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FOIA Number: 2006-0467-F
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This is not a textual record. This is used as an
administrative marker by the William J. Clinton
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Collection/Record Group:
Clinton Presidential Records
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Speechwriting
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Jeff Shesol
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19944
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Folder Title:
FY 2000 Budget 2/1/99 Budget Background - Past Speeches - Articles [2]
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Withdrawal/Redaction Sheet
Clinton Library
DOCUMENT NO.
SUBJECT/TITLE
DATE
RESTRICTION
AND TYPE
001. report
Tough Q & As on Fiscal Discipline. Handwritten Phone Number.
C. 1999
P6/b(6)
[partial] (1 page)
COLLECTION:
Clinton Presidential Records
Speechwriting
Jeff Shesol
OA/Box Number: 19944
FOLDER TITLE:
FY 2000 Budget 2/1/99 Budget Background Past Speeches Articles [2]
2006-0467-F
vz212
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RR. Document will be reviewed upon request.
THE WHITE HOUSE
Office of the Press Secretary
For Immediate Release
May 16, 1997
REMARKS BY THE PRESIDENT
ON BUDGET AGREEMENT
The Rose Garden
11:25 A.M. EDT
THE PRESIDENT: Good morning. Less than two weeks ago, the Vice President and I
joined with leaders of Congress in announcing a truly historic agreement, a bipartisan agreement
to balance the federal budget for the first time in nearly three decades. We knew that only by
finishing the job of putting our fiscal house in order could we keep our economy thriving for all
Americans. And I knew that because of all the progress we've made in the last four and a half
years, we could balance America's books while protecting America's values and preparing the
American people for the 21st century. Last night, we took the next significant step toward
writing the spirit and substance of that agreement into the law.
I want to begin by thanking Chairman Domenici, Chairman Kasich, Senator Lautenberg
and Congressman Spratt for their hard work and their earnest commitment to sticking with this
very difficult process to put our balanced budget agreement in writing. I know from my own
negotiating team that we would not be here today without their good faith and good efforts. And
I am deeply grateful to them.
I also want to thank the congressional leadership who supported this process. And I'd
like to thank the people who are here -- the Vice President; Erskine Bowles, who's still a pretty
good negotiator even though he's left his beloved private sector; Secretary Rubin; Deputy
Secretary Summers; OMB Director Frank Raines; NEC Director Gene Sperling; our CEA Chair,
Janet Yellen; and John Hilly, who handles our congressional relations and had one the most
difficult and demanding jobs of his life in the last few weeks; OMB Deputy Director Jack Lew.
I'd like to also thank all the people who are here from OMB, Treasury, and perhaps from
other agencies who were the team that put the numbers together that made this agreement
possible. Thank you. You ought to give yourselves a hand. You did a great job. Thank you.
(Applause.)
We have finalized a detailed description of the agreement reached two weeks ago. The
document is already before the relevant congressional committees who are now moving the
balanced budget resolution through the legislative process at an expedited pace. This agreement
will keep in place the economic strategy that has served our nation so well for the last four and a
half years.
When I took office, I was determined to reverse the failed policies of the past. Back
then, we faced growing deficits as far as the eye could see. It was a time of economic stagnation
and high unemployment. We moved quickly in 1993 to put in place a policy of invest and grow
-- cut the deficit, invest in our people, open new markets around the world through
tough trade agreements.
We are now in the fourth year of the disciplined, tough, five-year economic strategy we
put in place in 1993. The results of the strategy are now clear and no longer subject to
reasonable debate: 12 million new jobs, the highest economic growth in a decade, the lowest
unemployment in 24 years, the lowest inflation in 30 years, the largest decline in income
inequality since the 1960s. And the deficit has been cut already by 77 percent. Our economy is
now the envy of the world.
That progress has brought us to this rare moment in history and made it possible for us to
balance the budget in a way that balances our values. America needs a balanced budget that is in
balance with our values; that protects Medicare and Medicaid, education and the environment;
that gives tax relief to working families, and that prepares our people for the 21st century. That
is exactly what this budget does.
What is important about the agreement is not only what it does on a spreadsheet, but
what it will do for our families and our future. It keeps our fundamental commitments to
our parents, preserving and protecting Medicare for at least decade, without steep premium
increases. Because of this agreement, 5 million American children will have health care who
do not have it today. The agreement protects our air, our water and our land for future
generations.
I'm especially pleased that it includes the funds to clean up 500 of our most dangerous
toxic waste sites and to go forward with our commitment to preserve and restore the Florida
Everglades. It helps to move people from welfare to work by providing tax incentives to
businesses to hire welfare recipients, and support for community service jobs in areas of
high unemployment. It restores unwise cuts made last year and restores fair treatment to
immigrants who legally come to America for the promise it provides. It gives middle class
2
families tax relief to help sell a home, raise their children and send those children to college. In
each of these ways it honors our values.
At the very heart of this agreement, however, is its historic investment in education.
This agreement includes the most significant increase in education funding in 30 years. Even
more important, it provides the largest single increase in higher education since the G.I. Bill in
1945, more than 50 years ago.
That landmark legislation gave opportunity to millions of Americans and gave birth to
the American middle class. That was my goal for this budget: to dramatically expand
opportunity through education and give all our children the tools they need to succeed in a new
economy in a new century.
That is why I insisted that this balanced budget also be America's education budget. It
not only puts our fiscal house in order, it opens the schoolhouse door wider than ever
before -- with $35 billion in tax relief for higher education, including our HOPE Scholarship
tuition tax credit to make two years of education after high school as universal as a high
school education is today, and tax deductions for all the costs of tuitions after high school.
It includes the largest increase in Pell Grant scholarships for deserving students in three
decades. It helps to raise standards in our schools. It funds our America Reads challenge to
make sure every 8-year-old can read independently. It helps to bring the information age to our
schools so that we can meet the goal that the Vice President has worked so hard for,
to connect all of our schools and libraries to the Internet by the year 2000.
All across America last year, I said I wanted a nation in which every 8-year-old would be
able to read, every 12-year-old could log on to the Internet, every 18-year-old could
go to college, every adult could keep on learning for a lifetime. This balanced budget takes a
major stride toward these goals.
This is not only the first balanced budget in a generation; it is an American balanced
budget that protects our values for future generations.
So I say to all members of Congress of both parties, take this balanced budget agreement
and write it into law. If we stay true to this historic agreement, if we have the courage to
eliminate the deficit while dramatically expanding opportunity through education, we will enter
the 21 st century stronger and better prepared for the challenges and the opportunities that lie
ahead.
Thank you very much. (Applause.)
Q
Mr. President, two weeks ago, we were told that there was a deal and there was
much hoopla. We came to find out at that point that -- if I may use the egg analogy -- that the
3
shell was relatively thin. How much thicker is the shell now, and can this egg still crack up, so to
speak?
THE PRESIDENT: Well, first of all, I think we did have a deal two weeks ago. And I
think the fact that we've reached agreement in writing on the details is evidence that
there was one.
But when you agree on broad principles and you have long hours of negotiations, there's
still some difficulties involved in writing the details of the agreement down, making
sure everybody remembers it the same way, that you've got the kind of accord you need. So this
is a huge step forward because now we have a much more detailed committed to writing.
Wolf?
Q
Mr. President, I wonder now that the Senate has rejected Senate Daschle's
compromise proposal on the late-term abortion procedure, I wonder if there is any way that you
think language could be crafted that would avoid your having to veto Senator Santorum's
legislation once again?
THE PRESIDENT: Well, of course. I have nothing to add to what I have said on this all
along. What I need to do is to be convinced that no woman will be grievously harmed by this
legislation, and that no woman will be put in the position, for example, of being so harmed that
she will never be able to have further children because of this legislation. You know what my
concerns are; I've made them abundantly clear.
I must say, I regret that Senator Daschle's legislation did not pass because it would have
reduced the number of abortions by far, far more light-years more than the Santorum bill. The
Santorum bill may not reduce the number of abortions by one.
So what we don't want to do is to, in effect, not reduce the number of abortions in the
third trimester, which the Supreme Court permits us to do, and which I've invited the
Congress to do ever since I got here, and at the same time put a lot of women's health at risk in a
way that is unwise and unconstitutional.
Q
Mr. President, what are you thoughts on Mobutu losing power in Zaire?
THE PRESIDENT: Well, I want to make a couple of points on it. It does appear that he
has left Kinshasa. The United States position is clear: We want to see a transition to a genuine
democracy. The second point I want to make is that President Mandela of South Africa has done
a superb job of exercising leadership in this area, and the United States is supporting him and his
efforts. And I want the whole world to get behind the leadership that Nelson Mandela is showing
there and to do what we can to support Africa in taking one of the largest and most important
4
nations in Africa and promoting a democratic transition. That is what I think is important.
Thank you very much.
END
11:35 A.M. EDT
5
THE WHITE HOUSE
Office of the Press Secretary
For Immediate Release
July 29, 1997
REMARKS BY THE PRESIDENT
ON THE BUDGET
The South Lawn
2:50 P.M. EDT
THE PRESIDENT: Good afternoon. Ladies and gentlemen, we have the pleasure of
announcing today an historic agreement that will benefit generations of Americans. Last night
we reached agreement with Congress on detailed legislation to balance the budget in a way that
honors our values, invests in our people and cuts taxes for middle class families. After decades
of deficits, we have put America's fiscal house in order again. (Applause.)
Above all, we are investing in education, America's most important priority. I am
particularly pleased that the first balanced budget in a generation is also the best education
budget in a generation and the best for future generations. (Applause.)
This agreement meets my goal of balancing the budget in a way that honors our values,
invests in our people and prepares America for the 21st century. It is very, very good for our
country. It's a victory for every parent who wants a good education for their children, for every
child in a poor household who needs health care, for every immigrant struggling to make it here,
for every family working to build a secure future. It is the best investment we can make in
America's future.
Let me underscore the magnitude of this achievement. Four and a half years ago, when
this administration took office, America's budget deficit was $290 billion and rising. We put in
place a comprehensive economic strategy to cut the deficit and invest in our people. The budget
plan adopted in 1993 made a large contribution to today's conditions in America -- a strong
economy, low inflation, and a deficit that has already shrunk by more than 80 percent.
The budget agreement that we announced today would not be possible had it not been for
the tough vote taken in 1993 to set us on the right path. (Applause.) Thank you. Now, this
legislation will help to ensure the conditions for continued prosperity, keeping interest rates
down and spurring investment. And, just as important, it will give our people the tools to reap
the rewards of economic growth. Let me mention just a few of the details of this plan.
First, at the heart of this balanced budget is the historic investment in education the
most significant increase in education funding in more than 30 years. It includes $35 billion in
tax relief to help families pay for college and training -- the largest investment in higher
education since the G.I. Bill 50 years ago. (Applause.) It will give every American who needs it
a HOPE Scholarship to pay for the first two years of college. Its gives tax relief for all four years
of college and for education throughout a lifetime. The overall budget agreement also includes
the largest increase in Pell Grant Scholarships for deserving students in three decades, funds our
America Reads Challenge, helps to connect all our schools and libraries to the Internet by the
year 2000.
As the spending bills move forward in weeks to come, we will work to see that they
reflect this agreement. I am pleased that this legislation also will give communities substantial
tax cuts to help to build and modernize our schools. (Applause.)
All across America, I have challenged our people to make sure that every 8-year-old can
read, every 12-year-old can log onto the Internet, every 18-year-old can go to college, every adult
can keep learning for a lifetime. This balanced budget makes unprecedented progress toward
those goals.
Second, this is a balanced budget that strengthens our families by extending health
insurance coverage to up to 5 million children. (Applause.) By investing fully $24 billion we
will be able to provide quality medical care for these children, everything from regular check-ups
to major surgery. I want to thank all of the people in Congress and among my fellow Democrats
here who worked so hard on the health care issue, but I especially want to say a thanks to Senator
Kennedy, Senator Rockefeller and to the First Lady for what they have done over these years to
help us to reach this important day. (Applause.)
We want every child in America to grow up healthy and strong and this investment takes
a major step toward that goal. I'm also pleased that Congress agreed to pay for the children's
health care in part with a new 15-cents-a-pack tax on cigarettes. Not only will this new revenue
help to pay for health care, it will help prevent children from taking up smoking in the first place.
(Applause.)
Third, this is a balanced budget that provides modest tax relief to the middle class,
helping families to raise their children, buy and sell a home, save for their retirement with
expanded IRAs and send their children to college. We fought very hard to make sure this tax cut
helped a wide range of middle class parents, all those who are working hard to raise their
children, pay their taxes and be good citizens, and the agreement does just that. (Applause.)
Fourth, this is a balanced budget that will help us finish the job of welfare reform,
providing $3 billion to move welfare recipients to private sector jobs, keeping our promise made
last year to provide $12 billion to restore disability and health benefits for 350,000 legal
immigrants. And, as the Vice President will describe, it will double the number of empowerment
zones to bring the spark of private enterprise to our hardest-pressed neighborhoods. (Applause.)
2
Finally, this is a balanced budget that honors our commitment to our parents by
extending the Medicare Trust Fund for a decade and to the next generation by continuing our
commitment to the environment to protect our air, our land, our water, to clean up the worst toxic
waste sites in the nation. And we achieve all these goals while eliminating the budget deficit by
2002. We are determined never again to repeat the mistakes of the past, when we mortgaged our
economy to reckless policies. This budget reforms and cuts yesterday's government so that we
can help provide our people the means to meet the challenges of tomorrow.
Let me thank the negotiators for the administration who did a superb job, all the
democratic lawmakers here and, indeed, all of the members of Congress who worked hard on this
legislation. I also want to say a special word of appreciation to Senator Lott and Speaker
Gingrich, to Senator Domenici and Congressman Kasich and to their committee chairs, who
worked with us across the lines of substantial philosophical and practical differences to reach a
good faith agreement that is an honorable and principled compromise. And especially let me
thank Senators Daschle and Lautenberg, Congressman Spratt and Congressman Rangel for their
leadership.
