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Democratic Social Security Reform Plans
Bipartisan Retirement Security Act
• Sponsor: Representatives Jim Kolbe (R-AZ), and Alan Boyd (D-FL)
• Date: February 1, 2005
• Supported by: Charles Stenholm (D-TX), who originally co-sponsored the bill before being voted out of Congress, National Black Chamber of Commerce
• Mentions of private accounts: Proposes creating carve-out personal accounts of 3% of the first $10,000 (indexed to wage growth) and 2% of the remaining taxable earnings for workers under 55 starting in 2006. The accounts are not voluntary. For workers earning les s than $30,000 a year, government matches $150 for the first $1 dollar of additional voluntary contribution and 50% for each additional dollar up to a cap of $600.
• Mentions of benefit reductions: Proposes a redefinition of the CPI; reduction in benefits for those who opt to retire early.
“A Social Security Plan for All”
• Sponsor: Robert C. Pozen
• Date: January 4, 2005 (first draft)
• Supported by: (support is for Pozen’s benefits-indexing approach, not his accounts system) President Bush; think tanks like The Heritage Foundation, Cato Institute, Centrists.org, and the Concord Coalition; Stephen Goss, Social Security's chief actuary
• Mentions of private accounts: Wants Balanced Accounts (BAs). “Workers will be given the choice of allocating to a BA 2% of their wages subject to FICA taxes…up to $3,000 per year (indexed to price inflation over time).” These accounts would be invested in a broadly diversified portfolio.
• Mention of benefit reductions: Pozen is the originator of the idea of “progressive indexing,” which cuts benefits for the middle- and upper-earners. Only the lowest 30 percent of wage-earners would receive benefits based entirely on wage indexing.
Social Security Solvency Act of 2004 [H.R. 5179]
• Sponsor: Representative David Obey (D-Wisconsin)
• Date: September 29, 2004
• Supported by: Robert M. Ball, Brookings Institution
• Mentions of private accounts: None
• Mentions of benefit reductions: Adjust COLA based on a new series that would slow benefit growth
• Other provisions: All taxes on an estate larger than $3.5 million would be transferred to the Social Security trust fund
Saving Social Security: The Diamond-Orszag Plan
• Sponsor: Peter A. Diamond of MIT and Pete R. Orszag of the Brookings Institute
• Date: October 8, 2003
• Supported by: Left-leaning think tanks
• Mentions of private accounts: None
• Mentions of benefit reductions: From Mickey Kaus (Slate):
They cut benefits for the top tier of wage earners, reducing by a third the amount of wages over about $44,000 that get replaced by Social Security at retirement. This change alone saves almost 10 percent of Social Security's shortfall (.18 percent of payroll).
2) In addition, they cut overall benefits gradually to compensate for greater longevity--accounting for half of another .55 percent of payroll--or .27 percent. It's not clear how these cuts would be allocated.
3) In addition, they would impose a "legacy charge" of .97 percent of payroll, more than half of which is financed by benefit cuts, or another .50 percent of payroll.
• Other components: Gradually phase in universal coverage under Social Security, to ensure that all workers bear their fair share of the cost of the legacy debt built into Social Security by the initial retirees who paid little or nothing into the system.
• Note: Never turned into legislation due to lack of political support
Social Security Solvency Act of 2003
• Sponsor: Nick Smith (R-MI), Jim DeMint (R-SC), Jeff Flake (R-AZ), Scott Garrett (R-NJ), Amo Houghton (R-NY), Jim Kolbe (R-AZ), John Shadegg (R-AZ), Charles Stenholm (D-TX), Terry Lee (R-NE), and Patrick Toomey (R-PA)
• Date: September 10, 2003
• Supported by: ???
• Mentions of private accounts: Optional private accounts called personal retirement savings accounts (PRSAs). Private accounts would be financed with money from the payroll tax.
• Mentions of benefit reductions: Increase in retirement age at rate of two months per year from 2000 to 2011 when it would reach age 67 for those attaining age 62 in 2011.
Social Security Stabilization and Enhancement Act of 2001
• Sponsor: Peter DeFazio (D-OR)
• Date: November 16, 2001
• Supported by: ???
• Mentions of private accounts: None.
• Mentions of benefit reductions: Proposes lifting the wage cap for tax, but not benefit, purposes. In effect, a cut in the benefits formula.
