June 9, 1999

The Honorable Jim Kolbe
The Honorable Charlie Stenholm
United States House of Representatives
Washington, DC 20515

Dear Mr. Kolbe and Mr. Stenholm:

The Concord Coalition heartily commends you and the other bipartisan co-sponsors of H.R. 1793, the 21^st Century Retirement Security Act. Together, you have demonstrated political courage by making the kind of hard choices that must be made to preserve Social Security in a fiscally responsible and generationally fair manner.

For the past two years the Concord Coalition has devoted much of its time and resources to promoting bipartisan dialogue on the key long-term challenges facing Social Security, and evaluating potential solutions.

Three conclusions stand out:

• First, changing demographics make the current pay-as-you-go benefit structure unsustainable. Absent change, the system will either burden future workers with steep tax hikes, or betray future retirees with deep benefit cuts. Take the year 2033 as an example. While the Social Security trust fund will still be officially solvent in that year, the program is projected to be running a cash deficit of some $280 billion in today's dollars--an amount roughly equal to this year's entire budget for national defense. Closing the gap that year would require a Social Security payroll tax hike of 40% or a nearly 30% cut in benefits.

• Second, there are only two roads to genuine reform, and a workable plan must pursue both. Reform must reduce Social Security's long-term burden by reducing its long-term costs. And it must make the remaining burden more bearable by increasing national savings, and hence the size of tomorrow's economic pie. Doing so requires the hard choices of fiscal discipline. In short, there are no magic bullets.

• Third, the time for action is now. The longer reform is delayed, the worse the problem will become and the more draconian the solutions will be. Moreover, delay risks losing a valuable opportunity to act while the economy remains strong, the huge baby boom generation is still in its peak earning years, and the Social Security trust fund is running an ample cash surplus.

The Concord Coalition commends your efforts because your bill, H.R. 1793, recognizes each of these conclusions. We are particularly pleased that you have resisted the temptation to rely on speculative gains such as projected budget surpluses and higher market returns to close Social Security's fiscal gap. Either strategy is fraught with peril.

Projected budget surpluses may never come to pass. And even if they do, there are many other competing claims on this hoped for windfall. Market gains can certainly help workers earn a higher return on their payroll contributions. But it would be irresponsible to ignore structural reforms in favor of simply "playing the spread" between the expected returns on stocks and bonds.

Another advantage of your plan is that it does not rely on double counting assets by crediting funds both to the Social Security trust fund and to some other purpose such as debt reduction or individual accounts. Money cannot be spent twice. Plans that purport to do so are ducking the real question of how future benefits will actually be paid.

As the President's Office of Management and Budget (OMB) has observed about the trust funds:

¼ [T]hey are claims on the Treasury that, when redeemed, will have to be financed by raising taxes, borrowing from the public, or reducing benefits or other expenditures. The existence of large trust fund balances, therefore, does not, by itself, have any impact on the Government's ability to pay benefits.

Analytical Perspectives, Budget of the United States Government, Fiscal Year 2000 p. 337.

Given the difficult choices ahead, it is all too easy for elected officials to lament the problems while remaining silent on the solutions. Clearly, you and your co-sponsors of H.R. 1793 have answered this challenge.

The Concord Coalition is currently developing its own Social Security reform proposals. While in the end Concord may not endorse every element of your plan, we recognize that there is no such thing as a "perfect" plan. Trade-offs will always need to be made. But we fully support the bipartisan, fiscally responsible, generationally fair path you have chosen. As the process of Social Security reform moves forward we hope that an increasing number of your colleagues will do what you have done--make the hard choices.

The Concord Coalition stands ready to assist in any way that we can.

Sincerely,

Warren Rudman
Co-Chairman

Sam Nunn
Co-Chairman