This agreement is a monument to the efforts that people, who good will can make, when
they put aside partisan interests to work together for the common good and our common future.
It reflects the values and aspirations of all Americans. And I hope and expect it will marshall
strong majorities of both parties in both houses.
This summer we had an historic opportunity to strengthen America for the 21st century
and we have seized it. Now our nation can move forward stronger, more vibrant, more united
than ever. For that, I am profoundly grateful.
Now I'd like to ask the Vice President to come forward and let me thank you all again for
this great, great day. (Applause.)
Wait, wait. We forgot to say one thing. We still have to pass this agreement.
(Laughter.) And so, tomorrow, the next day and I hope it will be over by then - all of us who
are for it, in both parties, have a solemn obligation to go out there and try to keep moving and
keep this spirit alive and actually pass it. We are celebrating an agreement; we still have to
celebrate the passage of the bill and then the signing of the bill, and I look forward to being here
for that with all of you and others as well.
Thank you very much. (Applause.)
END
3:25 P.M. EDT
3
THE WHITE HOUSE
Office of the Press Secretary
For Immediate Release
August 5, 1997
REMARKS BY THE PRESIDENT AT SIGNING OF
THE BALANCED BUDGET ACT OF 1997
AND THE TAXPAYERS RELIEF ACT OF 1997
The South Lawn
11:33 A.M. EDT
THE PRESIDENT: Thank you very much. Mr. Speaker, Mr. Vice President, Senator
Lautenberg, members of Congress, ladies and gentlemen: We come here today, Democrats and
Republicans, Congress and President, Americans of goodwill from all points of view and all
walks of life, to celebrate a true milestone for our nation. In a few moments I will sign into law
the first balanced budget in a generation a balanced budget that honors our values, puts our
fiscal house in order, expands vistas of opportunity for all our people, and fashions a new
government to lead in a new era.
Like every generation of Americans before us, we have been called upon to renew our
nation and to restore its promise. For too long, huge, persistent and growing budget deficits
threatened to choke the opportunity that should be every American's birthright. For too long it
seemed as if America would not be ready for the new century, that we would be too divided, too
wedded to old arrangements and ideas. It's hard to believe now, but it wasn't so very long ago
that some people looked at our nation and saw a setting sun.
When I became President, I determined that we must believe and make sure that
America's best days were still ahead. After years in which the deficit drained our economy and
dampened our spirit, in which our ability to lead the world was diminished by our inability to put
our own house in order, after years in which too many people doubted whether our nation would
ever come together again to address this problem, we set off on a new economic course -- to cut
the deficit, to create the conditions in which business could thrive, to open more foreign markets
to our goods and services, to invest in our people so that all Americans would have the tools they
need to make the most of their own lives.
Today, our budget deficit has been cut by more than 80 percent. It is now among the
smallest in the industrialized world as a percentage of our economy. Our businesses once again
lead in world markets, now made more open, more free, more fair than ever before through our
efforts. Our workers are clearly the most competitive on Earth, and we have recast our old
government SO that a new one can take shape that does give our people the tools to make the
most of their God-given abilities.
This year, we -- Democrats and Republicans alike -- were given the opportunity and the
responsibility to finish the job of balancing the budget for the first time in almost 30 years, and to
do it in a way that prepares Americans to enter the next century, stronger than ever. By large,
bipartisan majorities in both Houses, we have risen to that challenge.
The balanced budget I sign into law today will continue our successful economic
strategy. It reflects the most fundamental values that brought us together. It will spur growth
and spread opportunity. Even after we pay for tax cuts penny by penny, there will still be $900
billion in savings, including half a trillion dollars in entitlement savings over the next 10 years.
It opens the doors of college to a new generation, with the largest investment in higher education
since the G.I. Bill 50 years ago. (Applause.)
It makes it possible for the 13th and 14th years of college to become as universal as high
school is today. It strengthens our families with the largest expansion in health care for children
since the Medicaid program 32 years ago. It modernizes Medicare and extends the life of the
trust fund for a decade. It helps our communities to rebuild, to move a million more people from
welfare to work, to bring the spark of private enterprise back to our most isolated inner city
neighborhoods. It provides the largest tax relief to help families raise their children, save for the
children and pass on their home and a dream to the next generation. These tax cuts are the
equivalent of a $1,000 raise in take-home pay for the average family with two children.
For so many Americans, what goes on here in Washington often seems abstract and
remote, unrelated to their daily concerns. Well, this balanced budget deals with the big issues of
the deficit and long-term economic growth in ways that respond to the practical challenges
ordinary American citizens face every single day.
Because we have acted, millions of children all across this country will be able to get
medicine, and have their sight and hearing tested, and see dentists and doctors for the first time.
Millions of young Americans will be able to go on to college. Millions of Americans not so
young will be able to go back to school to get the education and training they need to succeed in
life. Millions of families will have more to spend on their own children's needs and upbringing.
This budget is an investment in their future and in America's.
Today, it should be clear to all of us, without regard to our party or our differences, that,
in common, we were able to transform this era of challenge into an era of unparalleled possibility
for the American people. I hope we can tap this spirit of cooperation and use it to meet and
master the many challenges that remain before us.
I want to thank, in closing, the many people whose work made this day possible. I want
2
to thank Speaker Gingrich and Senator Lott, Mr. Armey and the other members of the House and
Senate leadership, especially Senator Domenici and Representative Kasich. And let me thank
Chairman Archer and Chairman Roth and the other leaders of the House and Senate committees.
They were dedicated partners. They fought hard for their priorities. I want to thank Senator
Daschle and Congressman Bonior and Congressman Fazio and Congressman Hoyer and the
other members of the House Democratic leadership who worked with us.
I want to thank especially Congressman Spratt and Senator Lautenberg, Congressman
Rangel and the other members of the House and Senate Democratic minority leaders in the
committees for the work the they did. I thank all the members of the Congress who are here
present and the many whom they represent who are already back home, who could not be. All of
them deserve our thanks, and I would like to ask the members of the Congress who are here
today to stand and be recognized and appreciated by the crowd. (Applause.)
I'd like to thank the members of our budget team: Erskine Bowles, Secretary Rubin,
John Hilley, OMB Director Raines, Gene Sperling, Jane Yellen, Rahm Emanuel, Jack Lew,
Larry Summers, Chris Jennings and many others, especially those who work in our legislative
shop, too numerous to mention, for the enormous work that they did on this agreement.
(Applause.)
I would like to thank the First Lady, Mrs. Gore, the Vice President for their concern for
the health of our children, for the mental health of the American people -- and the Vice President,
especially, who led the fight to protect our urban initiatives and our environmental program and
the interests of legal immigrants in America. We owe to them a great deal. (Applause.)
Again, I say to all, I thank you. I believe that together we have fulfilled the
responsibility of our generation to guarantee opportunity to the next generation; the
responsibility of our generation to take America into a new century, where there is opportunity
for all who are responsible enough to work for it, where we have a chance to come together
across all of our differences as a great American community, where we will be able to continue
to lead the world toward peace and freedom and prosperity. That is worthy work and you have
all contributed doing it.
We can say with pride and certainty that those who saw the sun setting on America were
wrong. The sun is rising on America again. And I thank you all. (Applause.)
END
11:43 A.M. EDT
3
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Page 1
TOUGH Q&AS ON FISCAL DISCIPLINE
Q:
Aren't you double obligating the same money?
A:
Not at all. The fundamental choice we face is how to allocate the $4.4
trillion in projected surpluses over the next fifteen years among debt
reduction, tax cuts, and new spending.
Every President since Johnson has conducted budget policy by deciding how
to allocate the unified budget surplus.
Our fiscal discipline of the past six years has put the nation in a position
where we can meet our obligations to Social Security through 2032 and still
run surpluses. The President believes we should go even further
Setting aside 62 percent of the surpluses for Social Security and
15 percent of the surpluses for Medicare so that we have the resources
available to pay benefits in the programs in the future.
Buying down around $3 trillion in debt and allocating these
savings to ensure that Social Security is secure until 2055 and that Medicare
is secure until 2020.
[If Needed]
Some have proposed taking Social Security off budget and paying down
$2.7 trillion of debt without extending the life of the Social Security by a
single year. This would limit the budget debate to how much of the
remaining (on-budget) surplus would go to tax cuts, military and other
spending, and individual accounts.
If this approach truly managed to keep the Social Security surpluses from
being spent and left them for debt reduction then this approach would put
the country in a better fiscal situation, just as the President's plan does.
However, the off-budget plan would leave open the allocation of the large
future surpluses leaving them available for various forms of spending and
large tax cuts.
The President believes that we should take advantage of today's prosperity
to prepare for the aging of America, and therefore that we should lock-in
att2.unk
Page 2
now that a good portion of the benefits from fiscal discipline be allocated to
strengthen Social Security and Medicare.
Q:
Won't the government have to cut spending, raise taxes or borrow more in
the future to pay for the additional commitments the President's plan makes
to Social Security and Medicare?
A:
No this is not true. Projections show that if we simply maintain current
levels of taxation, we will be running surpluses until the middle of the next
century even after paying back all of our obligations to Social Security and
Medicare.
By setting aside funds now, the President's plan produces the resources to
pay back Social Security in the future. It does this in four ways:
First, by investing some the surplus in equities, the plan builds up real
assets that can be sold when the time comes to pay benefits.
Second, by reducing the debt to GDP ratio from 44 percent down to 7
percent the plan reduces debt servicing costs leaving more resources
available for other purposes, including paying back Social Security.
Third, by paying down debt we increase capital formation. The
resulting increase in the capital stock raises workers' productivity and
national income. These additional real resources will increase the future
standard of living, and make it easier to pay back the Social Security trust
fund when it redeems its bonds.
Fourth, by nearly eliminating the national debt, the plan leaves
us in a position to do a limited amount of additional borrowing, if necessary,
without threatening economic prosperity.
Q:
How does paying down the debt help us to pay Social Security in the future?
A:
First, a little history. The 1983 Social Security reform act aimed to prepare
the nation to meet its future obligations to Social Security by having the
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system take in more in revenue than it paid out in benefits for a couple of
decades. These extra funds were supposed to be used to put the country on
a fiscal trajectory to be able to pay back the Social Security trust fund when
the trust fund needed to redeem its bonds.
Unfortunately, irresponsible fiscal policy in the 1980s and early 1990s
squandered these Social Security surpluses, and by the time President
Clinton took office in 1993 large deficits were forecast as far as the eye
could see and there were serious doubts about how the country would be
able to pay back what it owed to Social Security,.
Six years of tough choices and fiscal discipline have turned things around.
Because of the 1993 budget act, disciplined appropriations, and the 1997
budget agreement, we are now projecting large surpluses well into the next
century, even after paying back every penny we owe to Social Security.
The President believes we should go even further, buying down around $3
trillion in debt and allocating these savings to ensure that Social Security is
secure until 2055 and that Medicare is secure until 2020.
By setting aside funds now, the President's plan produces the resources to
pay back Social Security in the future. It does this in four ways:
First, by investing some the surplus in equities, the trust fund builds
up real assets that can be sold when the time comes to pay benefits.
Second, by reducing the debt to GDP ratio from 44 percent down to 7
percent the plan reduces debt servicing costs - leaving more resources
available for other purposes, including paying back Social Security.
Third, by paying down debt we increase capital formation. The
resulting increase in the capital stock raises workers' productivity and
national income. These additional real resources will increase the future
standard of living, and make it easier to pay back the Social Security trust
fund when it redeems its bonds.
Fourth, by nearly eliminating the national debt, the plan leaves us in a
position to do a limited amount of additional borrowing, if necessary, without
threatening economic prosperity.
Q:
Why not just pay down the debt without incurring extra obligations?
A:
Withdrawal/Redaction Marker
Clinton Library
DOCUMENT NO.
SUBJECT/TITLE
DATE
RESTRICTION
AND TYPE
001. report
Tough Q & As on Fiscal Discipline. Handwritten Phone Number.
c. 1999
P6/b(6)
[partial] (1 page)
COLLECTION:
Clinton Presidential Records
Speechwriting
Jeff Shesol
OA/Box Number: 19944
FOLDER TITLE:
FY 2000 Budget 2/1/99 Budget Background Past Speeches Articles [2]
2006-0467-F
vz212
RESTRICTION CODES
Presidential Records Act - [44 U.S.C. 2204(a)]
Freedom of Information Act - [5 U.S.C. 552(b)]
P1 National Security Classified Information [(a)(1) of the PRA]
b(1) National security classified information |(b)(1) of the FOIA]
P2 Relating to the appointment to Federal office |(a)(2) of the PRA]
b(2) Release would disclose internal personnel rules and practices of
P3 Release would violate a Federal statute [(a)(3) of the PRA]
an agency [(b)(2) of the FOIA]
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b(3) Release would violate a Federal statute [(b)(3) of the FOIA]
financial information [(a)(4) of the PRA]
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P5 Release would disclose confidential advice between the President
information [(b)(4) of the FOIA]
and his advisors, or between such advisors [a)(5) of the PRA]
b(6) Release would constitute a clearly unwarranted invasion of
P6 Release would constitute a clearly unwarranted invasion of
personal privacy |(b)(6) of the FOIA]
personal privacy [(a)(6) of the PRA]
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purposes [(b)(7) of the FOIA]
C. Closed in accordance with restrictions contained in donor's deed
b(8) Release would disclose information concerning the regulation of
of gift.
financial institutions [(b)(8) of the FOIA]
PRM. Personal record misfile defined in accordance with 44 U.S.C.
b(9) Release would disclose geological or geophysical information
2201(3).
concerning wells [(b)(9) of the FOIA]
RR. Document will be reviewed upon request.
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Some have proposed taking Social Security off budget and paying down
$2.7 trillion of debt without extending the life of the Social Security by a
single year. This would limit the budget debate to how much of the
remaining (on-budget) surplus would go to tax cuts, military and other
spending, and individual accounts.
