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NO.375 P001/013
12/07/98 09:22
CBPP
4569412
CENTER ON BUDGET
AND POLICY PRIORITIES
820 First Street NE. Suite 510
Washington, DC 20002
Telephone: 202/408-1080
Fax: 202/408-1056
E-mail: [email protected]
Website: www.cbpp.org
FAX COVER SHEET
DATE:
Nicole monday Robner
TO:
FAX NUMBER:
456-9412
FROM:
Ellen Nissenbarm
SUBJECT:
55 55/wemen
NUMBER OF PAGES:
(including cover)
Comments: P/S share w/ Sherley, Jenn, etc.
As promised
Better ones on tap
If there are any problems with the transmission of this document,
please call 202/408-1080.
12/07/98 09:22
CBPP 4569412
NO. 375 P002/013
PRESS RELEASE
666 11TH STREET. NW
WASHINGTON. DC 20001
202-783-6686
FAX 202-638-2356
OWL Declares Private Accounts Disastrous for Most Women
For Immediate Release
Contact: Deborah Briceland-Betts
December 2. 1998
202-783-6686
"Private retirement accounts are a prime example of why every effort to change the current
system must be measured by its impact on women. Reforming Social Security by establishing private
accounts would be disastrous for most women," Deborah Briceland-Betts, OWL's Executive Director said
at a press conference of national women's organizations today.
"Private accounts would decimate that system by undermining the redistributive effect of the
program. Women cannot afford to lose a known benefit, with its guarantee of a progressive formula,
and annual increases tied to inflation," she said.
Although a higher percentage of working-age women hold jobs than when Social Security was
first established (60 percent today versus 28 percent in 1940) women's careers continue to be different.
Women still average 11.5 years away from the workforce for caregiving of small children or elderly
parents. And because they remain the primary caregivers, women are also more likely to hold part-time
jobs. Those who work full time still earn only 74 percent of what men earn for same or similar work.
A system of private retirement accounts would continue these differences into retirement. Her
lower earnings and fewer years in the labor force would mean that her contributions to a private account,
on average, would produce very low benefits.
Women live an average of six years longer than men. Women know that their longer lives mean
that their benefits must last longer, and as a result, tend to be more cautious investors than men, and their
already small, safe investments would lead to even smaller returns. Investment accounts would also hurt
those women who live paycheck to paycheck and cannot save, or must spend their small savings before
retirement, often for long term care for a spouse or education for a child. It would also hurt those who,
simply, live too long and outlive their annuitized individual accounts.
Finally, private accounts would cost our nation trillions of dollars. A new, much more costly
administrative structure would have to be established; and, as funds are paid out to individuals instead
of into the Trust Fund, benefits for current retirees would still have to be paid. The only way those costs
could be covered would be through increased taxes, lower benefits--and/or a huge increase in the deficit,
which most likely resulting in the demise of other components of our nation's social insurance program,
such as Medicare.
"We welcome these efforts to explore ideas for ensuring Social Security's solvency for future
generations, because it is a program that has worked for women. We know, therefore, that if proposed
options do not work for America's women, they will not work for anyone. The reverse is not true," said
Briceland-Betts.
OWL, the voice of midlife and older women, is the only national membership organization with
a mission to address issues unique to women as they age. OWL has 15,000 members and 75 chapters
nationwide.
-30-
12/07/98 09:22
CBPP 4569412
NO. 375 P003/013
NEWS
RELEASE
FOR IMMEDIATE RELEASE
Contact: Lisa Cain or Kris Maccubbin
December 2, 1998
202/785-7729 or 7723
AAUW CHALLENGES CONGRESS
TO PROTECT WOMEN IN SOCIAL SECURITY REFORM
Statement by Nancy Zirkin, Director of Government Relations, AAUW
AMERICAN
ASSOCIATION OF
For more than a century, the American Association of University Women (AAUW)
UNIVERSITY
has promoted equity in the workplace, education, and in all aspects of women's lives.
AAUW has long been committed to a Social Security program that improves the
WOMEN
social status and economic security of the elderly. As Congress considers proposals to
reform the current Social Security system, the economic well being and security of
women must be safeguarded.
Fact: women are more dependent on Social Security than men. Women earn less
than men, making only 74 cents for every dollar a man earns. That adds up to an
average of $250,000 over a lifetime-a quarter of a million dollars that women have
not had the opportunity to save or invest for retirement. Add to that the fact that
women spend more time out of the paid work force to raise families and the fact that
women live longer than men, and you have a recipe for disaster if Social Security
reform doesn't protect women.
Fact: women need guaranteed benefits that they can count on. In 1997, the
poverty rate for elderly women was 13 percent. Without Social Security benefits, it
would have been 52 percent. The poverty rate among elderly men is much lower at 7
percent. For many older women, Social Security is their only source of income.
AAUW challenges Congress to make sure that any Social Security reform increases
the stability and security of elderly women with some very simple protections.
Congress must preserve the full cost of living adjustments to protect against inflation.
This provision is particularly important to women because they live longer, rely more
on Social Security, and lack other sources of income.
Congress must maintain a progressive benefit formula. Women and others who earn
low wages over their lifetime must continue to be compensated with a larger share of
their past earnings to protect them from poverty.
Congress must preserve spousal benefits to protect women. Sixty-three percent of
women on Social Security receive benefits based on their husbands' earnings, while
only 1.2 percent of men receive benefits based on their wives' earnings.
And Congress must protect the benefits that go to children and widows in the event of
a premature death or disability of a working parent or spouse. We must protect
women as they grow older. It's the least we can do.
-30-
AMERICAN ASSOCIATION OF UNIVERSITY WOMEN
1111 Sixteenth Street N.W. Washington, DC 20036 202/785-7723 FAX: 202/872-1425 TDD: 202/785
E-MAIL: [email protected] http://www.jauw.org
12/07/98 09:23
CBPP 4569412
NO. 375 P004/013
NATIONAL COUNCIL OF
WOMEN'S ORGANIZATIONS
Formerly known as the Council of Presidents
c/o National Committee on Pay Equity
1126 16th Street, NW
Washington, DC 20036
(202) 331-7343
(202) 331-7406
EMBARGOED UNTIL:
CONTACTS:
11:30 a.m., Wednesday
Jill Braunstein (TWPR) 202/785-5100
December 2, 1998
Roberta Weiner (OWL) 202/783-6686
Harriet Trudell (Fem. Majority) 703/522-2214
Susan Bianchi-Sand (NCPE) 202/331-7343
WOMEN'S ORGANIZATIONS URGE PRESIDENT. CONGRESS TO
"KEEP THE HEART IN SOCIAL SECURITY"
Diverse Coalition Issues Checklist on Women and Social Security Reform
"All proposals to address the future solvency of the Social Security Trust Fund must be viewed
through the eyes of women and assessed for their impact on women, the majority of Social
Security recipients" according to a statement from the National Council of Women's
Organizations, released today at a press conference in Washington, D.C.
In the statement, the National Council of Women's Organizations, which is comprised of women
leaders from over 100 organizations and represents more than six million women, called on the
President and Congress to keep the heart in Social Security by strengthening and preserving the
valuable protections for women under the Social Security system.
"Social Security is women's security," said Susan Bianchi-Sand, Chair of the National Council of
Women's Organizations and Executive Director of the National Committee on Pay Equity. "We
want to ensure that any proposal that compromises these protections is off the table and that
women are at the table when decisions about reform are made.
In order to "Keep the Heart in Social Security" any reform proposal should:
continue to help those with lower lifetime earnings, who are disproportionally women;
maintain full cost of living adjustments;
12/07/98
09:23
CBPP
4569412
NO.375 P005/013
protect and strengthen benefits for wives, widows, and divorced women;
preserve disability and survivor benefits;
protect the most disadvantaged workers from 'across the board' benefit cuts;
ensure that women's guaranteed benefits are not reduced by individual account plans that
are subject to the uncertainties of the stock market;
address the care-giving and labor force experiences of women; and
further reduce the number of elderly women living in poverty.
According to National Council of Women's Organizations statement, "Proposals to divert
workers' current payments from the Social Security system into individually-held, private
accounts, whose returns would be dependent on volatile investment markets and would not be
guaranteed to keep pace with inflation nor provide spousal benefits (including benefits to widows
and divorced women), would reduce the retirement income of many women."
Other speakers at the press conference included: Deborah Briceland-Betts, Executive Director,
Older Women's League; Heidi Hartmann, Director, Institute for Women's Policy Research; Liz
Kramer, Policy Associate, 2030 Center; Eleanor Smeal, President, Feminist Majority; Gail
Shaffer, Chief Executive Officer, Business and Professional Women, BPW/USA; Jane Smith,
President, National Council of Negro Women; Nancy Ibarra, a 47-year-old widow; Clarissa
Cummins, a 90-year-old retiree; and Sandra Yates, a 40-year-old single-parent.
The National Council of Women's Organizations is a non-partisan network comprised of the
leaders of over 100 women's organizations, which together represent more than six million
women. Organizational members focus primarily on illuminating and promoting public policies
that address women's needs.
###
For a copy of the statement and the Women's Checklist on Social Security Reform, contact the
Institute for Women's Policy Research (IWPR) at 202/785-5100 or visit their website at
http://www.iwpr.org.
NO.375 P006/013
NATIONAL COUNCIL OF WOMEN'S ORGANIZATIONS
Formerly known as the Council of Presidents
c/o National Committee on Pay Equity
1126 16th Street, NW, Washington, OC 20036
Tel: (202) 331-7343, Fax: (202) 331-7406
Women and Social Security - Statement and Checklist
KEEP THE HEART IN SOCIAL SECURITY
Social Security is a woman's issue. Since its inception in 1935, Social Security has often been the only income source keeping women from living out
their days in poverty. Today while women's lives have changed, they are still over-represented in the lowest wage jobs and eam only 74 percent of what
men earn. Women leave the labor force for an average of 15 percent of their working careers, primarily to fulfill responsibilities as caregivers to their
children, spouses, or elderly family members. And, in addition, they live an average of seven years longer than their male counterparts.
Social Security has worked for women because it is a program where
Proposals to divert workers' current payments from the Social Security
every worker pays in, and every retired worker receives a benefit she can
system into individually-held, private accounts would significantly damage
count on every month for her entire life, with the added comfort of knowing
women's retirement income. The returns on individual accounts would be
that benefit will be increased regularly to meet inflation.
dependent on the risks of volatile investment markets and would not be
guaranteed to keep pace with inflation nor provide spousal benefits, widow's
Women also greatly benefit because lower earning workers receive a
benefits or benefits for divorced spouses-all of which are special features of
larger proportion of their earnings in benefits than those who earn more. In
the current Social Security system. Since Social Security provides the core
addition, many women also receive spousal and survivor benefits based on
of women's retirement income, without the guarantees of a shared insurance
their husband's (or former husband's) earnings record. These benefits
pool, cost-of-living increases, and spousal and lifetime benefits, many
12/07/98 09:24 CBPP 4569412
T
protect many retired wives, widows, and divorced women from poverty.
women could easily outlive their assets.
Retired workers' minor children also receive benefits.
We believe that women must play a significant role in shaping Social
The Social Security system also provides life and disability insurance
Security for future generations. All proposals to address the future solvency
that protects workers and their families. Disabled workers receive benefits
of the Social Security Trust Fund must be viewed through the eyes of women
and children (and the parent who takes care of them) receive benefits when
and assessed for their impact on women, the majority of Social Security
a working parent dies prematurely or becomes disabled before retirement.
recipients. Remaining inadequacies for women in the current system also
Two out of five of today's 20 year olds will face premature death or disability
must be addressed. If we strengthen the Social Security system SO that it works
before reaching retirement age.
well for women, we will have a system that works well for all Americans.
WOMEN'S CHECKLIST ON SOCIAL SECURITY REFORM
NO.375 P007/013
KEEP THE HEART IN SOCIAL SECURITY
Social Security is the heart of our nation's social insurance program, providing universal coverage for workers and their families through the pooling of resources that
guarantees benefits to all. Check each reform proposal to see il it meets the women's check test.
DOES THE REFORM PROPOSAL
number of years of work history used in calculating benefits would disproportionatel hurt
those with the most physically demanding or stressful jobs who cannot work more years,
CONTINUE TO HELP THOSE WITH LOWER LIFE-TIME EARNINGS, WHO ARE
as well as those who have low life-time earnings, Including many women (because
DISPROPORTIONATELY WOMEN?
move in and out of the labor force 10 provide family care), minorilies, temporary, seisonal
Social Security's benefit formula Is structured so that the lowest paid workers receive
and part-time workers, agricultural workers, and the chronically under and unemployed.
benefits that replace a higher proportion of their pre-retirement earnings than higher-wage
These workers are also unlikely to have other employer-provided retirement benefits.
workers. Many of the lowest paid workers also have no pensions from their jobs. Any
reform must retain this feature benefitting lower-paid workers.
ENSURE THAT WOMEN'S GUARANTEED BENEFITS ARE NOT REDUCED BY
INDIVIDUAL ACCOUNT PLANS THAT ARE SUBJECT TO THE UNCERTAINTIES OF
THE STOCK MARKET?
MAINTAIN FULL COST OF LIVING ADJUSTMENTS?
Proposals to divert workers' current payments from the Social Security system into
Social Security's annual cost-of-living increase (COLA), which is indexed to inflation, is a
individually-held, private accounts, whose returns would be dependent on volatile
crucial protection against the erosion of benefits. Because women live longer than men,
investment markets and would not be guaranteed to keep pace with inflation nor provide
on average, and rely more on Social Security since they often lack other sources of
spousal benefits (including benefits to widows and divorced women), would reduceihe
retirement income, this provision Is particularly important to women. Even when
retirement income of many women. Without the guarantees of a shared insurance pool,
employment-based pension income is available, it is rarely inflation-protected.
cost-of-living increases, and spousal and litetime benefits, many women could easily
outlive their assets.
PROTECT AND STRENGTHEN BENEFITS FOR WIVES, WIDOWS, AND DIVORCED
WOMEN?
ADDRESS THE CARE-GIVING AND LABOR FORCE EXPERIENCES OF WOMEN?
Social Security's family protection provisions help women the most. Social Security
provides guaranteed, inflation-protected, life-time benefits for the wives of retired workers,
The Social Security system is based on marriage and work pattems that have changed.
Currently, the benefit formula, which generally helps those with low life-time earnings, also
widows, and many divorced women, many of whom did not work enough at high enough
favors those with 35 years of labor force participation, years which many women tack
CBPP 4569412
wages to eam adequate benefits on their own accounts. (Similarly low-earning men
because of family care-giving. Moreover, the effects of sex-based wage discriminaton
married to higher-earning women also have these protections; however, while 63 percent
during their working years are not fully offset by the more generous treatment low amers
of female Social Security beneficiaries aged 65 and over receive benefits based on their
husbands' earning records, only 1.2 percent of male Social Security beneficiaries aged 65
receive. Such issues as divorce, taking time out of the workforce for caregiving, the
differences in current benefits between one and two-earner couples, and the Inadequacies
and over receive benefits based on their wives' earning records.)
in benefits for surviving spouses must be considered at the same time that solutions to
strengthening the financial soundness ol the system are being sought.
PRESERVE DISABILITY AND SURVIVOR BENEFITS?
Social Security provides benefits to 3 million children and the remaining care-taking parent
FURTHER REDUCE THE NUMBER OF ELDERLY WOMEN LIVING IN POVERTY?
12/07/98 09:25
in the event of the premature death or disability of either working parent. Spouses of
Social Security has helped reduce poverty rales for the elderly, from 35 percent in 1959 to
disabled workers and the widows (or widowers) of workers who died prematurely also
less than 11 percent in 1996. In 1995, the poverty rate for all women over the age of 65
receive guaranteed life-time relirement benefits. Two out of five of today's 20 year olds
was 13.6 percent while the poverty rale among women aged 65 or older who lalone
will face premalure death or disability before reaching retirement age.
was 23.6 percent. Without Social Security, the poverty rate for women over 65 would
have been an astonishing 52.9 percent. Nevertheless unmarried women still suffer
PROTECT THE MOST DISADVANTAGED WORKERS FROM "ACROSS-THE-
disproportionately; single, divorced, and widowed women aged 65 or older have a poverty
BOARD" BENEFIT CUTS?
rate of 22 percent, compared with 15 percent for unmarried men and 5 percent for women
Some proposed "across-the-board" benefit cuts such as raising the retirement age or the
and men in married couples.
12/07/98
09:26
CBPP
4569412
NO. 375 P008/013
NATIONAL COUNCIL OF
WOMEN'S ORGANIZATIONS
Formerly known as the Council of Presidents
c/o National Committee on Pay Equity
1126 16th Street, N.W.
Suite 411
Washington, D.C. 20036
(202) 331-7343
(202) 331-7406
Statement of Susan Bianchi-Sand, Chair
NATIONAL COUNCIL OF WOMEN'S ORGANIZATIONS
SOCIAL SECURITY PRESS CONFERENCE
December 2, 1998
Welcome. Thank you for coming.
I am Susan Bianchi-Sand, Chair of the National Council of Women's Organizations
(NCWO).
The NCWO is a coalition of over 100 leaders from organizations dedicated to
advancing equity for women and girls. The Council membership groups reach more
than 6 million women.
The face of Social Security has a uniquely woman's profile. Women's financial
circumstances and economic vulnerabilities are facts that make any discussion of Social
Security reform a critical issue for the National Council.
Women earn less and live longer than men. Women and their families rely on social
security as a major portion of fundamental retirement security; and when disability
benefits are necessary, it help bring some normalcy to their lives.
With this press conference, the NCWO is launching a year-long organizing and
educational campaign to "Keep the Heart in Social Security." We will develop
coordinated fact sheets, educational materials, lobby days, town meetings and video
tapes to reach our constituents and our communities.
Leaders will meet with members of Congress and agency officials. Last week we met
with Gene Sperling in the White House.
Social Security will be our number one policy issue for 1999. This effort will be
headed by Heidi Hartmann, President of the Institute for Women's Policy Research.
Her task force includes women leaders and organizations who have been active on this
issue for years.
Our concerns include not only the adequacy but the equity of Social Security.
A unified position paper following the guidelines and principles described on the visual
will be developed and circulated to all parties.
Reform must:
Continue to help those with lower lifetime earnings;
Maintain full cost of living adjustments;
A bipartisan network of leaders from over 100 organizations representing more than six million women.