• Other components: Invest part of the Trust Fund in marketable securities after 2001, reaching 40% of assets for 2016 and later
21st Century Retirement Act
• Sponsors: Jim Kolbe (R-AZ), Charles Stenholm (D-TX), Allen Boyd (D-FL), Calvin Dooley (D-CA), Nick Smith (R-MI), and Patrick Toomey (R-PA) in the House and Senators John Breaux (D-La.) and Judd Gregg (R-N.H.) in the Senate
• Date: May 13, 1999
• Supported by: ???
• Mention of private accounts: Would divert two percentage points of the Social Security payroll tax on workers under age 55 into mandatory personal savings accounts invested in the stock market.
• Mention of benefit reductions: The retirement age would be increased to 70 in the year 2037 and cost-of-living raises would be cut by 0.5 percent. Would also reduce spousal benefits.
Moynihan-Kerrey Personal Savings Plan For Social Security
• Sponsors: Senators Daniel Patrick Moynihan (D-NY) and Robert Kerrey (D-Neb.)
• Date: March 1998
• Supported by: ???
• Mentions of private accounts: provide every child with a nest egg of $3,500 (apportioned through $1,000 at birth and $500 on each of a child's first five birthdays); an add-on voluntary private retirement accounts; funding would come from general revenues.
• Mentions of benefit reductions: Adopt a ‘more accurate’ cost-of-living adjustment by adjusting CPI.
Gregg-Breaux Individual Savings Accounts (S.1383 Bipartisan Social Security Reform Act of 1999)
• Sponsors: Judd Gregg (R-N.H.) Robert Kerrey (D-NE), John Breaux (D-LA), Charles Grassley (R-IA), Fred Thompson (R-TN), Charles Robb (D-VA), and Craig Thomas (R-WY)
• Date: July 16, 1999
• Supported By:
• Mentions of private accounts: Workers would be allowed to divert 2 percent of their earnings into private accounts, with low-income workers receiving federal matching funds to bolster their contributions. At retirement, a portion of the accounts would be used to offset Social Security benefits. If workers invest their PRA funds in U.S. government bonds, they will be assured of getting a private annuity payment equal to what the current system would have paid. If they make riskier investments (i.e., stocks and corporate bonds), they could receive a higher or lower monthly pension. Also mentions KidSave accounts.
• Mentions of benefit reductions: Reduces COLA by 0.5 percentage points below CPI.
The 21st Century Retirement Security Plan
• Sponsors: National Commission on Retirement Policy of the Center for Strategic and International Studies [members: John Breaux (D-La.), Judd Gregg (R-N.H.), Jim Kolbe (R-AZ), Charles Stenholm (D-TX), Donald Marron (Chairman and CEO of Paine Webber Group), and Dr. Charles A. Sanders (Former Chairman and CEO of Glaxo, Inc.)]
• Date: May 19, 1998
• Supported by:
• Mentions of private accounts: Payroll tax cut of two percentage points for all working individuals under the age of 55, to be directed into Individual Savings Accounts (ISAs). The Commission is persuaded that the accounts will not mean a significant increase in economic risk for beneficiaries, even with conservative estimates on rates of return.
• Mentions of benefit cuts: Raise normal retirement age to 70 by 2029, early retirement age to 67 by 2017, and index both after 2029 to maintain expected years of retirement at an approximately constant level.
• Sponsors: Edward Gramlich, chair of the SSAC
• Supported by: Gene Sperling, one of Bill Clinton's most loyal advisers
• Mentions of private accounts: Increase in payroll taxes of 1.6 percent; this extra money would go into mandatory private accounts. Workers would be offered choices as to how their accounts were invested. Upon retirement, benefits would be paid out in an annuity.
• Mentions of benefit reductions: Reduces benefits across the board (although more so for middle- and upper-income workers), both by increasing the normal retirement age to age 67 by 2012 and then indexing it to changes in longevity, and more so for high-income workers through changes in the benefit formula.
Amendment No. 4016 (Senate – May 20, 1996)
• Proposed by: Simpson (R-WY), Kerrey (D-NE), Brown (R-CO), Nunn (D-GA), and Charles Robb (D-VA)
• Date: May 20, 1996
• Accounts: “Workers should be allowed to divert 2 percent of their total payroll tax into their own personal investment plan as long as there is no effect on the solvency of the social security program”…
• Benefit Reductions: “the consumer price index should be reduced by .5 percentage points so as to more accurately depict the cost of living.”
• Result: Vote was to table amendment, but 16 Democrats votes “nay” (to keep the amendment).
Appendix A: Clinton and Social Security Reform
• January 28, 1998 – Speech in Champagne, IL: Mentions need to reform Social Security; acknowledgment of debt.