If this approach truly managed to keep the Social Security surpluses from
being spent and left them for debt reduction then this approach would put
the country in a better fiscal situation, just as the President's plan does.
However, the off-budget plan would leave open the allocation of the large
future surpluses -- leaving them available for various forms of spending and
large tax cuts.
We believe that we should take advantage of today's prosperity to prepare
for the aging of America, and therefore that we should lock-in now that a
good portion of the benefits from fiscal discipline be allocated to strengthen
Social Security and Medicare.
Q:
You said that debt held by the public falls under the President's plan, but
since the government is giving additional bonds to the trust funds, doesn't
the government's total indebtedness stay the same?
A:
No that is not the right way to think about the economic impact of the
President's plan.
Debt held by the public is the most important measure of government
indebtedness because it tells us the extent to which government borrowing
crowds out private capital formation. Under the President's plan, the ratio of
debt held by the public to GDP will fall from 44 percent today to 7 percent in
2014 -- the lowest level since 1917. This will unleash a tremendous about
of new private sector investment and will make the country much more able
to meet our obligations to Social Security when the time comes for the trust
fund to redeem its bonds.
At a more fundamental level, the President's plan says that for every dollar
of debt paid off, the Social Security or Medicare Trust Fund gets a claim on
the future wealth created by our fiscal discipline. We think it makes perfect
sense to allocate part of the gains from our fiscally responsible policies to
extending the lives of the Social Security and Medicare trust funds.
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Q:
In this week's Newsweek, there is a column arguing that the President's
budget allocates 150 percent of the budget surplus. Is that true?
A:
No it is not. The President's plan allocates 100 percent of the unified budget
surplus. In focusing on the unified budget surplus, we do exactly the same
thing that every President since Johnson has done in formulating budget
policy.
The fundamental budget policy choice we are facing is how to allocate $4.4
trillion in surpluses over the next 15 years among debt reduction, new
spending, and tax cuts. The President's plan allocates the bulk of these
surpluses to debt reduction, and gives Social Security and Medicare claims
on the wealth created by our current fiscal discipline.
[If Needed]
Some have proposed taking Social Security off budget and paying down
$2.7 trillion of debt without extending the life of the Social Security by a
single year. This would limit the budget debate to how much of the
remaining (on-budget) surplus would go to tax cuts, military and other
spending, and individual accounts.
If this approach truly managed to keep the Social Security surpluses from
being spent and left them for debt reduction then this approach would put
the country in a better fiscal situation, just as the President's plan does.
However, the off-budget plan would leave open the allocation of the large
future surpluses leaving them available for various forms of spending and
large tax cuts.
The President believes that we should take advantage of today's prosperity
to prepare for the aging of America, and therefore that we should lock-in
now that a good portion of the benefits from fiscal discipline be allocated to
strengthen Social Security and Medicare.
[If Needed]
Our plan allocates the unified budget surpluses. Under the Newsweek type
of accounting, every budget in the last 30 years would be guilty of "double
counting" or spending more than 100 percent of the surplus.
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Social Security reform plans by budget experts such as Senators Gramm and
Domenici [note Domenci now disowns the Gramm-Domenici plan], and by
noted deficit hawks such as Feldstein, similarly allocate unified budget
surpluses to shoring up Social Security in the future.
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STRENGTHENING SOCIAL SECURITY AND MEDICARE
BY PRESERVING FISCAL DISCIPLINE
I. The Current Situation
Pre 1993: Fiscally Irresponsible Policies in the 1980s and early 1990s Left the
Country in Poor Fiscal Shape to Pay Back Future Social Security Obligations. The
1983 Social Security reforms intended for the government to set aside the excess
of Social Security revenues over benefits, so that the country would be strong
enough fiscally to pay back the Social Security trust fund in the future. Instead,
the Reagan-Bush years produced mountains of debt increasing the publicly held
debt from 26 percent in 1981 to 50 percent in 1993 and was expected to rise even
further. When President Clinton took office in 1993, deficits of hundreds of billions
of dollars were expected to persist for decades to come, and there were serious
doubts about how the country would come up with the funds to pay back the
Social Security trust fund without raising taxes, cutting benefits, or letting debt
reach levels that would threaten our prosperity. In other words, the government
failed to use the Social Security surpluses to prepare us to meet our obligations to
Social Security in the future.
Post 1993: Tough Choices and Fiscal Responsibility Put the Government on a
Course to Pay Back Social Security Obligations When They Come Due -- While Still
Running Surpluses into the Middle of the Next Century. The 1993 economic plan
(passed without a single Republican vote), fiscal discipline in appropriations, and
the 1997 balanced budget agreement put the country on a path of prosperity and
fiscal responsibility. In 1998, the surplus was $70 billion instead of more than
$350 billion deficit that CBO projected when President Clinton took office in 1993.
Because of this hard won fiscal discipline, our nation is better able to meet our
Social Security Trust Fund obligations and still run surpluses for the first few
decades of the 21st century.
II. Going Forward: The Debate Over How to Allocate the Surpluses
The Fundamental Choice: How to Allocate the $4.4 Trillion in Surpluses over the
Next 15 Years Among Spending, Tax Cuts, and Debt Reduction?
President's Fundamental Solution: Debt Reduction with the Benefits Allocated to
Extending Social Security and Medicare.
In His State of the Union Address, President Clinton Called for Us to Continue on
This Fiscally Responsible Course. The President called for additional fiscal
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responsibility and debt reduction to extend the Social Security trust fund until 2055
and the Medicare Trust fund until 2020. Our fiscal discipline of the past six years
has put the nation in a position where we can meet our obligations to Social
Security through 2032 and still run surpluses. The President believes we should go
even further, buying down around $3 trillion in debt and allocating these savings to
ensure that Social Security is secure until 2055 and that Medicare is secure until
2020.
The President's plan sets aside 62 percent ($2.7 trillion) of the unified
budget surplus over the next 15 years to help pay Social Security
benefits in the future. Another 15 percent ($680 billion) would be set
aside to pay for Medicare. Rather that squandering the surpluses on a
tax cut favoring the most well-off or new spending programs,
President Clinton is calling for taking the responsible course of setting
these funds aside to help provide for the fiscal challenges ahead
caused by the aging of American.
The President's basic approach of paying down the debt to strengthen
Social Security and Medicare has drawn support from experts
including Alan Greenspan, Robert Reischauer, Henry Aaron, and Robert
Greenstein.
The Plan will Reduce the Nation's Publicly Held Debt and Increase the Savings Rate.
Between 1981 and 1992 our publicly- held debt as a percent of GDP rose from
about 25 percent to over 50 percent. Under President Clinton's leadership that
trend has been reversed and debt held by the public as a percent of GDP has
dropped to 44 percent. Furthermore, under President Clinton's plan the increase in
debt held by the public from the 1980s will be completely reversed by 2006 and by
2014 will only be 7.1 percent. This will be the lowest debt to GDP level since
1917. National savings has increased from 3.3 percent when President Clinton
took office to 6.7 percent today. By setting aside the surpluses rather than
spending them, this plan will increase the national savings rate by another 1.9
percent of GDP. The USA accounts will add even further to national savings.
Why Debt Reduction Makes Our Nation Further Able to Extend Solvency of Social
Security and Medicare. Paying off debt means that the government owes less
money to private individuals. Thus, it improves the government's financial position.
Paying Off Debt Causes New Capital Formation to Occur. Paying off debt
means that private savings go into productive private investments rather than
into government borrowing. The resulting increase in the capital stock raises
workers' productivity and national income. These additional real resources
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will increase the future standard of living, and make it easier to pay back the
Social Security trust fund when it redeems its bonds.
Paying Off Debt Reduces Debt Servicing Costs. Payinf off debt increasing
future budget surpluses and freeing up additional resources for other uses,
including meeting our obligations to Social Security and Medicare.
Paying Off Debt Provides Government with Flexibility to Respond to Future
Conditions. Paying down debt also means that if the government later
decided to finance some obligations by issuing new debt for example if
there was a transition period before Social Security's revenues and benefits
were in line -- it would be possible to do so without threatening future
economic performance, and while keeping debt to GDP ratios below current
levels.
The Rest of the President's Proposal Invests in the Future As Well. In addition to
Strengthening Social Security and Medicare, the President's proposal provides USA
accounts to help every American build the wealth they will need to finance longer
lifespans. The plan also makes important investments in military readiness and
education that will enable the country to continue to be strong and prosperous.
III. Alternatives to the President's Approach
Tax Cuts. If we allocate most of the unified budget surplus to tax cuts we will not
lower our debt, increase our savings, or extend the life of the Social Security or
Medicare trust funds. Moreover, we will jeopardize our ability to meet our
obligations to Social Security between now and 2032.
New Spending. Some smart targeted spending on research and education can
improve the nation's productivity and leave us with more resources in the future
when the time comes to pay back our obligations to Social Security. But spending
the entire surpluses will have similar consequences to reckless tax cuts we will
not lower our debt, increase our savings, or extend the life of the trust funds, and
we will jeopardize our ability to meet our existing obligations to Social Security.
Take Social Security Off-budget and Divide Remaining Surplus Among Tax Cuts and
Military Spending. Some Republicans would simply have Social Security come off
budget and pay down $2.7 trillion of debt. Then they would battle over only how
much of the remaining surplus would go to tax cuts, military spending, and
individual accounts. This would not extend the life of the Social Security Trust
Fund a single year, because they would not be allocating any of the benefits of debt
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reduction to Social Security or Medicare. This approach to debt reduction will put
the country in a better fiscal situation, just as the President's plan does, but the
off-budget plan would leave open the allocation of the large future surpluses --
leaving them available for various forms of spending and large tax cuts. Democrats
should want to lock-in now that at least a good portion of the benefits from fiscal
discipline be allocated to strengthen Social Security and Medicare.
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SAVING SOCIAL SECURITY FIRST
AND
MEETING AMERICA'S CHALLENGES
FOR THE 21st CENTURY
In His State of the Union Address, President Clinton Put Forward His Framework To
"Save Social Security First," While Meeting America's Challenges for the 21st
Century. The President's and Vice President's framework strengthens Social
Security by:
Transferring 62 percent of the projected budget surpluses over the next 15
years -- more than $2.5 trillion -- to the Social Security system.
Investing a portion of the transferred surpluses in the private sector to
achieve higher returns for Social Security -- just as any state, local, or private
pension does -- after working with Congress to devise a mechanism to
ensure that the investments are made independently, without political
interference, and with low administrative costs by the most efficient
private-sector managers.
Keeping Social Security solvent until 2055.
Calling for a bipartisan effort to make the hard-headed, but sensible and
achievable choices needed to save Social Security until at least 2075. As
part of this effort, President Clinton and Vice President Gore believe that we
must:
Reduce poverty among elderly women -- particularly widows, who
have a poverty rate nearly twice the overall poverty rate for older
Americans.
Eliminate the confusing and out-dated earnings test so that we stop
discouraging work and earnings among older Americans.
After Social Security Reform Is Secured -- Consistent With the President's "Save
Social Security First" Commitment -- the President Proposes To:
Strengthen Medicare for the 21st Century. The President's framework will
reserve 15 percent of the projected surpluses for Medicare, ensuring the
Medicare Trust Fund is secure for 20 years. The President believes that
these new resources should be used to help achieve broader, bipartisan
reforms -- which include a prescription drug benefit.
Create New Universal Savings Accounts -- USA Accounts. The President's
framework will reserve 12 percent of the projected surpluses to create new
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Universal Savings Accounts (USAs) so all working Americans can build
wealth to meet their retirement needs. To help Americans save and to
strengthen our current pension system, the government will provide an equal
dollar contribution for most Americans. In addition, the government will
match a portion of each dollar an individual puts into the USA account -- with
larger matches going to lower-income workers.
Prepare America for the Challenges of the Future. The President's
framework will reserve 11 percent of the projected surpluses for military
readiness and pressing national domestic priorities, such as education and
research.
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SAVING SOCIAL SECURITY FIRST:
STRENGTHENING SOCIAL SECURITY FOR THE 21st CENTURY
In his State of the Union Address, President Clinton Put Forward A Framework To
Strengthen Social Security for the 21st Century. Since its creation more than 60
years ago, Social Security has been a bedrock of retirement security for Americans.
There are 76 million baby boomers looking ahead to retirement. By 2030, there
will therefore be twice as many elderly as there are today, putting pressure on the
Social Security system. After 2032, Social Security will have only enough
resources to cover 72 cents on the dollar of promised benefits. President Clinton
and Vice President Gore believe we must act now to tackle this tough, long-term
challenge. That is why they are proposing to:
Use the Budget Surplus To Save Social Security
"Saving Social Security First." Last year, in his State of the Union Address,
President Clinton promised to save the budget surplus until we knew how
much would be needed to save Social Security for the 21st century. This
year, in his State of the Union Address, President Clinton reiterated his
pledge to save Social Security first -- committing to reserve the budget
surplus until Social Security reform is secured.
62 Percent of the Projected Budget Surpluses Will Be Used to Save Social
Security. President Clinton proposes to transfer 62 percent of the projected
budget surpluses over the next 15 years -- more than $2.5 trillion -- to Social
Security. To achieve higher returns for Social Security, approximately
one-quarter of the transferred surpluses will be invested in the stock market.
Invest A Portion of the Surpluses To Achieve Higher Returns for Social Security
Invest Portion of Surpluses To Achieve Higher Returns, Working With
Congress to Devise Mechanism to Ensure Independent and Non-Political
Investments. We want to work with Members of Congress from both sides
of the aisle to craft a bipartisan Social Security plan which invests a portion
of the surplus transferred to Social Security to achieve higher returns, and
include a mechanism to ensure investments are made independently, without
political interference, and with low administrative costs using a broad-based
neutral approach by the most efficient private-sector managers.
