of the House and Senate have introduced a variety of bills that address

the state of the Social Security system. Among the more significant proposals are

the following:

H.R. 2929

Rep. John Edward Porter (R–IL–10) is sponsor of this comprehensive proposal

that would allow individuals to opt out of the current Social Security retirement system in favor of individual investment accounts. Rep. Porter, a well-respected nineterm congressman, was among the first in the House to draw attention to the fiscal

imbalance of a maturing Social Security system.

Individual Choice. Rep. Porter’s bill allows individuals to make contributions to

‘‘Individual Social Security Retirement Accounts’’ (ISSRAs). In lieu of the current

12.4-percent combined Old Age, Survivor’s and Disability Insurance (OASDI) portion

of FICA tax on wages, H.R. 2929 provides for a 10-percent combined contribution

to an ISSRA. In addition, an employee could elect to make an additional 10-percent

contribution to the account.

Under the Porter bill, the remaining 2.4 percent of FICA tax would continue payable to the Social Security Trust Fund, for a period of 10 years after an individual

had opted out of the current system. Thereafter, neither employer nor employee

would have an obligation for its respective 1.2 percent tax payment on behalf of the

individual.

Disability and Life Insurance Coverage. A portion of the ISSRA would purchase

private disability insurance and life insurance, in amounts consistent with current

SSDI and survivor benefits.

Tax Effects. Under H.R. 2929, employee contributions (the 5 percent basic contribution, plus any additional contribution) are not deductible for income tax purposes. Employers continue to take a deduction for business tax purposes, as is currently the case with FICA. Investment earnings on amounts contributed to ISSRAs

are not taxed until distributed. The bill allocates distributions of contributions between taxable and non-taxable portions. Accounts may be liquidated through annuity purchase or through a series of periodic payments. Retirement age is 59-and-ahalf. Unliquidated amounts become a part of an individual’s estate.

Investment. Investment management of individual accounts is based upon a government-approved list of private investment managers.

Recognition Bonds. For those opting out of Social Security and into ISSRAs, the

government would provide a recognition bond as evidence of FICA paid to date.

Such bonds would be redeemable as an annuity upon retirement. Persons younger

than age 30 would receive no recognition bond.

Basic Benefit. The government guarantees a minimum ISSRA benefit, financed

through general revenues. The minimum benefit is the lesser of 40 percent of preretirement income or 95 percent of the Social Security benefit an individual opting

out would have otherwise received.

Phased Changes. Social Security benefits for those electing to remain in the current system are reduced somewhat, over an extended time period, with the Social

Security Normal Retirement Age (NRA) increasing, as under current law, to 66 in

2005. Under the bill, the NRA would increase to 70 by 2028. Wage indexing of the

Cost of Living Adjustment (COLA) replaces the present Consumer Price Indexing

(CPI). Early retirement age remains 62, and the bill provides a minimum benefit

or ‘‘safety net.’’

Co-sponsors. Co-sponsors of H.R. 2929 include Reps. Spencer Bachus (R–AL–6),

Thomas E. Petri (R–WI–6), Mark Sanford (R–SC–1), Christopher Shays (R–CT–4)

and Nick Smith (R–MI–7).

Compatibility With NAM Principles/Effects on Capital Formation. Rep. Porter’s

bill is consistent with the NAM principles. Because the bill is generous to persons

opting out of the current system, it is estimated to produce new capital of $4 trillion

by 2015. But because of this generosity and because the bill gives recognition bonds

to those opting out, the costs of transition remain formidable.

Additional Comments. The Porter bill is ambitious. It draws heavily upon the aggressive Social Security reform plan implemented by the nation of Chile, which has

proven surprisingly popular and dramatically successful in producing individual

wealth and increasing national capital. The similarity of the bill to the Chilean plan
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reflects policy work by Peter Ferrara. Ferrara is an outspoken advocate of reform,

associated both with the CATO Institute and Americans for Tax Reform (ATR). (The

policy work of CATO is well respected on the Hill and within the business community. ATR is a potent grass roots group that advocates dramatic tax reduction and

smaller government.)

The NAM applauds the zeal of the Porter bill, but is concerned that costs of transition, particularly the recognition bonds, may not be financially and politically

achievable.

H.R. 2768—Personal Retirement Accounts Act

Rep. Mark Sanford (R–SC–1) is sponsor of the Personal Retirement Accounts Act

of 1997. Rep. Sanford, a sophomore congressman from a district that is economically

and ethnically diverse, ran for Congress on a platform of reforming Social Security.

He was re-elected to a second term without opposition.

Rep. Sanford’s bill, like Rep. Porter’s, creates investment accounts. Under

H.R.2768, each individual contributes to a ‘‘Personal Retirement Account’’ (PRA).

Unlike ISSRA accounts under the Porter bill, Rep. Sanford’s PRA accounts are mandatory.

Contribution Level. Under H. R. 2768, PRA contributions total 12 percent of each

individual’s wages (compared with the current 12.4 percent OASDI portion of FICA),

with employers and employees contributing equal amounts. Of the 12 percent

amount, 8 percent constitutes an addition to the individual’s retirement account.