• February 9, 1998 – Speech at Georgetown University: “Social Security was conceived as giving a floor for life. It is not enough to sustain the standard of living of almost any retiree retiring today.”
• March 2, 1998 – Remarks to the National Mortgage Bankers Association: “…no matter how we reform Social Security, people have to save more for their retirement.”
• April 7, 1998 – National Forum in Kansas City, MO: “There have to other sources of income. There have to be other sources of private savings. And that is – of course, the possibility that some part of that could come out of Social Security reform is one of the things we’re discussing.”
• July 27, 1998 – Remarks to Regional Congressional Social Security Forum: Discusses pros and cons of individual accounts; discusses plans for private or government-invested accounts
• Clinton supports private accounts: According to Cato:
The Clinton administration spent nearly 18 months secretly studying issues surrounding individual accounts and concluded that:
• Individual accounts were administratively feasible and would likely cost $20-30 per year per account to administer. However, to hold down costs, individual investment choices would have to be limited until accounts accumulated some level of minimum balance, perhaps $5,000.
• Market risks were not a sufficient reason to oppose individual accounts. Administration analysts found that long-term investment was, in reality, relatively safe. The administration also noted that the current Social Security system contains political risks that may well be worse than market risks.
• Concerns over redistribution could be addressed through the adjustment of benefit formulas, matching contributions or other means.
Appendix B: Quotes from Democrats in favor of private accounts or benefit reductions:
• Senator Breaux: "Today's hearing gave the American public a chance to hear an objective and honest assessment of the tough choices facing Social Security," said Sen. Breaux, who called the hearing and who supports private accounts. "Today's testimony allows us to remove ourselves from the political battles and remember why we are debating this issue to begin with - Social Security as we know it is heading for insolvency unless we act and act now."
• Representative Boyd: “Boyd said he sees no chance of raising Social Security taxes or reducing benefits, so new investment strategies would have to be considered.”
• Boyd: “"I have no problem whatsoever with giving people additional ability to invest money in private accounts over and above what's invested in Social Security," Obey says. "But I am very against pulling $2 trillion out of the Social Security system in order to pay for these private accounts."
• Found from National Review January 14, 2005:
In September, Vice President Al Gore went to the Capitol for a Social Security pep rally with congressional Democrats, including House Minority Leader Richard Gephardt, Sen. Edward Kennedy, Sen. Barbara Boxer, and others. Gore said that in coming years--by 2032--"Social Security faces a serious fiscal crisis." Everyone in the group stayed remarkably on-message as they warned that the future was dire.
"Save Social Security first," said Gore.
"Save Social Security first," said Gephardt.
"Save Social Security first," said Kennedy.
"Save Social Security first," said Boxer.
Today, some of those same lawmakers are leading the opposition to President Bush's initiative and no longer fear a crisis in Social Security.
• Speaking on the necessary evil of budget cuts: "I can understand why almost anyone - Republican or Democrat - is not for any plan at the moment," said Wendell Primus of the liberal Center for Budget and Policy Priorities. "But it's very hard to get to a Social Security solvency package when the major two options are off the table."
• Gephardt: "Individual accounts can be part of this answer, but in my view they should be a supplement, not a replacement to Social Security," Gephardt said.
• Moynihan: Under a bill to be introduced in the coming week, Mr. Moynihan would allow workers to divert about 15 percent of payroll taxes into personal savings accounts.
"With this investment provision," Mr. Moynihan said, "workers can build up estates. The fellow who worked at Bethlehem Steel for 40 years would not just have a pension, an annuity, but could leave substantial amounts of money to his children. That's kind of a new America. It responds to the energy that the 'privatizers' have had, without losing your basic annuity."
Appendix C: Roll Call votes of note
Roll Call #56 (105th Congress): To express the sense of the Senate that the Committee on Finance shall consider and report a legislative proposal this year that would dedicate the Federal budget surplus to the establishment of a program of personal retirement accounts for working Americans.
Democrats that voted yea: Breaux, Robb
Roll Call #48 (109th Congress): To express the sense of the Senate that failing to address the financial condition of Social Security will result in massive debt, deep benefit cuts and tax increases.
Democrats that voted yea: Byrd (WV), Nelson (FL), Nelson (NE)
Roll Call #46 (109th Congress): To express the sense of the Senate regarding the urgent need for legislation to ensure the long-term viability of the Social Security program.
Harkin (D-IA) reportedly made a comment that benefit reductions to ¾ of the current plan were acceptable.