President's Framework to Invest In Equities Minimizes Risk. Whatever risk of
ups and downs in the stock market will be borne by the government, not
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retirees. Moreover, the risk to the government will be very small. For
example, in 2032, 95 percent of retirement benefits will come from payroll
taxes or redemption of Treasury bonds. That means that just six cents on
every dollar Social Security pays out will depend on stock market
performance.
Save Social Security Until 2055 -- And Work Together To Save It Until At Least
2075
President's Framework Keeps Social Security Solvent Through 2055. By
transferring half of the projected surpluses for the next 15 years to Social
Security and investing a portion of them in the market -- just like any private
or state government pension does -- we will ensure that Social Security is on
sound footing for 55 years -- until 2055.
Must Work Together Across Party Lines -- To Make Hard-Headed, But
Sensible and Achievable Choices To Save Social Security for 75 Years.
President Clinton's goal is to save Social Security for 75 years. To do so, he
believes we must work together in a bipartisan way to make the
hard-headed, but sensible and achievable, choices to save Social Security
through at least 2075.
With This Framework -- Publicly Held Debt, As Share of GDP, Falls To Lowest Since
1916.
Turning Around America's Fiscal Position. Under Presidents Reagan and
Bush, the publicly held debt quadrupled, rising from $785 billion in 1981 to
$3.2 trillion in 1993. As a share of the economy, the publicly held debt
increased from 25.8 percent in 1981 to 50.2 percent in 1993. Since
President Clinton took office, the publicly held debt -- as a share of GDP has
dropped to about 45 percent.
Debt-to-GDP Ratio Will Fall to Lowest Level Since Before World War II.
Under the President's framework, current projections suggest that the
publicly held debt, as a share of GDP, will fall from about 45 percent today
to 8.1 percent in 2014 -- its lowest level since 1916.
Reduce Poverty Among Elderly Women -- Particularly Widows
Poverty Rates Among Elderly Women -- Particularly Widows -- Remain High.
For 25 percent of unmarried women, Social Security is their only source of
income. The poverty rate for all elderly women was 13.1 percent in 1997.
For widowed women, poverty rates are significantly higher than men: the
poverty rate is 18.0 percent for widowed women -- nearly four times the
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poverty rate of married women (4.6 percent) and much higher than the
poverty rate of widowed men (11.4 percent).
President's Framework Would Lower Poverty Rates Among Elderly Women --
Especially Widows. Currently, widow benefits vary from 50 to 67 percent of
benefits for a married couple when were alive. The official poverty
thresholds imply that a widow needs 79 percent of a couple's income to
maintain her pre-widowhood consumption. This is a key reason why widow
poverty is so much higher than overall elderly poverty. The President is
committed to reducing the loss of Social Security income at widowhood.
Eliminate the Out-Dated and Confusing Earnings Test
Earnings Test Should Be Eliminated Because It Is Out-Dated And Confusing --
And It Discourages Work and Earnings Among the Elderly. The Social
Security earnings test is a confusing and tattered relic of a past era. It
discourages the elderly from working; indeed, one recent academic study
concluded that eliminating the earnings test could increase labor supply
among elderly beneficiaries by 5.3 percent. It is confusing and
administratively complicated; many beneficiaries are bewildered by the rules
and administering the earnings test imposes significant administrative burden
on the Social Security Administration. Finally, eliminating the earnings limit
would have almost no effect on the long-run actuarial balance of the Social
Security system.
President Clinton Believes We Should Eliminate The Earnings Test. President
Clinton believes that the earnings test has outlived its use. Today, it
primarily serves to confuse people; and to discourage them from working.
We want to work with Members of Congress to eliminate the earnings test
as part of a comprehensive package to strengthen Social Security for the
21st century.
MEETING AMERICA'S CHALLENGES
FOR THE 21st CENTURY
After Social Security Reform Is Secured -- Consistent With the President's "Save
Social Security First" Commitment -- The President Proposes To Meet The
Following Three Challenges:
STRENGTHENING MEDICARE FOR THE 21st CENTURY
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RESERVE 15 PERCENT OF THE PROJECTED SURPLUSES FOR MEDICARE,
EXTENDING THE LIFE OF THE MEDICARE TRUST FUND FOR 20 YEARS.
We Must Prepare for the Health Care Challenges of the Next Century. In its
30-year history, Medicare has contributed towards longer lives and better
lives for America's elderly and disabled. However, Medicare -- like Social
Security -- will be impacted by the tidal wave of the "Senior Boom." Its
enrollment is expected to double by 2030 In addition, Medicare -- as well as
the private sector -- faces escalating health care costs. As a result, the
Medicare Trust Fund is expected to run out in 2008, if no actions are taken.
Reserving Nearly One in Six Dollars of Surplus to Help Keep Medicare Safe
Until 2020. The President's framework would reserve 15 percent of the
projected surpluses -- more than $600 billion -- over the next 15 years for
the Medicare Trust Fund. These funds would be prohibited from being used
for any other purpose, ensuring that the money will go to help the health
care needs of older and disabled Americans. Even in the absence of broader
reforms, the President's framework would guarantee that Medicare can
continue to provide its critical health services until 2020 -- doubling the life
of the Medicare Trust Fund and providing the strongest outlook in the last 25
years.
New Funds Should Be Used To Help Achieve Broader, Bipartisan Reform.
The President believes that the Medicare Commission and Congress should
utilize these new dedicated dollars as part of broader, bipartisan reforms.
Such reforms, including the development of a long-overdue prescription drug
benefit, are essential to efficiently providing health care to the elderly and
people with disabilities in the 21st century.
UNIVERSAL SAVINGS ACCOUNTS (USAs)
RESERVE 12 PERCENT OF THE PROJECTED SURPLUSES TO CREATE NEW
UNIVERSAL SAVINGS ACCOUNTS (USAs) so EVERY WORKING AMERICAN CAN
BUILD WEALTH AND A NEST EGG TO MEET THEIR RETIREMENT NEEDS.
USA Accounts Will Help Americans Build Wealth for Their Retirement --
Strengthening Personal Savings and Pensions. Under the President's
framework, we will reserve 12 percent of the projected surpluses over the
next 15 years about $33 billion per year -- to create Universal Savings
Accounts (USAs), so that every working Americans can build wealth and a
nest egg for retirement. This will help strengthen the other two legs of
retirement security: personal savings and pensions.
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Under Hypothetical Example, Average Person Could Build About $130,000 in
Wealth in USA Account. While the full details of how USA accounts will be
structured need to be worked out, one potential way would be for an
average worker - earning $45,000 -- to receive a flat $100 contribution from
the government. Then, if the average worker contributes $600 each year --
about $11.50 per week - the government would provide a matching
contribution of half that amount (or $300). In other words, the government
would put $400 into the USA account, if the worker put $600. With the
power of compound interest, the USA account would grow to about
$130,000 during the individual's working life. Changes in the size of the
contribution and the match rates would alter the outcome of this example.
We Want to Work With Congress And Experts To Determine Precisely How
USA Accounts Will Be Structured. President Clinton believes the
government should provide an equal dollar contribution for most Americans.
In addition, the government will match a portion of each dollar an individual
puts into the account - with larger matches going to lower-income workers.
However, we want to work with Members of Congress, and pension and
personal savings experts to ensure that USA Accounts build on the current
private-sector pension system and help working Americans save for their
futures. Therefore, the exact size of the contributions, match rates, and
income limits will be announced later.
MILITARY READINESS AND
OTHER CRITICAL INVESTMENTS IN AMERICA'S FUTURE
RESERVE 11 PERCENT OF THE PROJECTED SURPLUSES FOR MILITARY
READINESS AND PRESSING NATIONAL DOMESTIC PRIORITIES, SUCH AS
EDUCATION AND RESEARCH.
Ensuring America's Military Continues to be Ready for the Challenges of the
21st Century. At the beginning of January 1999, President Clinton proposed
a bold, new strategy to ensure that America's military continues to be fully
prepared to protect our national interests as the world's most powerful
fighting force. Reserving 11 percent of the projected surpluses over the next
15 years nearly $500 billion -- will provide the resources to meet the
President's proposed detailed blueprint for military readiness over the next six
years.
Ensuring We Meet Other Critical Investments In America's Future. Besides
military readiness, the setting aside of 11 percent of the projected surpluses
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will allow America to meet its other critical investment needs, such as
education and research.
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INDEX OF Q&As
OVERALL PACKAGE (PAGE 4-7)
-
Don't you violate the President's commitment to save Social Security first?
-
Is this your opening bid or a final offer?
-
What happens if we have a recession and surpluses end up lower than forecast?
-
Why not just spend 100 percent of the surplus on Social Security?
-
If you think we need only 60 percent of the surplus for Social Security, why don't we just
free up the other $2 trillion now?
-
Isn't it irresponsible to be allocating surpluses so far out in the future?
-
Why are you aiming for solvency in 75 years?
-
Shouldn't you balance the non-Social Security budget?
-
Doesn't your budget use Social Security surpluses to finance new FY 2000 spending?
-
Can't we just grow our way out of the problem?
TAX CUTS (PAGE 7-9)
-
Does this plan mean no tax cuts?
-
But don't the American people deserve a tax cut?
-
Senator Domenici has called for dedicating the vast majority of the non-Social Security
surplus to tax cuts. Shouldn't taxes beyond what are needed for Social Security be
returned to the American taxpayers?
-
Does your policy on surpluses mean that no tax cuts or spending initiatives can be enacted
in 1998?
NATIONAL DEBT (PAGE 9-11)
-
Won't this plan increase the national debt?
-
What impact will this plan have on savings?
-
Hasn't the CBO said that any plans to use the surplus for anything other than paying down
the debt actually reduce national savings?
-
What will happen if CBO has a significantly different forecast than OMB's?
SURPLUS TRANSFERRED TO SOCIAL SECURITY (PAGE 11-12)
-
How much of the surplus would be transferred to Social Security?
-
Aren't you using surpluses that are generated by Social Security to fund other programs?
-
Aren't these transfers to Social Security just an accounting gimmick?
-
Does transferring the surpluses to the Social Security Trust Fund have the same effect as
buying down the debt?
-
Your plan would take general revenue and put it toward Social Security. But hasn't the
Social Security system avoided general revenue funding over its entire history?
-
What does "reserving" the surplus mean at this point? Aren't you just paying off the debt
with the surpluses?
INVESTING PART OF THE BUDGET SURPLUS IN EQUITIES (PAGE 13-20)
-
Isn't it risky to have Social Security depending on the stock market performance?
-
What do you assume about how the stock market will grow in the future?
-
What happens if the stock market does worse in the future than it has over the past few
years?
-
Isn't it un-American for the Government to be owning private assets?
-
What share of the stock market will the government own?
-
Won't the government be a major shareholder in corporate America?
-
For how many companies will the government be the largest shareholder?
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-
What is the maximum share of the stock market that the government will own?
-
What do these calculations assume?,
-
How do you intend to protect these investments from political interference?
-
How will corporate governance issues such as proxy voting be handled?
-
Where will these funds be invested?
-
Will the funds be invested in international stocks or only in domestic ones?
-
What will prevent politicians from legislating that certain industries, such as tobacco cannot
be invested in or that certain activities deserve investment (building low-income housing) or
that firms that move jobs overseas or hire child labor do not deserve to be invested in?
-
Won't there be large administrative costs in this system -- Social Security has low
administrative costs?
-
What share of Social Security's portfolio will be in stocks and what share will be in
special-purpose Treasury bonds?.
-
Would the Trust Fund investments contemplated under this plan affect prices in the stock
market?
-
If the surpluses are only invested in publicly traded equities, won't this be unfair to small
companies?
-
Isn't this just another form of taxation?
-
Shouldn't the government use Trust Fund assets to promote urban America / the
environment / education?
-
Are you going to use the trust funds to support share prices in case of a market downturn?
-
Will you sell stock to improve the budget picture?
-
What would happen during a market downturn? Would the government guarantee the
existing benefit structure, by raising taxes? Or would social security benefits be cut?
-
What has been the experience of state and other governments that have invested in
equities?
TOUGH CHOICES (PAGE 21-23)
-
What types of options are on the table to extend the trust fund's life to 75-years?
-
Would the President consider raising the retirement age (similar questions on COLAs, tax
increases, benefit cuts)?
-
Are you trying to achieve 75-year solvency or are you trying to do more?
-
If we only do 75 years, won't we have to do reform again in a few years?
-
Why didn't the President show leadership by proposing specific benefit cuts and tax
increases?
-
Isn't the President proposing all of the easy good news and leaving the pain for later?
-
What kind of process do you envision to try to get reform done?
-
Would the President be satisfied with protecting Social Security for 50 years?
REDUCING THE POVERTY RATE OF ELDERLY WOMEN (PAGE 24-27)
-
What does the President plan to do to reduce poverty among elderly women?
-
Why focus on widows rather than the elderly poor in general?
-
Why is widow poverty higher than poverty among married women?
-
Does Social Security provide a good deal for women?
-
Won't this be very expensive?
-
Won't adding new benefits make it harder to achieve the 75-year goal?
-
Won't widow poverty disappear on its own as more and more women retire who have had
substantial labor market experience over their lifetimes?
MEDICARE (PAGE 28-33)
-
Why not Medicare first?
-
Why not more for Medicare?
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Isn't this a gimmick to prevent Republicans from giving Americans a tax break?
Isn't this just giving more money to the elderly?
When comparing this use of the surplus to marriage penalty relief, aren't you helping more
wealthy people?
-
What does it mean, that these funds are "protected"? In a unified budget, can't Congress
use the Medicare Trust Fund surplus to offset other spending priorities or tax cuts?
-
Is the President intending on proposing a prescription drug benefit for Medicare?
-
How much would a prescription drug benefit cost? Would it be paid for from the surplus?
-
Isn't this getting ahead of the Medicare Commission?
-
By putting over $600 billion dollars of taxpayer-produced revenue into Medicare, aren't you
just throwing more money at the problem without any long-overdue structural reforms?