NO.375 P009/013
Embargoed until:
11:30am Wednesday, December 2
Women's Checklist on Social Security Reform
KEEP THE HEART IN SOCIAL SECURITY
Does the Reform Proposal ...
Continue to help those with lower lifetime earnings, who are disproportionately
women?
Maintain full cost of living adjustments?
Protect and strengthen benefits for wives, widows and divorced women?
Preserve disability and survivor benefits?
12/07/98 09:27 CBPP 4569412
r
Protect the most disadvantaged women from 'across the board' benefit cuts?
Ensure that women's guaranteed benefits are not reduced by individual account
plans that are subject to the uncertainties of the stock market?
Address the care giving and labor force experiences of women?
Further reduce the number of elderly women living in poverty?
12/07/98
09:27
CBPP
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NO.375 P010/013
Contact: Communications Officer
202-293-1100
Fax: 202.861.0298
BPW/USA
WOMEN
FACT SHEET
BPW/USA
Business and Professional Women/USA. founded in 1919. promotes equity for all women in the
workplace through advocacy, education and information. With 70,000 members in more than 2,000
local organizations represented in every congressional district in the country. BPW/USA includes
among its members women and men of every age, race. religion. political party and socio-
economic background.
MEAN
BPW/USA monitors federal legislation that affects working women and educates its members to
BUSINESS
become involved in public policy development in their own workplaces. and at the local, state and
federal government levels. As among the first of the women's organizations to endorse the Equal
Rights Amendment in 1937, BPW/USA has been 3 leader in passing key legislation effecting
working women including:
Business and
The Women's Business Ownership Act
Equal Pay Act of 1963
Professional
Violence Against Women Act of 1994
The Retirement Equity Act of 1984
The Civil Rights Act of 1964
Family and Medical Leave Act of 1993
Women/USA
Title IX of the Civil Rights Act 1964
2012 Massachusetts Ave NW
Legislative
BPW/USA annually releases its national legislation platform. which includes planks
Washington, DC 20036
Platform
that call for:
202.293.1100
Fax. 202.861.0298
Economic Equity
Ensure pay equity, equal educational and economic opportunities at all stages of life; and promote
affordable, quality dependent care to help ensure cconomic sclf-sufficiency for women.
Health
Ensure reproductive choice and full access to all reproductive health services and education; ensure
funds for research into and protections for women's health care needs; and encourage the
development of a national health care plan recognizing the special health care needs of women.
Civil Rights
Ensure equal rights and remedies for women in all phases of their lives: support affirmative action:
eliminate sexual harassment and violence against women.
BPW's political action committee, the BPW/PAC, provides contributions and endorsements to
women and pro-women candidates who support BPW's legislative priorities.
The BPW
BPW's Foundation collects, conducts and analyzes research on issues affecting women in
Foundation
the workplace while providing financial assistance for women to further their education.
The Foundation, which has awarded over 55 million in scholarships. loans and grants to almost
8, 000 women, raises money to educate women who need additional skills to advance in their
careers or re-enter the workforce. The Foundation's Marguerite Rawalt Resource Center. one
of the nation's first and most comprehensive libraries dedicated to working women's issues, serves
35 a reference source of information for members and over 200 other libraries across the country.
Events
National Business Women's Weck. October 19-23, 1998
The
BPW Foundation Academic Symposium, Nov. 6-7, 1998, Boston, MA
Leading
Policy & Action Conference, Feb. 4.7, 1998, Washington, D.C.
Women Mean Business Awards. Feb. 5. 1998, Washington, D.C.
Advocate
1999 Annual Conference, July 15-22. Rochester, NY
for
Working
Women
12/07/98
09:28
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NO. 375 P011/013
News Release
STATEMENT OF HEIDI HARTMANN
President and Director
Institute for Women's Policy Research
Chair, Working Group on Social Security
National Council of Women's Organizations
Today the National Council of Women's Organizations launches its campaign to "Keep the HEART in Social
Security." Social Security has a heart--it is our society's way of caring for each other financially. Women have
given their hearts to their families and their country, and Social Security, which provides guaranteed, life time
retirement benefits is one way our country gives something back to women. Because women live longer than
men, women are the majority of Social Security recipients-60 percent overall, and the vast majority of the oldest
recipients, 72 percent of those over 85. For many retired women, more than half of non-married women, for
example, Social Security is their primary means of support. Thus, Social Security is a women's issue.
Today we want to emphasize three central themes.
First, there are many protections for women in the current Social Security system. Our campaign will educate
our members, members of the public, and members of the Congress about these benefits for women: among
them, higher relative benefits for lower earners and, for women whose own benefits as workers would be small,
benefits as the wives, widows, and divorced wives of retired or deceased working men. And the protections for
the minor children of disabled and deceased workers are very important to all parents, especially mothers who
are most often the remaining caretaker of the children.
Second, every reform proposal that is considered must be evaluated in terms of its impact on women. Since
women and men have different life experiences and different work experiences, virtually any public policy affects
women differently than it affects men. Social Security is no exception. As much as Social Security has done to
reduce poverty among older women, it still doesn't do enough. Older women are still much more likely to be
poor than older men (13 percent poor for women vs. 7 percent poor for men). We'd like to see improvement in
the economic status of older women, and we will be looking at every proposed reform to see if it brings that
improvement to older women's lives.
Third, because Social Security is such an important issue for women and because any proposed reform will affect
women differently than it does men, we insist that women leaders have a seat at the table when decisions about
reform are made. Because of their different life experiences, women have different attitudes towards reform-for
example, women are more averse to risky private investments and more willing to pay higher taxes to improve
the financial soundness of the system. Among women, 73 percent opposed privatization in a September NBC
poll compared to 58 percent of men, while 67 percent of women VS. 58 percent of men said they'd rather pay
higher taxes than cut benefits in an October 1997 poll by the Americans Savings Education Council. Therefore
women's views on appropriate reform must be heard. Still underrepresented in Congress. we call upon the
President and the Congress to make sure women leaders are involved in the decision making.
12/07/98
09:29
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NO.375 P012/013
FEMINIST MAJORITY
Working for Women's Equality
Eleanor Smeal
President
Pcg Yorkin
Chair of the Board
FOR IMMEDIATE RELEASE
CONTACT:
Harriet Trudell
Kacherine Spillar
December 2, 1998
Justine Andronici
National Coordinator
(703)522-2214
WOMEN MUST BE AT CENTER STAGE
IN SOCIAL SECURITY DEBATE
Washington D.C. Office
Feminist Majority Opposes Reforms that Disadvantage Women,
1600 Wilson Boulevard
Suite 801
Urges Improvements in Treatment of Women
Arlington. VA 22209
703 522 2214
WASHINGTON, D.C. -- Joining with other leaders of the National Council of
703 522 2219 fx
Women's Organizations, Feminist Majority President Eleanor Smeal called upon the
Clinton Administration and Congress to move women and women's issues to the center
stage of the social security debate.
West Coast Office
8105 West Third Street
Los Angeles, CA 90048
"Women cannot be a side issue in the social security debate. Women are the
213 651 0495
main issue. Our concerns must be at center stage. The majority of social security
213 653 2689 fx
recipients are women. Social security is the major source of retirement income for the
majority of women. Women's advocacy organizations, experts on women and social
Web Site:
security, and feminist think tanks must be well-represented at the table as reforms and
http://www.feminisc.org
the future of the social security system are debated," stated Smeal.
E-mail:
[email protected]
In addition to women's advocates being at the table, Smeal urged the
consideration of improvements to the social security system which would strengthen the
system for women and eliminate inequities. "As absolutely crucial as the social security
system is to women's economic security, the system is based on demographics of
marriage and work patterns which have changed. As a result, there is a substantial
benefit gap between male and female social security recipients. Retired women workers
receive an average of $621 in monthly benefits compared with retired men workers who
receive an average of $810 per month.
"Women are penalized for their traditional care-taking roles. For example,
leaving the labor force to provide care to children or elderly parents dramatically lowers
women's lifetime average earnings and, in turn, their social security benefit payouts.
And women are penalized as wage earners. Social Security taxes lower income
workers, who are disproportionately women, at a higher average rate because the tax is
levied currently on only the first $68,400 of income. Moreover, wage discrimination
against women in the labor market not only keeps most women as lower income
earners, but also results in lower social security benefits," said Smeal.
Smeal continued, "In adopting reforms, every reform must be assessed for its
impact on women. For example, increasing the number of work years used as a base
for the calculation of benefits from 35 to 38 disadvantages women who take time out of
the workforce to take care of family members. We must use this opportunity of
reforming social security to strengthen it for women." Among the possible reforms
which Smeal said merited consideration to improve the treatment of women were:
12/07/98 09:30
CBPP -> 4569412
NO. 375 P013/013
Establishing earning sharing allocating 50% of both spouses' earnings to each
spouse so that each individual pays into the social security system and collects
benefits in her or his own right.
Crediting, rather than penalizing, individuals providing child care or elderly care for
their families.
Changing distribution of spousal and primary earner benefit to 75% of total benefit
for spouse and 75% of total benefit for primary earner. Currently, the primary earner
receives 100% and the spouse 50%.
Raising the cap on social security taxes in order to remove the additional tax burden
on secondary wage earners.
For more information or to schedule interviews, contact Justine Andronici or
Harriet Trudell at 703-522-2214.
- 30 -
CENTER ON BUDGET
AND POLICY PRIORITIES
Ellen Nissenbaum
Tel: 202-408-1080
Legislative Director
Fax: 202-408-1056
[email protected]
http://www.cbpp.org
HNOO26
820 First Street, NE, Suite 510, Washington, DC 20002
21
SCHEDULE FOR FIRST DAY OF
WHITE HOUSE CONFERENCE ON SOCIAL SECURITY
All times are tentative.
DECEMBER 8, 1998
Location: Marriott Wardman Park Hotel
10:00-11:00: OPENING SESSION WITH PRESIDENT CLINTON, VICE PRESIDENT
GORE, AND MEMBERS OF CONGRESS. (Open Press)
Speaking Program:
-
President Clinton
-
Vice President Gore
-
Speaker Livingston
-
Minority Leader Gephardt
-
Senator Trent Lott
-
Senator Tom Daschle
11:00-11:45: PANEL -- -THE CHALLENGES OF SOCIAL SECURITY REFORM:
WHY WE NEED To ACT Now, THE BUDGET SURPLUS, AND SOCIAL SECURITY
REFORM (Open Press)
Presenters:
-
Frank Raines and Carol Cox Wait: Discuss why we need to act now (e.g., the
problem and how acting sooner helps address it), fiscal issues, and Social
Security reform.
Moderator:
-
Gwen Ifill --NBC
-
Susan Page USA Today
Format:
-
Like regional forums, President, Vice President, and other Congressional
leaders would be on stage. Raines and Cox Wait would make 5-8 minute
presentations and then would take questions from the audience (moderated
by Susan Page). Prinicipals would participate in answering audience
questions as appropriate.
Topics Presentations Should Cover:
-
Problem facing Social Security and its causes.
-
Why we need to act now (e.g., changes can be modest)
-
Benefits of changed budget position for Social Security reform
-
Additional benefits of Social Security reform on budget.
11:45-1:15: LUNCH BREAK.
1:15-2:30: PANEL --THE CHALLENGES OF SOCIAL SECURITY REFORM:
INVESTING IN EQUITIES. (Open Press)
Presenters:
-
Henry Aaron and Carolyn Weaver: Discuss opportunities and challenges of
investing the Trust Fund in equities.
-
Bob Ball and Jose Pinera: Discuss opportunities and challenges of Individual
Accounts.
Moderator:
-
Gwen Ifill --NBC
-
Susan Page -- USA Today
2:30-3:15: PANEL --THE CHALLENGES OF SOCIAL SECURITY REFORM:
IMPACT OF REFORM ON DIFFERENT SEGMENTS OF THE POPULATION (Open
Press)
Presenters:
-
Alicia Munnell and Larry Bossidy: Impact on women, minorities, people with
disabilities, and business.
-
Martha McSteen and Richard Thau: Impact on young and old.
Moderator:
-
Gwen Ifill --NBC
-
Susan Page USA Today
3:30-5:00: OFF-THE-RECORD BREAKOUT SESSIONS TO PROVIDE
CONFERENCE PARTICIPANTS THE OPPORTUNITY TO SPEAK DIRECTLY WITH
KEY ADMINISTRATION OFFICIALS AND MEMBERS OF CONGRESS. (Closed
Press)
Format:
-
Senior Administration officials would be paired with bipartisan members of
Congress, and would lead informal discussions among conference
participants about the process and substance of reform. (These sessions
would be off-the-record.) Conference participants would be assigned to each
of the 5 breakout sessions. Discussion leaders would kick-off informal
discussions with a quick statement of their choosing and then would open the
floor to comments from conference attendees.
SCHEDULE FOR SECOND DAY OF
WHITE HOUSE CONFERENCE ON SOCIAL SECURITY
DECEMBER 9, 1998
Location: The White House
9:00-12:15: Two WORKSHOPS TO EDUCATE KEY ADMINISTRATION
OFFICIALS AND MEMBERS OF CONGRESS ON THE IMPORTANT ISSUES IN
SOCIAL SECURITY REFORM. (Closed Press)
Presenters:
-
Workshop #1: Ken Kies and Bob Greenstein
-
Workshop #2: Martin Feldstein and Robert Reischauer
Location:
-
Indian Treaty Room and Vice President's Ceremonial Office
Format:
-
The first workshop would go from 8:30-10:00. There would then be a
15-minute break and the next workshop would go from 10:15-11:45. Each
group would rotate through the following two workshops.
Participants:
-
Congress would appoint 48 members (12 each from the House and Senate
Democrats and Republicans) and we would appoint 12 Administration
officials. We would then split up into 2 groups of 30.
12:30-1:00: CLOSING SESSION AT THE WHITE HOUSE WITH PRESIDENT
CLINTON, VICE PRESIDENT GORE, AND MEMBERS OF CONGRESS. (Open
Press)
Format:
-
Kies, Greenstein, Feldstein, and Reischauer each make 4 minute
presentations to the President, Vice President and Congressional leaders in
VP's Ceremonial Office (Closed Press).
-
President, Vice President, and Congressional leaders ask any questions of
presenters or Members.
-
Pool spray enters room.
-
President, Vice President, and Congressional leaders make short remarks.
CENTER ON BUDGET
AND POLICY PRIORITIES
September 9, 1998
HOW WOULD VARIOUS SOCIAL SECURITY REFORM PLANS
AFFECT SOCIAL SECURITY BENEFITS?
An Analysis of the Congressional Research Service Report
by Kilolo Kijakazi and Robert Greenstein
Summary
In June of this year, Rep. Charles Rangel, ranking member of the House Ways
and Means Committee, released a Congressional Research Service analysis he had
requested on the extent to which three Social Security reform proposals would reduce
defined Social Security benefits. The three plans include:
the bill introduced by Senators Daniel Patrick Moynihan and Robert
Kerrey (S. 1792);
a proposal by the National Commission on Retirement Policy, a panel of
Members of Congress and private citizens organized by the Center for
Strategic and International Studies (legislation recently introduced in the
Senate by Senators Judd Gregg, John Breaux and a few other senators -
S. 2313 - and in the House by Reps. Jim Kolbe, Charles Stenholm, and
others - H.R. 4256 - is based on the NCRP proposal); and
a May 1998 proposal by Robert Ball, commissioner of the Social Security
Administration under Presidents Kennedy, Johnson, and Nixon and a
member of the 1994-1996 Social Security Advisory Council.
The CRS analysis was not designed to be a comprehensive analysis of all
components of these three plans, but rather an assessment of an important issue - the
degree to which the "defined," or guaranteed, benefits that beneficiaries would be
assured of receiving through the Social Security system would change under the three
plans. Accordingly, the study does not examine the retirement income that could be
generated by individual accounts, which the three plans all contain in differing forms.
1
The CRS analysis finds that the Social Security benefits guaranteed under the
three plans vary greatly.
1
The analysis also does not examine changes in payroll taxes or the effects of a few features of the
plans, such as proposals in some plans to eliminate the Social Security earnings test.
F.\reseerch\klolo\CRSANAL1.WPD
820 First Street, NE, Suite 510, Washington, DC 20002
Tel: 202-408-1080 Fax: 202-408-1056 [email protected] http://www.cbpp.org HN0026
Over the next 75 years, average Social Security benefits would be 23
percent lower under the NCRP plan than under the current benefit
structure, 16 percent lower under the Moynihan-Kerrey plan than under
the current benefit structure, and six percent lower under the Ball plan. 2
In other words, the CRS analysis finds that the reduction in guaranteed
Social Security benefits would be approximately four times larger under
the NCRP plan than under the Ball plan and nearly three times greater
under the Moynihan-Kerrey plan than under the Ball plan.
As noted, these figures are 75-year averages. The depth of the reductions in
Social Security benefits, as well as the differences among the three plans in the size of
the defined benefit reductions, would grow significantly as the years pass. The CRS
study reports the results of analyses the Social Security actuaries have conducted of the
three plans:
In 2025, the Social Security benefits received by average wage-earners
who retire at age 65 would be 33 percent lower under the NCRP plan than
under the current Social Security benefit structure. They would be 11
percent lower under the Moynihan-Kerrey plan than under the current
benefit structure and about one percent lower under the Ball plan.
By 2070, the Social Security benefit reductions would be considerably
deeper. The Social Security benefits of average wage-earners retiring that
year at age 67 would be 48 percent lower under the NCRP plan than
under the current benefit structure, meaning that the guaranteed benefit
would be cut about in half. Under the Moynihan-Kerrey plan, the
average benefit for an individual retiring in 2070 at age 65 would be
2
These estimates reflect the effects of provisions in the Ball and Moynihan/Kerrey plans to increase
the taxation of Social Security benefits, since such measures are a benefit reduction from the
beneficiary's perspective. The figures subsequently cited for the percentage benefit reductions for
individuals retiring in 2025 and 2070, however, do not include the taxation-of-benefit provisions; the
memorandum prepared by the Social Security actuaries that CRS used in conducting its analysis did not
include the effects of those provisions when examining benefit reductions for individuals retiring in
given years. This is the principal reason that while the Ball plan would reduce total Social Security
benefits an estimated six percent over the next 75 years, the benefit reduction for an individual retiring
in 2025 is estimated at one percent. (Ball subsequently presented a proposal to the House Ways and
Means Committee in testimony on June 3, 1998 that dropped the taxation-of-benefits provision included
in the Ball proposal analyzed here.)