The remaining 4 percent finances liabilities already accrued under the current Social Security system and accruing during the transition period. The bill allows additional voluntary contributions by individuals, limited by current rules applicable to

401(k) plans.

Disability Coverage. Rep. Sanford anticipates significant changes to the Social Security disability income program (SSDI). As a consequence, his bill provides no

mechanism for a separate disability income component, and the portion of OASDI

tax allocated to SSDI (currently 1.8 percent of the 12.4 percent OASDI total) continues as a separate FICA tax.

Tax Effects. The employee’s half of the 12 percent amount contributed to a PRA

remains non-deductible for income tax purposes. The employer’s portion remains deductible. No tax liability accrues for investment earnings on contributions. In contrast to the Porter bill, the entire amount of retirement distributions under the Sanford bill is free of income tax.

Investment. Under Rep. Sanford’s bill, investment of PRA amounts must be within standards of risk that replicate performance of the Standard and Poor’s 500, until

the PRA amount reaches a present value sufficient to provide the individual with

a straight life annuity of $9,200 annually. Once the account balance surpasses such

amount, investment guidelines are relaxed, so as to encourage higher yields.

Protection for Participants. Among the key aspects of H.R. 2768 is a detailed regulatory mechanism. To this effect, investment managers are subject to license by the

Securities and Exchange Commission. The SEC will consider capital adequacy and

experience in providing retirement fund investment services. In addition, the SEC

will require full disclosure of management fees. Otherwise, the Sanford bill encourages a great variety of investment managers to apply for licenses under the PRA

program, including mutual funds, trust banks, integrated investment companies, insurance companies and others.

The Sanford bill provides for investment insurance with premiums paid annually

by the account manager from a portion of PRA contributions.

Retirement Age. Under H.R. 2768, NRA is 70. The Sanford bill specifies the early

retirement age (ERA) at 62. At retirement, and according to the individual’s option,

the PRA amount can fund annuity purchase or may be liquidated through periodic

payments or a lump-sum distribution. Unliquidated amounts become a part of the

individual’s estate.

Grandfathering. Persons currently in retirement upon enactment of H.R. 2768 are

unaffected and will continue to receive Social Security benefits as scheduled. For

those nearing retirement, the Sanford bill provides total retirement benefits under

the current system and the PRA at a level no less than scheduled Social Security

benefits. During the transition period such benefits are financed through the 4 percent portion of the PRA not allocated to investment accounts, and through such

mechanisms as a bipartisan commission on transition funding shall determine.

Prior Contributions. Unlike the Porter bill, H.R. 2768 provides no recognitionbond device. In absence of the recognition bonds, and because of lower allocations

to individual accounts than under the Porter bill, the transition costs of the Sanford

bill are less.
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Phased Changes. Separately, the Sanford bill changes the basic benefit formula

for future retirees under the current Social Security system. Such revisions change

‘‘bend-points’’ so as to reduce benefits. The bill also gradually reduces the combined

benefits of working spouses, from the current 150 percent of the larger Primary Insurance Amount (‘‘PIA’’) to 133 percent.

Co-sponsors. Co-sponsors of H.R. 2768 include Reps. Amo Houghton, Jr. (R–NY–

31) and Nick Smith (R–MI–7).

Compatibility With NAM Principles/Effect on Capital Formation. Rep. Sanford’s

bill is consistent with NAM principles. Because a lesser percentage of wages is allocated to PRAs under the Sanford bill than to ISSRAs under the Porter bill, the estimated capital formation under the former is $3 trillion by the year 2015, compared

to the $4 trillion. The difference, however, is largely offset by the fact that the Sanford bill creates no new federal debt, unlike recognition bonds under the Porter bill.

Additional Comments. Among elected officials, Rep. Sanford is one of the most

committed and articulate proponents of reform. His bill is finely crafted. Less aggressive than the Porter proposal, it nonetheless offers a vigorous reform agenda.

Although the Sanford bill would produce somewhat less capital formation than the

Porter measure, its more modest contribution base raises less dramatic transitionfunding questions.

H.R. 3082—Social Security Solvency Act

In the second session of the 104th Congress, Rep. Nick Smith (R–MI–7) introduced a Social Security reform bill, the first comprehensive proposal offered in the

House. The provisions and methodology of the initial bill now appear in H.R. 3082,

the Social Security Solvency Act of 1997.

As with the Porter and Sanford measures, the Smith bill creates a system of individual accounts, referred to as ‘‘Personal Retirement Savings Accounts’’ (PRSAs). Investment is at an individual’s choice, among specified investment companies approved by the Secretary of the Treasury. Investment options are similar to choices

under the Federal Thrift Savings Plan for federal employees.

Although an individual has a choice among investment companies, the Smith bill,

like Rep. Sanford’s, requires establishment of individual accounts for all members

of the workforce.

