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[1998 Kansas City Social Security Conference]: Social Security in New Mexico
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�FOUR GOALS OF SOCIAL SECURITY CONFERENCE
I.
Solidify Resolve for "Save Social Security First" Message Versus
Republican Tax Cut Message.
II.
Progress Over Partisanship: Keep Social Security Reform on a
Bipartisan Playing Field - "Derail the 3rd Rail of Politics."
III.
Urgency of Social Security Reform in 1999.
IV.
Establish You As Moderator of which New Reform Option Meets Your
5 Principles.
�POTENTIAL MODELS TO SHORE UP OUR
"SAVE SOCIAL SECURITY FIRST" ARGUMENT
MODEL #1: SOCIAL SECURITY IS OFF-BUDGET AND THEREFORE THE SURPLUS IS
VERY SMALL (ONLY $31 BILLION OVER NEXT 10 YEARS)
Pros:
•
What many people believe is actually the case.
•
May be most effective way to block the Republican's tax cut plans.
Cons:
•
•
Takes away victory on historic balanced budget.
Could lead to more cuts in key programs as some attempt to reach balance "onbudget."
MODEL #2: ANY PART OF UNIFIED SURPLUS ATTRIBUTED TO SOCIAL SECURITY
SHOULD BE PUT TOWARD SOCIAL SECURITY.
Pros:
Would help maintain fiscal discipline and would lock away more than 95
percent of the projected surpluses.
Allows us to keep saying that we have a balanced budget.
Cons:
•
•
Locks all projected surpluses into Social Security and does not allow for
possibility of future tax cut or increased investments in key programs.
If unified surplus comes from Social Security and should be devoted to Social
Security, why shouldn't the entire Social Security surplus be devoted to Social
Security.
MODEL #3: SINCE SURPLUS COMES FROM SOCIAL SECURITY, SOCIAL SECURITY
HAS FIRST RIGHTS -- THAT'S "SOCIAL SECURITY FIRST"
Pros:
•
•
•
Cons:
Consistent with initial position.
Puts pressure to achieve Social Security reform as soon as possible (because of
the demand to use the surplus for tax cuts/increased spending).
Allows for the part ofthe surplus to be used for tax cuts or increased
investments in the future.
�OVERVIEW OF THE ALBUQUERQUE SOCIAL SECURITY FORUM
The third Social Security forum, hosted by the Concord Coalition and AARP, will
be held on Monday, July 27, in Albuquerque, New Mexico at the Johnson Center at the University of
New Mexico. The forum is currently scfieduled to run from 10:00 am-1:30 pm MST.
T I M E AND PLACE:
Concord and AARP will select a demographically-representative audience of 100-130
individuals who will ask questions and participate in the forum. An observer audience of roughly 850
will be ticketed. The forum will basically proceed as follows:
AUDIENCE:
VIDEO AND WELCOMES
•
•
I.
(9:45-10:00)
Two-minute video of Albuquerque citizens discussing Social Security
Welcomes
Horace Deets (AARP)
Harvey Meyerhoff (Concord Coalition)
Carolyn Lukensmayer (Americans Discuss Social Security)
President ofthe University of New Mexico
OPENING REMARKS
(10:00-10:30)
YOU (introduced by Mayor Jim Baca)
Sen. Pete Domenici (R-NM)
Sen. Jeff Bingaman (D-NM)
Rep. Jim Kolbe (R-AZ)
Rep. Xavier Becerra (D-CA)
II.
EXPERT VIEWS ON SOCIAL SECURITY PRIVATE MARKET OPTIONS (10:30-11:55)
Moderator: Gloria Borger (CBS; U.S. News & World Report)
Facilitators: Susan Dentzer (Lehrer News Hour)
Matt Miller (U.S. News & World Report)
Overview of Social Security (10:30-10:45)
Fernando Torres-Gil (Director, UCLA Center for Policy Research on Aging)
Presentations and Audience Discussion on "Should the Social Security Trust Fund Invest
Part of its Assets in the Market" (10:45-11:10)
Robert Reischauer (Brookings Institution; frmr. CBO director)
Carolyn Weaver (American Enterprise Institute; Advisory Council on Soc. Sec, 1994-96)
Presentations and A udience Discussion on "Should Workers' Social Security Taxes Be Put
into Individual Accounts" (11:10-11:55)
Michael Boskin (Hoover Institution; frmr Chairman of Council of Economic Advisors)
Peter Diamond (Professor, MIT)
�YOUR ACTIVITIES DURING THIS SECOND SESSION
/
(10:30-12:10)
YOU will hold from 10:35-11:00.
Satellite Feeds. Then, YOU and Social Security Administrator Ken Apfel will conduct
satellite feeds from 11:00-11:30 to Social Security town meetings sponsored by three members
of Congress in their districts and one senior group, the Older Women's League.
Administrator Apfel will briefly introduce YOU. YOU will speak and then turn to the
Members, who will each speak forfiveminutes:
Apfel introduces YOU
YOU speak, then turn to four satellite sites (each speak forfiveminutes)
Rep. Earl Pomeroy (D-ND)
Rep. Mike Castle (R-DE)
Rep. David Price (D-NC)
Older Women's League town meeting in Chicago
YOU will then close the discussion
Then, from 11:40-12:10, YOU will have an opportunity to eat lunch and be briefed on what
took place on stage during the presentations and audience discussions in the second session.
III.
TOWN H A L L MEETING
(12:15-1:30)
There will then be a dialogue with YOU, the members of Congress, and the participating
experts on Social Security, with a particular focus on the investment options discussed earlier
in the forum.