2
Table 1
Estimates by the Social Security Actuaries of Benefit Reductions for Average-Wage
Earners Under the Three Plans¹
Year of Retirement
Moynihan-Kerrey
NCRP
Ball
2025
11%
33%
1-2%
2070
22%
48%
1-2%
Source: SSA actuaries estimates, as reported by CRS
1 These estimates reflect benefit reductions in the year of retirement for beneficiaries retiring at age 65,
except that the estimates for the NCRP plan in 2070 reflect benefit reductions for individuals retiring at
age 67. The SSA actuaries did not prepare estimates of the effects of the NCRP plan in 2070 for
individuals retiring at age 65. These estimates do not include the effects of certain features of these plans,
including changes in the taxation of Social Security benefits and in the length of the earnings averaging
period that is used to compute Social Security benefits. These estimates also do not reflect the effects on
retirees as they grow older of provisions reducing cost-of-living adjustments.
reduced by 22 percent, or more than one-fifth. 3 The benefit reduction
percentage would remain very small under the Ball plan. (See Table 1.)
(Note: Under the NCRP plan, reductions in Social Security benefits would
be smaller for low-wage earners than to average-wage earners due to
establishment of a new Social Security minimum benefit. According to
the CRS study, the reduction in Social Security benefits for a low-wage
earner retiring in 2025 at age 65 would be 13 percent under the NCRP
plan. The reduction for a low-wage earner retiring at 67 in 2070 would be
31 percent. In conducting this analysis, CRS defined a low-wage earner as
one who earned 45 percent of the average wage throughout his work
career; currently, 45 percent of the average wage is $12,552.4)
The CRS study also explains that under the three plans, there would be
additional reductions in guaranteed benefits as beneficiaries grow older after
retirement, due to changes the plans make in procedures either for computing annual
Social Security cost-of-living adjustments or for measuring changes in the Consumer
Price Index on which the cost-of-living adjustments depend. The additional reductions
3
The memoranda prepared by the Social Security actuaries that CRS used in conducting its analysis
do not provide data on the percentage reduction in benefits for workers retiring at age 67 under the
Moynihan-Kerrey plan.
4
Individuals with earnings lower than 45 percent of the average wage would face smaller Social
Security benefit reductions in the NCRP plan if they worked a sufficient number of years. The minimum
benefit for a very low-wage worker under the NCRP plan could exceed the benefit the worker would
receive under current law.
3
are largest in the Moynihan-Kerrey plan, which sets annual cost-of-living adjustments
below the Consumer Price Index. The additional reduction is much smaller in the other
two plans and smallest in the Ball plan, which would result in the measured CPI being
slightly lower but would maintain the cost-of-living adjustment at the CPI level. 5 CRS
projects that as a result of these provisions, benefits would decline between age 65 and
age 80 by an additional 13 percent under the Moynihan-Kerrey plan, an additional
seven percent under the NCRP plan, and an additional four percent under the Ball
plan. For those living into their early 90's, the additional benefit reductions would be
nearly twice this size.
It should be noted that the figures shown in Table 1 reflect reductions in Social
Security retirement benefits. Under the legislation embodying the NCRP and
Moynihan-Kerrey proposals, there also would be substantial reductions in Social
Security disability and survivors benefits, because the changes in the Social Security
benefit formula and cost-of-living provisions would apply to disability and survivors
benefits as well as to retirement benefits. 6
Finally, the study finds that all three plans would fully restore long-term, or
75-year, actuarial balance to the Social Security system. The actuaries of the Social
Security system project that the system faces a deficit over the next 75 years equal to
2.19 percent of taxable payroll. The NCRP plan results in a saving of 2.23 percent of
taxable payroll over this period. The Moynihan-Kerrey plan saves 2.25 percent of
taxable payroll. The Ball plan saves 2.33 percent.
5
Under the Moynihan-Kerrey plan, the annual cost-of-living adjustment would be set one percentage
point below inflation as measured by the CPI. The Ball plan would keep the cost-of-living adjustment at
the CPI, but directs the Bureau of Labor Statistics to update the market basket on which the CPI is based
no less frequently than every five years instead of every 10. CRS estimates that would be equivalent to
reducing the cost-of-living adjustment by three-tenths of one percentage point per year. The legislation
on which the NCRP plan is based calls for development of a new Social Security CPI that would be
lower than the regular CPI to the extent that the Bureau of Labor Statistics estimates the regular CPI
contains "substitution bias." If BLS concluded that the measures it announced in April 1998 to reduce
substitution bias in the CPI have addressed this matter and no such further bias remains or can be
estimated, the Social Security CPI that the NCRP plan establishes would be set .33 percentage points
below the regular CPI each year. This level of detail on how the cost-of-living adjustments would work
under the NCRP plan was not available when the Social Security actuaries prepared the estimates on
which the CRS analysis is based; as a result, the CRS analysis may somewhat overstate the degree to
which this aspect of the NCRP plan would result in additional benefit reductions as retirees grow older.
6
Some sponsors of the legislation embodying the NCRP plan have stated that it does not change
disability benefits. Such statements are not correct and appear to reflect some misunderstanding on the
part of these sponsors of the effect of their legislation on disability benefits. The NCRP plan changes the
benefit formula for computing a beneficiary's primary insurance amount (or PIA), on which Social
Security benefits are based for retirement benefits, disability benefits, and survivors benefits alike. A
forthcoming Center on Budget and Policy Priorities analysis will explain this matter in more detail.
4
Why Does the Depth of the Benefit Reductions Differ So Much?
These findings raise an important question. What accounts for the CRS finding
that the Ball plan would reduce defined Social Security benefits much less than the
other two plans while doing as well in closing the 75-year imbalance? There are two
principal reasons for this finding.
First, the other two plans reduce the revenue going into the Social Security trust
fund and place greater reliance on individual accounts; they essentially divert payroll
contributions from the trust fund to individual accounts. The Ball plan, by contrast,
does not reduce the revenue going into the trust fund. It adds voluntary individual
accounts on top of Social Security but does not divert money from the trust fund for
them.
Under current law, the revenue the trust fund is projected to receive over the
next 75 years is insufficient to pay the full benefits to which beneficiaries would be
entitled during this period. This is what is meant by the statement that Social Security
eventually becomes insolvent. Diverting payroll tax revenue from the Social Security
trust fund makes the financing shortfall larger and consequently necessitates deeper
benefit reductions (or larger payroll tax increases) to put the trust fund back into long-
term balance. As the Congressional Research Service explained in an earlier report:
"Obviously, if it is projected that the taxes that finance the [Social Security] system are
insufficient to pay future promised benefits, earmarking some of them for the buildup
of private accounts would make this problem worse. It would mean that to restore the
system to solvency future tax increases would have to be larger or benefits cut deeper."
Not surprisingly, CRS found that the NCRP plan, which diverts the most
revenue from the Social Security trust fund, contains the deepest Social Security benefit
reductions. Among the large benefit reductions in this plan is an across-the-board
benefit cut resulting from an increase in the age at which individuals may retire and
receive full benefits; the age at which individuals can retire and receive full Social
Security benefits would be raised to 70 by 2029 and to approximately 72½ by 2075, a
larger increase than any other major plan has proposed.⁸ The plan also includes a
reduction of one-third in Social Security spousal benefits. (These benefit reductions are
described in more detail later in this paper.)
7
"Ideas for Privatizing Social Security," Congressional Research Service, April 6, 1998.
8
The age at which individuals may retire and receive full Social Security benefits is commonly
referred to as the "normal retirement age." That term, however, is a misnomer; the majority of Social
Security beneficiaries retire and begin drawing benefits before this age. What is commonly called the
"normal retirement age" is simply the age at which full, rather than reduced, Social Security benefits are
paid.
5
Figure 1
Comparison of 75-Year Social Security Shortfalls
5%
4.01%
4%
Percentage of Payroll
3%
2.19%
2%
0.97%
1%
0%
Current Shortfall
2% for Individual
Trust Fund
Accounts
Investment
The second reason the Social Security benefit reductions are much more modest
under the Ball plan than under the other plans is that the Ball plan invests a portion of
the Social Security trust fund reserves in equities. This enables the trust fund to capture
the stock market's higher rates of return. The actuaries estimate that the earnings the
trust fund would receive from this investment would reduce the 75-year imbalance in
the Social Security system by slightly more than half. That, in turn, reduces the benefit
reductions or tax increases needed under the Ball plan to restore long-term balance.
Figure 1 illustrates that redirecting two percent of the payroll tax to individual
accounts, as the NCRP plan would do, would enlarge the 75-year shortfall from 2.19
percent of taxable payroll to 4.01 percent, in the absence of other changes. The Figure
also shows that investing up to 50 percent of the trust fund in equities, as the Ball plan
would do, would reduce the 75-year deficit from 2.19 percent of taxable payroll to 0.97
percent, in the absence of other changes.
For these reasons, Rudolph Penner, a former CBO director now at the Urban
Institute who supports the NCRP plan, recently observed that "plans that have the trust
fund buying equities generally cut [Social Security] benefits less than plans establishing
individual accounts."
9
Testimony of Rudolph G. Penner before the Senate Budget Committee, July 23, 1998.
6
The CRS Analysis and Individual Accounts
Proponents of the NCRP plan and the Moynihan/Kerrey bill have criticized the
CRS analysis. They fault it for not including the retirement income that would result
from the individual accounts the plans contain. They also argue that it is not
appropriate to compare benefits under these plans to benefits under the current Social
Security system since the current system will not be solvent over the long term. They
contend the proposed plans should be compared to a Social Security system revised in
a manner that puts it in long-term actuarial balance.
Proposals to divert part of the payroll tax revenue from the Social Security trust
fund to individual accounts entail moving partially from a "defined benefit" plan that
specifies the payment of particular benefit amounts based on a retiree's earnings
history (i.e., from Social Security) to a "defined contribution" plan in which the benefits
available to retirees vary greatly. Under a defined contribution plan, benefits depend
not only on a beneficiary's earnings history but also on individual investment
decisions, the performance of the stock and bond markets (including the state of the
markets in the year an individual retires), the real interest rate assumptions used when
retirees convert their accounts to annuities, the extent to which funds in individual
accounts are consumed by fees that firms charge for managing the accounts (and,
where applicable, for converting accounts to annuities at retirement), and other factors.
In weighing options for reforming Social Security, policymakers need to
understand the degree to which the defined benefits - that is, the benefits Social
Security provides - would be reduced under various approaches, since it is only the
defined benefits that retirees are assured of receiving at specified levels. This is the
information the CRS study provides.
More comprehensive analyses that factor in the anticipated returns from
individual accounts also are needed and should be undertaken. Such analyses are
more difficult to conduct, however, than the type of analysis CRS has conducted on the
extent to which these three plans would reduce Social Security benefits. Analyses
attempting to factor in returns from individual accounts consequently will need to be
undertaken with great care. In particular, such studies will need to consider several
factors that may have a large impact on the retirement income that individual accounts
generate:
Variation in returns from individual accounts: Since individual accounts do not
provide defined benefits, the levels of income they generate will differ
considerably among beneficiaries and over time. The retirement income from
such accounts is likely to offset the reductions in Social Security benefits for
some retirees but not others. Retirees who are lucky or wise in their investments
should be able to offset the full loss in their guaranteed benefits. Retirees who
are unlucky or unwise in their investments - including those who retire and
convert their account to a lifetime annuity in a year the market is down - would
7
likely face large reductions in the income they have to live on in their declining
years.
A recent GAO report took note of these issues. "There is a much greater
potential for significant deterioration of an individual's retirement 'nest egg'
under a system of individual accounts," the GAO wrote. "Not only would
individuals bear the risk that market returns would fall overall but also that their
own investments would perform poorly even if the market, as a whole, did
well"¹⁰
Of particular concern are the returns received by those who lack investment
experience. Today, fewer than half of all U.S. households have any investments
in the stock market; this lack of experience is likely to make it harder for many to
earn solid returns. Moreover, even experienced investors pursuing sound
investment strategies can have investments that turn sour and earn below-
market returns. The fact that a substantial majority of mutual funds earn rates of
return that are below the performance of the S&P 500, a broad measure of the
major stocks in the market, is evidence of this fact. These concerns are greatest
for plans that allow individuals a wide array of choices in how to invest the
funds in their accounts, such as plans that establish accounts similar to IRAs or
401(k) accounts.
Another group likely to face substantial reductions in retirement income under
individual accounts are those who must retire early for health reasons but are
not sufficiently infirm to meet the stringent Social Security disability criteria, as
well as those who have been employed in physically strenuous occupations that
are not suitable for someone past their early or mid-60s. Individuals who must
retire early would tend to have smaller individual accounts because they would
have fewer years of contributing to these accounts. At the same time, they also
are likely to have lower Social Security benefits because most of the reform plans
that divert revenue from the Social Security trust fund to individual accounts -
such as the NCRP plan - raise the normal Social Security retirement age
substantially. These plans take this step to shrink Social Security benefit costs
enough to help compensate for the large Social Security revenue losses that the
diversion of payroll tax revenue to individual accounts entails.
Analyses of the retirement income generated by individual accounts should
reflect the range of outcomes these accounts are likely to produce. Simply
estimating the average anticipated rate of return for such accounts would
obscure the fact that substantial numbers of people would likely receive
significantly less income than that from their individual accounts, while others
would receive more. Stated another way, such an approach would be
10
General Accounting Office, Social Security: Different Approaches for Addressing Program Solutions, July
1998, p. 6.
8
problematic because it would fail to reflect the increased risk to beneficiaries that
individual accounts carry.
Administrative and Other Costs: Analyses of the retirement income that
individual accounts would provide also need to factor in the costs associated
with such accounts. Since such costs are paid out of the funds in the accounts,
they affect the amount of money available in the accounts to pay retirement
benefits.
Private accounts necessarily incur administrative and management fees. Some
private account systems also incur costs when account-holders retire and convert
the funds in their accounts to lifetime annuities. The individual retirement
accounts - or IRAs - and the 401(k) accounts that many Americans possess
incur all of these costs. Estimates from two eminent economists, Peter Diamond
of M.I.T and Henry Aaron of the Brookings Institution, indicate that between 7.5
percent and 30 percent or more of the amounts saved or earned under the
individual account systems that would be established under various Social
Security privatization proposals would be consumed by administrative,
management, and (where applicable) annuitization costs and fees.
Plans that invest Social Security trust fund revenues in equities, rather than
diverting trust fund revenue to individual accounts, avoid almost all of these
costs. The General Accounting Office recently reported: "Most of the cost of
managing an index fund is incurred maintaining thousands of individual
accounts. In contrast, the government, as a single investor, would incur
negligible costs as a percentage of its assets. Therefore, investing collectively
through the government would result in significant administrative savings
compared to investing through individual accounts."
This is one of the reasons some Social Security experts, such as Brookings
Institution senior fellows Henry Aaron and Robert Reischauer, the former CBO
director, favor investing a portion of trust fund reserves in equities as an
alternative to individual accounts. Aaron and Reischauer observe that because
investing trust fund reserves in equities would avoid such costs, it would
generate a higher average net rate of return than individual accounts while
exposing beneficiaries to much less individual investment risk.
The Social Security "Baseline"
The other criticism lodged against the CRS analysis by proponents of the NCRP
plan and the Moynihan/Kerrey bill is that comparing benefits under reform plans to
11
General Accounting Office, "Social Security Financing: Implications of Stock Investing for the Trust
Fund, the Federal Budget, and Economy," statement of Barbara D. Bovbjerg before the Senate Special
Committee on Aging, April 22, 1998.
9
benefits under the current Social Security benefit structure is inappropriate since the
current Social Security system will not be solvent over the long term. They contend
that the appropriate standard against which reform proposals should be measured is an
altered model of Social Security that includes measures bringing the system into long-
term balance.
This criticism of the CRS study is unconvincing. Use of a baseline, or a point of
reference where no change has taken place, is common in research. The benefit levels
the current benefit structure pays provide an appropriate baseline measure against
which to compare the Social Security benefits that various reform plans would provide.
To use these benefit levels as a baseline in no way suggests that changes are not needed
to restore long-term solvency to the system; it simply provides a readily
understandable measure of comparison.
Nor does use of this baseline alter comparisons to each other of the plans CRS
examined. The comparative standing of these plans would remain unchanged if CRS
had used a different standard. For example, if CRS had used the Moynihan-Kerrey bill
as its standard, the NCRP plan would be shown to reduce Social Security benefits
relative to the standard while the Ball plan would be shown to raise them.
More important, there is no widely accepted way of altering Social Security to
achieve long-term balance that can serve as a baseline. In particular, to compare
alternative plans to a policy of restoring balance solely by cutting Social Security
benefits may be misleading; that is an option no one is suggesting. Not a single
member of the 1994-1996 Social Security Advisory Council recommended such an
approach. No proponent of Social Security reform has proposed it.
Furthermore, use of a standard which assumes that balance will be restored
solely by cutting benefits could lead to some misunderstanding among the public.
Some plans that reduce retirement income below the levels the current benefit structure
provides could be shown to increase benefits relative to such a standard; some of the
public could mistakenly think this means that such plans would raise benefits relative
to the standard-of-living that the current benefit structure provides. If many Americans
mistakenly believed such a plan would raise retirement income above the levels the
current system provides, they could conclude that no sacrifice would be involved and
no increase needed in saving by individuals.
A number of these issues are discussed in more detail below.
Why Do Plans that Reduce or Divert Payroll Tax Revenue Result in Large
Reductions in Social Security Benefits?
The principal reason the NCRP and Moynihan-Kerrey plans reduce Social
Security benefits much more deeply than the Ball plan does is that they reduce the
revenue going into the Social Security trust fund. This deepens the trust fund's
10
financing shortfall and necessitates deeper benefit reductions to eliminate the shortfall.
The NCRP plan reduces the revenue going into the trust fund on a permanent basis,
while the Moynihan-Kerrey plan reduces trust fund revenue for the next 30 years (and,
on average, over the 75-year period used in Social Security projections).