‘‘Carve-Out’’ Methodology. H. R. 3082 finances contributions to PRSAs through

the mechanism of a ‘‘carve-out’’ from the payroll taxes that individuals and their

employers continue to pay.

In this regard, the language of H. R. 3028 describes a ‘‘reallocation percentage’’

that each year determines the amount transferred from the Trust Fund to PRSAs.

(Because the Trust Fund is an accounting fiction, without marketable assets, the

reallocation percentage actually comes from the income stream that payroll taxes

continue to provide.) Initially, the reallocation percentage is 2.8 percentage points

of the 12.4 percent OASDI FICA tax. In succeeding years, the reallocation percentage increases in proportion to the reduced liabilities under the Social Security system (discussed below), ultimately reaching 10.2 percentage points.

‘‘Offsets.’’ The use of private accounts to ameliorate the financial imbalance of the

Social Security system is implicit in all reform proposals that employ private accounts. However, the Smith bill uses a more specific ‘‘offset’’ mechanism to accomplish the dual goals of reducing the imbalance and financing transition to a fullyfunded system.

To this effect, H.R. 3062 reduces Social Security benefits in proportion to amounts

accrued by an individual’s PRSA. Accordingly, persons near retirement, with few

years for PRSA accumulations, would receive relatively larger benefits from Social

Security. Those with more working years remaining would accrue larger PRSA balances, with greater offset of their Social Security benefits as a consequence.

Deemed Rates of Return. Scheduled reduction in Social Security benefits under

the Smith bill is based on contributions actually made to the PRSA, plus amounts

deemed to have been earned by such accounts. Actual earnings experience and the

resulting size of an individual’s PRSA are irrelevant to operation of the offset mechanism. The bill simply assumes that PRSAs will earn 3.7 percent, then reduces Social Security benefits accordingly. As a protective measure, the specified rate is well

below historical yields for diversified investment portfolios. As a result, if PRSA investments accrue earnings greater than the assumed rate, individuals would enjoy

retirement income greater than Social Security currently promises.

Disappearing Transition Costs. The Smith bill achieves financial balance for Social Security through a program of increasing contributions to individual accounts

and decreasing benefits under the current system. The two complementary factors

achieve balance for Social Security over an extended period of years. Because of this

structure, the Smith bill avoids separate funding for costs of the transition period.
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Elective Contributions. In addition to payroll tax carve-outs, H.R. 3082 allows individuals to make elective contributions to PRSAs of no more than $2,000 annually.

Half the amount of such contributions is deductible when computing an individual’s

income tax liability.

Distribution. Payments from PRSAs may begin at the individual’s discretion, any

time after age 59-and-a-half. Forms of distribution from PRSAs include a broad

range of annuities or periodic distributions, including interest-only payments or

principal pay-down.

Tax Effects. The carved-out portion of payroll taxes transferred to PRSAs is not

additional gross income to an individual. Investment earnings on PRSAs are not

taxed. Distributions from the accounts upon retirement are taxed in the same manner as benefits under Social Security. One half of the elective contributions (and

earnings) are similarly taxed, with rules for 401(k)’s applicable to the portion that

was tax-deductible when contributed. Retirement distributions are taxed like Social

Security benefits.

Phased Changes. H.R. 3082 increases the ERA from 62 to 65 by 2011, with gradual increases thereafter. The effect of the increase is minimized by the availability

of PRSA’s upon an individual’s election after age 59-and-a-half. Moreover, the ERA

for surviving spouses is set two years earlier than the ‘‘normal’’ ERA.

Separately, the Smith bill adjusts the benefit calculation for future retirees,

through changes in bend-points and addition of more earnings years to the definedbenefit formula. Ultimately, all bend-points are reduced, so that Social Security produces a minimum basic benefit.

Like the Sanford Bill, Rep. Smith’s gradually reduces combined spousal benefits

from 150 percent of the larger PIA to 133 percent.

Disability Coverage. Under H.R. 3082, the Social Security disability program remains a largely unchanged defined-benefit model. In the event of disability, PRSA

balances continue to accrue earnings but otherwise are reserved, and not used to

pay disability benefits.

Co-sponsors. Co-sponsors of H.R. 3082 include Reps. Porter (R–IL–10), Sanford

(R–SC–1), Tom Campbell (R–CA–15), Joe Knollenberg (R–MI–11) and Amo Houghton (R–NY–31).

Compatibility With NAM Principles/Effects on Capital Formation. Rep. Smith’s

bill is generally consistent with the NAM Principles. The fundamental mechanism

employed by the bill in achieving reform—scheduled reduction in Social Security liabilities as PRSA balances accrue—is unique. The mechanism represents an almost

‘‘painless’’ means of financing the transition to a funded system of retirement savings. However, the cost of painless transition is a model that achieves reform very

slowly, with an estimate of only $50 to $75 billion additional capital formation by

the year 2015. Compared to the Porter and Sanford bills, the cash inflows to capital

markets is very modest.

S. 321—Strengthening Social Security Act

Sen. Judd Gregg (R–NH) is among the leading voices in the call for fundamental

reform of the Social Security retirement system. Sen. Gregg’s bill is the Strengthening Social Security Act of 1997.

