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SS & Unemployment -- Diane Lassiter


Dear Diane,

Thank you for your observations and questions.  It's good to hear from you.

Though I have not yet introduced my own Social Security reform 
legislation, I am developing a plan that will soon be up on the Web site.  
I look forward to the opportunity of discussing this legislation with you. 

But here is a preview of my plan:

  It would create a system of progressive personal accounts to be integrated 
  into Social Security's core benefit structure.  My plan would direct 
  between 2-4% of the current 12.4% payroll tax into personal retirement 
  accounts (PRAs) modeled after the federal Thrift Savings Plan.  My plan 
  would offer a high degree of progressivity, giving lower-income workers 
  PRAs that reflect a greater portion of their covered wages.  The PRA 
  structure provides incremental contributions as workers move up the pay 
  scale:

  4% PRA for individuals with covered Social Security wages up 
  to 1/4 of the wage cap (the first $18,150 of covered earnings in 1999);

	PLUS

  3% additional contribution to PRA for individuals with 
  covered Social Security wages in excess of 1/4 of the wage cap and up to 
  1/2 of the wage cap;

	PLUS

  2% additional contribution to PRA for individuals with 
  covered Social Security wages in excess of 1/2 of the wage cap and up to 
  3/4 of the wage cap;

	PLUS

  1% additional contribution to PRA for individuals with 
  covered Social Security wages in excess of 3/4 of the wage cap and up to 
  100% of the wage cap.

  Remaining FICA taxes are used to pay benefits for existing and near-to-be 
  retirees, for partially funding individual old-age benefits 
  similar to current Social Security, for non-aged survivor benefits, as 
  well as disability benefits.

  At retirement, individuals would receive tax-free a portion of their 
  PRA assets as a lump sum, and the rest would go toward funding their full 
  Social Security benefits.

I believe that my plan brings some innovative ideas to the Social 
Security reform debate:  progressive personal accounts to empower 
lower-wage workers and families with real wealth creation opportunities; 
making Social Security more family friendly to stay-at-home spouses for 
time spent raising children; and leaving alone both the retirement age and 
cost-of-living-adjustments (COLAs).  Also, my plan would be optional for 
those currently in the workforce and under the current system.  Younger 
workers would be required to be in the new retirement system.

As you may know, I have long been concerned about the viability of our 
most vital social program.  Because of my dedication to saving and 
strengthening Social Security, Senate Majority Leader Trent Lott appointed 
me as Co-Chair of the Senate Republican Task Force on Social Security.  In 
this capacity, Senator Judd Gregg and I led discussions and analyses among 
Members of Congress about the need to reform Social Security soon and how 
that reform might best be achieved.  Senator Gregg and I are in agreement 
that adding a personal savings component to Social Security is the a 
sustainable and equitable way to secure the best retirement security for 
all, and at a cost that future generations can bear.

I believe that saving and strengthening Social Security for the 21st 
century and beyond is our highest legislative priority.  But, as you 
mentioned, there are those who would rather inject fear and demagoguery 
into this debate, and seem not to care about putting Social Security on 
sound financial footing.  There are those who seem to have no interest in 
strengthening Social Security so that it is not vulnerable to changing 
demographics and remains actuarially sound.  There are those who would have 
us believe that another "nip" here and "tuck" there can keep our current 
system afloat, completely ignoring the mounting unfunded liability 
(currently some $9 trillion and growing) that faces our children and 
grandchildren.

So yes, Diane, it is frustrating sometimes trying to discuss the facts 
of this issue.  We have undergone tremendous economic and social changes 
over the past 63 years, and we have to recognize the fact that our 1935 
model must adapt to an America heading into the 21st century.

Regarding your specific questions about those currently between jobs and/or 
the unemployed, my plan, like most personal account plans, would actually 
enhance worker retirement security compared to the current system.  
Our current Social Security program is designed according to a 
formula based on average lifetime covered wage earnings and the length 
of time in the workforce.  As such, any time spent outside the 
workforce, or a lifetime of low earnings or part-time work translate 
into lower Social Security benefits compared to a personal account 
Social Security system.

The comparative benefit of the personal account approach, with a 
portion of one's Social Security benefit coming from savings and 
investment, is that any time spent outside the workforce is mitigated 
because workers' money would continue to work for them and benefit 
from compounding. 

In traveling around Pennsylvania, I find that most people are 
receptive to saving Social Security through personal accounts.  I know 
there are those who prefer to assess the Social Security issue in 
terms of preconceived fixed notions while ignoring facts and trends to 
the contrary.  I agree with President Clinton who said in a speech 
last year on Social Security, "We cannot be hidebound and pretend to 
see the future through the prism of the past."

No longer are we talking about whether to save and strengthen 
Social Security, but rather how.  We must add an element of 
advanced-funding to the system -- just as any insurance or pension 
plan would be required to do -- and we must do it in a way that is 
explicit in its costs.  I believe most Americans are hungry for the 
truth, and once armed with the facts of this debate will come to see 
the merits of Social Security reform with personal accounts compared 
to traditional ways of bringing the program's revenues and outlays 
into balance, which in our present case and without fundamental 
reform would involve drastic tax increases or benefit cuts.

Again, thank you for contacting me.  Please let me know if you have 
any further questions or comments about my Social Security reform 
plan or about the issue in general.

-- U.S. Senator Rick Santorum


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