October 26, 1999

President Bill Clinton announced that he plans to send congressional lawmakers legislation to reform Social Security on October 26, 1999. 

The proposal is similar to the plan he first outlined in his State of the Union address on January 19, as far as maintaining the goals of paying off the public debt by 2015 and extending solvency until the middle of the 21st century. But some of the original provisions in January's proposal have been dropped, in an effort to court Republican support.

Debt and Interest Savings
The administration's new proposal devotes the entire Social Security-only portion of the projected budget surplus to debt reduction, reducing the debt held by the public by $3.1 trillion over the next 15 years and making the United States debt-free for the first time since 1835.

The plan's major difference from the current GOP lock box legislation is Clinton's proposal to dedicate the interest payment savings produced from reducing the national debt to extend Social Security solvency even further. Without any changes to the current system, the Social Security program is expected to become bankrupt by 2034, according to recent government budget estimates.

"It will take the trust fund out beyond the life span of the baby boom generation--no gimmicks, no budgetary slight of hand, just the right choices that really add up to protecting the Social Security surplus," Clinton said.

According to details released by the White House, devoting a decade of Social Security surpluses to debt reduction would reduce the debt by $2.1 trillion, cutting annual interest payments on the remaining debt to $56 billion. This represents a $107 billion savings in 2011 alone, according to Assistant to the President for Economic Policy Gene Sperling at an October 23 press briefing.

Then, those interest savings would be earmarked for building up the trust fund. Social Security Administration actuaries project that the interest savings generated by the president's proposal would lead to transfers of $107 billion in 2011 and growing amounts through 2016. Transfers would stay at the 2016 level through 2044, according to White House documents. Solvency for the program would be extended to 2050.

USAs and Stock Market Provisions Dropped
Clinton's original State of the Union plan would have extended the life of the program to 2055 by transferring 62 percent of an estimated $4.3 trillion of the total on-budget surplus (not just the Social Security portion of it) over 15 years to the Social Security system. In addition, 15 percent of the projected total surplus would have been set aside for Medicare reform under the president's original plan.

Notably absent in the new plan are the president's proposed Universal Savings Accounts (USAs) and his stock market investment initiative. The abandoned USAs proposal, which failed to muster congressional support, would have provided a progressive tax credit and a government matching contribution to account holders. The proposal would have phased out at an adjusted gross income (AGI) of $100,000 for joint filers unless they had no other pension coverage. As announced, the surplus-funded USAs were not to take effect until both Social Security and Medicare reform were first addressed.

Clinton's original proposal also would have invested a portion of the anticipated surplus in the stock market. To reduce investment risk, no more than 25 percent of the transferred surplus would have been invested in the stock market, according to details released by the White House at the time the plan was unveiled. This proposal also proved to be controversial and did not garner sufficient congressional backing.

Congressional Reaction
House Ways and Means Committee Chairman Bill Archer (R-Tex.) said on October 25 that Clinton’s proposal "leaves Social Security hurtling toward a cliff of insolvency because it ignores Social Security’s underlying financial problems." He added that the plan "won’t save Social Security, it denies Americans the opportunity for personal accounts and it places a huge burden on the backs of future generations. "We can do better."

House Majority Whip Tom Delay (R-Tex.) said on CNN’s Late Edition October 24 that he is glad Clinton has come up with another idea to save Social Security, but noted that the government has "been paying down the debt now for three years." He emphasized that the GOP is "not going to lose focus on the fact that we're going to continue to balance the budget, save Social Security, not raise taxes."

However, House Minority Leader Richard A. Gephardt (D-Mo.) said on ABC’s This Week October 24 that the GOP is already proposing to spend at least $15 billion of the Social Security surplus in the various fiscal 2000 appropriations bills. "If you add their bills all up, which is very hard to do, you find that they're already spending about $15 or $20 billion dollars worth of Social Security money," he said.

The GOP "ought to make the choices; they ought to make the decisions. They ought to get a budget that works, that doesn't invade Social Security, and they haven't done that," Gephardt said.

For more information about Social Security visit: www.toolkit.cch.com/text/P08_4400.asp

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