The NAM is working closely with Sen. Gregg and his staff on Social Security reform. The senator is a co-chair of the National Commission on Retirement Policy

of the Center for Strategic and International Studies, of which former NAM Chairman Warren Batts is an active member. The NAM is aware that S. 321 represents

Sen. Gregg’s initial approach to reform and that he will introduce an expanded and

more detailed legislative proposal later.

Like the Smith bill, S. 321 employs a ‘‘carve out’’ mechanism, for contribution of

1 percentage point of OASDI tax to an individual investment account. Under S. 321,

such the account may be invested in one or more mutual funds or pooled investment

vehicles similar to options available under the Federal Thrift Savings Plan. The investment fund is the property of the individual wage-earner, and withdrawals may

begin at age 59 and a half. The investment accounts supplement a restructured Social Security retirement system, under which benefits are adjusted downward

through phased changes in bend-points. The changes would not affect persons aged

55 and older. COLAs would continue to rely upon CPI adjustments, but based on

a half-point reduction in the actual index. Retirement age would increase gradually

to age 70.

Co-sponsors. Sen. Michael Enzi (R–WY) is co-sponsor of S. 321.

Compatibility With NAM Principles/Effects on Capital Formation. Sen. Gregg’s

bill is generally consistent with the NAM principles, notwithstanding the fact that

the bill is a modest first step toward a consensus on reform.
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Other Legislative Proposals

A variety of other proposals affecting the Social Security retirement system have

been introduced by members of the House and Senate. Some bills require that the

Social Security Administration (SSA) provide greater detail to individuals in their

Personal Employees Benefits and Earnings Statement (PEBES). Other proposals

would require SSA to make formal recommendations to the Congress on a means

of bringing the system into balance. A novel proposal by Rep. Thomas Petri (R–WI–

6) would establish private investment accounts of $1,000 for each newborn. A proposal by Rep. Sanford would require disclosure of the employer-paid portion of FICA

on pay stubs.

A bipartisan group of eight members of the House have created an informal

House Bi-Partisan Public Pension Reform Caucus. Co-chairs are Rep. Jim Kolbe (R–

AZ–5) and Charles Stenholm (D–TX–17). The caucus is expected to produce reform

legislation that uses the mechanism of individual accounts. Reps. Kolbe and Stenholm are also co-chairs of the CSIS Commission.

Status

The NAM is the acknowledged leader among trade associations and in the greater

business community in seeking fundamental reform of the Social Security retirement system. Based on its continuing attention to reform, the NAM believes that

a consensus on the mechanisms, policy and politics of reform is likely by the end

of the 105th Congress.

NAM Social Security Reform and Economic Growth Series

Principles on Social Security Reform (new policy as approved by the NAM

• ‘‘An Overview of Issues and Terminology,’’ NAM Issue Brief, 4/7/97

Statement of National Association of Manufacturers

f

Board of Directors)

BACKGROUND

The Social Security retirement system, as currently structured and financed, cannot pay in full the benefits promised to a significant portion of the American workforce. As a result, reform or restructuring is necessary, if only to bring the current

system into financial and actuarial balance.

Even strong supporters of Social Security agree the system needs restructuring.

The 1996 Report of the Advisory Council on Social Security presented alternative

proposals for reform, the most modest of which would alter Social Security fundamentally. Separately, critics of the current system have offered proposals for significant restructuring. The common element of such proposals is conversion of the

system in varying degrees, from an entitlement program to a system of funded retirement savings.

Both defenders and critics of the current system agree that the social and economic issues surrounding reform will stimulate contentious debate. This statement

of principles is designed as a framework for evaluating specific proposals as the debate moves forward.

The NAM believes that economic growth is essential for the well-being of this

country. By placing ever-increasing burdens on both employers and workers, the

maturing Social Security system can only undermine the growth of business, reduce

the level of savings and ultimately stifle the economic security of individuals in the

workforce. Thus, any reform proposal should foster economic growth for both business and individuals.

Further, any reform proposal should address the inequitable way the current system determines benefits and payroll taxes. Individuals receiving benefits based on

contributions to a relatively young Social Security system have enjoyed very generous returns. Without reform, however, future Social Security benefits will provide

a negative rate of return and be inadequate as a source of retirement income, thus

treating later generations of contributors quite unfairly. This would undercut the

very idea of retirement security and undermine confidence in government.

In summary, the NAM believes that generational inequity, the potential of failed

public promises and the depressing effects of a maturing Social Security system on

U.S. economic growth call for public discussion of these issues, consensus on reform

and prompt implementation of the new system.
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PRINCIPLES

To this end, the NAM believes that a reformed Social Security system should:

1) Include a needs-based safety net of benefits for those participants financially

unable to provide for themselves.

2) Assure that savings for retirement are maintained separately from the needsbased safety net with separate contributions and funding vehicles for these two distinct programs.

3) Permit individuals to accumulate retirement savings based on their contributions to individually-owned accounts with any remaining benefits in such accounts

transferable to survivors and heirs.