•
•
Gloria Borger will be situated on the floor with the audience. She will open the town
meeting, and go right into taking questions from the 100-130 participating audience
members
YOU will make a closing statement
Moderator:
Gloria Borger, located in audience
Matt Miller and Susan Dentzer will help find questioners in audience
Panelists:
YOU (seated in center)
Sen. Domenici
Sen. Bingaman
Rep. Kolbe
Rep. Becerra
Fernando Torres-Gil
Robert Reischauer
Carolyn Weaver
Michael Boskin
Peter Diamond
�SOCIAL SECURITY BRIEFING PACKET
Individual Accounts
Investing Trust Fund in Equities
Rates of Return
Reform Proposal: Breaux, Gregg, Kolbe, Stenholm
Raising the Retirement Age
Raiding the Trust Fund
Taxes
Means Testing
Covering State and Local Workers
Reducing Cost of Living Adjustments
Social Security and Women
Social Security and Minorities
Page
1-2
3
4
5-6
7-8
9-10
11-12
13
14-15
16
17
18
�INDIVIDUAL ACCOUNTS
FRAMEWORK FOR ANSWERS:
•
I Will Examine Any Reform Proposal in the Context of A Comprehensive Reform
That Is Consistent With My Five Principles. As I said in Kansas City, I have called for
the nation to examine the options to save Social Security over the coming year. And as
part of an overall plan, many ideas are on the table. Ultimately, what we must consider is
whether a comprehensive reform package meets my principles. That's why we don't
want to judge any specific element now.
•
I Will Consider Whether Some Form of Individual Accounts Can Be Part of a
Comprehensive Reform That Meets My Principles. We especially need to consider
whether a Social Security system including Individual Accounts continues to provide a
benefit that can be counted on and whether the system continues to be fair and
progressive.
•
At This Stage in the Debate, I Want to Stay Open Minded and Give Every Option a
Fair Hearing.
KEY ADDITIONAL POINTS:
•
Higher Returns Come with Higher Risk. Most people here today have been discussing
ways to get higher returns for the Social Security system. Individual accounts could allow a
higher rate of return than Social Security currently offers. And individual accounts could
also allow every American more control over their retirement assets and give every
American a greater stake in the economy. But we must be straight with the American people
and acknowledge that with greater returns comes greater risk.
•
Administrative Costs and Government Involvement in the Stock Market Are Major
Issues. It's clear that if these costs are not kept low, they could take a significant chunk of
potential returns. On the other hand, those who point out that trust fimd equity investments
can be done with lower costs need to recognize that some people have concerns about
government involvement in the stock market.
•
Cannot Forget about Transition Costs. Everyone is going to have to be clear about how
benefits for people entitled to benefits under the existing system are going to be paid for.
BACKGROUND;
•
Advantages of Individual Accounts:
Higher Returns. Individual accounts could allow a higher rate of return than
Social Security currently offers. The "equity premium" — the difference between
the average annual rate of return earned by the S&P 500 and the rate earned by
bonds — has averaged 3.84 percent over the past four decades. Many economists
are concerned, though, whether this gap will persist into the future.
— •
—
Qyovrrny >:»»i!TL_-,f Control. Individual wxounts alsa-could alki-w a-.
control over your retirement income.
�Disadvantages of Individual Accounts:
Risk Borne By Individual. Individual accounts would force individuals to bear
more of the risk for their retirement income.
Administrative Costs. Individual accounts would involve high administrative
costs, especially compared to investing the Trust Fund in the stock market or the
current Social Security system (administrative costs equal only 0.8% of
contributions per year). Administrative costs can have a large impact on
retirement income: for example, annual administrative costs of 100 basis points
would mean 21% less retirement income for a retiree. Peter Diamond has found
that in the United Kingdom total administrative costs in the typical retirement
account reduce retirement income by more than 24%.
Transition Costs Could Be Significant. Some forms of individual accounts involve
significant transition costs because moving from a pay-as-you-go system to some
forms of individual accounts could force one generation to pay twice (once for their
parents, and once for their individual accounts), or many generations to share those
costs.
POTENTIAL QUESTIONS FOR EXPERTS
Dr. Carolyn Weaver and Professor Michael Boskin: How would you minimize the
administrative costs in Individual Accounts? What impacts will progress in the World Wide
Web and the Internet likely have on reducing administrative costs in the future?
Dr. Carolyn Weaver and Professor Michael Boskin: How many investment options would
you provide individuals under an Individual Account proposal? And what type would you
provide (e.g., all stocks, small-cap stocks, Dow Jones Industrial Average, corporate bonds,
Treasury bonds, etc.)?
Any ofthe Experts: Under an Individual Account proposal, what would happen to the
retirement income of a worker who retired one year after a large upturn or downturn in the
stock market?
Professor Peter Diamond: You have studied the administrative costs in other countries that
have implemented Individual Account-type of Social Security reforms. What are the
implications of your research for the United States?
Professor Michael Boskin: If a lot of people who had never invested in the markets were
suddenly provided with Individual Accounts, would we need to do a lot of investor education?
How should we do it?
�INVESTING TRUST FUND IN EQUITIES
F R A M E W O R K FOR A N S W E R S :
•
We Know That Finding A Way To Raise The Rate of Return of Social Security Is A Key Issue
And Investing the Trust Fund in Equities Is One Proposal Advanced By Many Experts.