The NCRP plan mandates the permanent diversion of two percentage points of
the payroll tax from the Social Security trust fund to individual accounts. The
Moynihan-Kerrey bill reduces the payroll tax by two percentage points through 2024
(and by less than two percentage points from 2025 through 2029). 12 The Moynihan-
Kerrey plan provides for voluntary individual accounts funded with its one percentage
point reduction in the employee share of the payroll tax, along with a mandatory
employer matching contribution for any employee establishing such an account,
financed by the one percentage point reduction in the employer's share of the payroll
tax.
Reducing the revenue going into the Social Security trust fund necessitates
deeper reductions in Social Security benefits to restore long-term balance. For example,
an analysis by the Social Security actuaries shows that the NCRP plan's diversion of
two percentage points of payroll tax revenue to individual accounts increases the deficit
in the Social Security trust fund by an amount equal to 1.82 percent of taxable payroll
over the next 75 years. The Social Security actuaries project that the current shortfall
equals 2.19 percent of taxable payroll over the next 75 years. By deepening the shortfall
by 1.82 percent of taxable payroll, the NCRP plan's diversion of two percent of the
payroll tax enlarges the size of the Social Security deficit approximately 80 percent.
That, in turn, necessitates Social Security benefit reductions about 80 percent larger
than otherwise would be needed to restore Social Security to long-term balance. 13
The NCRP plan achieves these deeper benefit reductions in a number of ways,
including the following.
The NCRP plan raises the age at which individuals can retire and receive
full, rather than reduced, Social Security benefits to a higher age level
than any of the other major plans that have been offered. For example,
12 The Moynihan-Kerrey plan begins to raise the payroll tax in 2025 and restores the tax rate to its
current level by 2030. The plan also would begin to raise the payroll tax rate slightly above the current
level in 2045 and continue raising it until 2060. At that time, the combined employee and employer
shares of the payroll tax would be one percentage point above the current level.
13
The NCRP plan offsets a modest portion of the revenue loss by shifting from the Medicare trust
fund to the Social Security trust fund the share of the revenue from partial taxation of Social Security
benefits that currently is deposited in the Medicare Hospital Insurance Trust. Shifting this revenue
would deepen the long-term fiscal imbalance in the Medicare trust fund, however, which is more
serious than the long-term imbalance in the Social Security trust funds. When all of its changes in trust
fund revenue are considered, the NCRP plan deepens the trust fund shortfall by 1.39 percentage points
of payroll, or 50 percent.
11
the plan advanced by the 1994-1996 Social Security Advisory Council that
went the farthest in raising the age at which workers can retire and draw
full benefits would raise this age from 65 today (and eventually 67 under
current law) to 70 by 2083. By contrast, the NCRP plan would increase
this age to 70 by 2029 and to approximately 72½ by 2075. The NCRP plan
also would raise the early retirement age, the age at which retired
individuals can retire and begin to draw reduced Social Security benefits,
from 62 to 65 by 2029 and to approximately 67½ by 2075.
Raising the age at which individuals can retire and receive full benefits
essentially constitutes an across-the-board reduction in Social Security
benefits because it reduces benefits not only for those who retire earlier
but also for those who remain at work until this age, a point that is not
widely understood. 14 Each one-year increase in the age at which full
benefits are paid results in a reduction of approximately seven percent in
the Social Security benefits that an average worker receives over his or her
retirement years. 15
In addition, increasing from 62 to 65 the age at which individuals can
retire and begin to draw reduced Social Security benefits would be
particularly burdensome for those who are unable to work until 65 either
because they are in poor health during their early 60s (but are not
sufficiently infirm to meet the stringent Social Security disability criteria)
or because they have been employed in physically strenuous occupations
in which they cannot remain employed until 65.
14
Under current law, with the age at which full benefits are paid set at 65 and scheduled to rise to 67
by 2022, workers who retire at 62 (or 63 or 64) receive lower monthly benefits for the rest of their lives in
recognition of the fact that their benefits will be spread over more years. Conversely, those who do not
retire until age 70 receive higher monthly benefits for the rest of their lives because they will draw
benefits for fewer years. Under proposals to raise to 70 the age at which full benefits are paid, however,
those who retire at 70 would receive the standard benefit that now goes to those retiring at 65; they
would no longer receive an enhanced benefit for workers who do not retire and begin drawing benefits
after the age at which full benefits are paid. Raising the age at which full benefits are paid thus
essentially constitutes an across-the-board cut; if the age is raised to 70, those retiring at 70 lose benefits
along with those who retire in their 60s.
15
"Increasing the Eligibility Age for Social Security Pensions," Testimony of Gary Burtless, senior
fellow, The Brookings Institution, before the Senate Special Committee on Aging, July 15, 1998. When
the age at which individuals can retire and draw full benefits is raised to 70 under the NCRP plan,
individuals would be able to retire at 65 and begin drawing reduced Social Security benefits, just as
individuals today can retire and begin receiving reduced benefits at 62. Those electing the early
retirement option would receive reduced Social Security benefits for the rest of their lives. Under the
NCRP plan, individuals could retire and begin to make withdrawals from their individual accounts
before age 65 if there were enough funds in the accounts to provide monthly payments at least equal to
the poverty line.
12
The NCRP plan also makes major changes in the Social Security benefit
computation formula. Under the current, progressive formula, Social
Security benefits equal 90 percent of the first $477 of a worker's average
monthly wage over his or her work-years, 32 percent of the next $2,875 of
a worker's average monthly wage over his or her work years, and 15
percent of the remainder of a former worker's average monthly wage. 16
The NCRP plan would, over time, lower these 32 percent and 15 percent
"replacement rates" to 21.36 percent and 10.01 percent, respectively, which
would constitute a large benefit reduction. A significantly smaller
percentage of the wages and salaries many workers earned would be
replaced by Social Security benefits when they retired. This formula
change alone reduces benefits for a worker whose average wages are
$40,000 in 1998, and whose wages rise in subsequent years at the same
rate as average wages in the economy, by 22 percent.
In addition, the NCRP plan proposes to reduce the benefit Social Security
provides to spouses of primary wage-earners; the spousal benefit would
be lowered from 50 percent of the primary wage-earner's benefit, as
under current law, to 33 percent of that benefit. Many spouses thus
would experience a benefit reduction of up to one-third, on top of the
NCRP plan's other benefit reductions. (Some members of the 1994-1996
Social Security Advisory Council also proposed to reduce the spousal
benefit, but they used the savings from this proposal to help finance an
increase in the benefits that Social Security pays to widows and widowers
so as to provide more adequately for widows, who face poverty at very
high rates. 17 In 1996, some 39 percent of elderly widows - about two in
every five - had incomes below 150 percent of the poverty line. 18
Reducing spousal benefits without raising widows' benefits would reduce
benefits principally among women.)
Since the Ball plan does not divert trust fund revenue to fund individual
accounts, it does not need Social Security benefit reductions of this magnitude. As
noted above, the Ball plan further shrinks the size of the benefit reductions or tax
16
In computing these average monthly wage figures, the Social Security Administration indexes
wages earned in years before a worker's retirement by changes in average wages in the U.S. economy in
the intervening years.
17
Under the recommendation these Advisory Council members made, the widow or widower of a
deceased worker would receive 75 percent of what the couple's combined benefit would have been,
rather than receiving only the worker's benefit (or only the widow or widower's own benefit, if larger),
as under current law. Report of the 1994-1996 Advisory Council on Social Security, Volume I: Findings and
Recommendations, January 1997
18
Bureau of the Census, Current Population Survey, 1996, March 1997.
13
increases needed to restore Social Security to long-term balance by investing a portion
of Social Security reserves in the equities markets and thereby capturing the higher
rates of return these markets provide. This is essentially the same strategy that state
and private pension funds use.
Estimating the Effects of Various Plans When Income From Individual Accounts
is Added
The CRS analysis does not purport to be a comprehensive analysis of all
components of the three plans it examines, but rather an assessment of the changes
made in the defined, or guaranteed, benefits that retirees would be assured of receiving
through Social Security. Analyses also are needed that include projected returns from
individual accounts. Undertaking such analyses is not easy or straightforward.
To factor in benefits from individual accounts one must make assumptions
regarding investment behavior, stock market performance, the expectations that firms
selling annuities have concerning what inflation and interest rates will be in coming
years, and other factors. Since future earnings are unlikely to mirror past earnings
exactly, all such projections are subject to a wide range of error. More important,
projected rates of return from individual accounts generally are averages; the actual
benefits that individuals would derive from such accounts would vary substantially
from the estimated average figures, with some beneficiaries garnering higher rates of
return and others receiving lower rates of return.
Many low-income earners may receive relatively low rates of returns from their
investments. Low-income families tend to have little experience with retirement
accounts or with investing in stocks, bonds, and mutual funds. They would be more
likely than experienced investors to make poor investment choices. Experience with
401(k) accounts suggests they also would be likely to invest quite conservatively,
probably out of fear of losing the limited resources they have. In a June 17, 1998 House
Ways and Means Committee hearing on individual accounts, several witnesses testified
that much of the public lacks sufficient knowledge about investing to manage such
accounts well. 19
When estimating the retirement income that individual accounts would
generate, there is no easy way to factor in the potential for a substantial segment of the
public - and in particular, those with below-average earnings - to invest unwisely or
too conservatively. One possible approach is to show ranges for the levels of retirement
income and rates of return that individual accounts would generate. Estimates that
simply show projected average rates of return on individual accounts, rather than
19 Testimony of Teresa Tritch, senior editor of Money magazine, and Ric Edelman, head of Edelman
Financial Services, before the U.S. House of Representatives Subcommittee on Social Security of the
Committee on Ways and Means, June 18, 1998.
14
The Year of Retirement Can Greatly Affect a Beneficiary's Level of
Retirement Income Under A System of Individual Accounts
There also are a number of other ways in which investment risk would affect the
retirement income an individual would receive under a system of individual accounts. For
example, Gary Burtless, a senior fellow at the Brookings Institution, has shown that under
such a system, the amount of the monthly annuity for an individual who converts his or
her individual account to an annuity at retirement could vary greatly not only as a result of
the investment choices a worker has made but also as a result of the state of the stock
market in the year the individual retired.
If an individual retires and converts his or her account to an annuity in a year in
which the stock market is very high, the individual is likely to receive a more ample
annuity check. But if the individual has the misfortune to retire and annuitize when the
market is down, the individual can be faced with a meager income for the rest of his or her
life. Burtless' research shows that if workers retiring in the 1960s and 1970s had deposited
funds in individual accounts throughout their careers, with the money invested in stock
index funds, an average male worker who retired and converted an individual account to
an annuity in 1976 would have received a monthly benefit for the rest of his life that was
only a little more than half as large as the monthly benefit an average male worker who retired
and annuitized seven years earlier, in 1969, would have received.
ranges, tend to oversimplify this matter. Another possible approach is to attempt to
estimate the percentage of individuals likely to secure rates of return lower (or higher)
than the average rate of return. Such variations are particularly important in light of
the fundamental purpose of social insurance, which is to assure the retired, the disabled,
and survivors a certain basic income.
Even more difficult is the task of estimating how the stock market will perform
in coming decades. Given the dizzying increases in the market in recent years, using
market performance for a period that includes these years to predict future
performance may generate estimates of rates of return for individual accounts that
prove to be too high. The ratio of stock prices to corporate earnings has climbed will
above its traditional range, which raises questions about how much further the equities
markets will rise. No one knows the answer to this question. In recent congressional
testimony, Rudolph Penner, who backs the NCRP plan, acknowledged that for this
reason, "considerable uncertainty surrounds the assumption regarding what can be
earned" through investment in equities.²⁰ (It may be recalled that only three decades
ago, in the 1970s, the market preformed poorly and lost a large share of its value.)
20
Testimony of Rudolph G. Penner, senior fellow, the Urban Institute, before the Senate Budget
Committee, July 23, 1998.
15
Administrative Costs
One set of factors that can more readily be taken into account in estimating the
retirement income that individual accounts may generate involves the costs associated
with these accounts, including administrative and management fees, costs under some
plans of converting funds in these accounts to annuities that pay a monthly benefit until
death, and costs under some plans of the transition from Social Security to private
accounts. All private account plans entail some or all of these costs. Since the costs are
generally paid from the accounts, they reduce the retirement income the accounts
generate. Estimates that do not reflect such costs are not valid.
The administrative costs that must be paid from the funds in individual accounts
are the expenses that investment firms incur in handling the accounts, conducting
marketing efforts to attract investors, communicating with their investors, record-
keeping, and corporate overhead. The fees these firms charge to account-holders also
include a profit margin; no one can expect private firms to handle such accounts for
free or at a loss. The administrative costs for IRAs currently range from $35 to $45 per
account per year. 21 For private defined contribution pension plans, administrative costs
vary by the number of participants in the plan and have been estimated to range from
approximately $50 per year per participant for a plan with 10,000 or more participants
to nearly $290 for a plan with 15 or fewer participants. 22 Flat-rate costs of this nature
are most disadvantageous to low-wage workers, since these charges consume a larger
percentage of the investments in small accounts than of the investments in larger
accounts. In addition to these administrative costs are investment management fees
that firms charge for investing the funds in these accounts and shifting the funds as
account-holders direct.
Two eminent economists, Peter Diamond of MIT and Henry Aaron of the
Brookings Institution, have studied administrative and management fees associated
with IRAs and 401(k) plans. 23 They estimate that by retirement, costs for individual
accounts established on an IRA or a 401(k) model would consume, on average, about 20
percent of the funds otherwise deposited in or earned by the accounts. As Diamond
21 Remarks by Philip Lussier, State Street Global Advisors, before the National Commission on
Retirement Policy, Social Security Working Group, February 25, 1998.
22 Edwin C. Hustead, "Trends in Retirement Income Plan Administrative Expenses," Pension Research
Council Working Paper, 96-13, Philadelphia: University of Pennsylvania, 1996.
23 Statement by Peter Diamond, AARP-Concord Coalition Debate on Social Security, Albuquerque,
July 27, 1998; Peter Diamond, "The Future of Social Security for this Generation and the Next: Proposals
Regarding Personal Accounts," testimony before the Subcommittee on Social Security of the House
Committee on Ways and Means, June 18, 1998; testimony of Henry J. Aaron before the Senate
Committee on the Budget, July 23, 1998.
16
Financial Securities Analyst Explains That Administrative Costs Can Substantially
Reduce Returns From Accounts
In testimony July 24 before the Subcommittee on Finance and Hazardous Materials
of the House Commerce Committee, Joel M. Dickson, Senior Investment Analyst with the
Vanguard Group, explained the large role that administrative costs can play in lowering
rates of return that individual accounts can provide, especially for the smaller-than-average
accounts of workers with below-average earnings. Dickson stated:
"Much of the recent debate on individual accounts has centered around how Social
Security participants can earn higher rates of return - like those experienced in the private
financial markets. Unfortunately, there is often a large gap between the assumed market
return on an investment and the actual return realized by investors. The reason? Cost
What may seem to be a relatively small cost difference over a short period of time can
become an enormous difference over a long investment horizon
"Consider a $1,000 investment in two equity funds; one earns a market return of
10%; the second earns only 8%, which represents the market's return reduced by an all-too-
realistic total cost of 2% (arising from charged expenses and portfolio transaction costs).
After the first year, the difference in account values between the two options is only $20.
Of course, a participant investing over the course of their working lifetime must consider
much longer time horizons. Over 40 years, the first fund soars to $45,000. The second
fund, earning 2% less per year, grows to $22,000 - less than half what the market earned
"The key pricing variable for private accounts is the average account size. To the
extent that costs of servicing the accounts could not be covered by asset-based management
fees, other charges - like account maintenance fees - are likely. One of the criticisms often
made about privately-managed, individual accounts is that lower-income workers may not
be as financially savvy, resulting in lower average returns. I think a bigger issue is that
lower-income and part-time workers will have small account balances, potentially
subjecting them to higher fees because asset-based revenue cannot begin to cover the costs
of maintaining these accounts. Thus, they are likely to earn lower returns than higher-
income workers that make the same investment choices for reasons unrelated to financial
market sophistication."
explains, a one percent annual average charge on funds in such an account consumes,
over a 40-year work career, 20 percent of the funds in the account. 24 Based on the most
recent financial data on mutual funds, a one percent annual charge is a conservative
24 Diamond explains that with a one-percent annual charge on holdings in accounts, a dollar
deposited in an individual account in the first year of a 40-year work career will be subject to the one
percent fee 40 times, while a dollar deposited in the final year before retirement will be subject to the fee
once. On average, dollars in the account will be subject to the one percent annual charge 20 times, so
approximately 20 percent of the amounts deposited or earned by the account will be consumed by these
charges. Diamond also notes that in Chile, costs consume approximately 20 percent of the amounts in
individual accounts, with the percentage being higher in Great Britain and Argentina.
17
estimate. Lipper Analytical Services reports that in 1997, the average charge on no-load
stock funds equaled 1.21 percent of amounts invested in the funds, while the average
charge on front-load stock funds equaled 1.25 percent. 25 Moreover, the 1994-1996
Advisory Council on Social Security estimated an annual charge of one percent on
assets in privately managed individual accounts. 26
The amounts consumed would generally be larger than 20 percent for smaller-
than-average accounts and smaller than 20 percent for large accounts. This means the
retirement income that individual accounts modeled on IRAs or 401(k) plans would
generate would be about 20 percent smaller on average than the income would be
without these fees and costs. It also means that estimates of the retirement income that
IRA-type or 401(k)-type accounts would generate will overstate this income by
approximately 20 percent on average if the estimates do not reflect these fees and costs.
Costs of Converting Accounts to Annuities
A sizable additional cost also would be incurred under plans that feature private
accounts modeled on IRAs or 401(k) plans - the cost of converting the funds in a
worker's account to a lifetime annuity when the worker retires. These costs cover a
company's marketing expenses, commissions to agents, investment costs, overhead,
and profits.
The leading study on this issue indicates that the fees charged for converting an
account to an annuity at retirement consume, on average, approximately five to ten
percent of the retirement savings of an individual purchasing a $100,000 annuity. 27 In
other words, the insurance company would take five to 10 percent of the amount in the
retiree's account to cover its costs and profits, with the amount of the monthly annuity
check being based on the remaining 90 percent to 95 percent of the funds in the
account. (These annuitization costs can vary by as much as 15 percent across insurance
firms. A retiree would need to be fairly astute in selecting the best company from
25
See Robert McGough, "Robust Fund Industry Isn't Lowering Fees," Wall Street Journal, May 14,
1998.