4) Assure that accumulated retirement savings are for the single purpose of retirement and are not available for any other purpose.

5) Require that individuals’ retirement savings accounts are kept separate from

the assets of the federal government and are managed and invested independent of

government control or influence, for the sole benefit of these individuals and subject

to the rules applied to fiduciaries.

6) Take into consideration appropriate coordination with existing federal tax and

retirement policy.

7) Begin as soon as possible, given the coming financial shortfalls in the current

system and the time needed to develop sufficient savings for the future.

8) Pursue retirement policy goals that various generations consider fair and which

offer individuals and businesses the potential of expanding opportunity and economic growth.

Statement of Hon. John Edward Porter, a Representative in Congress from

Mr. Chairman, members of the Committee, thank you for the opportunity to testhe State of Illinois

f

tify on these important issues. I am very pleased by your proposal to use an expert

panel to study Social Security reform. I agree that we need to begin a national dialogue about how the Social Security system should prepare for the challenges it will

face when the baby boom generation begins to retire, and that a bipartisan panel

to design long-range Social Security reform would serve a necessary role in evaluating potential reforms.

Mr. Chairman, as I’ve previously stated before this committee, the time is now

for Social Security reform. We are on the verge of balancing the federal budget for

the first time since 1969 and I believe that it would be a clear abdication of our

responsibilities if we do not seize this historic moment to implement a lasting reform of Social Security.

As you know, I have been working on Social Security reform since the 1980’s. In

this Congress, I have introduced H.R. 2929, the most recent version of my Individual Social Security Retirement Account (ISSRA) Act legislation. This bill, developed

with noted economist Peter Ferrara, would create a new retirement option for all

Americans and fully address the impending shortcomings of our Social Security system. Rather than using my time here today to advocate any specific legislation, I

would like to illustrate my beliefs about how our existing Social Security system

should be reformed, and highlight some issues that the proposed expert panel will

have to address.

My legislation adheres to three fundamental principles that must be present in

any reform to our existing Social Security system. First, existing benefits must be

guaranteed without reductions for all current retirees. Second, workers must have

the option of staying in existing Social Security, or choose to start an individual account. Finally, we simply cannot levy new taxes to further extend the Ponzi scheme

that is our current Social Security system. In contrast, we must consider an eventual tax cut for individual account participants.

The individual accounts created by my ISSRA legislation are not only fiscally

sound, but also necessary to any reform that will ensure the survival of our national

retirement system. For example, under my plan the Social Security taxes (currently

6.2% of wages paid by both worker and employer, or a total of 12.4%) of those workers who choose to create an ISSRA would be redistributed. Workers and employers

would each contribute 5% of wages to an ISSRA (10% total), and workers could

make additional contributions of up to 20% of gross income. The remaining 2.4% of

the payroll tax would continue to help fund the ongoing obligations of Social Security but could be eliminated 10 years into the transitional period, thus providing a

20% tax cut. Current workers who opt out of traditional Social Security would also

receive ‘‘recognition bonds’’ from the government that would pay a portion of their
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retirement benefit based on the proportion of taxes they had already paid into the

current system.

These individually owned and managed accounts should be governed by the same

rules currently utilized for IRA accounts, with the exception of the right to withdrawal. All workers choosing to form an individual account could choose from among

approved private investment managers. This safeguard would make the system easy

to use, and protect unsophisticated investors from potential fraud and abuse.

Like the current system, employee contributions to ISSRA accounts would not be

tax deductible, while employer contributions would remain deductible. Investment

returns over the years would be tax free until withdrawal, in a manner identical

to today’s IRAs. During retirement, only half of the benefits would be included in

taxable income.

Benefits at retirement would be based on what the individual’s ISSRA account

could support. The worker could choose to purchase an annuity or make periodic

withdrawals in such a manner that the account would not become exhausted within

the beneficiary’s lifetime. Retirement age for individuals choosing to utilize an

ISSRA would be variable after age 59 and one-half, based on funds available in

their account.

As a safeguard, a minimum benefit would be guaranteed for all individuals assuring that no worker would fall below the minimum necessary for a dignified retirement. This benefit would supplement an individual’s shortfall in private benefits

and would be financed from general revenues and the eventual surplus in the Social

Security Trust Fund.

Under my ISSRA plan, and similar reform plans utilizing individual accounts,

benefits for retirees would grow enormously. Of particular importance to me is the

plight of the working poor, who would receive increased benefits under my plan as

opposed to their level of benefits under Social Security. Indeed, the working poor

would experience the largest gains in retirement benefits under my plan. For example, an individual working for a minimum wage would receive more than three

times the benefits promised by our current system. In addition, these financially

vulnerable individuals would also have substantial funds to leave their heirs thereby breaking the cycle of poverty.

Up until now, the costs associated with the implementation of a Social Security

reform like my ISSRA plan were thought to be too severe to be addressed through

reasonable measures. However, projections of the fiscal impact of this plan have

demonstrated that the transition costs can be financed without new taxes or any

benefit cuts for current retirees. According to a recently published analysis by Peter

Ferrara, transition deficits under my ISSRA plan would disappear within only 14

years.