•
Those Who Favor this Option Say That it Is a Good Way to Get Higher Returns with Low
Administrative Costs. Proponents argue that by investing the trust fund in equities, Social
Security could receive the high stock market rate of return without the administrative expense of
setting up millions of individual accounts. In addition, investment risk would be pooled across
all Americans.
•
Others Are Concerned about the Government Owning Stock in Private Companies.
Opponents argue that at best this could lead to difficult corporate governance issues (such as how
stock proxies would be voted), and at worst, could lead to dangerous political interference
because of the temptation for the government to invest in certain industries, certain states, or not
to invest in politically unpopular companies.
KEY ADDITIONAL FACTS:
•
Experts Are Split on Investing in Equities. Experts such as Henry Aaron, Robert Ball, and
Robert Reischauer have advocated this approach. Alan Greenspan is opposed to this approach,
saying in Congressional testimony that he found it "very dangerous" and that it would have "very
far-reaching potential dangers for the free American economy and a free American society."
•
Administrative Costs Are an Important Issue for Social Security Reform. The current Social
Security system has low administrative costs, only 0.8 percent of benefits paid. There would
likely be additional administrative costs in a system that invested the trust fund, but not nearly as
much as in a system of individual accounts. However, some argue that an inexpensive individual
account system is possible - modeled after the Federal Thrift Savings Plan (TSP) ~ providing
lower administrative costs with fewer attractive services.
•
Even Ownership of a Small Fraction of the Market by the Trust Fund, Could Raise Issues
of the Government Owning Large Fractions of Individual Corporations. This approach
could potentially lead to the government as the "single largest shareholder in 200 of the 500
largest American companies."
POTENTIAL QUESTIONS FOR EXPERTS
•
Robert Reischauer or Professor Peter Diamond: Opponents of investing equities in the
stock market raise the issue of government interference in the private sector. Would you limit
the percentage of the market, or even a company, that could be owned by the Trust Fund? I f
so, how would you implement such a cap?
•
Robert Reischauer or Professor Peter Diamond: You have suggested that the Trust Fund be
invested in equities, and I know that Canada has recently moved in that direction. What can be
learned from Canada's experience and what steps would you recommend to ensure that
i M^CBI iniei frtrcnce-nri.nvestiriHni decisions is minimized?
3
�RATES OF RETURN
FRAMEWORK FOR ANSWERS:
•
Rates of Return on Social Security Are Positive, Even after Accounting for Inflation, for
Almost All Workers.
o
•
Although rates of return to Social Security are lower than they once were, they remain
positive, even after accounting for inflation, for almost all workers.
Rates of Return Could Be Raised Either Through Individual Accounts or Through
Investing Some of the Trust Funds in the Stock Market.
o
•
The focus of today's discussion is on whether it is possible to achieve higher rates of
return in the future using individual accounts or trust fund investments in equities. Both
approaches need to be explored carefully in the context of a comprehensive plan, to see
whether they meet the principles I have put forward. In particular, Social Security must
remain a program that everyone can depend on.
Must Not Forget about Transition Costs.
o
•
Sometimes people argue that if they could opt out of Social Security and invest on their
own they could do better than they do in Social Security. But this ignores the fact that
90 percent of today's payroll tax goes to pay benefits for current beneficiaries. I f
current workers put their payroll tax contributions into individual accounts for their own
retirement, we will need to come up with some other way to pay retirement benefits for
people who are entitled to Social Security benefits. Rates of return that ignore this cost
are misleading when compared to Social Security rates of return that include this cost.
Social Security Is More than a Retirement Program.
o
;
It provides disability insurance and survivors' insurance ~ each is equivalent for the
average young family of four to an insurance policy worth about $300,000 ($600,000 in
total). And it is low risk; its benefit is always there for you, no matter what happens to
stocks, interest rates, or inflation. But most importantly, it reflects our fundamental
values and a social compact.
REAL RATE OF RETURN TO SOCIAL SECURITY CONTRIBUTIONS
(Percent per year)
Year born/
year age 65
One-earner couple
Single male earner
Low
earnings
Avg.
earnings
High
earnings
Low
earnings
Avg.
earnings
High
earnings
1920/1985
4.4
2.8
2.5
8.1
6.6
6.3
1930/1995
3.1
1.9
1.5
6.1
5.0
4.7
1964/2029
2.4
1.3
0.7
4.7
3.7
3.1
2UU4/2069
1.5
0.8
0.2
4.0
2.4
�REFORM PROPOSAL:
BREAUX, GREGG, KOLBE, STENHOLM
F R A M E W O R K FOR A N S W E R S :
•
Gratified That They Are Coming Forward with Proposals. I am gratified that they are
coming forward with ideas on Social Security and answering my call to make this a year of
debate on Social Security.
•
Deserve Credit for Putting Forward a Plan That Is Both Comprehensive and
Bipartisan. Regardless of what you think about the specific proposals, the members of
Congress deserve credit for putting forward a full comprehensive plan to address Social
Security reform and for working toward a bipartisan consensus on this issue.
•
Generated Real Debate. The plan raises many complicated and difficult issues that will
need to be considered. These proposals have already provoked real debate - with strong
views from thoughtful people on both sides. I think what you'll see is that people will put
out even more proposals for public discussion and examination as we begin to move toward
bipartisan consideration of various proposals.
•
Important to be Open Minded. At this point I feel that the best way for us to keep this
debate bipartisan is for all of us to be open minded, and that's why I don't want to either
dismiss nor bless specific plans or specific elements of plans.