-
Doesn't this give Democrats in Congress a pass on doing real Medicare reform?
Why not just raise taxes, as your Medicare Commissioner Bruce Vladeck recommended?
-
What is your plan for reforming Medicare? Do you support the Medicare voucher proposal
being put forth by the Commission?
-
The Medicare Commission is discussing raising the Medicare eligibility age from 65 to 67 --
making it consistent with phase up for Social Security. What is the Administration's
position on this?
-
What is your position on [graduate medical education reform, Medigap reforms, etc.] that
are being considered by the Commission?
-
Given the huge new infusion of funds to the Trust Fund, why is your budget proposing $8
billion in hospital cuts?
-
If you wanted this proposal to be well received by both parties, shouldn't you have
consulted with them prior to unveiling it?
ALTERNATIVE APPROACHES TO SOCIAL SECURITY REFORM (PAGE 34-35)
-
Did the President rule out an individual account as part of Social Security?
-
Did the President rule out a carve out approach?
-
Isn't your USA account simply an individual account plan under another name?
-
Aren't you trying to have it both ways by opposing individual accounts as part of Social
Security, yet proposing them outside of Social Security?
-
Are you against a plan like Martin Feldstein's that invests through individual accounts but
uses the proceeds to help the trust fund?
ELIMINATING THE EARNINGS TEST (PAGE 36-38)
-
Hasn't Social Security always been a program only for people who are retired? Why change
that?
-
Won't eliminating the earnings test benefit higher-income people?
What would the long-run actuarial effect be? Won't this hurt the Social Security system?
-
What are the benefits of eliminating the test?
-
Would you favor eliminating the earnings test even in the absence of a comprehensive deal
on Social Security?
-
Isn't it expensive? How will you pay for it?
-
Do you intend to eliminate the earnings test at all ages, or justi above the normal retirement
age?
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SOCIAL SECURITY
January 19, 1999
Overall Package
Q:
Aren't you spending the surplus for things other than Social Security?
Doesn't this violate the President's commitment to save Social Security first?
A:
Not at all. The President has made clear that the entire budget surplus
should be reserved until we have strengthened Social Security, and this
framework is consistent with that policy.
What the President has done in the State of the Union is outline how much
of the surplus we should devote to Social Security, and where we would
invest the rest. But only when we have put a framework in place to save
Social Security would we dedicate the remaining portion of the surplus to
Medicare, Universal Savings Accounts, and other long-term priorities.
We hope that the prospect of making those critical investments provides an
incentive for Congress to move quickly on Social Security reform, but we
remain committed to saving Social Security first.
Q:
Is this your opening bid or a final offer?
A:
We want to work with Congress to pass a bipartisan plan to reform Social
Security and meet America's other long-term challenges. We understand
that Congress will have its own ideas about reform and long-term priorities,
and that the process must be bipartisan to work effectively. By outlining his
own vision for how the surpluses should be invested, the President aims to
build momentum for that process.
Q:
What happens if we have a recession and surpluses end up lower than
forecast?
A:
Our projections for future economic performance are quite conservative, and
over the long term, should account for the usual ups and downs in the
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business cycle. Over the past six years, our economic assumptions have
proven extremely conservative -- growth has consistently been higher and
the budget outlook stronger than we originally estimated. This plan is built
around that same principle of conservative forecasting.
In order to ensure that Social Security is secure over the long term, the
framework also locks in dollar amounts for the Trust Fund. The amounts are
not contingent on the actual size of the surplus -- we propose that they be
chiseled in stone today. That ensures that more than $2.5 trillion is locked
in for the Trust Fund over the next 15 years.
Q:
Why not just spend 100 percent of the surplus on Social Security?
A:
First of all, until we have strengthened Social Security, the entire surplus is
reserved. The President believes that dedicating 60 percent of the surpluses
to Social Security, more than $2.5 trillion over the next 15 years, ensures
that reform will be balanced around new money, higher rates of return, and
tough choices.
If we can find a satisfactory way to invest a third of those funds in equities,
we can extend the life of the Trust Fund to about 2055. We also need to
work with Congress to pass a bipartisan plan that also makes the tough but
sensible choices to extend the life of the Trust Fund to the year 2075 -- so
that every person working today can be certain that their benefits will be
there when they retire.
Q:
If you think we need only 60 percent of the surplus for Social Security, why
don't we just free up the other $2 trillion now?
A:
We believe that it is crucial to provide incentives for Social Security reform,
which the President's strategy does. By not letting anyone touch the
surpluses until we have addressed Social Security, the strategy provides an
incentive to getting reform done.
In addition, it may turn out that we need more of the surpluses to get Social
Security reform doe that we currently expect. It would be irresponsible to
dissipate the surplus before we see how much it actually takes to get reform
done.
Once we have addressed Social Security reform, there are other worthy uses
for the surplus -- which the President outlined in the State of the Union --
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which we can address only after we have faced up to the long-run challenge
of Social Security.
Q:
Isn't it irresponsible to be allocating surpluses so far out in the future?
A:
Any effort to save Social Security necessarily involves making some
long-range projections about the future of our economy and our budgets. To
be safe, we have used the same conservative approach economic to
forecasting that has been the hallmark of the Clinton administration. Every
year of the Clinton presidency, those assumptions about future economic and
budget performance have proven safe and conservative -- growth has been
consistently higher and the budget outlook consistently better than our
original forecasts.
Also, we restrict ourselves to using surpluses over the next 15 years -- even
though we are projecting surpluses much further out.
Sixty percent of the surplus is allocated for Social Security, leaving 40
percent for other priorities. This framework aims to lock in more than $2.5
trillion over the next 15 years for Social Security -- which, if we can find a
satisfactory way to invest a third of that money in the market, would secure
the Trust Fund for the next 50 years. We also need to work with Congress
to pass a bipartisan plan that also makes the tough but sensible choices to
extend the life of the Trust Fund to the year 2075 -- so that every person
working today can be certain that their benefits will be there when they
retire.
Q:
Why are you aiming for solvency in 75 years?
A:
Since the beginnings of Social Security in the Roosevelt administration,
policy makers have tried to make sure that the system was on a sound
footing for 75 years and beyond.
Ensuring the solvency of the trust Fund for 75 years means that virtually any
worker contributing to Social Security today will receive the retirement
benefits he or she deserves. We should be able to tell a 22-year-old who has
taken a job and begun contributing to Social Security, that the benefits will
be there even if she lives to be almost 100 years old.
Q:
Shouldn't you balance the non-Social Security budget?
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A:
The unified budget is the traditional measure used to analyze the budget. It
determines the net change in publicly held debt.
The most important objective for us is to continue raising our national
savings rate -- up from 3.1 percent of GDP in 1992 to 7.5 percent now
(Q1-Q3 1998), largely because we have eliminated the Federal deficit.
Under the President's plan the budget surplus's contribution to national
savings would increase savings by XX percent of GDP, and the USA account
contributions are expected to add another XX percent.
Higher saving will help us to raise investment and productivity, which will
help to prepare for the future -- including the retirement of the baby boomers.
And the unified budget reflects the Federal government's contribution to
national saving.
Q:
Doesn't your budget use Social Security's own trust fund surpluses to
finance new FY 2000 spending? How can you say that you are preserving
Social Security when your own budget spends the Social Security surplus?
A:
No. The Administration's FY 2000 budget remains faithful to the budget
scoring rules, and saves the surplus until the health of Social Security is
restored. The Administration's new spending and tax cut proposals are fully
offset by reductions elsewhere in the budget. The President's proposals for
how to allocate the surplus addresses how the surplus should be used once
Social Security reform is secured.
Q:
Can't we just grow our way out of the problem?
A:
The Social Security system as a whole is also not particularly sensitive to the
growth rate. Higher growth provides more revenue for the system, but also
ultimately raises benefits for future retirees. Growth would have to increase
to implausibly high rates to address a significant part of the long-run Social
Security challenge.
The current imbalance in the system amounts to 2.19 percent of taxable
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payroll over the next 75 years. Every 0.1 percentage point increase in
growth reduces that imbalance by about 0.1 percent. So even a 0.5
percentage point increase in long-run growth -- which is a relatively large
increase by historical standards -- would only eliminate about one-fourth of
the long-run problem.
Tax Cuts
Q:
Does this plan mean no tax cuts?
A:
The President's framework dedicates the surplus to meeting America's
long-term challenges ensuring that Social Security and Medicare are there
when we need them, paying down the national debt and giving every
working American a chance to have a pension and build a nest egg for their
retirement.
Through the Universal Savings Accounts, the government will return $500
billion to the American taxpayers and allow. them to prepare for the future.
That is the President's vision for what we do with the hard-won surpluses.
We understand that Congress may have different priorities, and we expect to
hear their ideas in the days ahead. But the President wanted to lead the
debate about how we meet America's long-term challenges. And it is
important to keep in mind that, before we use a penny of the surplus, we
need to pass comprehensive Social Security reform.
Q:
But don't the American people deserve a tax cut?
A:
The American people deserve a government that plans for the future.
Under the President's framework, nearly 90 percent of our surpluses would
be reserved for the long-term challenges of strengthening Social Security,
Medicare, and creating new individual pensions. The remainder of the surplus
would be reserved for military readiness and other pressing national domestic
priorities, such as education and research.
We think that is a responsible approach to meeting our challenges, and is one
that the American people can and will support. We fully expect that others
will have different ideas about put this hard-won dividend to use. That topic
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should be the focus of some debate, but the President has shown leadership
by outlining how we can best meet the challenges of the next century.
Q:
Senator Domenici has called for dedicating the vast majority of the
non-Social Security surplus to tax cuts. Shouldn't taxes beyond what are
needed for Social Security be returned to the American taxpayers?
A:
First of all, the President is committed to reserving the entire surplus until we
have acted to save Social Security. We believe that, working with Congress,
we can come up with a reasonable, balanced plan to save Social Security by
dedicating half of that surplus to the Trust Fund. But that means having to
make some tough choices as well so that we can secure the solvency of the
Social Security Trust Fund until 2075.
We understand that some Republicans want to dedicate part of the surplus
to tax cuts. It is important to keep in mind that any money that goes to tax
cuts is not available for strengthening Medicare, retiring the national debt,
and for creating a new individual pension for every American. Our view is
that these priorities are the most critical ones, but we anticipate and
welcome a full debate on how best to use the surplus to meet America's
long-term challenges.
Q:
Does your policy on surpluses mean that no new tax cuts or spending
initiatives of any kind can be enacted in 1998?
A:
No, as long as the tax cuts are paid for dollar for dollar. Our policy means
that until we have addressed Social Security reform, any new tax cuts or
spending initiatives can be enacted only if they are fully paid for. Tax cuts
should not use up the surpluses when those surpluses could be needed for
Social Security.
We are open to tax cuts that meet our principles of fairness, simplicity,
economic growth, and not hurting our fiscal discipline. Indeed, our budget
includes many new tax cuts and spending initiatives. But these are fully paid
for. They do not add one dime to the deficit or reduce surpluses by one
dime.
National Debt
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Q:
Won't this plan increase the national debt?
A:
Thanks to the steady fiscal discipline that President Clinton has restored to
Washington, we are now entering an era of surpluses, and we are paying
down the debt for the first time in almost 30 years.
What this framework does is set aside nearly 90 percent of the $4 trillion in
budget surpluses over the next 15 years for long-term challenges: Medicare,
Social Security reform, and Universal Savings Accounts. By dedicating that
money to long-term challenges instead of spending it today, the President is
ensuring that we continue on the path of fiscal discipline.
In fact, the most meaningful measure of debt publicly held debt as a share
of the economy would decline dramatically under this framework. When
President Clinton took office, publicly held debt as a share of the economy
stood at more than 50 percent and was headed up. Today, that measure
has fallen to about 45 percent, and under this framework it will fall to about
8 percent in the year 2014.
Q:
What impact will this plan have on savings?
A:
The President is fully committed to making sure that we use the surpluses to
prepare America for the future. That is why, under this framework, the
President dedicates almost 90% of the $4 trillion in surpluses we expect
over the next fifteen years to our long-term challenges: strengthening Social
Security and Medicare for the retirement of the baby boomers, giving all
Americans an opportunity to build their own nest egg for retirement, and
paying down the national debt.
By devoting that money to long-term challenges instead of spending it today,
the framework builds on our success in increasing national savings. When
President Clinton took office, national savings stood at a low 3.1 percent of
GDP in 1992 because of the huge deficits the federal government was
running. By restoring fiscal discipline to Washington and leading us into an
era of surpluses, the President has helped boost national savings - which has
more than doubled during this Administration to 7.5% today.
Under the President's plan the budget surplus's contribution to national
savings would increase savings by X percent of GDP, and the government's
contributions to the USA accounts are expected to add another y percent.
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In addition, by encouraging Americans to set aside money for retirement and
giving them help, the President's USA accounts will also help boost personal
savings.
Q:
Hasn't the CBO said that any plans to use the surplus for anything other than
paying down the debt actually reduce national savings?
A:
The President's framework sets aside almost 90 percent of the surpluses we
expect for America's long-term challenges -- Medicare, Social Security, and
pensions.
When President Clinton took office, national savings stood at a low 3.1
percent of GDP in 1992 because of the huge deficits the federal government
was running. By restoring fiscal discipline to Washington and leading us into
an era of surpluses, the President has helped boost national savings -- which
has more than doubled during this Administration to 7.5% today.
Under the President's plan the budget surplus's contribution to national
savings would increase savings by X percent of GDP, and the USA account
contributions are expected to add another y percent.
Higher saving will help us to raise investment and productivity, which will
help to prepare for the future -- including the retirement of the baby boomers.
Q:
What will happen if CBO has a significantly different forecast than OMB's?
A:
We have used very conservative economic assumptions as we have done in
the past. Our estimates have consistently proven reliable we have erred on
the side of caution. We think that is the best approach, because it ensures
that we do not strengthen Social Security and Medicare by relying on rosy
scenarios.