Indeed, in any reform plan using individual accounts, transition costs can be accommodated through a number of reform measures designed to strengthen the Social Security Trust Fund. The first would be the displacement of Social Security benefits as workers choose the private system. Although starting slowly, these savings

will grow substantially over time. Immediate savings would be realized by transferring responsibility for the disability and pre-retirement benefits of all individuals

who opt out to private disability and life insurance carriers. Rather than using Social Security funds, these benefits would be accommodated by the private marketplace through Treasury Department approved ISSRA fund managers.

Further savings would result from the waiver of past tax payments. Recognition

bonds will be waived for individuals under the age of 30 who choose to utilize the

new ISSRAs, and the Social Security Trust Fund will not be expended for their retirement benefits.

Several sources of revenue would also be available to finance the transition. The

continuing payroll tax of 2.4% for workers opting out of traditional Social Security

would be credited to the Trust Fund for a period of ten years. This revenue, when

combined with revenues resulting from the sale of a new issue of ‘‘Social Security

Trust Fund Bonds’’ would finance the majority of transition costs.

The net effect of these measures would be a Social Security Trust Fund with net

revenues in 14 and a large positive balance after 22 years. Eventually these surpluses would grow large enough to cover losses in revenue from a 20% payroll tax

cut and reduce the national debt.
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Not directly accounted for in my plan, but substantially aiding the federal government in meeting transition costs would be the generation of substantial new revenues as a result of new savings and investment in a reformed Social Security system. The net increased savings resulting from the implementation of my ISSRA

plan or another plan utilizing individual accounts would also lead to significant economic growth, and increases in productivity, wages and jobs.

Clearly, support is growing among the American people for Social Security reform.

A recent CATO Institute poll indicated that 69 percent of respondents favor reforms

that would allow them to invest privately the amount they pay into Social Security;

74 percent support a plan that gives people a choice of staying in traditional Social

Security or moving to a new system; and 77 percent want a system that allows individuals to control investment of their retirement funds. My ISSRA plan includes all

of these desirable features, as should any serious Social Security reform proposal.

Clearly reform involving optional individual accounts is a comprehensive way to protect the benefits of current retirees, preserve the integrity of the system for future

generations, and help sustain the long-term health of our economy.

Our efforts must result in a return to integrity and solvency in a reformed Social

Security system that gives every American worker control over his or her retirement

destiny.

Thank you, Mr. Chairman, for this opportunity to testify before the Committee.

I commend you for your efforts in moving forward with a national debate about the

future of Social Security, and support your initiative to create a bipartisan panel

to design long-range Social Security reform.

When I came to Washington as a newspaper reporter in 1962, John F. Kennedy

Statement of James L. Martin, President, 60 Plus Association

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was in the White House, Neal Armstrong had not yet walked on the moon, Strom

Thurmond was a Democrat and the problems with Social Security were perceived

by few, other than Barry Goldwater.

So, today, August 14, 1997, on the 62nd anniversary of Social Security, the 60

Plus Association becomes the first seniors group to publicly go on record to overhaul

the system, releasing a paper it commissioned by economist Richard A. Hart, entitled ‘‘Personalizing Social Security: Unplugging the Third Rail.’’ Why did a senior

citizens group decide to tackle the issue of Social Security reform? Let me answer

by citing a question I’m asked often about the program signed into law by President

Franklin Delano Roosevelt on August 14, 1935.

The question is always the same, ‘‘Jim, why get involved?’’ After all, the theory

goes, even if the current system is going bankrupt, ‘‘your seniors are protected, so

why bother with the uncertain future of this politically volatile issue?’’

Believe me, it would be easy to take a head-in-the-sand approach as so many do,

including, I’m sorry to say, other senior citizens groups. Unfortunately, this attitude

leads to a false impression that seniors are ‘‘greedy old geezers,’’ a ‘‘gimme, gimme,

gimme’’ mentality which I hope to dispel. Seniors who built this country, in Depression and war time, through their blood, sweat and tears, deserve better.

To help dispel that erroneous image, I harken back to some of the advice one particular senior citizen has given me, and still does—my favorite senior—my mom, my

sainted mother, if you will, Mary L. Martin, who, in her eighties, still works parttime. Her advice is that seniors’ most valued assets are not their social security,

their retirement income or their pensions—although these are certainly near the top

of their list—but in her opinion, seniors’ most valuable assets are their children,

their grandchildren and their great grandchildren.

So that’s why I decided to involve 60 Plus, a seniors group responsibly trying to

find a solution to the problem, for the sake of our children and our grandchildren.