BACKGROUND:
Congressmen Kolbe and Stenholm along with Senators Breaux and Gregg have put forth a proposal
(also known as the National Commission on Retirement Policy (NCRP) proposal) that eliminates
the 75-year actuarial imbalance and uses 2 percentage points ofthe payroll tax to create individual
accounts administered like the Federal Thrift Savings Plan. In order to restore solvency while
allocating 2 percentage points of the payroll tax to individual accounts, the plan phases in large cuts
in traditional Social Security benefits, but contains progressive features that protect the poor from
many of the cuts. The plan:
•
Raises the normal retirement age to 70 by 2029 and the early retirement age to 65 by 2017.
After 2029, both retirement ages would be indexed to life expectancy to keep the total
expected years of retirement at a constant level.
•
Reduces benefit levels by altering the formula that translates lifetime earnings into benefits.
Makes other benefit cuts such as assuming further reductions in the CPI, reducing benefits to
one-earner couples, and increasing the number of computation years
�Covers all state and local government employees hired after 1999.
In order to shield the poor from some of the benefit cuts, the plan introduces a new
minimum benefit for workers with at least 20 years of earnings. The minimum benefit
increases from 60 percent to 100 percent of the poverty line as a worker's years of earnings
increase from 20 to 40.
The plan includes a number of pro-work features such as counting all years of earnings in
calculating benefits, eliminating the earnings test, and adjusting the actuarial adjustment for early
retirement to account not only for delayed receipt of benefits but also for further taxes paid.
Last month, the Congressional Research Service released a study requested by Congressman
Rangel that reported that the NCRP plan would reduce benefits relative to current law by 33
percent (the study concluded that the Moynihan-Kerrey plan would result in large benefit
cuts as well, while the Ball trust fund in equities plan would result in almost no benefit cuts).
The analysis in the CRS study was incomplete because it did not take into account the
income provided by the individual accounts that are part of the NCRP plan.
lo
�RAISING THE RETIREMENT AGE
FRAMEWORK FOR ANSWERS:
•
This Is Clearly a Major Issue That Needs to Be Discussed During this Year's
Debate. Increased Life Expectancy Combined With Early Retirement Are Primary
Causes of The Social Security Problem - Here and Around The World.
o
o
•
Life Expectancy Is Rising. Not only is our senior population doubling in the next
30 years, but life expectancy among seniors is increasing dramatically. Sixty
years ago, life expectancy for those at age 65 was about 77 for men and 79 for
women. Today, it is 81 for men and 85 for women. And rising for both.
More Americans are retiring earlier. In 1962, only 18 percent of Americans
chose to receive their Social Security benefits at age 62. By 1996, that percentage
had more than tripled, to 60 percent. The reasons for the increase in early
retirement are diverse - but it is occurring across the world. In nearly every other
industrialized country (especially Italy, Japan, Germany), the share of the
population that is over 65 is rising even faster than in the US and retirement
systems are being strained.
However, In Examining Any Proposal To Improve Social Security Solvency Including This One - We Must Balance The Goal of Solvency With The Goal of
Fairness. Thus, We Must Look Closely At This Proposal's Impact on Americans
Who Have Physically Demanding Jobs.
o
Some Workers Can't Work Late Into Their 60s. For manufacturing workers who
have worked with their hands and kindergarten teachers who have stood on their
feet, working late into their 60s may not be a real possibility. Therefore, we must
balance the goals of solvency with fairness.
,
o
•
Between 20 and 25 Percent of Workers Feel They Must Retire Early. Today, 12
percent of the near elderly are already receiving disability benefits. And another
20-25 percent of those about to retire feel that they must retire because of health
reasons or the fact that they no longer can do their physically demanding jobs.
As Part of This Social Security Dialogue, We Need To Come Up With The Best
Possible Thinking To Balance The Solvency Concerns of Longer Lifespans With
Fairness Concerns With People Working In Different Types of Jobs. Because This
Issue Is So Important, I Hope We Will Discuss it at the White House Conference on
Social Security This December.
�BACKGROUND;
•
The normal retirement age is currently 65. But people can retire as early as 62, with
reduced benefits. 1983 reforms gradually raise the normal retirement age to 66 for
workers who reach age 62 in 2005. Then the retirement age will remain at 66 until 2016,
when it will begin increasing gradually again until it reaches 67 in 2022. The earliest
eligibility age will remain 62.
•
The normal retirement age for someone who is 54 years old today is 66. And the normal
retirement age for someone who is 37 years old today is 67.
•
The NCRP reform proposal (Kolbe, Stenholm, Breaux, Gregg) would raise the normal
retirement age to 70 by 2029 and the early retirement age to 65 by 2017. After 2029, both
retirement ages would be indexed to life expectancy to keep the total expected years of
retirement at a constant level. This provision would eliminate much of the 75-year actuarial
deficit (1.62 ofthe 2.19).
�RAIDING THE TRUST FUND
FRAMEWORK FOR ANSWERS:
•
Unified Balance is Traditional Measure Used to Evaluate Budget.
o
•
The unified balance is the same measure that has been used by all administrations going
back to the Johnson Administration. The unified budget is the simplest and clearest
measure of how much the government is taking in and how much the government is
spending and it allows us to look out into the future to see if the government will be
able to meet all of our obligations, including Social Security.