From some press reports about the work CBO is doing now, it appears that
we are not that far apart, but we'll have to wait and see.
Surplus Transferred to Social Security
Q:
How much of the surplus would be transferred to Social Security?
A:
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Under the President's framework, more than $2.5 trillion of the surpluses we
anticipate over the next 15 years would be dedicated to Social Security. By
investing a portion of those transferred surplus to achieve higher returns --
just as every state, local, or private pension would -- we can extend the life
of the Trust Fund until the mid-point of the next century. We are willing to
work with Congress to find a mechanism to ensure that the investments are
made by independent private-sector managers without political interference.
Q:
Aren't you using surpluses that are generated by Social Security to fund
other programs?
A:
We are not spending a dime of the surplus until we have worked with
Congress to pass a plan that strengthens Social Security over the long-term.
It is our judgment that we should dedicate half of the surpluses over the next
15 years to do that. But only when we have saved Social Security would we
then allocate the rest of the surplus for other long-term challenges shoring
up Medicare, strengthening our pension system, paying off the debt, and
investing in military readiness and other pressing national domestic priorities,
such as education and research.
Q:
Aren't these transfers to Social Security just an accounting gimmick?
A:
The President's framework would set aside a full 60 percent of the surpluses
to Social Security. By dedicating that money to Social Security and investing
a portion of it instead of spending it on some short-term project, we put the
Social Security Trust Fund in substantially better shape securing its
solvency life to the mid-point of the next century.
This action alone would extend the solvency of the Trust Fund to about
2054. But we need to do more: we want to work with Congress on a
bipartisan Social Security plan to extend the life of the Trust Fund until 2075
-- so that every person working today can know that their benefits will be
there when they retire.
We can have an endless debate about the accounting rules, but the bottom
line is that by saving the money rather than spending it, we strengthen Social
Security.
Q:
Does transferring the surpluses to the Social Security Trust Fund have the
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same effect as buying down the debt?
A:
In general, yes. National saving, for example, is higher under either approach
-- helping us to raise investment and future productivity. Some of the other
effects -- for example, on the longer-run unified budget -- may depend on
whether the transfer to the Social Security Trust Fund takes the form of
bonds or equities.
Q:
Your plan would take general revenue and put it toward Social Security. But
hasn't the Social Security system avoided general revenue funding over its
entire history?
A:
Not exactly. For example, the system currently receives some of the revenue
generated from income taxation of Social Security benefits. Furthermore, the
system will face unprecedented challenges with the retirement of the baby
boomers.
We believe that the surpluses can play a key role in helping us to meet that
challenge -- by extending the life of the Trust Fund to the mid-point of the
next century. We will continue to insist that we not spend the surpluses
until we have figured out how to do just that.
Q:
What does "reserving" the surplus mean at this point? Aren't you just
paying down the debt with the surpluses?
A:
The President believes that before we do anything with the surpluses, we
should ensure that Social Security is on a firmer long-run footing. Once we
have addressed Social Security reform, the President has outlined what other
long-term priorities we should address.
Because surpluses are building up before Social Security reform is
accomplished, they are now being used to buy back publicly held debt from
the public.
Remember that buying down the debt raises saving and reduces the burden
on future generations. But reserving the surplus pending Social Security
reform also helps to raise saving and reduce the burdens implied by the
retirement of the baby boomers. The crucial thing is that we should not
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waste the surpluses, but instead make sure that we are using them to
prepare the country for the next century.
[Background: Gross Federal debt amounts to about $5.4 trillion. But some of
that is held by the Social Security Trust Fund and other government
accounts. Debt held by the public amounts to about $3.8 trillion. ]
INVESTING PART OF THE BUDGET SURPLUS IN EQUITIES
January 19, 1999
Q:
Isn't it risky to have Social Security depending on the stock market
performance?
A:
There is a small element of risk involved, but any risk will be borne by the
government system, not individuals.
The risk to the government is very small. For example, in 2032, 94 percent
of retirement benefits will be paid out of payroll taxes or by redeeming
Treasury bonds held by the trust fund. That means that just six cents on
every dollar Social Security pays out will depend on stock market
performance. In other words, even if the stock market went to zero, Social
Security could still pay 94 percent of retirement benefits. If we do nothing,
though, in 2032, Social Security will only be able to pay 72 percent of a
retiree's current law benefits.
Q:
What do you assume about how the stock market will grow in the future?
A:
We use conservative forecasts for stock market growth in the future. We
assume that the stock market will perform in the future how it has in the
past (between 1959 and 1996). We do not include the benefits of most of
the dramatic run-up in the past few years. Our estimate -- 6.75 percent real
returns, on average - is lower than the Social Security Advisory Council,
which assumed 7.0 percent real returns. Gramm-Domenci assume that a
60-40 portfolio would earn 5.5 percent real, 0.3 percent higher than our
numbers would imply.
Q:
What happens if the stock market does worse in the future than it has over
the past few years?
A:
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First, our forecasts are conservative: based on the performance of the stock
market over the last few decades. This is a significantly more conservative
assumption than that used by the Social Security Advisory Council or other
plans that try to achieve higher returns from equity investments.
Second, whether or not the stock market does worse in the future will have
little effect on the Social Security system. For example, in 2032, 94 percent
of retirement benefits will come from payroll taxes or interest earned from
Treasury bonds -- the safest investment in the world. That means that just
six cents on every dollar Social Security pays out will depend on stock
market performance. In other words, even if the stock market went to zero,
Social Security could still pay 94 percent of retirement benefits.
Q:
Isn't it un-American for the Government to be owning private assets?
A:
We want to work with Members of Congress from both sides of the aisle to
craft a bipartisan Social Security plan which invests a portion of the surplus
transferred to Social Security to achieve higher returns, while ensuring that a
mechanism -- is in place to ensure investments are made by independent
private-sector managers without political interference.
We believe that it is possible to ensure that investments are made through
private-sectors investment funds just as private, state, and local
pension plans do in a way that
--
is independent and non-political
--
hires the most efficient private sector management services
--
invests using a broad based neutral approach
--
minimizes administrative costs
Q:
What share of the stock market will the government own?
On average (over the next 40 years), stock owned by the Social Security
trust fund will represent about 4 percent of the total stock market.
Q:
Won't the government be a major shareholder in corporate America?
The trust funds holding (4 percent of the market) will be half as big as the
total holdings of all state and local pension plans (10 percent of the market).
They will be roughly as big as the total holdings of Fidelity and other large
mutual fund companies.
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Q:
For how many companies will the government be the largest shareholder?
A:
We want to work with Members of Congress from both sides of the aisle to
craft a bipartisan Social Security plan which invests a portion of the surplus
transferred to Social Security to achieve higher returns, while ensuring that a
mechanism is in place to ensure investments are made by independent
private-sector managers without political interference.
If we transfer 60 percent of the surplus to Social Security and invest about
25 percent of that amount in the private market, our estimates suggest that
Social Security will own about 4 percent of the stock market -- which is less
than half the 10 percent of the stock market owned by state and local
pensions and about the same amount managed by Fidelity (4 percent).
Q:
What is the maximum share of the stock market that the government will
own?
A:
Again, we want to work with Members of Congress from both sides of the
aisle to craft a bipartisan Social Security plan which invests a portion of the
surplus transferred to Social Security to achieve higher returns, while
ensuring that a mechanism -- like the Fed -- is in place to ensure investments
are made by independent private-sector managers without political
interference.
Our estimates suggest that at its peak -- in 2020 Social Security will own
about 6 percent of the stock market which is significantly less than the 10
percent of the stock market owned by state and local pensions.
Q:
What do these calculations assume?
A:
The Social Security Actuaries calculated these numbers based on two
assumptions: (1) that the ratio of stock market valuation to Gross Domestic
Product (GDP) will remain the same as it is today over the long run; and (2)
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that the stock market will perform in the future how it has in the past
(between 1959 and 1996, so we do not include the benefits of most of the
dramatic run-up in the past few years).
Q:
How do you intend to protect these investments from political interference?
A:
We want to work in a bipartisan way to invest these funds in a way that is
--
is independent and non-political
--
hires the most efficient private sector management services
--
invests using a broad based neutral approach
--
minimizes administrative costs
Q:
How will corporate governance issues such as proxy voting be handled?
A:
We want to work in a bipartisan way to craft a Social Security plan that
addresses the all important corporate governance issues.
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Q:
Where will these funds be invested?
A:
We want to work these sort of details out with Members of Congress, but
we do believe that the funds should be invested in a broad and neutral way
by the most efficient private-sector managers in a way that is both
independent and without political interference.
Q:
Will the funds be invested in international stocks or only in domestic ones?
A:
Again, this is the sort of detailed question that we need to work out with
Congress.
Q:
What will prevent politicians from legislating that certain industries, such as
tobacco cannot be invested in or that certain activities deserve investment
(building low-income housing) or that firms that move jobs overseas or hire
child labor do not deserve to be invested in?
A:
We want to work in a bipartisan way to create an institution which is
independent and free of political interference and that uses the most efficient
private-sector managers to achieve higher returns for Social Security.
We believe that the experience of the Federal Reserve shows that it is
possible for Congress to create institutions that have minimal political
interference. We need to draw on the experiences with the Fed to ensure
whatever institution is created to invest Social Security's funds will do so
without interference from the executive or legislative branches of
government.
Q:
Won't there be large administrative costs in this system -- Social Security
has very low administrative costs.
A:
No. This type of proposal should have very low administrative costs -- which
is one of the reasons the President supports this concept.
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We believe that by having a Fed-like institution hire the best private-sector
managers we will ensure that the competition between the managers will
help keep administrative costs very low.
Estimates suggest that costs could be only one-half of one basis point.
Therefore, returns will not be going into the hands of Wall Street managers --
they will go to Social Security beneficiaries.
Moreover, the federal government's Thrift-Saving Plan already puts out for
private management a pool of capital of this type, and their costs are very,
very, low -- only about 0.4 basis points, or 004% of assets. Thus, for every
$1,000 in assets under management, the TSP pays only about 4 cents per
year in management fees:
Q:
What share of Social Security's portfolio will be in stocks and what share will
be in special-purpose Treasury bonds?
A:
To ensure that Social Security's portfolio is conservatively invested, we will
limit the share of Social Security invested in equities to 18 percent. That
means that, at most, 18 percent of Social Security's funds will be invested in
stocks, while -- at minimum -- 82 percent will be invested in special-purpose
Treasury bonds.
Q:
Would the Trust Fund investments contemplated under this plan affect prices
in the stock market?
A:
First of all, one of the most important objectives with respect to investing
part of the surplus in the stock market is to establish a process that is
independent, insulated from political influence, and aimed at securing the
best return for the Social Security system.
Provided that a process of that type is established, the impact on stock
prices -- if any -- should be modest, because the scale of investment
contemplated here is small relative to the size of the market, and is phased in
over a period of many years.
Over the next 15 years, if the President's proposal is adopted,
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purchases of equities by the Social Security system would average
about $30 billion per year, measured in today's dollars. By way of
comparison, net inflows into equity mutual funds have averaged about
$250 (check) billion per year over the past NNN years.
At the end of the initial 15-year phase-in period, Social Security's
holdings of equities will probably amount to less than 5 percent of the
overall stock market. By contrast, state and local governments already
hold about 10 percent of the stock market in their pension plans as of
today.
Moreover, if there were any sizable move in stock prices in response
to the Social Security purchases, businesses would probably issue
more stock and less debt; and individuals would probably choose to
hold less stock and more debt. Both of these changes would work
toward ameliorating any impact of the initial stock purchases by the
Social Security system.
Q:
If the surpluses are only invested in publicly traded equities, won't this be
unfair to small companies?
A:
One of the issues that we need to work out with Congress is whether the
surpluses are only invested in very broad-based indices, so that many
small-cap companies will be included in the pool.
It is true that non-publicly traded companies would not be included, but the
Federal government can't force a private company to sell shares publicly, and
it would be intrusive to try to do so.
This does not mean, however, that the privately held companies will be
denied capital, because capital is mobile and will migrate to other uses as the
government buys publicly-traded shares. Shares of smaller firms may
become more attractive.
Q:
Isn't this just another form of taxation?
A:
Because the Trust Fund is "owned" by current and future participants in
Social Security, the ultimate owners of the Trust Fund's equity holdings will
be the American people. We believe that investing in equities represents an
appealing way to help preserve the Social Security system for its ultimate
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owners, and represents the best stewardship of the resources they have
entrusted to us. The alternatives for preserving the system - reducing
benefits or a direct tax increase - are much less appealing.
Q:
Shouldn't the government use Trust Fund assets to promote urban America /
the environment / education?
A:
The purpose of equity investment of the Trust fund is to protect promised
Social Security benefits. We believe that it would be very risky to allow
assets to be targeted to specific causes or specific sectors of the economy,
or to allow for the introduction of political considerations into the investment
of surpluses. We want to work with Congress to ensure that we find a
mechanism to provide layers of protection against this.
Q:
Are you going to use the trust funds to support share prices in case of a
market downturn?
A:
We believe that the trust fund should invest in a broad and neutral manner,
and therefore not have discretion to "time" the market.
It would be irresponsible to put surpluses at risk in some ill-advised scheme
to try to chase after the rainbow of higher stock market returns. What is
important is that the surpluses be invested in an independent, non-political
manner that focuses on the goal of protecting promised Social Security
benefits.
Q:
Will you sell stock to improve the budget picture?
A:
Again, the investment managers who will act on behalf of the Social Security
system will have no discretion as to the timing of their purchases or sales of
equities. The stock market investments we propose would be
pre-committed: Remember that we are proposing to transfer half of the
currently projected unified surpluses to the Social Security system over the
next 15 years, and -- provided a satisfactory institutional structure can be
devised of the type outlined above -- we have further proposed that about
one-quarter of that amount be invested in stocks.
Stocks will be redeemed only as needed to pay benefits. This approach
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leaves no room for discretion as to purchases or sales.