26
The Advisory Council assumed an annual change of one percent on accounts established under the
Personal Security Accounts proposal, a proposal that diverted five percentage points of the payroll tax to
individual accounts. Since many of the administrative costs involved in managing private accounts are
fixed costs that do not vary with the size of the account, this suggests that the average charge could be
larger than one percent per year on the smaller individual accounts that would be established under
plans using IRA-type or 401(k)-type accounts that divert two or three percentage points of the payroll
tax into these accounts rather than five percent.
27 Olivia S. Mitchell, James M Porterba, and Mark J. Washawsky, New Evidence on the Money's Worth of
Individual Annuities, "Cambridge, National Bureau of Economic Research, April 1997. Also see Aaron,
op. cit.
18
which to purchase an annuity. Many people do not have sufficient investment
expertise to make the wisest choices in purchasing annuities.)
In addition, prices for annuities are generally raised to cover the company's risk
of incurring added costs due to "adverse selection." Adverse selection refers to the
probability that people with longer-than-average life expectancies will be more likely to
purchase lifetime annuities than people with shorter-than-average life expectancies.
Insurance companies cover themselves for the costs of paying lifetime annuities to
people who may live to very old ages. The resulting increase in the price of annuities
has been estimated to reduce the value of retirement savings being converted to an
annuity by an additional 10 percent.
Totaling all of these costs and charges, Henry Aaron concludes that the
administrative and management costs plus the costs of converting funds in these
accounts to annuities would consume between 30 percent and 50 percent of the amounts
saved in IRA-type or 401(k)-type individual accounts. These are very large amounts
and indicate why analyses of plans that include individual accounts need to reflect
estimates of these costs in their computations. (Estimates of rates of return from
individual accounts issued by privatization proponents such as the Heritage
Foundation tend to ignore such costs and are not valid as a result.)
Costs Under the Thrift Savings Plan Model
Diamond also has examined likely administrative costs for individual accounts
modeled on the Thrift Savings Plan. The individual accounts the NCRP plan would
create are based on this model. The costs for this type of account would be
considerably lower but would still be significant. Diamond estimates that the costs of
administering this type of account would consume approximately 7.5 percent of the
funds in an average worker's account (as distinguished from the 20 percent cost
Diamond and Aaron estimate for plans with IRA or 401(k) type accounts), reducing the
retirement benefits these accounts would pay by that percentage. 28 Under the NCRP
28
Administrative costs for TSP equaled approximately $20 per participant in 1997, which equaled
about 3.75 percent of what would be the average worker's deposit into a private account under the
NCRP plan. As Aaron, Diamond, and former Thrift Savings Plan head Francis Cavanaugh have
testified, using this model for the accounts of 140 million to 150 million workers employed by millions of
employers would entail significantly higher costs in percentage terms than the cost of operating the
Thrift Savings Plan for employees of a single employer, the U.S. Government. The TSP's economies-of-
scale would not be available due to the existence of millions of separate employers. In addition, many
costs associated with operating the Thrift Savings Plan are borne by the federal agencies in their role as
employer rather than by TSP itself (e.g., responding to employees' questions); such costs would almost
certainly not be imposed upon private employers under an individual accounts plan based on the TSP
model. These costs would have to be borne by the entity operating the accounts system and defrayed
through charges on the accounts. In addition, federal agencies transmit the relevant data to TSP
electronically, while many private employers submit data on paper; that would further increase the
costs for the entity administering the accounts (as well as the risk of errors in maintaining accounts
(continued...)
19
Investment of Trust Fund Reserves in Equities Likely to Yield
Higher Rates of Return by Reducing Costs
Both the Ball plan and a separate plan designed by former Congressional Budget
Office director (and now Brookings senior fellow) Robert Reischauer and Brookings senior
fellow Henry Aaron would invest a portion of Social Security trust fund assets in broadly
indexed funds. Such approaches would tend to generate higher rates of return than plans
that divert a portion of payroll tax revenue to individual accounts, because investing a
portion of the trust funds in the equities markets does not entail the administrative costs,
management fees, and (in some cases) annuitization costs involved in systems with nearly
150 million individual accounts.
If individual accounts and trust fund reserves invested in index equity funds were
both to earn the average market rate of return - but the retirement benefits the individual
accounts paid had to reflect the administrative costs, management fees, and, where
applicable, annuitization costs these accounts must pay - the investment of trust fund
reserves in the market would necessarily generate a higher net rate of return. Investing a
portion of trust fund reserves in the market also pools the risk of investing in the market so
no single individual has to face the threat of large investment losses.
For these reasons, Reischauer, Aaron 25 and a number of other economists have
concluded that this approach is likely to yield higher rates of return at lower risk to
beneficiaries than a system of individual accounts.
28 Henry J. Aaron and Robert D. Reischauer, "Tune It Up, Don't Trade It In, "The Washington Post, Outlook
section, April 19, 1998. In addition, Francis Cavanaugh, former head of the Thrift Savings Plan, recently
testified that "The only feasible way for the Social Security system to benefit from the higher returns offered by
the stock market is to invest a portion of the trust fund in stocks, which is what virtually all large public and
private pension and retirement funds have already done." Statement of Francis X. Cavanaugh before the
Subcommittee on Social Security of the House Ways and Means Committee, June 18, 1998.
plan, the percentage by which accounts would be reduced to cover administrative costs
would be the same for all accounts without regard to their size.
Annuitization costs under a plan such as the NCRP proposal are less clear. The
NCRP plan requires a minority of retirees to annuitize. Others could annuitize but
would not have to do so; those who did would have several options regarding how to
annuitize. Some individuals who annuitized would likely incur large annuitization
costs. Some others likely would not convert their accounts to annuities. Those who did
not annuitize would not be able to withdraw all their funds at once; there would be
limits on the amounts they could withdraw. The annual amount an individual would
be allowed to withdraw would be based on his or her life expectancy. As the
individual grows older, the maximum withdrawal allowed would decrease to stretch
28
(...continued)
records).
20
the savings left in the account over the years expected to remain in the individual's life.
If an individual with a modest account lived to a very old age, the withdrawals could
eventually become very small. This stands in contrast to Social Security benefits, which
do not decline in amount as an individual grows older but rather increase to keep pace
with inflation.
(There also is some question as to the feasibility of using the Thrift Savings Plan
model for a system of 140 million or 150 million individual accounts held by workers of
millions of employers. Francis X. Cavanaugh, the former head of the Thrift Savings
Plan and a former Reagan Administration Treasury official, recently testified that
managing such a system would require 10,000 highly trained federal employees and
stated that in his view, it would be impossible to establish cost-effective TSP-type
PSAs [personal savings accounts] for the Social Security system.
Conclusion
The CRS study provides a useful analysis of the effects of the three plans on the
defined benefits that Social Security provides. The data in the study demonstrate that
plans that reduce or divert Social Security payroll tax revenue from the trust fund to
individual accounts entail deeper reductions in Social Security benefits than plans that
do not reduce trust fund revenue. The data also illustrate the fact that plans that invest
a portion of Social Security trust fund assets in equities can restore Social Security to
long-term balance with smaller Social Security benefit reductions than other plans
because such an approach boosts trust fund revenues.
Subsequent studies should attempt to incorporate the effects of the individual
accounts that various plans establish on the income that retired workers would receive.
Such analyses will need to take into account the average amounts the individual
accounts are projected to earn, the risk that account-holders would face and the wide
variation in retirement income that consequently could result, and the costs and fees
that would affect the benefit payments these accounts can make.
29
"Statement of Francis X. Cavanaugh before the Subcommittee on Social Security of the House
Ways and Means Committee, June 18, 1998.
21
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CENTER ON BUDGET
AND POLICY PRIORITIES
Revised October 8, 1998
AFRICAN AMERICANS, HISPANIC AMERICANS, AND SOCIAL SECURITY:
THE SHORTCOMINGS OF THE HERITAGE FOUNDATION REPORTS
Executive Summary
by Kilolo Kijakazi
The Heritage Foundation has released two
return from Social Security and heavily overstate
reports on Social Security's rate of return for
the rate of return from the individual accounts that
minorities. One report addresses African
Heritage favors. As a result, the Heritage
Americans; the second speaks to Hispanic
calculations are inaccurate.
Americans. Heritage argues that the African-
American community will secure poor and even
potentially negative rates of return from Social
The Social Security actuaries
Security because African Americans have lower
concluded that Heritage "grossly
life expectancies. Heritage asserts that Social
underestimates the expected rates
Security also is a bad deal for Hispanic Americans
because they are a disproportionally young
of return from Social Security
population and will bear a significant share of the
benefits" for workers in general
cost of financing Social Security in the future.
and African Americans in
According to these reports, these communities
would fare better under a retirement program of
particular.
individual accounts invested in the private market.
A major part of this paper is drawn from an
The Heritage reports contain critical flaws,
assessment of the Heritage paper on African
however, in their assumptions about both Social
Americans that the Social Security
Security and individual accounts. The erroneous
Administration's highly respected Office of the
assumptions result in large errors in Heritage's
Chief Actuary conducted. The Office of the Chief
analysis of rates of return for the population in
Actuary identified major errors in Heritage's
general and for minorities in particular. As this
work, including the fact that Heritage exaggerated
paper explains, Heritage's rate-of-return
the taxes that African Americans pay into Social
calculations substantially understate the rate of
Security while substantially understating the
Social Security benefits that African Americans
Dr. Kilolo Kijakazi is a senior policy analyst in the Income
receive. The actuaries concluded that Heritage
Security Division at the Center on Budget and Policy
"grossly underestimates the expected rates of
Priorities, where she specializes in Social Security.
Dr. Kijakazi previously worked as a policy analyst at the
return from Social Security benefits" for the
National Urban League and the Food and Nutrition Service
overall population and especially for African
of the U.S. Department of Agriculture. She is the author of
Americans. The actuaries also examined
African-American Economic Development and Small
Heritage's subsequent work on Hispanic
Business Ownership, a book published by Garland
Publishing, Inc. in 1997.
Americans and found it seriously flawed as well.
820 First Street, NE, Suite 510, Washington, DC 20002
F:\bob\hentage7.col
Tel: 202-408-1080 Fax: 202-408-1056 [email protected] http://www.cbpp.org HN0026
Elderly Poverty Rate in U.S.
Before and After Receipt of Social Security, 1996
Poverty rate before benefits
50.1%
Poverty rate after benefits
12.3%
Source: Census Data
Elderly Lifted out of Poverty by Social Security as Percentage of
All Elderly Lifted Out of Poverty by Safety Net Programs, 1996
As Percentage of All
Number
Elderly Who Are Lifted
(millions)
Out of Poverty
Elderly lifted out of poverty by:
Social Security
11.7
89.3%
Other social insurance
0.4
3.1%
1020
combined
Means-tested cash
0.5
3.7%
Means-tested non-cash
0.5
3.8%
All safety net programs
13.0
100.0%
People Lifted out of Poverty by Safety Net Programs, by Age, 1996
All Persons
(millions)
Number poor lifted out of poverty by:
Social insurance (primarily Social Security)
17.9
Means-tested cash programs
3.0
Means-tested non-cash programs
4.3
Federal taxes and the EITC
; 1.7
All safety net programs
27.0
SSI-43
CENTER ON BUDGET
AND POLICY PRIORITIES
To:
Maria Echaveste
Ron Klain
Jack Lew
John Podesta
FYI
I
Bruce Reed
Gene Sperling
from
Larry Stein
Melanne Verveer
Shirley
From:
Bob Greenstein
Date:
November 24, 1998
Subject:
Legal immigrants, the FY 2000 budget, Hispanic and Asian voters, and
the 2000 elections
In 1997 and 1998, the Administration won important victories in restoring
benefits for legal immigrants that had been taken away by the welfare law.
Nevertheless, substantial parts of the damage done to legal immigrants by the welfare
law remain. Prior to November 3, I thought it unlikely the Administration could win
more restorations in this area. Now, I think there is a strong chance you could win
more here.
Since the election, newspapers have run a spate of articles discussing the pivotal
role of the Hispanic vote on November 3. Republican strategists such as Ralph Reed
are quoted as saying Republicans must do better with such voters, while news analyses
note that anti-immigrant stands have hurt Republicans badly in California. Articles
also report that 30 percent of the Hispanic electorate in California consisted of newly
naturalized citizens voting for the first or second time. In fact, USA Today has reported
that newly naturalized citizens tend to have higher turn-out than other voter groups.
The articles also point out that Republicans who did well with Hispanic voters won by
large margins.
This suggests that if the President's FY 2000 budget contains significant
immigrant restoration proposals and the Administration pushes for them, Republicans
may feel they have to give you something in this area. And if they do not and turn
down your proposals, then Democrats and Vice President Gore should be able to use
that to remind Hispanic and Asian voters in 2000 of the differences between the parties.
In short, this appears to be a "win-win" situation. Either further restoration will be
achieved, or the rejection of Administration proposals in these areas can serve as a
820 First Street, NE, Suite 510, Washington, DC 20002
F:\bobNegimmmo.wpd
Tel: 202-408-1080 Fax: 202-408-1056 [email protected] http://www.cbpp.org HN0026
wedge issue with some key voting constituencies. I urge you to include immigrant
restorations in the budget, as you have done each of the past two years.
The major constituency organizations that work on these issues are preparing a
memo for the Administration on their priorities in this area; a number of these priorities
were included in your FY 1998 or FY 1999 budgets. Key areas where the Administration
could propose important restorations include the following:
Give states the option to provide coverage under Medicaid and the child
health block grant to low-income legal immigrant children who have
entered the United States after August 22, 1996, the date the welfare law was
signed. States now are barred from extending such coverage. This proposal
was in the Administration's FY 1999 budget.
Give states the option to provide prenatal care to legal immigrant pregnant
women who have arrived after August 22, 1996. States must provide
Medicaid coverage for delivery costs when such women give birth but are
prohibited from providing Medicaid coverage for prenatal care, which can
result in healthier birth outcomes. This makes little sense.
Provide SSI eligibility to legal immigrants who enter the country after
August 22, 1996 and become disabled after arriving here. Should a poor
legal immigrant hit by a bus or maimed in a workplace accident be denied
SSI? The Administration fought for this in 1997 but didn't win it. Let's join
this fight again.
Provide SSI for legal immigrants here on August 22, 1996 who subsequently
become elderly and poor. The 1997 restoration limits SSI to those elderly
legal immigrants who were both 65 or older and on the SSI rolls on August
22, 1996. This is too restrictive. At a minimum, we should cover those who
were in the U.S. and 65 or older on August 22, 1996 but not on the SSI rolls
on that date. Current rules in this area penalize elderly legal immigrants
who worked as long as they could and stayed off SSI as long as they could
- and consequently weren't receiving benefits on August 22, 1996 - but
who since have become poor. Fixing this would simply conform the
treatment of elderly legal immigrants in SSI to the food stamp treatment for
elderly legal immigrants the Administration won this June.
Extend food stamps to poor legal immigrant parents here on August 22,
1996, or at least to working poor immigrant parents. Currently, children in
these families can get food stamps, but their parents can't. The result is that
the family as a whole, including the children, often does not have enough to
eat. The primary people who would be covered under this proposal are
individuals who came here legally, are working, and are trying to raise their
children on below-poverty wages.
This is an area where good policy, basic decency, and politics converge. I hope
you'll include such a package in the budget.
Core Je USA ocrat'c VO ers de y predictions
Some '94 defectors 11/4
return to the fold
Hispanics prove pivotal
By Maria Puente
USA TODAY
USA
11/4
Charles Schumer in the no-
crats, seven are Republicans
holds-barred brawl for the
and one was in a nonpartisan
By Kathy Kiely
ence all over the country."
Senate against incum-
race.
and Jessica Lee
Rep. Maxine Waters, R-
If early Indications hold,
bent Republican AI D'Amato.
Only about 5% of the na-
USA TODAY
Calif., head of the Congression-
several major candidates in
Exit polls showed Schumer
tional electorate in 1996, His
al Black Caucus, was overjoyed
the nation's political mega-
with overwhelming support
panic voters increasingly are
The Democratic Party's
at the clear gains scored by
states are going to owe their
from Hispanics.
making their presence fell in
most reliable voters responded
black voters supporting Demo-
election to a growing and in-
And in California, Hispan-
the nation's largest states:
Tuesday to a massive get-out-
crats in key races.
creasingly sophisticated His-
Ic voters made the differ-
California, Texas, New York,
the-vole drive, defying predic-
"It was a well-organized ef-
panic vote.
ence for embailled Demo-
Illinois and Florida.
tions that they would be too de-
fort that helped capitalize on
In Texas, Hispanics helped
cratic U.S. Sen. Barbara
The Hispanic vote also is
pressed by scandal to vole.
the mood among African
Republican incumbent Gov.
Boxer prayers in her squeak-
maturing, meaning voters in-
The New Deal coalition of
American voters about the un-
George W. Bush crush Dem-
er race against Republican
creasingly pick and choose
minority activists. overwhelm-
fairness of Ken Starr," she said.
ocratic challenger Garry
challenger Matt Fong, ac-
candidates rather than vote
Ingly African-American and
"It became obvious they were
Mauro. Bush will easily ex-
cording to exil polls.
straight party tickets. In Tex-
Hispanic, and union members
out to get Bill Clinton. That
ceed his goal of 10% of the
"The long-heralded poten-
as, they're likely to come out
mounted the kind of intensive
played a role in this."
Hispanic vote, according to
tial of Latino voters is becom-
strong for Democrat John
campaign usually reserved for
Turnout in North Carolina
exit polls. That certifies Bush
ing an actual reality in that
Sharp in the race for lieuten-
presidential years.
and Kentucky, two states with
as the single national Repub-
millions of Latinos are turn-
ant governor against the
Republicans struggled to
hot Senate races as well as
lican with the chance to win
ing out at the polls," said Har-
GOP's Rick Perry.
maintain majorities in the Sen-
some highly contested down-
back millions of Hispanic
ry Pachon, head of the Tomas
"Hispanics are going to go
ate and House by motivating
ballot contests, was "signift-
voters turned off in 1996 by
Rivera Policy Institute. a
for Bush in the high 40s to low
their loyalists among the reli-
cantly up," according to Curtis
GOP rhetoric against imml-
think tank that tracks the Cal-
50s but that doesn't mean
glous right, fiscal conservatives
Gans of the Committee for the
grants, bilingualism and af-
Ifornia Hispanic electorate,
they're going to give the GOP
and business community.