If A Dollar Comes Into Social Security, It Goes To Pay Current Benefits or I f There Is
Extra In Any Year, It Is Invested in Treasury Bonds And Is Paid Back To Social Security
When The Money Is Needed. This Investment Is Backed By A Legal Commitment And
The Full Faith and Credit ofthe United States Government That It Will Be Repaid.
o
o
•
Every dollar received by Social Security is either used to pay current benefits or helps pay
future benefits by being invested in special-purpose Treasury bonds, which represent a legal
commitment now to finance Social Security later. Under the law, if Social Security requires
funds and the Trust Funds have assets in them, the Treasury must make the funds available.
The special-purpose bonds held by the Trust Funds have the same legal standing as regular
Treasury bonds, which are the benchmark of reliability in the world's capital markets.
Five Years Ago, When We Had $300 Billion Deficits, I Could Understand The Concern
That We May Have Been Unable To Repay Meet Our Commitment - But With
Surpluses, That Concern Should Be Gone.
o
When I took office, the deficit was $290 billion and there were real questions about
whether the government would be able to meet its commitments in the future. Because of
the fiscal discipline of the past five years - instead ofthe $357 billion deficit in 1998
projected when we took office ~ we will have a budget surplus for the first time since
1969. And over the next 10 years, we are projecting $1.8 trillion of surpluses.
BACKGROUND:
•
According to OMB, the budget surplus will total $1.8 trillion over the next 10 years; CBO
projects the surplus to be $1.55 trillion.
•
In January 1993, the Congressional Budget Office projected the deficit to be $357 billion this
year. Now, we project that we will have a $39 billion surplus.
•
When I took office, the deficit was projected to be $579 billion in 2002. Today, we are
projecting a surplus of $148 billion. That means that our fiscal situation in 2002 will be $727
billion better than projected in January 1993.
•
In 2013, Social Security tax revenue will not meet Social Security expenditures. However,
TiustJFund.continues to expand unfn 9£0. .'.^o..^- .£ijr.*eft:.'ft "evcnik- . ..^A ••• — ;,-. !•«£
bonds. In 2021, the Trust Fund will gradually shrink as its bonds are redeemed. In 2032, the
Trust Fund will be exhausted.
_
9
�"WE DON'T REALLY HAVE A SURPLUS;
SOCIAL SECURITY SHOULD BE OFF-BUDGET"
FRAMEWORK FOR ANSWERS:
•
Under Traditional Budget Standards - Which Compare How Much Money Comes
In Each Year With How Much Goes Out and Have Been Used For Decades To
Measure Our Fiscal Position — We Have Moved From An Era of Deficits to An Era
of Surpluses.
o
When I took office, the deficit was $290 billion and there were real questions
about whether the government would be able to meet its commitments in the
future. Because ofthe fiscal discipline of the past five years ~ instead of the $357
billion deficit in 1998 projected when we took office - we will have a budget
surplus for the first time since 1969. And over the next 10 years, we are
projecting $1.8 trillion of surpluses.
•
While We Have A Balanced Budget, One of the Reasons Is Because of Social
Security - That is Why I Believe It Makes Sense To Reserve Every Penny ofthe
Surplus Until We Save Social Security For Our Children and Grandchildren.
•
I Don't Believe We Need To Change Our Budget Rules To Save Social Security We Must Maintain Our Focus And Work Together And I Believe We Can Save
Social Security For the 21st Century.
10
�TAXES
F R A M E W O R K FOR ANSWER:
•
Should Not Have to Increase the Payroll Tax Rate as Part of a Comprehensive Plan.
As I said in the Kansas City forum, we should not have to increase the payroll tax rate as
part of a comprehensive plan. From looking at the proposals that have been put forth so
far, it seems clear that it is possible to design a comprehensive solution that does not
include an increase in the payroll tax rate.
•
Many Ideas Have Been Proposed - We Must Give Every Idea a Fair Hearing. As
part of an overall plan, many ideas are on the table. Ultimately, though, what we must
consider is whether a comprehensive reform package meets the principles I set forth at
the last conference.
•
Bipartisan Process for Fair and Workable Solution. We are confident that through a
mutually agreeable bipartisan process, we can come up with a fair and workable solution
to strengthening Social Security for the future.
POTENTIAL QUESTION:
ARE YOU FOR RAISING THE MAXMIUM EARNINGS LIMIT OR EVEN
COMPLETELY ELIMINATING IT?
•
As I Have Said Before, Completely Eliminating the Maximum Earnings Limit May
Not Be Necessary as Part of Social Security Reform and Could Break the Link
Between What a Worker Puts into Social Security and What He or She Gets Out
o
•
Currently, Social Security taxes are assessed on earnings up to $68,400. This
level increases every year with inflation.
However, I Do Not Want to Put On or Take Off the Table Any Proposal at This
Time.
o
At the Kansas City conference, you said that a modest increase in the cap is
among the options that should be debated this year.
BACKGROUND:
•
Some have argued for raising or even eliminating the cap. Currently, 6 percent of
workers earn above $68,400. Some proposals would gradually raise the cap by between
15 and 25 percent. For example, under Senator Moynihan's proposal, the taxable
maximum in 2003 would reach $97,500 instead of the $82,800 it is expected to reach
under current law. Others have proposed phasing in the increase more slowly ~ for
�FOLLOW-UP QUESTION:
SPEAKER GINGRICH HAS PROPOSED REPEALING THE 1993 INCREASE IN THE
PERCENTAGE OF BENEFITS SUBJECT TO TAXATION. DO YOU SUPPORT THIS
PROPOSAL?