To put it bluntly, Heritage Foundation economist Dan Mitchell said, or perhaps

it was another often quoted economist, Americans for Tax Reform’s Peter Ferrara,

who said: ’Social Security was a Ponzi scheme then. It’s a Ponzi scheme now.’ But

even a Ponzi scheme—borrowing from Peter to pay Paul—worked well in the beginning, not only for Carlos Ponzi but for others, just as the so-called Social Security

Ponzi scheme worked well for seniors. But there looms now a ‘‘run on the Ponzi

bank’’ as the Baby Boomers prepare to retire.
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As Mr. Hart states in his paper, ‘‘the Social Security retirement train is on a collision course with demographics. Social Security’s pay-as-you-go system, where the

taxes of today’s workers are transferred to today’s retirees, leaves it particularly vulnerable to demographic trends. As Baby Boomers age, life expectancy is rising and

birth rates are falling. As the Social Security train heads straight into a demographic wall,’’ Mr. Hart continues, ‘‘more and more Americans anticipate the oncoming wreck.’’ Mr. Hart is right. More and more of us recognize the looming crisis.

A recent poll said that a majority of Democrats, for the first time, acknowledged

not only that there is a problem with the system, but a majority of Democrats now

even favor privatization as a solution. Everybody universally agrees there’s a problem. But a solution remains elusive.

For example, President Clinton’s Social Security Advisory Council has issued its

long awaited report. This 13-member panel of experts readily agreed there is problem but did they agree on a solution? Well, yes and no. They offered three solutions.

It’s not an exaggeration to say they split three ways from Sunday, six endorsing one

solution, five another and two yet a third. Significantly, all three directly, or indirectly, advocated privatization. In 1983, President Reagan’s Social Security Reform

Commission came forth with its solution to keep the system solvent for, it said, at

least another 75 years, well into the next century.

That begs the question, why another Commission so soon in the 1990s, after the

1983 Commission? The answer is that the system is in more trouble than previously

thought. The problem is twofold. One: The good news is that we seniors are living

longer, due to medical advances and our own better health habits. Two: The bad

news is that you younger generations have to pay.

Of course, that’s the way the system has always worked. But before there were

more than 20 workers, not three, paying into the system for each beneficiary. One

other fact that bears noting is that when first enacted, according to the actuarial

tables, seniors died at about age 64, or as Mr. Hart so delicately phrases it, most

workers were conveniently dead and buried before they could collect their benefits

at age 65. As 60 Plus Honorary Chairman, former Indiana Congressman Roger Zion

puts it, at a vigorous and robust 75, he has been ‘‘statistically dead’’ for 11 years.

Now that seniors are living longer, that places further financial strains on the system. Clearly, a day of reckoning has come. The old fix of just raising taxes, some

51 times in 62 years, cannot continue. There’s a limit.

There have been half-hearted attempts in the past to address the problem, halfhearted because not many politicians want to be accused of touching the so-called

third rail. You know the old song—Social Security is the third rail of politics, touch

it and you die.

Politicians have gotten away with this third rail scare tactic for too long, scaring

seniors for political gain. Some of us recall the 1964 Barry Goldwater-Lyndon Johnson Presidential campaign when there was a TV commercial showing a giant pair

of scissors cutting a Social Security card with a voice-over solemnly intoning that

this would be the result if you voted for Goldwater. Another 1964 TV commercial

also stated that a vote for Goldwater could result in U.S. soldiers being sent to fight

and die in southeast Asia. Well, as one political wag put it, he ‘‘voted for Barry and

sure enough, U.S. soldiers were soon sent to fight and die in Vietnam.’’

So, I would like to put politicians, regardless of party, on notice that seniors are

tired of falsely being told their Social Security is going to be taken away. It’s more

likely that a meteorite will fall on the Social Security Administration building in

Baltimore before a politician, of either party, would propose taking away Social Security.

Let me point out how 60 Plus became engaged on this issue. A few years ago the

Third Millennium, Generation X’ers in the 18–34 age group, announced the startling

news that most X’ers believed more in UFOs (unidentified flying objects) than that

the system would be around when they retired. I responded on a radio talk show

that seniors are also aware that the system is headed for bankruptcy. Then I added,

somewhat flippantly, perhaps, that seniors believe more in the second coming (has

it been 20 years this week?) of Elvis Presley than in the system’s future solvency

and that seniors might also prefer changes. After a few call-ins and further discussion of UFOs and Elvis, I decided to poll senior citizens. Our poll to approximately

100,000 seniors found that, by a surprising 3-to-1 margin, seniors preferred a

privatized system. We then commissioned a survey by pollster Frank Luntz, an excerpt of which is in the study we’ve released. The Luntz poll confirmed our 3-to1 ratio.
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We were called by Insight Magazine, and we debated, in print, our counterpart

at the American Association of Retired Persons, Horace Deets, in dueling 2000-word

essays. If I could sum up each essay in one word, it would be: AARP—taxation, 60

Plus—privatization. AARP favors the same old solution, tax increases, while 60 Plus

looks for new solutions.

Will privatization work? The privatization role model is the Chilean system. During the 1983 Social Security study, when Chile was mentioned as a solution, the

status quo seekers dismissed their system as a new and unproven experiment. But,

fast forward 15 years later and Chile now has an amazing track record of success.