Study of the American Elector-
firmative action.
an estimated 14% of the total.
all their votes," Gonzales said.
But some the angry white
ale.
"Bush is going 10 do better
More are turning up on
"Sharp is going to get 75%-
who fueled the 1994 Re-
Kentucky is the state where
with Latino voters than any
ballots as well. Twenty-four
80% on Hispanics, and that's a
publican revolution reverted to
the Congressional Black Cau-
other white Republican in a
Hispanics ran for seats in the
sign of maturity. It means
the Democratic camp, accord-
cus launched a get-out-the-vote
statewide race ever," pre-
House, and pollsters predict
they're thinking."
Ing to exit polls. And middle-
bus tour aimed at Democratic
dicted Antonio Gonzales,
as many as four more seats
Another characteristic of
aged voters, 44-59, turned out
voters in the closing days of the
president of the William Ve-
could be added to the His-
the Hispanic vote is that mil-
in greater numbers than they
campaign.
lasquez Institute, a think tank
panic Caucus, bringing the
lions - 30% of the total HIS-
did in the last mid-term elec-
AFL-CIO political director
that tracks Hispanic voters in
total to 22. Nationwide, an
panic electorate in California
tions and voted more heavily
Steve Rosenthal said organiz-
Texas and California.
unprecedented number of
are newly naturalized citi-
Democrat.
ing among the 53,000 union
In New York Puerto Ri-
Hispanics ran for statewide
zens voting for the first or sec-
Despite predictions that the
members in Rep. Ted Stick-
By we Chandler AP
cans and Dominican-Ameri-
offices: 20 candidates in nine
ond time. These voters lend
White House sex scandal would
land's Ohio district helped the
Big turnout: Voters mark their ballots Tuesday at the Adult Educa-
cans helped make the differ-
states, eight in New Mexico
to turn out in higher percent-
energize Republican activists,
Democratic incumbent hold
tion Center in Anderson, S.C. Poll workers at the center reported an
ence for Democrat Rep.
alone. Of those, 12 are Demo-
ages than other voter groups.
exit polls Indicated that voting
onto his seat. Rosenthal said la-
unusually high turnout for a nonpresidential-year election.
participation levels by mem-
bor efforts also played a big
bers of the religious right was
part in the Rep. Lane Evan's
down, from 17% of voters in
successful effort to hold onto
1994 to 13% this year.
his seat.
Nationally, union and Afri-
If Sen. Harry Reid, D-Nev.,
Dems push to the end to increase black votes
can American voter turnout
ends up holding onto his seat,
held steady in the face of a sex
Rosenthal said, it will in part be
By Jessica Lee
USA TODAY
USA
would discourage traditional
unions mounted to urge their
11/4
The Democratic National Committee
In a final burst of telephone bank
ing me to go out and vote. It made me
scandal that many predicted
due to "a huge project" the
(DNC) spent a record $500,000 to get
activity, Democrats put Clinton's re-
feel really special, like 1 could do
out the vote among African-Ameri-
corded voice to work in thousands of
something for our country."
Democrats.
members to take advantage of
Democrats from President Clinton
cans. It targeted voters in key guberna-
phone calls in states such as Califor-
The Congressional Black Caucus
After a primary season in
a Nevada law that allows them
on down put laser focus on getting Af-
torial and Senate races in Georgia,
nia, New York, New Jersey, Ohio,
also pushed hard. Rep. Charles Ran-
which voters stayed away from
to vote early by mail.
rican-American voters to the polls.
New York, Nevada and Missouri.
Texas, Nevada and those in the Deep
gel, D-N.Y., raised $1.3 million for a fl-
the polls in droves, some ex-
Big labor mounted its most
Early exit polls Tuesday showed that
Their task was a delicate one. In
South.
nal turnout drive.
perts feared a near election boy-
massive get-out-the-vote drive
black voters, who are about 12% of the
some states where extensive appeals
Dora Van. an African-American
The liberal People for the Ameri-
coll In the wake of President
ever. The AFL-CIO sent 9.5 mil-
voting age population, were marking
to the interests of black voters could
who is a legal typist in Sacramento, got
can Way's last-minute ad campaign in-
Clinton's sex-and-lies scandal.
lion pieces of mail and made
10% of the ballots.
trigger a backlash among whites, the
a call around 5:30 p.m. Monday when
cluded a radio spot by celebrated Afri-
But that wasn't the case, at least
5.5 million phone calls to urge
But in early returns, that 10% was
DNC and Democratic congressional
she got home from work. "At first I
can-American author Toni Morrison
not everywhere in the country,
union members to gel to the
looking big enough to break more than
campaign acted as surrogates to make
thought it was a prank," she says.
that was targeted 10 listeners of black-
"Turnout was very good,
polls. In addition, the unions
one Republican redoubt in the South.
the case for Democratic victory.
"Then I realized it was his voice tell-
owned radio stations.
particularly among minor-
dispatched thousands of volun-
Itles," said Rep. Martin Frost, a
leers in an unprecedently large
Texas Democrat. "The Hispan-
grass-roots political missionary
there's a lot at stake in the elec-
races were going down to the
paign were truly "radio" ac-
the airwaves.
Gary Bauer, head of Campaign
IC members of Congress and
effort.
tions and union members will
wire, dismal weather was do-
tive. Groups that run the gamut
"We did a lot of advertising
for Working Families, a politi-
the black members were ag-
"We have found that when
vote," Rosenthal said.
ing nothing to boost turnout.
from the NAACP to the Cam-
on radio stations aimed at tra-
cal action commi
"We end-
pressively Involved in turnout
we talk 10 union members one
In much of the nation, In-
For special-interest groups,
paign for Working Families
ditional families," said c
ed up in 170 different races
all year. They made a differ-
by one, we can make the case
cluding several states where
the final days of the 1998 cam-
targeted their supporters via
vative presidential candidate
around the country."
Washington Post
Washington, DC
November 16, 1998
GOP Governors Look to Wield
Stronger Hand in Party Affairs
B₁- DAN BALL
Fashington Post Staff Writer
Excerpted from above article
The success of Bush in Texas and his brother Jeb,
who was elected governor of Florida in his second
attempt at the office, has attracted particular attention
among Republicans since the midterm elections.
Beyond the appeal that comes with one of the
best-known names in Republican politics, the Bush
brothers stressed what they call "compassionate
conservatism"-in contrast to the congressional
wing's harder-edged ideology.
"I think the lesson of the election is that sharp-el-
bowed conservatism doesn't work and what they offer
is a new paradigm of compassionate conservatism,"
said Marshall Wittmann of the Heritage Foundation.
Both Bushes reached out to minority voters and
proved far more popular among those constituencies
than most other Republicans running this year.
(Arizona Sen. John McCain, who captured a majority
of the Hispanic vote, is one exception.) George W_
Bush won 49 percent of the Hispanic vote in Texas.
Jeb Bush captured about 60 percent of the Hispanic
vote in Florida, By way of contrast. Dan Lungren, the
Republican gubernatorial nominee in California, won
less than a fifth of the Latino vote there.
Winning minority votes, say Republican strategists,
is crucial to the party's long-term aspirations. "If you
look at the current demographic trends, relying
exclusively on male and white voters is a recipe for
permanent minority status," said Ralph Reed, former
executive director of the Christian Coalition.
AY. NOVEMBER 5, 1998
House Seats
A House Divided
Minorities Put Democrats Over Top in Key Races
an unallerable path In taking
Narrowest 20th century House majorities:
ISC in 2000."
By DENNIS FARNEY
selective, highly competitive races.
for grabs," said Frank Sharry, executive
MAJORITY
:ore Support
Staff Reporter of Tip: WALL. STREET JOURNAL
In Alabama, for example. the victorious
director of the National Immigration Fo-
YEAR
PARTY
MARGIN
Minority voters were decisive in key
Democratic candidate for governor. Don-
rum. a pro-immigration group. "And while
nocrats' turnout effort was
1917-19
Republicans¹
6
elections Tuesday. reclaiming center slage
ald Siegelman, drew 90% of the black vote.
Mexlcan-Americans lean Democratic,
C. party's core support among
1923-25
Republicans
18
from the "angry white males" who torpe-
according to exit-poll estimates. Well over
they still vote by candidate and by issues.
11 members and women. In the
doed Democratic hopes four years ago.
90% of the black vote in New York went to
Mr. Bush reached out to them. a culturally
(inal weeks. every level of the
1931-33
Republicans?
2
This time, it was nonwhites. especially
Democratic Senate candidate Charles
conservative group, by stressing family is-
wolved in the effort. from the
1943-45
Democrats
13
African-Americans, particularly in the
Schumer, who ousted Republican Incum-
sues and largeting a disproportionate
the 1,000 volunteers who
1953-55
Republicans
8
Deep South, who spearheaded a surprising
bent Sen. Alfonse D'Amato. In Illinois, De-
amount of his campaign treasury to El
55 Washington state to boost
Democratic resurgence. Strategists of both
mocratic Sen. Carol Muscley-Braun, who is
Paso and other Hispanic areas.
1997.98
Republicans
22
college professor and newly
parties concluded that black voles made
an African-American, lost re-election de-
Minority volers also seem to have
1998.99
Republicans
133
ressinan Brian Baird.
the difference in two Senate and two gu.
spite pulling an estimated 97% of the black
longer memories. In California, GOP gu.
bernatorial races in the South. as well as in
vote. In Maryland, where incumbent De-
alysis documents their suc-
bergatorial candidate Dan Lungren. who
'Democrats later 100k control of the House due to
the New York Senate race. Democratic
Republican deaths
mocratic Gov. Parris Glendening survived
lost big to Democrat Gray Davis, was hurt
participation among union
candidates prevailed In all five.
2Democrats later 100k control with help from third.
a tough COP challenger. the black vote
by the strident anti-immigration stand
or example, jumped to 22%
party members
Motivated hy Threat to Clinton
jumped to 20% of the total this year from
taken by COP Gov. Pele Wilson in 1994.
th 13% in 1994, when the De-
3N01 counting one undecided race NT Oregon
the House. No complete num-
"The black vote obviously was critical
only 12% In 1991, according In senior politi-
Meanwhile, successful appeals to minori-
in the outcome of many races," White
cal analyst David Bositis of the Joint Cen-
lies. whether by Democrats or by Republi-
k voters' turnout were avail-
ter for Political and Economic Studies.
House pollster Mark Penn said. "They
cans such as Gov. Bush, also rested on
ecdotal evidence shows they
pared with the Democrats' 21%. Some of
were energized by seeing the Republican
A good economy, combined with
foundations that have taken years to build.
Ierence in several key races.
that could be attributed to the Democrats'
right threaten President Clinton and all the
turnout appeals from President Clinton. In-
Gov. Bush. for example. "spoke out for
or example. where Democrats
recruitment of more conservative candi-
Clinton administration stands for."
bor unions and others, made the differ-
Hispanics" while some other prominent
repel the Republican effort to
dates. particularly in the South. But Mr.
Republican polister Eddie Mahe
ence, Mr. Bositis said. A recent survey by
Republicans were bashing immigrants in
rnor's office for the first time
Gephardt argued that they were also at-
agreed. "We (Republicans) probably got
the Joint Center found that blacks, by a
the 1996 GOP presidential primaries. noted
truction. black voter turnout
tracted to the party's focus on Issues rather
60% of the white vote in the South. he said.
51% majority. fell better off under the Clin-
Mr. Sharry. Meanwhile. President Clinton
than scandals.
"But If you're only getting 7% or 6% of the
Ion economy. "Blacks still aren't making
has steadily championed issues of black
impared with 19% in 1994.
News In the Wee Hours
black vote. it just makes il really. really.
as much as whiles. but the black poverty
concern, said Mr. Bositis of the Joint Cen-
done by the Christian Coali-
rate is at an all-time low."
ler for Political and Economic Studies.
hat Democrats even managed
Christian Coalition Director Randy
really difficult to move the numbers. The
Democrats did an extraordinarily fine job
Pattern Among Illspanics
Asked If Mr. Clinton is indebted to black
the Republican Party's most
Tate agreed: "Democrats had an agenda.
voters. Mr. Bositis replied: "If you look at
albeit a liberal agenda
and
agenda
in communicating the message. Those
Hispanics, a rapidly growing group ex-
some
the 1998 budget deal, the White House al-
people are a threat to you.' and a threat is
pected to outnumber African-Americans
If-Identified religious conser-
will beat no agenda every time."
always the most powerful motivator."
ready has delivered to the black caucus."
within a decade or 50, also tilled toward
said they voted for a Democ-
The full impact on the House races and
Paradoxically. exit polls show black
Democrats on Tuesday. But their vote was
said they voted for a Repub-
the campaigns for governor couldn't be de-
turnout didn't increase on a national basis:
(ar less monolithic than the black vote.
Republicans garnered 67%
termined until the wee hours of the morn-
in fact. black voters accounted for an esti-
In California, Incumbent Democratic
the religious right, as com-
ing. when West Coast results came in and
mated 10% of the total national vote this
Senator Barbara Boxer drew an estimated
close races were finally determined.
year. down from 11% in the last off-year elec-
73% of the Hispanic vote in her Winning
Among the late gains for Democrats
tion of 1991. (Whites accounted for 82% of the
election bld. (She and COP challenger
were two House seats in Washington, one
vote this year, Hispanics 5% and Aslan-
Mall Fong split the Asian-American vote.)
in Wisconsin, and another in California.
Americans 12.) But blacks gave an esti-
In Texas. GOP Gov. George W. Bush won
The Republicans managed their own off-
mated 8S% of their votes to Democrats. The
nearly half of the Mexican-American vole.
setting wins on the West Coast. picking up
black impact was especially concentrated in
"The Hispanic vote is still very much
two California House seats and defeating
miled Gov. Pete Wilson (R)
Democrat Rep. Jay Johnson in Wisconsin.
Hopes of Some Tobacco
Foes Go Up in Smoke
niled Gov. Zell Miller (0)
But Mr. Johnson. a former television re-
By n WALL. STREET JOHNNAL Staff Reporter
ney General Scoll Harshbarger. who sued
Gov. Terry Branslad (R)
porter who rode Mr. Clinton's coattails in
WASHINGTON-When the proposed
lobacco companies and helped to negotiate
1996 to win the heavily Republican district
national tobacco settlement was an-
the proposed settlement, lost to Republican
based around Green Bay. proved 10 be the
nounced in June 1997. the attorneys gen-
Paul Cellucci in his bid for governor. Jay
only Democratic incumbent to go down in
eral who negotiated it were thought to be
Nixon, Missouri's Democratic attorney
niled Gov. Roy Romer (D)
defeat. Five Republican incumbents. on
destined for higher office.
general who sued tobacco companies in
But a bill based on the settlement died
the other hand, lost their seats.
1997, lost his Senate race to incumbent Re-
-limited Gov. Lawion Chiles (D)
in the Senate, and some of the allorneys
Gov. Phil Ball (R)
Among the late returns in the gover-
publican Christopher "Kil" Bond.
general most prominently associated with
Not everyone associated with the nnli-
Gov. Jim Edgar (R)
nors' races was the re-election of Hawaii
the antitobacco movement suffered de.
tobacco movement lost. California Democ-
Gov. Ben Cayetano, an endangered Demo-
lited Gov. Benjamin Nelson (D)
feats in this week's elections.
rat Gray Davis and Alabama Democrat
crat hurt by a weak economy. In Nebraska
Minnesota Attorney General Hubert II.
illed Gov. Bob Miller (D)
Donald Slegelinan, both of whom had filed
and Colorado, Republicans managed two
"Skip" Humphrey. a Democrat whose suit
private lawsuits as lieutenant governors
illed-Gov. George Voinovich (R)
victories that helped to offset their losses in
against tobacco companies grabbed head-
against tobacco companies in solidarity
the South. Nebraska Gov. Ben Nelson will
lines, lost the governor's race to Reform
with the allorneys general, won guberna-
be succeeded by Lincoln Mayor Mike Jo-
Sov. Arne Carlson (R)
Party candidate and former professional
torial elections in their respective states.
hanns and Colorado's Roy Romer will be
wrestler Jesse "The Body" Ventura.
Other attorneys general who had sued
succeeded by State Treasurer Bill Owens.
In Massachusetts. Democratic Allor.
tobacco companies were re-elected.
legislative control game
Women, minorities propelled
graphic makeup of their states.
tions were decided on local is
ate legislatures
That power can be used by the
sues, not broad national trends.
dominant political party to
As a result, they drew no lofty
11 state legislatures on Election
draw lines that help their can-
conclusions from the results.
If they control as well as the
didates win election to Con-
"These are races that are de-
Democrats
NS of government. Key gains
gress and the legislature.
cided at the neighborhood lev-
in key races
hire, North Carolina, Washington
Excessively partisan redis-
el," says Mike Collins, spokes-
tricting. however, can be chal-
man for the Republican
By Jessica Lee and Maria Puente
took over chambers in Michigan
lenged in court. It often is done
National Committee.
USA TODAY
USA IVS
Republicans acknowledged their message falled to
one party controls both houses
to increase - or reduce - the
The most significant state
move enough voters. House Speaker Newt Gingrich
influence of minority voters.
legislative results came in
WASHINGTON - Nationwide, voter turnout sank to a
promised to spend "a fair amount of time over the next
Democrat GOP Split
Democrats across this
these states:
50-year low Tuesday, but strong local efforts to turn out
week to 10 days" trying to find out why.
country made it very clear that
Indiana, where Demo-
women, minorities and union members helped Demo-
One reason for the unexpected outcome, activists from
Mo.
they want to be heard when it
crats broke a tie in the House
crats win several key contests and frustrate Republican
both parties say, is that some conservative voters felt
Neb.²
comes time to draw district
to win a majority. That will
ambitions in congressional and gubernatorial elections.
they were being taken for granted, and other constituen-
Nev.
lines," Maryland Senate Presi-
help Democratic Gov. Frank
"The turnout by eligible voters was 36.1%, the lowest
cies felt wanted.
N.H.
dent Thomas Miller says.
O'Bannon combat a Republi-
since 1942," says Curtis Gans, director of the Committee
In a reversal of recent election dynamics, African-
N.J.'