•
I Believe We Must Resist the Temptation To Say Something About A Social
Security Proposal Now That Would Help 10-15 Percent of Retirees And Goes
Against Our Efforts To Maintain Fiscal Discipline.
•
I Am Also Concerned That This Proposal Would Help 10-15 Percent of Social
Security Recipients While Moving The Insolvency Date ofthe Medicare Trust Fund
Closer For Everyone.
BACKGROUND:
•
The partial tax on Social Security benefits does not apply to seniors with income below
$25,000 if single or $32,000 if married. In 1997, only 25 percent of beneficiaries were
subject to taxes on their Social Security benefits.
o
For those with income above $25,000 if single and $32,000 if married, up to 50 percent
of benefits are taxable. The fund are credited to the Social Security Trust Funds.
o
For those with income above $34,000 if single and $44,000 if married, up to 85
percent of benefits are taxable. The additional revenue from this provision is
credited to the Medicare Trust Fund.
•
One common proposal would extend the tax on Social Security benefits to all persons
subject to Federal income tax by phasing out the current income thresholds. Even if the
thresholds were completed phased out, other provisions in the tax code (e.g., standard
deduction and exemptions) would ensure that 30 percent of beneficiaries (those at the
lowest income levels) would still not have to pay taxes on their benefits.
•
Other proposals would also tax Social Security benefits like other pensions. The proposal
would tax benefits — on an individual-by-individual basis — to the extent that benefits
exceed what workers had paid in. This treatment would mirror the tax treatment of other
defined-benefit pension plans.
•
Making both changes would reduce the long-run imbalance in the Social Security system
by 0.36 percent of payroll - relative to the current gap of 2.19 percent.
�MEANS TESTING
FRAMEWORK FOR ANSWERS:
•
I Believe That Social Security Reform Must Be Fair for All Americans - But We
Most Look At How Fair and Progressive Is A Comprehensive Plan, Not Any One
Provision.
•
For Example, I Am Certainly Not In Favor Of Comprehensive Reforms That Put An
Undue Burden On Lower-Income Americans. I believe the Social Security system must
be progressive and fair to those who need it most. This is one ofthe principles I announced
in Kansas City.
•
I Also Believe That Social Security Should Be A Universal Program. This is also one of
the five principles I put forth in Kansas City. Everyone pays in to the system, and everyone
benefits.
Additional Point to be used ONLY IF NECESSARY:
•
In 1983, President Reagan and Congress Addressed These Concerns — and We Did the
Same Thing in 1993 for Very High Income Beneficiaries. In 1993, as part of our
economic plan, we did ask the top 13 percent of Social Security beneficiaries to include more
of their benefits in taxable income, while protecting the vast majority of beneficiaries from
any such increase.
BACKGROUND:
•
Currently, Social Security benefits are not means-tested. Some proposals would means test
the benefits by reducing them by a given amount for every $1 of income over some
threshold.
•
Subjecting benefits to income tax accomplishes many of the goals of means-testing benefits.
For those with income above $34,000 if single and $44,000 if married, your 1993 Economic
Plan made up to 85 percent of Social Security benefits taxable. The additional revenue from
taxing benefits at 85 percent rather than 50 percent is credited to the HI Trust Fund, not the
Social Security Trust Funds.
•
At various times, we have showed openness to means testing the premium subsidy for highincome beneficiaries in the Medicare program. In Putting People First, we supported means
testing of Medicare - raising Part B premiums for those earning more than $125,000. We
included a similar proposal in the 1994 Health Care plan and we showed openness in 1997
as long as the provision was administratively feasible and did not fully eliminate the
premium subsidy which would have given incentives for higher-income individuals to
"•"ithdrav.'sl n\.t\» die z/..:-".
1
3
�COVERING STATE AND LOCAL WORKERS
FRAMEWORK FOR ANSWER:
•
Clearly An Idea That Is On The Table, But Pros and Cons Need to Be Weighed. This
proposal has been included in many reform plans. But before we reach any conclusions, we
need to study carefully the pros and cons.
Advantages of This Proposal Are:
•
Social Security Coverage Has Expanded Significantly. Since the Social Security Act of
1935, coverage has expanded from workers in business and industry to almost all Americans.
•
State and Local Government Workers Are Final Group Not Covered. Many people
have argued that state and local government employees are the final sizable group of
workers not universally covered (nonetheless, about 70 percent of state and local workers
receive benefits for various reasons). Being covered under Social Security would allow
state and local workers to move from one job to another without losing coverage. Proposals
are to cover newly hired state and local workers, not existing workers.
Disadvantages of This Proposal Are:
•
But Impact on Existing State and Local Programs Needs to Be Carefully Examined. I
know that the impact of the proposal would vary greatly across the nation, and that some
people are concerned about its effect on existing state and local retirement programs. So we
will need to look carefully at this and other proposals over the coming year, tofigureout
which changes are best as part of a comprehensive Social Security reform.
BACKGROUND:
•
Since the Social Security Act of 1935, coverage has expanded from workers in business and
industry to include the self-employed, nonprofit groups, agricultural and household workers,
the Armed Services, Congress, and all other Federal employees hired after 1983. In 1998,
96 percent of all workers are covered under Social Security ~ up from 55 percent in 1939.
•
State and local government employees are the final sizable group of workers not universally
covered by Social Security. If such workers are mandatorily covered under a state or local
public pension system, they are not mandatorily covered under Social Security. Roughly 25
percent of state and local workers are not covered under Social Security. Many of these
workers are in California, Ohio, New York, and Texas. In New Mexico, about 17 percent of
state and local government employees are not currently covered by Social Security.