Q:
What would happen during a market downturn? Would the government
guarantee the existing benefit structure, by raising taxes? Or would social
security benefits be cut?
A:
The risk introduced by investing part of the surpluses in the stock market will
be modest, for two main reasons. First, in the future, the Social Security will
continue to pay the bulk of benefits out of current payroll taxes. Only a
portion of benefits will be paid for by the Trust Fund, and only a portion of
the Trust Fund will be invested in equities.
Second, the Trust Fund will be in an position to smooth through the ups and
downs of the market. Although the Trust Fund will pay for some benefits,
only a portion of the Trust Fund would be invested in equities. Therefore,
benefits could be paid out of other assets until the stock market recovered.
The majority of the Trust Fund would still be invested in the same
special-issue government bonds that currently make up the Trust Fund.
[NEED] TO CHECK] There has been no time over the last 100 years when a
stock market decline was so severe that it would have posed any threat to
benefits under a system of the type we are describing. Even if the worst
came to pass, and there was a significant and lasting decline in equity
values, this loss would be amortized (in the form of reduced benefits) over an
extended future time period.
Q:
What has been the experience of state and other governments that have
invested in equities?
A:
Currently, over 45 states (may be 50 states - Econ Policy is checking) invest
some portion of their pension funds in equities. Most state boards of
trustees appear able to resist politically or socially driven investments,
because they have clear fiduciary responsibilities.
Canada recently decided to invest the Canada Pension Plan (CPP) trust fund
in equities, property, and foreign assets. Canada's arms-length board of
trustees has fiduciary responsibility to serve CPP contributors' and
beneficiaries' interests exclusively. Canada has named a board, but they
have yet to undertake any equity investment.
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The Thrift Savings Plan (TSP) for federal employees is managed by the
Federal Retirement Thrift Investment Board (TIB). The TIB contracts with
Barclays Global Investment to manage the non-Treasury investments. The
TIB delegated to Barclays the right to vote the proxy ballots. Moreover, the
TIB has not changed any of its investment policies in response to political
concerns.
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TOUGH CHOICES
January 19, 1999
Q:
What types of options are on the table to extend the trust fund's life to
75-years?
A:
President Clinton believes that we must work together in a bipartisan way to
make the tough, but achievable, choices to save Social Security through at
least 2075 because the only way that these tough choices will be made is if
we work together -- across party lines. Our goal is to ensure a 25-year old
who has just entered the workforce will know that even if he or she lives
until 100, the system will be able to pay its promised benefits.
I am not going to get into specific options that could be used to extend the
life of the trust fund for at least 75 years, but I will say that we will work
with Members of Congress to determine which we can agree upon
Q:
Would the President consider raising the retirement age (similar questions on
COLAs, tax increases, benefit cuts)?
A:
[Framework for Answer]
The President believes that rather than ruling in or out specific elements, we
should work together with Democrats and Republicans to craft a package
that meets the President's principles; strengthening Social Security in a way
that maintains universality and fairness, ensures that Social Security
continues to provide a benefit people can count on, protects low-income and
disabled beneficiaries, and maintains our fiscal discipline.
[For Retirement Age]
Changing the retirement age is clearly a controversial option that is being
actively debated by many people in the Social Security reform debate.
[For COLA]
The issue of whether we should change the COLAs in order to better reflect
the cost-of-living is a legitimate one, but one that needs to resolved by
experts. The Administration is strongly committed to using the most
technically accurate index.
[For Tax Increases]
The President has said very clearly that he believes that we do not have to
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increase the payroll tax rate as part of a comprehensive plan.
Q:
Are you trying to achieve 75-year solvency or are you trying to do more?
A:
Our goal is to save Social Security until at least 2075. That means that if
we save Social Security for a longer period of time, we will be very pleased.
Q:
If we only do 75 years, won't we have to do reform again in a few years?
A:
If we save Social Security until at least 2075, we will ensure that a 25-year
old who has just entered the workforce will know that even if he or she lives
until 100, the system will be able to pay its promised benefits.
We only transfer half of our projected budget surpluses to Social Security for
15 years. If -- sometime in the next century -- reform is needed again, policy
makers will be able to evaluate the best steps to take at that point to
strengthen Social Security further.
Q:
Why didn't the President show leadership by proposing specific benefit cuts
and tax increases?
Q:
Isn't the President proposing all of the easy good news and leaving the pain
for later?
A:
Over the past year, the President has led by changing the debate on Social
Security in two important ways: first, by reserving the surplus until Social
Security is reformed and second, by striving to create a climate conducive to
bipartisan Social Security reform by not attacking specific plans to reform the
system.
In his State of the Union address, the President put forward a framework to
keep Social Security safe for 50 years now he wants to work together
with Members of Congress from both parties to make the touch choices to
keep Social Security safe until at least 2075. And the only way these tough,
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but achievable, choices will be made is if we do it together -- across party
lines.
Q:
What kind of process do you envision to try to get reform done?
A:
We will be consulting with the Leadership and Members of Congress in the
days ahead on how best to proceed. But we fully intend to begin a
constructive bipartisan process as soon as possible.
Q:
Would the President be satisfied with protecting Social Security for 50
years?
A:
No. As the President said in his State of the Union address, his goal is to
save Social Security for at least 75 years.
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REDUCING THE POVERTY RATE OF ELDERLY WOMEN
January 19, 1999
Q:
What does the President plan to do to reduce poverty among elderly women?
A:
In his State of the Union address, the President said that his goal was to
craft a plan to reduce the poverty rate among elderly women -- particularly
widows. In 1997, the poverty rate of elderly widows was 18.0 percent --
nearly four times higher than the 4.6 percent rate for elderly married women.
The President wants to work with Members of Congress to find the
appropriate proposal -- but there are clearly ways to strengthen Social
Security and significantly lower poverty among elderly women.
Q:
Why focus on widows rather than the elderly poor in general?
A:
Social Security has dramatically reduced the rate of poverty among the
elderly. The elderly poverty rate has fallen from more than 35 percent in
1959 to 10.5 percent in 1997 -- as low as it's ever been.
However, the poverty rate among elderly widows is particularly high: 18.0
percent in 1997 -- nearly four times higher than the 4.6 percent rate for
elderly married women.
Moreover, elderly unmarried women -- including widows -- get 51 percent of
their total income from Social Security. Unmarried elderly men get 39
percent, while elderly married couples get 36 percent of their income from
Social Security.
For 25 percent of unmarried women, Social Security is their only source of
income, compared to 9 percent of married couples and 20 percent of
unmarried men.
And without Social Security benefits, the elderly poverty rate among women
would have been 52.2 percent and among widows would have been 60.6
percent.
Q:
Why is widow poverty higher than poverty among married women?
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A:
There are four reasons why widow poverty is higher than poverty among
married women:
1.
Declines in Social Security Benefits at Widowhood. Widow benefits
vary from 50 to 67 percent of benefits for a married couple. The
official poverty thresholds imply that a widow needs 79 percent of a
couple's income to maintain her pre-widowhood consumption level.
Thus, women who are in couples just above the poverty line, can fall
below the line when they become widowed. Empirical studies suggest
that this factor can explain as much as half of the excess in poverty
among widows.
2.
Pre-Widowhood Differences in Economic Status. Poorer husbands
typically do not live as long as richer husbands. Therefore, at a given
age, women who are widowed are more likely to have been poor
throughout their lives than are the women whose husbands have not
yet died. Empirical studies conclude that this fact explains around one
third of the difference in poverty rates between married women and
widows.
3.
Declines in Pension Income at Widowhood. Research using data from
the 1970s implies that roughly 15 percent of the gap in poverty
between widows and married women can be explained by the loss of
the husband's pension income. However, these data predate the
Retirement Equity Act of 1984 which was designed to encourage the
choice of a pension with survivorship rights.
4
Declines in Income from Other Assets at Widowhood. Some assets
may be bequeathed to people other than the widow or used for
medical or other expenses when the widow's spouse dies. Empirical
evidence suggests that the decline in other asset income is responsible
for about 10 percent of the difference in poverty rates between
widowed and married women.
Q:
Does Social Security provide a good deal for women?
A:
Women face greater economic challenges in retirement for a number of
reasons: first, women tend to live longer: a woman who is 65 years old
today can expect to live to 85, while a 65 year old man can expect to live to
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81; second, women have lower lifetime earnings than men do; and third,
women reach retirement with smaller pensions and other assets than men
do.
However, the current Social Security system has a number of features that
help women meet these challenges.
1.
Social Security provides an inflation-protected benefit that lasts as
long as you live. Since women tend to live longer than men, they are
in greater danger of outliving their other sources of retirement income;
but it is impossible to outlive one's Social Security benefit.
2.
The progressive benefit formula provides a higher replacement rate for
workers with lower earnings. For the median female retiree, Social
Security replaces 54 percent of average lifetime earnings, compared
with 41 percent for the median male.
3.
Social Security provides extra benefits to spouses with low lifetime
earnings. The Social Security spousal benefit helps many women,
even if they did not work at all outside the home.
4.
Social Security provides benefits to elderly widows; 74 percent of
elderly widows receive benefits based on the earnings of their
deceased spouse.
5.
Social Security provides benefits to spouses of any age who care for
children under 16 if the worker (other spouse) is retired, becomes
disabled, or dies; women represent 98 percent of recipients receiving
benefits as spouses with a child in their care.
Q:
Won't this be very expensive?
Q:
Won't adding new benefits make it harder to achieve the 75-year goal?
A:
The President's goal is to strengthen Social Security for the 21st century.
Part of that goal is ensuring that we ensure Social Security is safe for at least
75 years, but part of that goal is also to ensure that Social Security is the
strongest safety net possible.
The President and Vice President believe strongly that taking steps to
address poverty among elderly women -- especially widows -- will make the
Social Security system stronger and is thus worth it.
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Q:
Won't widow poverty disappear on its own as more and more women retire
who have had substantial labor market experience over their lifetimes?
A:
Even with increased labor market experience among women, Social Security
will continue to be very important. While it is true that the percentage of
women receiving benefits based solely on their own earnings history is
expected to rise from 37 percent today to 60 percent in 2060, this means
that 40 percent of women will continue to receive benefits based on their
husband's earnings.
Women are expected to continue to have longer life expectancies than men --
and thus, Social Security will continue to remain important to them. The
difference in life expectancy at age 65 between men and women will fall
only slightly under Social Security Administration projections from a gap of
3.6 years today to 3.4 years in 2030. Thus, in the future, women will
continue to depend on Social Security for more years than men will.
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MEDICARE
January 19, 1999
Surplus for Medicare
Q:
Why not Medicare first?
A:
Both Social Security and Medicare face significant demographic challenges.
And the President believes that we must address both issues to ensure
retirement security for future generations.
However, the bipartisan Medicare Commission is still examining the
program's long-run challenges. Once the Medicare Commission reports back
this spring, that will be a top priority too and we hope our plan with new
resources for Medicare will help achieve broader, bipartisan reforms.
Q:
Why not more for Medicare?
A:
This President's plan creates an important safeguard for Medicare -- it would
extend the life of its Trust Fund to 2020 -- the largest single improvement in
its history. The President underscored his preference that the Medicare
Commission and Congress include these dedicated dollars as part of broader
reforms to modernize and better prepare Medicare for the health care needs
of the 21st century.
Q:
Isn't this a gimmick to prevent Republicans from giving Americans a tax
break?
A:
Absolutely not. This proposal recognizes the indisputable financing crisis
that faces Medicare and takes an essential step towards solving it. It is true
that some may value tax cuts over Medicare, but even the most ardent
supporters of tax cuts do not contest that Medicare presents one of the
greatest financing challenges in the next century.
Q:
Isn't this just giving more money to the elderly?
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A:
In fact, the same generation the baby boomers -- that has helped create
this surplus is going to need it when they retire and are covered by Medicare.
By taking this action, the President is ending the need in the foreseeable
future to look for new revenues from younger generations.
Q:
When comparing this use of the surplus to marriage penalty relief, aren't you
helping more wealthy people?
A:
No. First, the elderly tend to have less income than working married couples.
The Congressional Budget Office found over 80 percent of couples
benefitting from marriage penalty relief would have income above $50,000 --
about 75 percent of the elderly report income of less than $25,000.
Second, in the absence of immediate action, both the younger and older
generations would almost inevitably pay more in the future. If Medicare
becomes insolvent, the pressure to both raise beneficiary payments and
increase taxes on working families would likely be overwhelming.
Q:
What does it mean, that these funds are "protected"? In a unified budget,
can't Congress use the Medicare Trust Fund surplus to offset other spending
priorities or tax cuts?
A:
The President's framework would prohibit the funds being transferred to the
Medicare Trust Fund from being allocated to other uses. We look forward to
working with Congress to develop budget rules to ensure that fiscal
discipline in maintained.
Prescription Drug Benefit
Q:
Is the President intending on proposing a prescription drug benefit for
Medicare?
A:
The President believes that any proposal to provide a long-overdue
prescription drug benefit should take place within the context of broader
Medicare reform. He does believe, however, that a meaningful prescription
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drug benefit for all beneficiaries can and should be included in any such
proposal. We have learned that successfully achieving meaningful Medicare
reform can only happen in a bipartisan fashion. For this reason, we look
forward to working with members on both sides of the aisle to add this
important benefit this year
Q:
How much would a prescription drug benefit cost? Would it be paid for from
the surplus?
A:
The President did not propose a Medicare prescription drug benefit -- he
committed to working with Congress on such a proposal after the Medicare
Commission report, which is due on March 1. At that time, when a full
range of reform options are on the table, the costs as well as funding for this
benefit can be figured out.
Medicare Commission
Q:
Isn't this getting ahead of the Medicare Commission?