Going into the election, Re-
can Senate.
for the Study of the American Electorate. Voter News
Americans and Hispanics seemed to feel needed while
N.M.
publicans had hoped to take
New Hampshire, where
Service, an association of television and wire service
religious conservatives complained that the GOP gave
control of a dozen or more
companies, reported a slightly higher turnout, 37% of the
them short shrift.
N.Y.
Democrats took control of the
state legislative chambers, in-
Senate for the first time since
voling-age population.
Randy Tate, director of the Christian Coalition, says
N.C.
cluding both houses in several
1912 and were likely to pick up
Democrats attributed their belter-than-expected show-
"an Issues vacuum In Washington, D.C." caused about
N.D.
states. They gained only in
about 15 seats in the Republi-
Ing to unabashed New Deal coalition-building on issues
one-fourth of its male membership to desert the GOP.
Ohio
Michigan and Minnesota.
can-run House.
such as education, health care and Social Security.
Overall, women turned out at about the same rate as
Okla.
By contrast, Democrats
North Carolina, where
men. But according to the nonpartisan Pew Research
Ore.
picked up majorities in Indi-
Democrats took the House and
Pa.
ana, New Hampshire, North
padded their lead in the Sen-
Center, women "gave much stronger support to Demo-
That historic high-water mark only enhances Bush's po-
R.I.
Carolina, Washington and Wis-
ate. That will give Gov. James
crats than men gave to Republicans."
tential as a GOP presidential contender in 2000.
S.C.
consin. In Washington, they
Hunt a unified government.
Although top-of-ticket Republicans did well among His
In New York, Democrat Charles Schumer stunned
S.D.
took over control of both
Washington, where both
panics in Florida and Texas. Hispanics gave lopsided sup-
three-term Republican Sen. Al D'Amato, beating him by
Tenn.
houses from Republicans.
houses moved into the Demo-
port to Democrats. Their votes lifted California Demo-
14 points. He did it with 85% of the Hispanic vote and 87%
Texas
The changes at the state lev-
cratic camp for Democratic
crats such as Cruz Bustamante, who was elected the
of the black vote, whereas he split the white vote.
Utah
el, unlike those in Congress,
Gov. Gary Locke.
state's first Latino lieulenant governor.
In the Deep South, black voters turned out for white
will have an immediate im-
Wisconsin, where Demo-
Also in California, Democralic Sen. Barbara Boxer
Vt.
Democratic candidates. "In 1994 the black vote was
pact. In Florida, Michigan and
crats took over the Senate and
beat challenger Matt Fong by 10 points. The exit polls
Va.¹
about 19% of the total (In the region). It was 29% this
Colorado, Republicans will
denied GOP Gov. Tommy
showed she got only 47% of the white vote but 86% of the
year," says David Bositis of the Joint Center for Political
V
control the governor's office
Thompson full control of the
black vote and 74% of the Hispanic vote
and Economic Studies, a think tank that studies Issues of
W.V.
and both branches of the legis-
legislature.
But Hispanic loyalty to Democrats was not enough to
concern to African-Americans.
Wis.
lature. In California, North
Michigan, where Republi-
make a dent in the juggernaut of votes for Republican
He says the turnout exceeded African-Americans' 27%
Wyo.
Carolina, Washington and Ala-
cans took over the House on
Gov. George W. Bush In Texas.
the coattails of GOP Gov. John
share of the voting population, an unusually high mark. In
bama, Democrats will exercise
Exit polls conducted by the Southwest Voter Registra-
Georgia, black voters outpolled white voters to put Demo-
total control. One party will
Engler, who will have both
legislature 3 Does not reflect knal results
tion Education Project showed Bush took 37% of the His-
crat Roy Barnes in the governor's mansion and elect Thur-
control both legislative houses
houses in his camp.
USA TODAY
panic vote, with 63% going to his Democratic challenger.
in 24 states. up from 18 today.
Minnesota, where Repub-
bert Baker as the state's first black attorney general.
draw congressional and legisla-
This year. says Tim Storey of
licans took over the House.
tive district lines after the 2000
the National Conference of
With the Senate remaining
Census.
State Legislatures, "people
Democratic and Reform Party
Governors and legislatures
weren't looking for a whole lot
candidate Jesse Ventura elect-
redraw those maps every 10
of change."
ed governor, power will be split
years to reflect the demo-
Republicans say state elec-
three ways.
CENTER ON BUDGET
AND POLICY PRIORITIES
FISCAL YEAR 2000 BUDGET INITIATIVES TO
EXPAND ACCESS TO HEALTH CARE COVERAGE
The resolution of the Social Security debate could prompt a major budget deal
next year, allowing the Administration perhaps its last significant opportunity to see its
health care coverage priorities enacted into law. While none of the initiatives listed
below, in and of themselves, would represent a major health coverage expansion
similar in scope to the child health initiative, together, these initiatives could make a
substantial impact on coverage over time, particularly among children and low-income
working parents.
Transitional Medical Assistance ("TMA")
TMA provides time-limited Medicaid coverage to low-income households
whose earnings or child support would otherwise make them ineligible for Medicaid
under state Medicaid income eligibility standards. Under current law, states must
provide TMA for up to 12 months for families with increased earnings and for up to
four months for families with increased child support income. (The second six months
of TMA for families with earnings is limited to families whose gross earnings less child
care expenses are below 185 percent of the federal poverty line.)
TMA sunsets in 2001. The Administration should extend TMA and consider two
other TMA changes that would promote coverage among working poor and near-poor
parents (building on the Administration's recent action to eliminate the so-called 100-
hour rule) while simplifying the Medicaid program for states.
1. Lift or extend the sunset. TMA is currently scheduled to sunset in 2001 (the
sunset date was extended in the 1996 welfare law). While it would be possible to
wait another year to lift or extend the sunset, a delay will increase the five-year
cost of extending this provision. Additionally, there is a much greater likelihood
that there will be a budget deal this coming year than the following year; waiting
another year to extend or lift the sunset could risk the loss of TMA.
When the welfare law was enacted, CBO estimated the annual cost of TMA to be
$400 million.¹ This estimate, however, does not take the recent Medicaid child
health expansions into account. To the extent that the children in families that
1
CBO Memorandum, Federal Budgetary Implications of the Personal Responsibility and Work Opportunity
Reconciliation Act of 1996, December 1996, page 9.
820 First Street, NE, Suite 510, Washington, DC 20002
Tel: 202-408-1080 Fax: 202-408-1056 [email protected] http://www.cbpp.org HN0026
would be covered by TMA are otherwise covered under Medicaid through these
expansions, the cost of extending TMA should be lower than these earlier
estimates.
2. Eliminate the TMA mandate for states that have expanded coverage to low-
income working families TMA needs to be refashioned in keeping with the new
relationship between welfare and Medicaid and the new opportunities available
to states under current law to expand coverage more broadly to low-income
working families. The change proposed here would relieve states of the
obligation to provide TMA if they are otherwise providing coverage to low-
income working families.
TMA was originally designed to provide coverage only to families who became
ineligible for AFDC (and therefore Medicaid) as a result of earnings or child
support. This was changed by the 1996 welfare law which delinked eligibility for
Medicaid and cash assistance; under current law, TMA coverage is required
when a family's earnings or child support would otherwise make the family
ineligible for Medicaid under the new "delinked" Medicaid eligibility category.²
In practice, since states' income standards under the new Medicaid eligibility
category typically mirror the standards adopted in their TANF programs, in
most states the families that qualify for TMA continue to be families that become
ineligible for welfare due to earnings. In these states, TMA still largely operates
as a "welfare-to-work" initiative. Some states, however, have expanded
Medicaid eligibility to a broader group of low-income families under the
delinked category, an option that is available to them under the 1996 federal
welfare law.
For example, Rhode Island has extended Medicaid coverage to parents with
incomes up to 185 percent of the federal poverty line, and the District of
Columbia has expanded coverage to parents with incomes up to 200 percent of
the poverty line. (Both jurisdictions also cover the children in these families at
least up to these income standards.) TMA makes little sense in RI or DC where
Medicaid eligibility has been expanded to cover low-income working families -
families leaving welfare for work are otherwise covered under the broader
expansion. Yet under current law, when a family in RI or DC becomes ineligible
for Medicaid because its earnings exceed the new expanded income standard
(185 percent of the poverty line in RI and 200 percent of the poverty line in the
2
Under section 1931 of Title XIX, Medicaid eligibility is not tied to eligibility for cash assistance under
TANF. Instead, eligibility for families is based on state income and resource standards which generally
can be no lower than the state's income and resource AFDC/Medicaid standards as of July 16, 1996.
2
District), RI and DC still must provide TMA to that family at least for six
months.³
In order to eliminate this anomaly, the rules governing TMA could be changed to
drop the TMA requirement for those states that have expanded coverage for
families to at least 185 percent of the poverty line.⁴ This would assure that
virtually no low-income working family that would qualify for TMA under
current law would lose that coverage, and it could encourage more states to
provide regular, ongoing Medicaid coverage to working poor and near-poor
households. Many states find it difficult to meet the TMA requirements; the
elimination of the TMA requirement in states that expand coverage more
broadly could make the expansion option more attractive to states. It also would
reduce the cost for states that do expand Medicaid coverage more broadly, by
eliminating the added costs related to TMA.
3. Eliminate reporting requirements that are burdensome to states and to
families Under current law, families are required to file fairly detailed quarterly
reports to maintain their eligibility for TMA. The federal provisions governing
these reports are particularly prescriptive and a source of considerable irritation
for states. The reports also can result in otherwise eligible families losing
coverage if they are unable to make their way through the paperwork
requirements. If TMA were to be extended, the reporting requirements should
be dropped. States could check on TMA eligibility through regularly scheduled
recertification procedures in the same manner that they otherwise assure
ongoing eligibility in the Medicaid program.
Presumptive eligibility
This proposal was included in the President's FY99 budget and in the McCain
tobacco bill, and it is the subject of a stand-alone bill introduced last month by Senator
McCain. Presumptive eligibility for children was first established as a state option
under the BBA. Under the BBA provision, states may elect to allow health providers,
WIC clinics, Head Start programs, and agencies that determine child care subsidies to
3
The families in RI or DC would likely not qualify for the second six months of TMA because under
current law, only families with earnings (gross earnings less child care expenses) below 185 percent of
the poverty line qualify for the second six-months of TMA.
4
While another income threshold might be picked, the 185 percent standard would assure that no
family would lose coverage 12 months of coverage under this change. As noted above, the second six
months of TMA is currently limited to families with gross earnings (less child care expenses) is below 185
percent of the poverty line.
3
preliminarily enroll children who appear to be eligible for Medicaid into the program
pending a final determination of eligibility by the state Medicaid agency.
The President's FY99 proposal would have improved the BBA provision and
broadened state flexibility by expanding the list of agencies and organizations that
could presumptively enroll eligible children at state option. The most significant
change would be to allow schools to become presumptive eligibility enrollers. The
NEA and other school-related associations are eager for enactment and see the
presumptive eligibility expansion as an important outreach tool. When combined with
the new simplified Medicaid applications that most states are now using to enroll
children, the presumptive eligibility option expansions would allow schools, child care
resource and referral centers⁵, and other agencies that come into regular contact with
low-income uninsured children to combine their outreach strategies with actual
enrollment into Medicaid.
Last year, CBO estimated that the cost of the President's proposal to expand
presumptive eligibility would be $375 million over five years. In light of the slow pick-
up of the current presumptive eligibility option, it is possible that CBO might lower its
estimate of this proposal.
Allow states to cover noncustodial parents who are regularly meeting
their child support obligation
Many states and several members of Congress, including Representative Clay
Shaw, are keenly interested in initiatives that expand the scope of services and benefits
available to noncustodial fathers with the goal of increasing their capacity to support
their children. Health care coverage could be an important component of these
strategies. Yet under current Medicaid law, states do not have any legal authority
(absent a waiver) to extend Medicaid coverage to even the poorest noncustodial
parent.⁶ States could be offered the option to provide coverage by amending the
federal definition of "parent" to allow, but not require, states to cover noncustodial
5
Under current law, agencies that determine eligibility for child care subsidies can presumptively
enroll children into Medicaid. In some states, the child care resource and referral centers make the
subsidy determination and therefore already can be presumptive eligibility enrollers. The President's
FY99 budget proposal would assure that all child care resource and referral agencies would be
permitted, at state option, to presumptively enroll children into Medicaid.
6
Missouri recently received a federal waiver to allow the state to provide Medicaid coverage to
certain noncustodial parents.
4
parents who are meeting their child support obligations.⁷ Coverage could be provided
at or below the income standard otherwise applied by that state to custodial parents.
This proposal could allow states to provide health care coverage to a group of
individuals who are at high risk of being uninsured. Moreover, it could provide critical
and stabilizing support to parents struggling to keep up with their child support
obligations, and it could serve as an incentive to encourage other parents to comply
with their obligations. While this proposal has the potential to expand health care
coverage to a large number of adults, it is likely to be most attractive if packaged as a
child support/noncustodial parent initiative rather than a health care coverage
expansion initiative.
Eliminate the restrictions on the Medicaid outreach funds for states
Last year's budget proposed to eliminate the restrictions on the outreach fund
established under the 1996 welfare law to allow these funds to be used for outreach
activities relating to all children, not just those whose eligibility for Medicaid is tied to
the new delinked eligibility category. The proposal also would have allowed states to
draw down their allotments under this fund without regard to the three-year time limit
imposed by the 1996 law.
We believe this proposal is still needed to clarify the purposes for which these
funds can be used and to assure that those states that have been slow to take advantage
of the funds are provided an opportunity to do so. We do not believe that providing
states with additional outreach funds through this provision (as was proposed in the
Administration's budget last year) is a priority. It is our understanding that if there is
no change in the amount of funds appropriated to this fund, CBO will not score any
cost to this proposal.
Allow states to cover lawfully present immigrant children in Medicaid
and under programs funded with Title XXI child health funds
regardless of their date of entry
This proposal was included in last year's Administration budget. It would lift
the ban on coverage of nonexempt qualified children who enter the country on or after
August 22, 1996 in both Medicaid and in programs funded with the child health block
grant funds. Over time, the federal ban will cause an increasing number of children to
lose out on health care coverage. While it will be difficult to get at least the Medicaid
aspect of this proposal enacted into law, states are strongly supportive of the initiative
7
Medicaid eligibility for custodial parents is already tied to the child support system. Custodial
parents must cooperate to establish medical support (and paternity) for any child with an absent parent.
5
and Senator Graham has recently introduced a bill that would lift the ban in both
Medicaid and in programs funded with Title XXI child health block grant funds.
Last year, CBO estimated that the cost of the Medicaid proposal was $200 million
over five years. The Title XXI change would have no cost (since the cost of coverage
would be absorbed within the block grant allocations).
Allow states to provide 12-months continuous coverage to parents as
well as to their children
One of the Medicaid initiatives enacted as part of the BBA was a provision that
allowed states to cover children for 12 months regardless of changes in the family
circumstances that might affect their eligibility for Medicaid. This provision promotes
continuity of coverage and care and helps states to establish Medicaid enrollment
policies that fit within the managed care context.
This option, however, is not available to states with respect to the parents of the
children that are covered under the 12-month continuous eligibility option. To the
extent that a state covers the parents as well as the children in a family, it can only
extend 12-months continuous coverage to the children. Parents are subject to regular
Medicaid reporting and recertification requirements. This limits the effectiveness of
the current option. Families in which the parent as well as the child is covered still have
to report changes that otherwise would be irrelevant under the 12-month continuous
coverage option, and states still have to act on these changes, at least with respect to the
parent. Moreover, state contracts with managed care providers can only guarantee
coverage for the children, but not for all members of the families, enrolled with that
provider.
By extending the option so that an entire family (if otherwise eligible) could be
covered for a 12-month period, the option established under the BBA could be made
more effective for children. In addition, the change would help assure that parents, if
otherwise covered under a state's Medicaid program, are assured continuity of
coverage and care along with their children.
6
CENTER ON BUDGET
AND POLICY PRIORITIES
Memo
To:
Michael Deich, Steve Redburn, and Ted Wartell, OMB
Cynthia Rice, Andrea Kane, DPC
Chuck Marr, Jonathan Orszag, NEC
From:
Bob Greenstein, Barbara Sard and Jeff Lubell, CBPP
Date:
November 13, 1998
Re:
Incremental Vouchers for FY 2000
The Administration scored an important victory this year in securing 50,000 new
housing vouchers to help families move from welfare to work. After four years
without substantial new appropriations of incremental Section 8 assistance, these
vouchers should play an important role in helping more families obtain decent,
affordable housing. The vouchers also should further the objectives of welfare reform
by helping families for whom the lack of stable, affordable housing is a barrier to
employment.
In light of the importance of stable, affordable housing to welfare reform efforts
and the severity of the affordable housing shortage, we urge the Administration to
build on its success and seek additional housing vouchers for FY 2000. The new
housing bill provides authorization to increase the number of outstanding housing
vouchers in FY 2000 by 100,000 units over FY 1999 levels; incremental assistance at this
level would contribute significantly toward addressing the affordable housing shortage
and furthering the objectives of welfare reform.
The Importance of New Housing Vouchers
Housing vouchers can make an important contribution to welfare reform efforts.
By stabilizing the living situations of poor families, housing vouchers can help them
focus more on securing and retaining jobs. Vouchers also can be used to help families
move closer to a prospective work site or to an area with better job opportunities and
transportation networks. Finally, housing vouchers free up funds within the budgets of
poor families for work-related expenses, such as child care, work clothes, and transportation.
F:Vesearch) 2000\Vouchers\Memo re FY 2000 Vouchers.wpd
820 First Street, NE, Suite 510, Washington, DC 20002
Tel: 202-408-1080 Fax: 202-408-1056 [email protected] http://www.cbpp.org HN0026
Recent Research Confirms the Likely Contribution of
Housing Subsidies to Welfare Reform Efforts
Data from several recent studies suggest that residence in subsidized housing may contribute to
welfare reform efforts.