•
Many proposals would expand mandatory Social Security coverage to state and local
government workers hired after a certain date. Such proposals would close roughly 0.2
percent of the current 2.19 percent gap. Moving newly hired workers out ofthe state and
local orograms that would otherwise cover them could putfinancialpressure on some state
" ami local piugiafris ~ alihougn a grauuai phase-in couid attenuate any such picaauics.
�BACKGROUND ON TEXAS COUNTIES THAT OPTED
OUT OF SOCIAL SECURITY
Between 1979 and 1982, three Texas counties, including Galveston County, opted out of Social
Security. 5000 county workers and retirees instead participate in "The Alternate Plan" which is a
rather typical 403b plan (the public and non profit sector equivalent of a 401k). In 1983,
Congress passed legislation making it impossible for local governments to leave Social Security.
•
Rates of Return Were Lower In Texas Plan. The average annual real rate of return
earned in the retirement portion of the Alternate Plan is very low, probably below 1
percent. Even though contribution rates in the Galveston plan exceed OASDI taxes,
retirement benefits are lower for most workers than they would be under Social Security.
•
I f Survivor/Disability Counted, Social Security Is Even Better Deal. Social Security
provides survivors and disability benefits in addition to retirement benefits. When these
other benefits are taken into account, Social Security appears to be much more generous
than the Alternate Plan (which provides disability insurance and payments to survivors as
well). So again, most workers and their families would have done better in Social
Security.
•
Some Workers Who Double-Dipped Did Better With Texas Plan. Some workers,
particularly those without families, who participated in the Alternate Plan during its initial
years probably got a good deal because they were already entitled to Social Security from
previous years of work. The amount these workers received from the Alternate Plan
appears to exceed the additional Social Security benefit they would have received from
additional years in the Social Security system. But most workers who spent an entire
lifetime in Social Security would be better off than under the Alternate Plan.
•
Some Proponents of Texas Plan Use Misleading Statistics. Some proponents ofthe
Alternate Plan are using misleading statistics to argue that a worker would be better off in
the Alternate Plan than in Social Security. The essence of their error is that they confuse
real and nominal earnings.
�REDUCING COST OF LIVING ADJUSTMENTS
FRAMEWORK FOR ANSWERS:
•
We Are Committed to The Most Technically Accurate Index. The issue of whether we
should change the COLAs in order to better reflect inflation is a legitimate one, but one that
needs to resolved by experts. The administration is strongly committed to using the most
technically accurate index.
•
COLAs Affect Millions of Americans. The COLAs affect 44 million Americans through the
Social Security program, and millions more through other programs (including the tax code).
Any change in the COLAs should be carefully considered to assure that the most vulnerable
elderly and lowest-income retirees are not put in jeopardy.
•
BLS is Making Improvements. The Bureau of Labor Statistics is continuing to make
improvements in the CPI, and many economists believe that they are making good progress.
Alan Greenspan recently testified that the "BLS has done such a good job recently...! must say
- they have done really an excellent job over the last couple of years." According to Janet
Yellen, recent and planned changes will reduce the CPI inflation rate by about 0.33 percentage
point per year more than was previously anticipated.
•
Latest COLA Was 2.1 Percent. Recent COLAs have been relatively small because inflation
has been low. The latest COLA pa>able in the January 1998 benefit check was 2.1 percent for
OASDI benefits.
BACKGROUND:
•
The cost-of-living adjustment within Social Security is set each year on the basis of the increase
in the CPI-W over the year ending in the third quarter of the previous year.
•
In December 1996, the Boskin Commission concluded that the CPI was overstating increases
in the cost of living by 1.1 percentage points per year. Most of the President's economic
advisers believe that the CPI does overstate increases in the cost of living, but that the Boskin
figure was too high.
•
Since the Boskin Commission report was issued, the BLS has been working to address many of
the biases in the CPI. According to Janet Yellen, recent and planned changes would reduce
even the Boskin estimate by about 0.33 percentage point per year - to about 0.8 percentage
point per year.
•
Reducing the COLA by 1 percentag-; point per year reduces lifetime benefits for the average
retiree by roughly 10 percent, and reduces the long-run actuarial imbalance in the Social
Security system by 1.4 percent of taxable payroll (out of current gap of 2.19 percent).
�SOC AL SEC JRITY AND WOIV EN
K E Y FACTS:
•
Women are particularly dependent on Social Security benefits. Unmarried women
(primarily widows) age 65 and over get 51 percent of their total income from Social Security.
Unmarried elderly men get 39 percent, while elderly married couples get 36 percent of their
income from Social Security.
•
Because women bave longer life expectancies than men and often spend years out of the
labor force raising children, reforms may affect them differently. A woman turning 65 in
1998 has a life expectancy of 20 more years; a man can expect to live an additional 16 years.
72 percent of the US population 85 and older are women.
•
On every specific proposal whether it is raising the retirement age, changing the number
of years of earnings that are included in benefit computations, or creating individual
accounts, it is important to examine the impact of the reforms not simply on the average
person but also on different types of people including men and women.
EXAMPLES OF HOW REFORMS WOULD DIFFERENTIALLY IMPACT
WOMEN:
•
Raising the normal retirement age. Women are somewhat more likely to take early retirement.
At age 62, only about 36 percent of women are still in the labor force, compared with 51 percent
of men. If most women continue to take early retirement, then they will receive lower benefits if
the NRA increases. Further, due to their longer life expectancy, women will have a longer period
over which to stretch other resources, which could threaten their economic security.
