Support for Kolbe-Stenholm

[National Dialogue Moderator <moderator>]

To the panel:

   I would like to congratulate Congressmen Kolbe and Stenholm for
their achivement in introducing H.R. 1793.  I notice that ADSS has
filled this panel with a number of Representatives and Senators
who have also authored comprehensive plans to place Social Security
on a sustainable course.  Even though there will be differences
between us as to the best approach, I can only commend each of
these legislators for their willingness to offer a solution, and
hope that their initiative will prove contagious within the Congress.
Congressmen Archer and Shaw, in particular, have extended their
courtesies to us in contacting us about placing our ideas before
the Ways and Means Committee.  It is out of no disrespect for any
of these important efforts that I feel compelled to detail why I
believe that the Kolbe-Stenholm approach, which was developed in
coordination with our work, most closely approximates the best
features of the bipartisan Senate plan. Among the reasons:

   1) It, along with the bipartisan Senate companion, is the most
fiscally sound plan.  Although Kolbe and Stenholm correctly describe
their plan as being a compromise between competing ideologies, it
would spend less in taxpayer dollars than most plans that have come
from closer to the ideological poles.  This is achieved by advance
funding existing obligations with surplus Social Security taxes,
and replacing a portion of unfunded liabilities with funded benefits,
as opposed to the alternative of creating personal accounts in the
form of a new set of liabilities.  (This is a critical distinction,
because if general revenues, as opposed to surplus payroll taxes,
are used to establish the accounts, the current-law level of payroll
taxes will all be used to build IOUs in the Trust Fund, increasing
the formal debt that must be redeemed by taxpayers in the future.)
Consequent to the various steps taken to hold down cost growth,
tax burdens under this plan would be hundreds of billions dollars
less on an annual basis than the major alternatives, even other
personal account proposals, in such critical years as 2020-2040 --
even though total benefit levels would be higher than what current
law can fund.

   2) Both Kolbe-Stenholm and the Senate plan would achieve a balance
between providing an earned benefit and maintaining the social
insurance "safety net." Those who oppose personal accounts are
often concerned that they will add to the risk of poverty due to
the variability on returns.  By fortifying the basic defined benefit
guarantees on the low-income end, the Kolbe-Stenholm bill eliminates
this concern.

   3) The accounts provide true ownership to beneficiaries.  It is
important to understand that if we simply changed the form of
investment and left everything else the same on the benefit and
revenue sides, nothing would be accomplished.  That is to say, if
we simply shuffled existing levels of investment either by investing
the Trust Fund in a different way or by creating personal accounts,
we would simply redistribute existing rates of return between the
Social Security system and the private sector.  The Social Security
system might gain in the exchange, but national retirement income,
as a whole, would not go up.  Only if the system is reformed in a
way that builds new net national saving will net national retirement
income rise. Personal accounts, unlike redirection of government
investment into the equities market, can be a vehicle for voluntary
new saving.  As such, it is important that they provide the necessary
incentives for such saving.  An individual should see a gain when
they invest more, or when they invest better.  Although we should
take prudent steps to minimize risk, if there is no significant
opportunity for the individual to do better than the current defined
benefit can provide, then there will be no incentive for additional
savings contributions, thus no new saving.  Consequently, it is
vital that the individual should own and control all of the proceeds
of the investment in personal accounts, as is the case in the
Kolbe-Stenholm bill.

   The Kolbe-Stenholm bill and the Senate bipartisan plan have some
differences as well as similarities.  Our Senate bill reflects the
fact that many more authors contributed to it, a process which
brings both drawbacks and opportunities.  I will comment further
on the Senate plan at the appropriate time.

Senator Judd Gregg