A:
No. The Medicare Commission has spent all of its time to date examining
complicated and important ideas for restructuring Medicare. It has not
assessed ideas for new revenues for Medicare -- although the need for such
revenues is evident from the sheer size of the problem and has been affirmed
by virtually every independent health policy expert. The President's proposal
has great potential to assist the Commission to make proposals to modernize
the program without gimmicks or unrealistic growth rates that would new
revenues. Indeed we think it will make a positive contribution toward
achieving bipartisan consensus on this important issue.
Q:
By putting over $600 billion dollars of taxpayer-produced revenue into
Medicare, aren't you just throwing more money at the problem without any
long-overdue structural reforms?
A:
Virtually all independent experts confirm that demographics and health costs
require more financing. All the structural reforms in the world won't change
this fact. However, the President cannot be more clear about the fact that
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he wants this proposal to be considered in the context of broader reforms.
Q:
Doesn't this give Democrats in Congress a pass on doing real Medicare
reform?
A:
Absolutely not. As experts like Bob Reischauer have said, Medicare reform is
not only about solvency it is about making Medicare more efficient,
equitable, and adequate in terms of benefits. This move by the President
should allow the Medicare Commission and Congress in general to focus on
these critical objectives rather than worry about Trust Fund solvency alone.
Q:
Why not just raise taxes, as your Medicare Commissioner Bruce Vladeck
recommended?
A:
The President's approach is more progressive than raising payroll taxes.
Today's surplus comes from the strength of the economy and the restraints
on government spending that the President and Congress have imposed. In
fact, it is mostly generated by the same baby boom generation whose
retirement we are preparing for.
Q:
What is your plan for reforming Medicare? Do you support the Medicare
voucher proposal being put forth by the Commission?
A:
The President and the Congress created the Bipartisan Medicare Commission
in recognition of the complexity of addressing Medicare's problems. He
believes it would be premature and inappropriate to contemplate any plan
prior to the conclusion of the Commission's work.
Follow-up: What do you think of the premium support / voucher proposal that the
Commission is considering?
A:
"Premium support" is actually not a voucher program -- it contains a
guarantee of a defined set of benefits, which is unlike the voucher proposals
that the President has opposed in the past. It is a concept worth considering
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but, as with any initiative, the devil is in the details. Depending on how it is
constructed, a premium support program could strengthen -- or alternatively
could weaken -- the Medicare program. We look forward to hearing more
about exactly what the Commission has in mind over the next few weeks.
Q:
The Medicare Commission is discussing raising the Medicare eligibility age
from 65 to 67 -- making it consistent with phase up for Social Security.
What is the Administration's position on this?
A:
As we have consistently stated, we would be seriously concerned about
raising the Medicare eligibility age, particularly in the absence of a
mechanism to assure this does not increase the number of uninsured
Americans. Recent data reaffirm Americans between ages 55 and 65 are the
most rapidly growing group of uninsured Americans and are some of the
hardest to insure. Americans ages 65 to 67 could face similar problems.
But we, of course, look forward to seeing any analysis of this issue
developed by the Commission.
Follow-up: Would your Medicare buy-in proposal make it possible to raise the
eligibility age?
A:
The President's plan is designed to assure that vulnerable Americans ages 55
to 65 have access to insurance, but it does not subsidize their health care
costs. By contrast, people over 65 in the Medicare program receive
subsidies for much of their medical costs. Therefore, any move to increase
the eligibility age would have to be combined with additional policy to assure
the availability of access to affordable coverage.
Q:
What is your position on [graduate medical education reform, Medigap
reforms, etc.] that are being considered by the Commission?
A:
The President and the Congress created the Bipartisan Medicare Commission
in recognition of the complexity of addressing Medicare's problems. He
believes it would be premature and inappropriate to contemplate any
specifics prior to the conclusion of the Commission's work.
Miscellaneous
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Q:
Given the huge new infusion of funds to the Trust Fund, why is your budget
proposing $8 billion in hospital cuts?
A:
The Administration has an ongoing fiduciary and management responsibility
to ensure that Medicare payments are fair, adequate and not excessive. The
President's proposal for the surplus in no way changes this responsibility.
For this reason, the President has already announced a multi-billion dollar,
anti-fraud, waste and abuse Medicare program integrity proposal. His budget
will contain additional proposals.
Q:
If you wanted this proposal to be well received by both parties, shouldn't you
have consulted with them prior to unveiling it?
A:
This is the beginning of a process. The President is unveiling a proposal that
he thinks addresses numerous challenges facing an aging America. He well
understands that the next steps require significant consultation and
bipartisan collaboration, and he hopes that the initiative that he is unveiling
today will create an environment to that end.
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ALTERNATIVE APPROACHES TO SOCIAL SECURITY REFORM
January 19, 1999
Q:
Did the President rule out an individual account as part of Social Security?
A:
The President will examine any proposal in the context of comprehensive
reform that is consistent with his five principles. There are difficult issues
with individual accounts that have not yet been worked out -- for example,
what are the administrative costs, what are the risks to people, and would
they would provide beneficiaries a solid progressive benefit that they could
count on. Also, how do individual accounts relate to the non-retirement
aspects of Social Security, specifically disability and survivor benefits.
Q:
Did the President rule out a carve out approach?
A:
Yes, the President has ruled out "carve-out" individual accounts. As the
President said in his State of the Union address, we should not divert Social
Security payroll taxes into untested and risky individual accounts.
Q:
Isn't your USA account simply an individual account plan under another
name?
A:
No. The President has spoken eloquently over the past year about the need
to strengthen each of the three legs of the retirement security stool: Social
Security, pensions, and personal savings.
Our Universal Savings Accounts (USAs) proposal would help individuals who
do not have pensions save for their retirement -- strengthening the pension
and personal savings legs of retirement security.
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Q:
Aren't you trying to have it both ways by opposing individual accounts as
part of Social Security, yet proposing them outside of Social Security?
A:
No, we are not trying to have it both ways. USA accounts are not part of
Social Security -- they will help strengthen our pension system and private
savings. The President's goal is to ensure retirement security for future
retirees and the proposal he put forward in his State of the Union address
strengthens the three legs of retirement security: Social Security, pensions,
and private savings.
Q:
Are you against a plan like Martin Feldstein's that invests through individual
accounts but uses the proceeds to help the trust fund?
A:
There are serious difficult issues with individual accounts that have not been
worked out -- for example, what are the administrative costs, what are the
risks to people, and would they would provide beneficiaries a solid
progressive benefit that they could count on.
The President will examine any proposal in the context of comprehensive
reform that is consistent with his five principles.
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ELIMINATING THE EARNINGS TEST
January 19, 1999
Q:
Hasn't Social Security always been a program only for people who are
retired? Why change that?
A:
When Social Security was first set up, the nation was in the midst of the
Great Depression. Policy-makers were concerned that older workers would
impede the labor market prospects of younger workers -- a concern that we
certainly don't share today, with an unemployment rate of 4.3 percent.
Over time, as policy-makers realized that elderly workers had an important
role to play in the labor market, the rules for the earnings test have been
liberalized.
-
For example, the 1950 Amendments then raised the exempt amount
and excluded beneficiaries aged 75 and over from any limit
whatsoever.
Later statutes allowed partial rather than 'full reduction of benefits
(1954 and 1972 Amendments), exempted those aged 70 and over
(1954 and 1977 Amendments), indexed the exempt amounts (1972
Amendments), and created separate limits for those under and over
age 65 (1977 Amendments).
In 1996, working with both Democrats and Republicans in Congress,
President Clinton signed into law annual increases in the earnings limit
for those between 65 and 70. Between 1999 and 2002, the limit for
workers in this age range will increase from $15,500 to $30,000.
At this point, the earnings test is a tattered relic of a past era -- and is
unnecessary in our dynamic economy. Administering the test is complicated,
and it confuses beneficiaries while also discouraging them from work. A
recent academic study has suggested that eliminating the earnings test could
raise labor supply among elderly workers by over 5 percent.
Q:
Won't eliminating the earnings test benefit higher-income people?
A:
Not necessarily. Under the earnings test, benefits are reduced while working
but then subsequently increased using an actuarial adjustment. Those who
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claim that eliminating the earnings test will benefit upper-income workers are
only looking at the first part of that equation and are ignoring the second
part.
In fact, it is possible that upper-income people gain on average from the
current system, and therefore that its elimination will be progressive. The
reason is that upper-income people tend to have longer life expectancies than
average. They therefore collect the subsequent benefit increase -- which is
calculated assuming average life expectancy -- for longer than average,
potentially producing a gain.
Q:
What would the long-run actuarial effect be? Won't this hurt the Social
Security system?
A:
Since benefits forgone are given back through subsequent actuarial
adjustments, eliminating the earnings limit would have almost no effect on
the long-run actuarial balance of the OASDI program. According to the
Social Security actuaries, removing the earnings test for all retirees would
not significantly affect the 75-year actuarial imbalance. The precise impact --
whether it is 0.01 percent of payroll or 0.00 percent of payroll -- depends on
the details of how the earnings test is eliminated. But it's clear. that the
effects will be minimal.
Q:
What are the benefits of eliminating the test?
A:
Eliminating the test could encourage work among the elderly. Most
beneficiaries view the earnings test as a tax on their work -- and eliminating
it should therefore encourage more of them to work. A recent academic
study from the National Bureau of Economic Research (NBER) concluded that
eliminating the earnings test could increase labor supply among elderly
beneficiaries by 5.3 percent. [Leora Friedberg, "The Social Security Earnings Test and
Labor Supply of Older Men," in James Poterba, Tax Policy and the Economy, 1998.]
Eliminating the test would reduce the administrative burden on SSA. The
Social Security earnings test involves a very complicated set of rules
regarding exempt earnings amounts, the benefit reduction rate, and
subsequent benefit adjustments. Administering the complicated rules for the
earnings test imposes a significant administrative burden on the Social
Security Administration. As leading scholars Gene Steuerle and Jon Bakija
argue , "Eliminating the earnings test [would] greatly simplify the
administration of the system, since the earnings test is the largest source of
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errors in benefit calculations." [Eugene Steuerle and Jon Bakija, Retooling Social
Security for the 21st Century, 1994, pages 228-229.]
These benefits do not come at any long-term cost. According to the Social
Security actuaries, removing the earnings test for all retirees would not
significantly affect the 75-year actuarial imbalance.
Q:
Would you favor eliminating the earnings test even in the absence of a
comprehensive deal on Social Security?
A:
Our goal is to get a comprehensive Social Security plan. I don't want to
answer hypothetical questions
Q:
Isn't it expensive? How will you pay for it?
A:
Let's separate two costs: one for Social Security, and the other for the
budget.
Social Security Actuarial Balance: Since benefits forgone are given back
through subsequent actuarial adjustments, eliminating the earnings test
would have almost no effect on the long-run actuarial balance in Social
Security.
Budget: Over the long run, eliminating the earnings test would similarly have
no effect on the budget. In the short run, any near-term costs would need to
be offset in the context of putting together bipartisan, comprehensive
reform.
Q:
Do you intend to eliminate the earnings test at all ages, or just above the
normal retirement age?
A:
That remains to be determined. The President is determined to eliminate
artificial barriers to work for elderly Americans, but some analysts have
raised concerns about eliminating the earnings test below the normal
retirement age. We will be carefully studying that issue.
Background:
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Some analysts are concerned that eliminating the test below the normal
retirement age will induce even more beneficiaries to elect early, reduced
benefits -- potentially causing problems for those beneficiaries later in life
when they must live on reduced benefits. We will be carefully studying that
issue, and determine whether the earnings test should be eliminated only
above the normal retirement age, or both above and below it.
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PRINCIPLES FOR INSULATING PUBLIC INVESTMENT IN PRIVATE EQUITIES
By investing a portion of the new transfers reserved for Social Security in private
equities we can achieve higher returns for Social Security, and extend the life of
the Social Security trust fund to 2055. This action does, however, raise
understandable concerns about the possible extension of political influence on
investment decisions and the risks that this might pose to the economy. Any
system of collective investment can and must address these concerns.
That is why we will work with Congress to design a system that observes six core
principles.
Collective Investment Must Be:
1.
Private Sector Managers Selected by Competitive Bidding. Social Security
beneficiaries deserve the same efficient management and market returns that
people receive in their private pensions and personal savings. The actual
investments should be managed by private sector money-managers selected
by competitive bidding.
2.
Independently Managed and Non-political. There would need to be wholly
independent oversight of investment that was insulated from political
influence. The choice of investment managers should be done by an
independent board whose sole responsibility would be to pick fund managers
so as to maximize the performance of the investments. This would ensure
that the investment of funds was carried out with zero government
involvement.
3.
Limited. The share of Trust Fund assets invested in equities ought to be kept
at a very modest level -- both to limit risk to the Fund and to ensure that
collective investments never account for more than a small fraction of the
stock market as a whole.
Under the President's proposal, total investment in private equities
would peak at just 15 percent of Trust Fund assets during the next fifteen
years. and account for around 4 percent, on average, of the US stock market
This market share would be less than half the share accounted for
today by State and local government pension plans.
The market share would be roughly the same as Fidelity's current
market share.
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4.
Broad-based, Neutral, and Non-discretionary. Assets should be invested
proportionately in the broadest array of publicly listed equities, with no room
for discretion in adding or deleting companies and no room for active
involvement in corporate decisions. Neither the government nor the private
sector managers it selects to undertake investment on its behalf should be
involved in "stock picking." As a shareholder the Funds should be entirely
passive, possibly with a mandate to vote proxies in the same proportions as
other shareholders. Alternatively, if the investments were spread among a
number managers so that no one manager had a large share of the total
market, the managers could vote the shares in the interests of the share
holders, just as mutual fund managers do today.
5.
No Market Timing or Stock Picking. In essence, the managers should be on
autopilot in investing the funds They should have little or no discretion in the
investment of Trust Fund assets -- so they cannot "time the market" or pick
individual stocks.
6.
Lowest-cost. Collective investment needs to be administratively simple and
achieved at the lowest available cost -- both to obtain the highest possible
returns and to further enhance the system's transparency and independence.