Now the status quo seekers try to demonize the word ‘‘privatize,’’ implying that you

have to be a stock market expert or the big boys on Wall Street will fleece you.

Nothing could be further from the truth. There are a lot of workers in Chile who

can’t play the stock market but who proudly walk around with a passport-sized book

with their name on it, keeping track of their investments. That is one of the reasons

we use the word ‘‘personalize’’ because the system would allow each and every individual to take ‘‘personal’’ control of his or her own financial destiny.

Since 60 Plus is nonpartisan, we credit legislators from both parties for coming

up with innovative ideas. One is Democratic Sen. Bob Kerrey of Nebraska, from

whom we borrowed the word ‘‘personalize.’’ Another suggestion, by one of the

Generation-X’ers, is to ‘‘modernize’’ the system. Many others on Capitol Hill deserve

credit, including Republican Congressman Jim Kolbe of Arizona and Democratic

Congressman Charlie Stenholm of Texas, co-chairs of a public pension reform caucus which now numbers more than 70 members of Congress, equally represented

by both parties. Michigan Congressman Nick Smith has introduced legislation to address the problem, as have Reps. Mark Sanford of South Carolina, David McIntosh

of Indiana, Mark Neumann of Wisconsin and John Porter of Illinois. Others safeguarding Social Security include House Ways and Means Committee Chairman Bill

Archer of Texas and Subcommittee Chairmen, Reps. Bill Thomas of California, Dennis Hastert of Illinois and Jim Bunning of Kentucky. Surely, the latter, Jim

Bunning, the big, burly Hall of Fame baseball pitcher—known as a fierce competitor

in his playing days and now the father of nine and grandfather of 31 (at last

count)—would be a formidable opponent for those who try to demagogue Social Security as they did in the 1980s when some Members of Congress courageously

talked about reform in order to save it.

More than two dozen countries in South America, Europe and Asia, have adopted,

or are in the process of adopting, a Chilean-style system. Even socialist Sweden is

going that route. And here, workers in three Texas counties, before a loophole in

the law was closed, opted for privatization and their rate of return is making for

a lot of serious discussion as they prepare for retirement. Moreover, a resolution recently passed both the House and Senate in Oregon asking the state to opt out of

the Social Security system and create a separate retirement system for state workers.

So the slight spark across the sky of the Chilean experiment has become a bright

constellation. It’s a success story that I believe, with all my heart and soul, can be

a guide for our own troubled system.

Incidentally, in the old days, the father of the Chilean plan, Dr. Jose Pinera, literally visited Washington in the dead of night because his untested plan was so controversial. But a few years ago, the Cato Institute gave a dinner in his honor and

a number of Members of Congress allowed their names to be placed on the host

committee. What a change in attitude. Of course, it was not lost on them that this

former minister of labor was elected to office himself, with a major plank in his platform his plan to privatize social security.

Having read an article years ago by Ed Crane, President of the Cato Institute,

about the social security problem, we started searching for solutions. We kept being

referred back to the Cato Institute itself, which has taken a pioneering road on this

issue for more than a dozen years. One name kept coming up, time and again. That

name was Michael Tanner, Cato’s Director of Health and Welfare Studies, and the

author of several books on health and welfare reform. Mr. Tanner has worked on

the Social Security issue extensively, to say the least. Spoken on it. Written on it.

Debated on it, around the world, often with Dr. Pinera at his side. That’s why 60

Plus, particularly Roger Zion and I, are so pleased that Mr. Tanner has not only

eloquently embraced this new plan Mr. Hart proposes, but has joined us at today’s

official release of the proposal, along with an equally strong endorsement by today’s

other featured speaker, Fund for a New Generation’s Adam Dubitsky.
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Richard A. Hart takes up the challenge to find a solution in an insightful paper

showing how Personal Retirement Accounts (PRAs) can assure both dignity and

comfort for future generations of senior citizens. This paper, a variation on a theme

advanced by others, should continue the dialogue on a system which urgently needs

reform.

To those who fear Social Security’s ruin, wise seniors know that there is no Social

Security Trust Fund. 60 Plus calls it the Social Security Bust Fund as surpluses

are used for other government programs. As Democratic Senator Ernest Hollings of

South Carolina has said, ‘‘There is no trust. There is no fund.’’ We need to alert

people to keep at arm’s length those politicians who spread fear among seniors, as

we stand at a crossroads to which direction Social Security reform should go.

In the 60 Plus Association’s opinion, some form of ’personalization’ remains the

best and most feasible option. We must guarantee present retirees their benefits as

part of a government promise to them, but we must also safeguard current generations paying into Social Security system so that the benefits will be there when they

retire.

On August 14, 1935, President Roosevelt signed into law the Social Security Act.

On May 2, 1997, the FDR Memorial was opened here in Washington, D.C. The Social Security system helped seniors escape poverty, but we now know there are

major problems facing future generations. What more lasting commemoration to

FDR can we embrace than the adoption of a system which will save it for a new

age, a new era, and a new population.

Æ