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October 6, 2000
The Honorable Trent Lott
United States Senate
Washington, DC 20510
Dear Senator Lott,
As the 106th Congress nears its end, it is imperative that surplus projections do not compromise fiscal restraint and allow harmful bills to be enacted into law. Therefore, on behalf of over 280,000 members of Citizens for a Sound Economy, I urge you to oppose H.R. 4844, "The Railroad Retirement and Survivors' Improvement Act of 2000." This bill recklessly increases railroad retirement benefits while reducing railroad employer contributions at the same time. American taxpayers will be left to foot the bill.
H.R. 4844 would reduce vesting requirements from 10 years to 5, drop the retirement age to 60, repeal the cap on maximum benefits, and expand benefits for widows. These substantial increases in benefits are met with equally substantial cuts in employer contributions. The bill would eliminate a 26.5-cent per hour employer contribution and reduce the employer payroll tax contribution from 16.1 percent to 13.1 percent.
Remarkably, these rewards to contributor and beneficiary alike come in spite of the fact that railroad retirement benefits have exceeded payroll taxes for the past 40 years. This cumulative shortfall is now close to $20 billion and will continue to grow in coming years. According to the Railroad Retirement Board, the railroad retirement system already has a $39.7 billion unfunded liability. Because the railroad retirement system is financed in a pay-as-you-go fashion, the system may appear solvent, but this is largely due to overly optimistic employment assumptions. There is currently one railroad worker for every three retirees. If railroad employment declines as it has since World War II, the industry would need to increase contributions above the current level to maintain solvency.
Perhaps the most troubling part of the bill is that it pretends to pay for itself. The Railroad Retirement Trust Fund currently holds $18 billion in government bonds. H.R. 4844 would cash them in and set up a new Railroad Retirement Investment Trust to invest the money in the stock market. The notion that quasi-governmental trustees should be empowered to invest $18 billion in public funds is very unsettling. But even if we accept the propriety of this arrangement, it is highly unlikely a higher investment return will cover the additional cost of the aforementioned benefits.
To address this concern, the bill also includes an automatic tax increase on railroad employers that, according to actuaries, will take effect in 2020 and raise the payroll tax to 27% by 2027. Not only will this increase fail to ensure the financial sustainability of the system, there is little evidence to suggest that the increase will take place at all. For example, an agreement reached in 1983 raised the railroad retirement age from 60 to 62 to ensure sustained financial viability. This bill would repeal that agreement in favor of the proposed automatic payroll tax increase scheme. By the time 2020 comes around, it is likely that Congress will have already repealed this measure as well.
For these reasons, I urge you to oppose H.R. 4844. The bill would increase taxpayer liability and move the railroad retirement system further away from the goal of a fully funded private pension plan. An $18 billion government bond buyback may seem insignificant in the face of abundant surplus, but it is clear that the problems with the bill extend well beyond its FY 2001 outlay.
cc. The Senate