•
Increasing the number of computation years. Some proposals would increase the number of
years that are included in benefit calculations from the current level of 35. Women are more
likely to have years of zero earnings because they leave the labor force for care giving
responsibilities. An expanded computation period would make it more likely that those zero
earnings years would be used in the computation, which would lower their benefits by an
average of 3.9 percent compared to 3.1 percent for men.
•
Individual Accounts.
o
Women have lower earnings and individual account plans might increase the connection
between earnings and retirement income. Women might not get credit for years out of
the labor force raising children.
o
Surveys indicate that women are on average more conservative investors than men. In
an individual account type system, an individual's investment behavior could become a
key determinant of her retirement benefits.
o
If annuitization of private accounts is required, sex-specific annuities would provide
women with lower monthly amounts because of their higher life expectancy.
o
Decisions about what happens to individual account balances after divorce or death of a
spouse will be critical determinants of how women fare in a system involving individual
accounts. Elderly widowed and divorced women have poverty rates that are almost
twice ine po verty ra*c for z elderly.
W
1
7
�SOCIAL SECURITY AND MINORITIES
RATES OF RETURN FOR AFRICAN AMERICANS:
•
Average incomes for African Americans are lower than for whites. Thus African-Americans
receive a higher than average rate of return on Social Security (because the benefit formula is
progressive). This is somewhat offset by lower life-expectancies: life expectancy at age 65 is
two years less for blacks than for whites.
•
However, a 1993 Treasury study shows that on net. African Americans have a slightly higher
rate of return on Social Security than whites. African Americans also fare relatively better
under the DI program than whites.
•
A recent Heritage Foundation study used a flawed methodology to conclude that African
Americans do worse than whites. Among other errors, the study ignored disability insurance.
RATES OF RETURN FOR HISPANICS:
•
Some argue that Hispanic Americans as a whole are getting a bad deal from Social Security
because the Hispanic population younger than the white population. Thus, Hispanic workers
are paying Social Security taxes to support disproportionately white retirees.
•
Viewed from the more appropriate perspective of a Hispanic worker over his/her lifetime,
Hispanic Americans do better on average than other Americans within Social Security.
Hispanic Americans, on average, have higher life expectancies and lower incomes than other
Americans — both of which boost their rate of return on Social Security.
�
Dublin Core
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Title
A name given to the resource
Michael Waldman
Description
An account of the resource
<p>Michael Waldman was Assistant to the President and Director of Speechwriting from 1995-1999. His responsibilities were writing and editing nearly 2,000 speeches, which included four State of the Union speeches and two Inaugural Addresses. From 1993 -1995 he served as Special Assistant to the President for Policy Coordination.</p>
<p>The collection generally consists of copies of speeches and speech drafts, talking points, memoranda, background material, correspondence, reports, handwritten notes, articles, clippings, and presidential schedules. A large volume of this collection was for the State of the Union speeches. Many of the speech drafts are heavily annotated with additions or deletions. There are a lot of articles and clippings in this collection.</p>
<p>Due to the size of this collection it has been divided into two segments. Use links below for access to the individual segments:<br /><a href="http://clinton.presidentiallibraries.us/items/browse?advanced%5B0%5D%5Belement_id%5D=43&advanced%5B0%5D%5Btype%5D=is+exactly&advanced%5B0%5D%5Bterms%5D=2006-0469-F+Segment+1">Segment One</a><br /><a href="http://clinton.presidentiallibraries.us/items/browse?advanced%5B0%5D%5Belement_id%5D=43&advanced%5B0%5D%5Btype%5D=is+exactly&advanced%5B0%5D%5Bterms%5D=2006-0469-F+Segment+2">Segment Two</a></p>
Creator
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Michael Waldman
Office of Speechwriting
Date
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1993-1999
Identifier
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2006-0469-F
Extent
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Segment One contains 1071 folders in 72 boxes.
Segment Two contains 868 folders in 66 boxes.
Provenance
A statement of any changes in ownership and custody of the resource since its creation that are significant for its authenticity, integrity, and interpretation. The statement may include a description of any changes successive custodians made to the resource.
Clinton Presidential Records: White House Staff and Office Files
Publisher
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William J. Clinton Presidential Library & Museum
Format
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Adobe Acrobat Document
Text
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Original Format
The type of object, such as painting, sculpture, paper, photo, and additional data
paper
Dublin Core
The Dublin Core metadata element set is common to all Omeka records, including items, files, and collections. For more information see, http://dublincore.org/documents/dces/.
Title
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[1998 Kansas City Social Security Conference]: Social Security in New Mexico
Creator
An entity primarily responsible for making the resource
Office of Speechwriting
Michael Waldman
Is Part Of
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Box 8
<a href="http://clinton.presidentiallibraries.us/items/show/36404"> Collection Finding Aid</a>
<a href="https://catalog.archives.gov/id/7763296">National Archives Catalog Description</a>
Identifier
An unambiguous reference to the resource within a given context
2006-0469-F Segment 2
Provenance
A statement of any changes in ownership and custody of the resource since its creation that are significant for its authenticity, integrity, and interpretation. The statement may include a description of any changes successive custodians made to the resource.
White House Staff and Office Files
Publisher
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William J. Clinton Presidential Library & Museum
Format
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Adobe Acrobat Document
Medium
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Preservation-Reproduction-Reference
Date Created
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6/3/2015
Source
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7763296
42-t-7763296-20060469F-Seg2-008-010-2015