Minnesota Family Investment Project. A recent evaluation of Minnesota's welfare reform initiative
(known as MFIP) by the Manpower Demonstration Research Corporation found that residents of
public and subsidized housing benefitted more from that initiative than poor families not residing
in such housing. The central features of MFIP were a substantial increase in the amount of earned
income disregarded in determining the family's eligibility for, and benefit level under, the State's
cash assistance program, combined with a requirement that recipients participate in work
activities. The evaluation found that among long-term welfare recipients in urban counties
participating in the full MFIP program, employment and earnings increases were greater for
families living in public or subsidized housing than for those in private housing. MFIP participants
living in public or subsidized housing also outperformed residents of private housing on an
absolute basis; average earnings over 18 months among long-term welfare recipients in urban
counties who received full MFIP benefits and lived in public or subsidized housing exceeded by
more than 40 percent the average earnings of full-MFIP participants not residing in such housing.
Tenant-based Section 8 Program in California. Analyzing data collected in four California counties
(Alameda, Los Angeles, San Bernardino, and San Joaquin), researchers from UCLA found that, on
average, families receiving both Aid to Families with Dependent Children (AFDC) and Section 8
tenant-based vouchers or certificates worked significantly more hours than AFDC families living in
other forms of housing, including unsubsidized housing. The study concluded that the most
"plausible explanation [for these results] is that Section 8 housing offers recipients residential
choice and mobility that improve opportunities for employment."
*
Paul Ong, "Subsidized Housing and Work Among Welfare Recipients," unpublished manuscript, p.1.
Housing vouchers also can help reduce the ranks of the homeless. A study
released this month by New York University found that the living situations of most
homeless families with children were stabilized with affordable housing alone, without
bundling the housing subsidies with supportive services. Published in the American
Journal of Public Health, the study reported that 80 percent of homeless families
provided housing subsidies had a "stable" living situation for a year or more; this
matched the percentage of non-homeless families with housing subsidies that had
stable living situations over the same time period. (See the enclosed New York Times
article on this study.)
Another important social purpose that can be furthered through housing
vouchers is education. Studies show that the children of families that move frequently
tend to do less well in school. By enabling poor families to find and keep affordable
2
housing, vouchers help them to stay in place, improving their children's educational
prospects.¹
Studies prepared this year by HUD, the Joint Center for Housing Studies at
Harvard, and the Center on Budget and Policy Priorities all report a large unmet need
for housing assistance among lower-income renters. Some 5.3 million renter
households that have incomes below 50 percent of the area median income (AMI) and
do not receive federal housing assistance spent more than half of their income on
housing or lived in severely substandard housing in 1995. Under HUD's categorization
of housing needs, these households have "worst case housing needs."
The affordable housing shortage cannot be resolved solely by increasing the
proportion of families that work. About 2.4 million renter households with worst case
housing needs in 1995 had earnings as their primary income source. More than half of
these 2.4 million households had earnings equal to full-time, year-round work at the
minimum wage.
With the decline in welfare caseloads in recent years, the number and proportion
of working households with worst case housing needs is likely to have risen. Census
data indicate that in 18 of the nation's 20 largest metropolitan areas, the typical hourly
wage in 1995 of single working mothers who had recently received welfare - roughly
$6.00 per hour, as measured in 1997 dollars - leaves a family of three below 30 percent
of AMI even if the parent works full time.² Similarly, a national study of single
mothers who were working five years after leaving welfare found that their earnings
averaged just $10,315 per year, below 30 percent of the national median income in 1997
(which was $11,745 as adjusted for a family of three.) 3 According to HUD, the vast
majority of households with incomes below 30 percent of AMI that do not receive
federal rental assistance - and more than 60 percent of households lacking rental
assistance that have incomes between 20 and 30 percent of AMI - have worst case
housing needs.
1
Housing vouchers also can help victims of domestic violence escape an abusive living situation.
2 This wage figure reflects the median hourly wage in 1995 for single working mothers nationally
who also received AFDC benefits at some point in 1995. It was tabulated by the Center on Budget and
Policy Priorities based on data from the Census Bureau's Current Population Survey. In this
comparison, full-time year-round work is defined as 40 hours of work per week for 50 weeks of the year.
3 Daniel R. Meyer and Maria Cancian, Life After Welfare: The Economic Well-Being of Women and
Children Following an Exit from AFDC, Institute for Research on Poverty, University of Wisconsin,
Discussion Paper No. 1101-96, August, 1996, p. 20. The $10,315 figure cited here reflects the study's
finding as measured in 1997 dollars. These mothers were not necessarily employed continuously
throughout the five-year period, and some may have received some welfare assistance since initially
leaving the rolls.
3
While the economy has performed well since 1995, there is reason to believe the
affordable housing shortage remains acute. In the two decades prior to 1995, the gap
between the number of poor renter households and the number of apartments
affordable to those households steadily increased. This trend persisted even through
times of economic growth. For example, the gap between the number of poor renter
households and the number of apartments affordable to those households increased by
one million - almost 30 percent - between 1991 and 1995. 4
In coming years, the affordable housing shortage is likely to worsen as a by-
product of the recently-enacted reform of the public housing system. To increase the
mix of incomes in public housing, Congress has authorized public housing agencies
(PHAs) to decrease substantially the share of newly-available public housing units
reserved for poor families. If PHAs were to take full advantage of this authority, the
number of newly-available public housing units provided to poor families could drop
by as much as 59,000 units per year. 5 The new legislation also could lead to a reduction
in the number of poor families admitted to privately-owned Section 8 projects. 6 Since
some housing authorities and private owners of Section 8 housing may choose not to
(or be unable to) reduce the share of poor families they serve to the full extent allowed,
the actual loss of units for poor families is likely to be less than the maximum potential
loss outlined here; nevertheless, we expect it to be significant. The impact should begin
to be felt by FY 2000.
4
While an important source of affordable housing for families with incomes between 50 and 80
percent of AMI, the low income housing tax credit generally does not produce housing that is affordable
to families below 30 percent of AMI unless the family utilizes an additional federal subsidy, such as a
housing voucher.
5
Approximately 13 percent (156,000) of the 1.2 million public housing units nationwide become
available each year through turnover. In recent years, PHAs have provided about 78 percent (121,680)
of these units to families with incomes below 30 percent of AMI. In the new housing bill, Congress
authorized PHAs to reduce to 40 percent the proportion of newly available public housing units
provided to such families. If PHAs were to take full advantage of this authority and admit to public
housing only the required number of families with incomes below 30 percent of AMI, the number of
poor families admitted to public housing each year could fall to about 62,400 - a drop of more than
59,000 relative to current practice.
6
There are currently about 1.4 million project-based Section 8 units. About 75 percent of the families
admitted to project-based Section 8 units in recent years have had incomes below 30 percent of AMI.
Under the new statute, owners may reduce to 40 percent the share of newly available units provided to
such families. While this rule will most likely result in some loss of units for poor families, it is unclear
how large this loss will be. Mitigating the likely loss of project-based Section 8 units for poor families is
a prohibition against skipping over a lower-income family on the waiting list in favor of a higher-income
family. (No parallel provision exists_with respect to public housing.) On the other hand, as project-
based Section 8 housing tends to be located in better neighborhoods than public housing developments,
private owners of Section 8 housing projects may have somewhat better success than PHAs in attracting
higher-income applicants.
4
The new housing bill provides authorization to increase the number of
outstanding housing vouchers in FY 2000 by 100,000 units over FY 1999 levels. An
additional 100,000 housing vouchers in FY 2000 would make a significant contribution
toward addressing the affordable housing shortage and the challenges of public
housing reform and welfare reform.
Strategies for Increasing Appropriations for Housing Vouchers
While the needs of families with children facing work requirements and time
limits under welfare reform are substantial, the needs of other very-low income
working families, homeless families and individuals, and others are also significant.
Once the determination has been made to seek incremental housing vouchers, we view
the primary consideration in designing a proposal to be the likelihood of a positive
response in Congress. How Congress will respond to a proposal for incremental
housing vouchers is a difficult issue to assess. The following is a brief discussion of the
comparative advantages and disadvantages of different strategies.
Welfare to Work Vouchers. Given the Administration's success last year in
obtaining welfare-to-work vouchers, it may wish to consider seeking more in this
year's appropriations cycle. This approach benefits from the consensus around welfare
reform and, if well executed, should help many families move from welfare to work
and remain employed. The one possible disadvantage of this approach is the likely
argument from some on Capital Hill that it would be premature to expand this
program because it is too new to have a track record of success and expansion should
await evaluation results on the first 50,000 such vouchers.
Should HUD's Notice of Funding Availability [NOFA] for the welfare-to-work
voucher program generate more applications than HUD can fund with FY 1999 dollars,
unsuccessful applicants could generate some political pressure for additional
appropriations of welfare-to-work vouchers. (This is one of many good reasons to keep
the number of PHAs awarded welfare-to-work vouchers in the initial round fairly
small. The other - and most important - reason is to ensure that HUD funds only the
best applications with the greatest chance for success.)
In the event the Administration decides to seek more welfare-to-work vouchers,
we would recommend a change in the statutory authorization to expand the range of
organizations that may apply to participate in the program. We describe this proposed
change in the Appendix.
Ordinary Vouchers. The last new appropriation of regular vouchers was made in
FY 1994. (In FY 1995, the incoming Republican Congress rescinded an appropriation of
incremental vouchers.) As ordinary incremental vouchers are distributed largely by
formula to a very large number of PHAs, they have the support of the housing
5
authority trade groups. There also is some sentiment (particularly in the Senate) that if
there are to be new vouchers, they should be ordinary vouchers that local PHAs can
use for whatever purpose they deem appropriate.
One factor that appears to have diminished prospects for ordinary incremental
vouchers in the past is the perception that they are just a drop in the bucket of an
overwhelming need for affordable housing that Congress cannot meet. Some believe
that vouchers targeted on a specific need or population (see below) have a better chance
of success.
A new variable in the equation for FY 2000 is the recently enacted reform of
public housing. One could argue that incremental vouchers with no federally
designated purpose address more directly the decrease in the number of poor families
provided public housing in the wake of public housing reform. Since all local PHAs
now have discretion to reduce the share of newly available public housing units
provided to poor families, we expect that a fairly large number of communities around
the country will see a decrease in the number of poor families provided public housing
and a corresponding increase in the length of time it takes a poor family to receive a
housing subsidy.⁷
Targeted Vouchers. An approach that showed some promise last year was to
target new vouchers on specific populations, such as homeless households or families
attempting to make the transition from welfare to work. The chief benefit of this
approach is that it allows Congress to identify and address a specific component of the
overall need for housing subsidies. The main drawback is that it fails to attract the
support of communities that do not rank the identified need high on their list of
priorities.
Hybrid Approaches
There are a number of hybrid approaches that combine different attributes of the
strategies discussed above.
One approach would be to provide for distribution of the vouchers by formula,
but to limit their use to any of a number of Congressionally-specified purposes, such as
aiding the transition of families from welfare to work, preventing or ameliorating
7
We would not recommend targeting vouchers directly to those PHAs that decrease the number of
poor families provided public housing. An increase in the mix of incomes in public housing may make
sense in some locations and not in others. Whether to change the mix, and if so to what degree, should
be decided by local decision makers within the context of the federal guidelines agreed upon in the
recently enacted housing bill. Targeting vouchers on PHAs that decrease the share of public housing
units provided to poor families would interfere with this process by creating a strong incentive to
minimize the number of poor families provided newly available public housing units.
6
homelessness, helping domestic violence victims, etc. This approach has the benefit of
increasing the base of support for the initiative and preserving local freedom to choose
among the permissible purposes. A downside is that no one constituency might feel
sufficiently invested in the proposed new vouchers.
Alternatively, the appropriations act could specify that the new vouchers could
be used only to meet the needs prioritized by communities in their Consolidated Plans.
These are plans that every governor and mayor of a large city is required to develop
with input from the community and submit to HUD. In the past, PHAs have generally
determined priorities for housing assistance in isolation from the community-wide
Consolidated Plan process. The new housing law seeks to change this by requiring that
PHAs consider data made available and views expressed during the Consolidated Plan
process and that PHA-determined local preferences for public housing and vouchers be
consistent with the needs identified in the applicable Consolidated Plan. Requiring
that new vouchers be used only to meet needs prioritized in the applicable
Consolidated Plan would encourage PHAs to contribute their knowledge and
perspective to the state- or eity-run Consolidated Plan process and to address the
housing needs identified in that process, thus helping to realize one of the objectives of
the new housing bill.
Providing new vouchers to address the needs identified by state and local
governments may appeal to advocates of increased devolution and federalism. On the
other hand, this proposal is more difficult to explain and less targeted on a specific
population than welfare-to-work vouchers or homeless vouchers. Targeted vouchers
may generate more enthusiasm with some policymakers than vouchers designed to
meet unspecified local needs.
One could combine these two hybrid approaches by providing that PHAs may
use the new vouchers for one of several Congressionally-specified purposes or to meet a
need identified in the applicable Consolidated Plan. Such a proposal may still lack a
single invested constituency, but it might bring federalism advocates on board.
In either case (or if the approaches are combined), the new vouchers should be
awarded to PHAs that show both (i) a willingness to commit existing resources (i.e., the
subsidies that become available through ordinary turnover) to serving the identified
need and (ii) a likely inability to meet the identified need fully with existing resources.
This would encourage PHAs to devote existing resources to meeting the identified
needs (as the new legislation contemplates) and ensure that vouchers are awarded only
to those communities that demonstrate an unmet need for them despite local efforts.
7
Conclusion
By providing poor families with a stable living situation, housing vouchers can
help them focus on securing and retaining employment. A stable living environment
also may help the children of subsidy holders do better in school. Other important
objectives that could be achieved through housing vouchers include reducing the ranks
of the homeless and aiding domestic violence victims. Even with the intervention of
the low-income housing tax credit, the private market cannot produce enough
affordable housing to meet these goals. Indeed, the affordable housing shortage for
poor families is likely to worsen as a result of public housing reform.
In our view, the operative question in formulating a strategy for new vouchers is
not which need is greatest - they are all substantial - but which has the greatest
likelihood of success on the Hill. As discussed above, there are pros and cons to each of
the various strategies for seeking new vouchers. If it would be of use, we would be
happy to participate in a discussion of the relative merits of different approaches.
8
APPENDIX
Proposed Change to the Statutory Authorization for Welfare-to-Work Vouchers
In the event the Administration decides to seek more welfare-to-work vouchers,
we would recommend a change in the statutory authorization to expand the range of
organizations that may apply to participate in the program. The FY 1999
appropriations act limited applicants to PHAs. Although there are good reasons to
require PHA involvement in each welfare-to-work voucher program, we do not think
PHAs need to take the lead in preparing and submitting every application.
For those areas in which the local PHA elects not to submit an application, other
agencies or organizations in the community should be permitted to do so provided
they obtain the PHA's agreement to administer the housing aspects of the program
(directly or through a sub-contract). While in such cases an organization other than the
PHA would be the applicant (or co-applicant with the PHA), HUD's contract for the
Section 8 assistance would still be with the PHA.
9
The New York Times
ON
THE W E E E
November 1, 1998, Sunday
Metropolitan Desk
Study Offers New Insight On Homeless
By NICHOLE M. CHRISTIAN
After following hundreds of homeless families in New York City to
determine if social disorders prolonged their situation, a new study
by New York University suggests the real problem is the city's
scarcity of subsidized housing.
The study, to be released Tuesday in the American Journal of Public
Health, challenges a widely held view that the most effective way to
end homelessness among families is by first resolving such problems
as mental illness and substance abuse.
The study concluded that homeless families, when provided with
subsidized housing, can remain "stable" which the study defines as
staying in the same apartment for at least 12 months - regardless of
the problems they may be battling. The research, done between 1988
and 1993, is considered the first long-term look at how social
disorders affect the families' ability to find their way out of
homelessness.
"The conventional wisdom is that homeless families need to become
rehabilitated before they can become housed," said Marybeth Shinn,
a professor of psychology at New York University and co-author of
the study. "Our findings show that if given the housing first, homeless
families will become stable and remain stable." The study did not
look at single homeless adults, where incidents of mental illness and
substance abuse tend to be more serious and widespread.
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In reaching their conclusion, N.Y.U. researchers interviewed 564
families. Half of them were homeless for the first time; the other half
were randomly drawn from the city's public assistance case load and
had never been homeless. Every family was interviewed twice, once
in 1988 and again five years later.
Researchers found that 80 percent of the homeless families who were
given a subsidized apartment were able to remain stable, despite
their problems. Their rate of success in remaining housed matched
that of the families who had never been homeless. One reason for the
homeless families' success, researchers concluded, was that their rent
was paid directly to a landlord.
The study did not address what effect the acquisition of a stable
apartment had on helping the families resolve their personal
problems.
"We're not saying that social services couldn't prove advantageous to
these families, or that substance abuse and mental illness don't take
tolls on families," said Beth C. Weitzman, an associate professor in
N.Y.U.'s Robert F. Wagner Graduate School of Public Service and a
co-author of the study. "But those issues are all separate and distinct
from homelessness. Just because a family has problems doesn't mean
they can't remain housed."
Of the homeless families who did not receive subsidized housing,
only 18 percent found permanent housing, mostly by moving in with
a relative or friend, the study found. Researchers linked their low
success rate in part to the fact that some families left the shelter
before they were deemed eligible for housing. Those who left
forfeited their spot on the waiting list. During the time of the study,
most families had to wait 6 to 18 months before becoming eligible.
Some veteran researchers of homelessness hailed the N.Y.U. study
for trying to refocus one of the oldest debates surrounding
homelessness.
"This study will inevitably be read by many people as dismissing the
importance of social services," said Jim Baumohl, an associate
professor of social welfare at Bryn Mawr College in Pennsylvania.
"But what it's really saying is that if the goal is still to reduce shelter
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utilization, then we to ought to consider a strategy of rapid
attachment to housing, rather than assuming homeless families can't
stay housed."
Susan Wiviott, a spokeswoman for the city's Department of
Homeless Services, said she had not yet seen a copy of the study.
But she said the city shares the view that subsidized housing is an
effective way of helping the 4,700 homeless families now living in
the city's shelters.
Since the Giuliani administration took office, Ms. Wiviott said,
21,000 homeless families have moved out of shelters and into
subsidized housing. But she added that in the wake of the Federal
Government's recent decision to scale back national housing
subsidies, New York was ill equipped to foot the bill.
"Alone, we can't afford to house everybody who needs subsidized
housing. Our hope is that Washington recognizes the need to
continue its contribution of Section 8 and other Federal subsidies."
The N.Y.U. study was financed through a grant from the National
Institute of Mental Health.
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